The Self-Employed Depression
nytimes.com
nytimes.com
We could call it "savings". Then, in lean times, workers could tap their "savings" to make up for temporary shortfalls in income. To minimize the cost of administration for this innovative unemployment protection fund, it could be outsourced to private financial services organizations, hereafter called "banks", which would allow workers to access their "savings" on completion of a routine procedure, up to the limit of "savings" they had accumulated.
"Savings" could be paid for by charging more on an hourly basis than full time employees received in salary for comparable work.
Additionally, if you're "underemployed" to the extent of not being able to pay your bills, I'd say it's about time you got UN-employed and started looking for those unemployment perks.
Do it when the Cheap Police aren't looking.
Remember, the goal of society is not to punish the grasshopper and feel great and virtuous because you're an ant. The goal is to help every grasshopper become an ant, even if it's not in their nature. Because when grasshoppers starve, ants lose out too.
Research shows that, among employed people, contributions to private retirement funds soar if the employer sets a default of 5% rather than shifting the burden to the employee of changing it from a baseline of 0%. People are just lazy. They don't opt in, but if you set it up for them, they don't opt out, either.
So this kind of movement among employers wrt 401ks is good for everyone.
Why not something for self-employed people?
It is hard in the US to be self-employed and resist the urge to live month-to-month, to put aside enough money for your taxes and for savings, and so on. There's nothing in the system to make it easier. The whole system is biased against self-employed and small entrepreneurs. (Don't talk to me about tax breaks, this is about institutionally supported behaviors.)
Americans have practically been trained from birth to be loose with money. There are govt incentives to go into debt -- by offering cheap money on loan to everybody who wants it, and of course easy credit has inflated the cost of goods and services. That all's what has kept the insane growth curve going, until now.
You can't live in a society that tells people "Spend for the good of your country!" and then turn your back on them in disgust when they behave just as they were taught.
Creating systems that help people be virtuous is a lot better than finger-wagging and feeling self-righteous.
Why isn't there a law that -requires- any employer who provides insurance to contribute the dollar amount they would put toward an employee's plan to -any- private plan the employee wishes? Currently you need a fairly generous employer to even offer you a cash 'bonus' for waiving company insurance and buying private. And even then, it's very rarely comparable to what the company would have paid on your behalf to the group plan.
And why are 401ks tied to employers? Why can't employees choose which 401k provider they wish, regardless of what 'group plan' their employer might prefer? Or an easier alternative: why aren't employers required to offer matching into a private IRA if an employee waives 401k matching?
We champion the power of markets in the US, but then we have all these communal, zero-choice, easily-corrupted corners (particularly surrounding employment) that are a huge drag on those same markets. 'Private' insurance and retirement in the US are tantamount to a 'company store'.
Allowing the self-employed to pay unemployment insurance taxes is the same sort of thing in my mind. Why -not-? If they want to pay in what any employer would and their claims to benefits are the same as any other employee, why the hell not?
The federal govt was set up to be toothless -- and consequently lacking in responsibility -- on purpose. Then it overstepped those bounds in terms of power, but never in terms of responsibility.
So you have a rate of federal income tax that is double, triple, or more that of your resident state, while getting almost nothing in return in the form of social services. (Medicare, Social Security/FICA are on top of the base federal income tax.)
States will have a very hard time raising taxes because the fed govt already takes so much from their citizens, and tehy cannot overrule the federal govt tax rate.
And, states are too interconnected by trade to be self-sufficient unto themselves, even with higher taxes. And the federal govt controls states without helping much - and what aid they give comes with control issues.
The govt of the USA simply doesn't work in this century. It needs to be either more state-oriented, or more federalist, not this unholy half-breed.
Consider the following:
I'm an American citizen living abroad permanently. I have to pay federal income taxes even though I never intend to return.
And better yet, I can't even vote in any election. Because I won't declare myself a resident of a state (and subject to those income taxes).
Without paying state income tax, I cannot vote in the federal elections.
Tell me that's not fucked up.
(And no, I can't just declare myself a resident of a state that has no income tax. That doesn't work.)
And I'd like to not get arrested at the border and forcibly repatriated, if you get my drift.
But even tho I am far from being rich enough to be on their radar, better safe than sorry. Saving $50k/yr in taxes is a bad optimization if it lands your ass in jail.
Curious, why doesn't this work? It was my understanding that was a reason why many folks living abroad, especially military personnel, declared residence in Florida.
I know many expats, my cousin and sister included, who establish residency in South Dakota for this purpose. The state only requires a one night stay and a mailing address to establish residency. Once you stay overnight you can get a driver's license which I think is good for 10 years. Many retired people who live in Mexico do this and there are mail forwarding agencies who will act as your mailing address for a fee.
It might be a pain in the ass for people who grew up in more populated areas, but I'm from the high plains so it wasn't such a radical idea. Some of my relatives actually live, or have lived in SD. There may be other states with similarly lax residency requirements.
edit: here's more info from a quick google search: http://www.roamingtimes.com/blog/south-dakota-residency.htm
note that it says "a handful of states make it easy to establish residency." i tried another google search to find a list of the residency requirements of each state. i found this:
http://www.infoplease.com/ipa/A0781452.html
From a cursory look at this list I THINK that SD is the only state with no state income tax and very relaxed residency requirements.
I never looked into SD... just the other ones. (I didn't even know SD had no income tax.) That might be an option for me on my next trip.
(Course, none of the "experts" I spoke to brought this up, either. Jerks. :)
Often the problem comes down to fraud. The reason self employed people in Canada can't get EI( our unemployment insurance) is that it's too easy to lay your self off.
For these same reasons, family members can't be layed off from a company.
If we did have this EI for self employed people how would we differentiate between someone who just wants the summer off vs someone who legitimately has no clients.
Another problem is what happens when someone realizes that they can make more money on EI than trying to tough it out with their remaining clients and trying to rebuild their business?
If each case has to be reviewed by an actual person this could take weeks at a time and would probably eat all of the money put into the pot for this new style of EI.
Then I read the article; now I'm disgusted, with the attitudes on display here.
I hate to break it to you guys but what's happening to her could happen to you. To put it in terms of a startup she got into a booming market and was moderately successful, when the economy started tanking she invested in improvements that would help her differentiate her offering in an increasingly competitive market. Then the customers went away.
From reading the article it sounds like she works pretty hard and has to go to her customers unlike self important web developers (like me and thee) who can work from the comfort of our chairs without needing to get up if we don't want to.
And as for the iphone, from my reading of the article it sounds like that was acquired when it represented less than a days net revenue.
If you think it can't happen to you because you believe in Ayn Rand and program in Ruby; well guess what, it can; and if it comes down to holding on to your principles or feeding your kid, you will be filling out the form for food assistance and be glad it's there for you.
Her initial reaction:
"If you had a regular job and you didn’t have all that travel time, would you make better money in the end?" She gave a small laugh. "But I love what I do. So I try not to think about that."
Fast forward:
She has been auditioning to teach at new studios and e-mailing former clients to offer private lessons, and she added four hours a week of office work for Karma Kids Yoga.
That's what won't happen to most of us. Rather than filling out the form for food assistance, we will be filling out recruiters info sheets describing "a time I worked as part of a team" and rating our C++ skills on a scale of 1-10.
Did you mean "Rather than" or "Before"?
And as for the lifestyle choice part of your criticism, this site is very much a glass house in which to throw that particular brick; if you're working on a startup and doing your work in a popular scripting language, that's a lifestyle choice; a more financially rational decision would be to go and fix someone's J2EE monstrosity of an accounting/ERP project too big to fail.
And if some clever person comes up with a machine that can crank out code to spec, better and with fewer errors than human programmers... Some of us will adapt to the new situation and carry on as Dev/PM dealing with AI instead of coworkers, but some percentage will be left high and dry.
She is being criticized because she refuses to enter a different market even though her current market has collapsed.
I'm also not criticizing the lifestyle choices. I'm criticizing the unwillingness to reevaluate those choices when circumstances change.
It's not impossible that her services are systematically undervalued currently; after all in the real world markets are not at all rational.
Food stamps. iPhone. The incongruity of that alone should be enough to excuse any unwarranted judgement, if there has even been any in the first place.
A woman with a masters degree is working as a yoga tutor, because the likes the lifestyle. It is hard to be a yoga tutor in today's economy. She owns an iPhone and pays $1,350 a month for her apartment. She is on public assistance now, and has ceased paying for the student loans which allowed her to get the master's degree.
You're supposed to feel sorry for her.
Articles like this probably turn Democrats into Republicans and turn Republicans into heart attack victims. (Since money is fungible, the food stamps are essentially paying her iPhone bill. Phew, I was worried for a second.)
Republicans (excluding the 'lefty christian' ones such as Bush [1]) tend to view the poor/needy as financially/etc irresponsible people. Redistribution is not justified, being mainly just a tax on responsibility.
The example given in this article supports the Republican view more than the Democratic view.
[1] I use 'lefty christian' to describe the ones who support both redistribution/social spending/etc, but differentiate themselves from Dems using christian nationalism.
Anyway, qualifying for food stamps means your making no money. So she is getting one hell of a wake up call and I expect she will snap out of it. Teaching Yoga is the same type of crack for yuppies as opening a coffee shop. It seems like a great idea at the time, but the pay which limits it's long term appeal.
I didn't get the impression that her MA or debt burden was relevant since it's clear she is 38 and spent the last while working for her ex-husband. Her rent isn't inexpensive but she has a 7 year old kid. I got the impression she would take a job if offered. Maybe she's having trouble finding one. Look at the U6 unemployment rate.
I don't live in the States and can't comment on the rest. That said, I was genuinely heartened by the approach the company that still employs her is taking to trying to help out its staff. I really hope it works out for them and they emerge from the recession with a stronger business.
“I spend a lot of time on the train,” ... “and it makes you wonder: If you had a regular job and you didn’t have all that travel time, would you make better money in the end?” She gave a small laugh. “But I love what I do. So I try not to think about that.”
Maybe she should start thinking about that.
That may be your point, but the article was about something else.
Until recently, I had seen a huge drop off in requests for proposals and the few I did get were dead ends. In hindsight, this started happening during the early winter of last year. But in the last few months I've been picking up more odd jobs so on that front, at least in the short-term, things seems to be getting better.
I haven't had to go out and actively seek new clients in quite awhile because I've put together a steady stable of recurring clients. Most of my client base is in the professional sports field and even in down economic times, teams still need to keep their websites up and running. So that's my "secret" to freelance success in a bad economy: have good clients in stable industries.
Aside from freelance web dev work, I've also put together a decent network of sites earning money through advertising. At this time last year those sites were on pace to make a respectable amount of money each year. It wasn't a living wage but some months it came awfully damn close. Since the economy went to the dump I've seen a huge drop off in revenue from these sites. Some earn 50% less now than they did at this time last year. This income was, for lack of a better term, unnecessary for me to pay my bills and live so while it's a bummer I can live without it.
This was a bit rambling but that's my experience so far with the poor economy as a freelance web developer.
Care to let us in on any of your secrets?