The Almighty Dollar
As I payed for breakfast this morning I couldn't resist the temptation to wonder how a bill captures an essential communication of value and trust. Consider how diverse our relative perception of value must be.
Let's look at a brief list of pay scales and buying power to get a feel for relative income. Let's call a single low end standard of living a Life Wage to compare across categories.
- The cashier at Panera Bread gets paid between $7-8 dollar an hour pre taxes. At that rate full time they can afford to rent a room in a home, barely cover car insurance, or a used car payment, and maybe some ramen noodles. If they have any other debt they're in serious jeopardy of bankruptcy. This is really a breath above poverty and falls between 1/5th -1/3rd of a Life Wage
- A good friend has been working at a lab for a few years and pulls in $20-30 dollars per hour. At this income level some serious school debt can be handled along with other expenses, but a single income at this range isn't enough to purchase a home (without incredible saving, or living outside of my home Long Island). This is a base Life Wage ~50k/year.
- As an engineer of a little over 14 years my hourly pay is in the $50-60 dollar range. A mortgage and other debt are balanced pretty well at ~100k/year. In addition sexy side projects can be funded with the mystic resource combo of time and $$. While my hourly income puts me in the 2x Life Wage, my schedule is really part time (30 hours/week)
- While $50/hour is a handsome sum for an hours work, freelance consultants inside and outside of my industry and upper managers can pull in much more, up to a few hundred dollars an hour depending on their resume and historical contributions. I work with some sharp guys, some of which have played the game well with entire walls full of patents, or popular technical books which is like "street cred" in engineering*. Low level financial jobs fall into this range with bonuses. This income is between 4-8x Life Wages ($100-200/hour)
- At the next income step are financial industry investment jobs, skilled doctors & lawyers and executives of small companies. These folks pull in hundreds of dollars an hour ($500-1000/hour). At this performance level massive bonuses, specific cases, or surgeries can account for the majority of pay so the hourly model really breaks down. Successful entrepreneurs and middling performance Angels investors or VCs pull in this level of income as well with the same wide fluctuation of performance. This pay is 20-40x Life Wages
- Successfully exits from mid range entrepreneurs, investments by shrewd VCs, and executives at larger businesses (finance!) are the next step up in the financial food chain. At this point the hourly model is pretty much worthless as the diversity of pay is all over the spectrum. But if you look at the average hourly pay of this group over a few years they fall in $2000-10,000/hour and 80-400 Life Wages (that's $4-20 million a year at 40hours per week for those keeping score)
- How about the all star executives, the bigger startups and exits, the uber investors. These ladies and gents are pulling in $100-500 million a year. The hourly rates make about as much sense as peanut butter on sushi, but for the sake (zing!) of completion at 40 hours/ week this translates into $50,000-250,000 dollars an hour which puts this group at 2000-10,000 Life Wages per year. But wait, there's more!
- Every finite list has to stop somewhere, and for the sake of my sanity, I'll stop at this earning level. Mega corporations that go public: Microsoft, Google, Facebook? are good examples. Successful hedge fund partners (Warren Buffet money), and other megalopolies (telecom Carlos Slim) yield yearly income at $1-5 billion dollars per year. That's $500k-$2.5million dollars an hour for the sadistic among us, or 20,000-100k Life Wages a year. This is a teenie tiny count on one hand group of truly eccentrically bizzaro world rich people
Click for a larger graphic of the relative annual earnings on a logarithmic scale:
So pondering this list I wondered how Warren Buffet could possibly value a single dollar the same way that the 100 thousand medium income folks, or 500 thousand low income earners who match his yearly income value that same dollar. To put it into perspective what takes a minimum wage worker an hour to make, takes Warren under 8 micro seconds to earn. Imagine how many burgers he can flip an hour? He's that fast. Of course the trick is not to flip burgers, but to grow wealth.
Staggering numbers like these simply do not compute, except when you consider compounded wealth. Warren didn't always make 500,000 times the minimum wage.
After doing a little background reading about W.B. his view on compounding wealth makes sense. He doesn't see it so much as dollars earned, but as percentage of wealth growth. His thinking and maneuvers are longer term. And he consistently pursues a strategy that pays off shifting entire markets and economies with his investments. Here's a tip of the hat to bizzaro world earnings. Hope you enjoyed this list and thought riff as much as me. Good luck consistently growing wealth!
*= Success in engineering requires a very specific credential hierarchy, or managerial mastery. I like to think of the non-managerial leads as the technorati.
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