The funny thing about capitalism is that you have to have capital for it to work.
New Mexico’s economy is missing that key ingredient for capitalistic success, as a recent Economic Policy Institute evaluation of income inequality shows. While EPI is concerned that the rich are getting richer nationally, widening the gap between the top earners and everyone else, New Mexico’s concern ought to be that there is so little wealth here.
Let’s clarify that wealth and income are connected, but they are not the same thing. Income is what you’re paid by an employer, receive in the form of interest and dividends, withdraw from a business you own, and that sort of thing. Wealth is what you have, less any debts: your home minus your mortgage, your stock portfolio, your share of the family business.
The income that people save or invest usually becomes the foundation for the wealth they accumulate. An economy needs that wealth to build and create businesses so people can find work, which generates more income, more wealth and more work.
Even the richest people around, once they’ve purchased their mansions, boats and fancy cars, eventually have to put their money to work in the form of investment. Their capital has to be deployed somewhere. That deployment creates jobs.
Absent sufficient income, there isn’t enough wealth in the form of capital around to expand the family business or lend your daughter the startup capital for her new software company. Absent wealth, people take on debt to acquire what they need. Too much debt produces bankruptcies and, in the worst case (last seen in 2008), financial disaster on a global scale.
The Economic Policy Institute report reveals how little income there is in New Mexico to allow wealth accumulation and, therefore, investment in our own economy. Relative to the rest of the country, the average income earned by the best-paid 1 percent of New Mexico’s population is $676,217. Nationally, the top 1 percent averages $1.3 million.
Our immediate neighbors’ top earners do much better than ours. In Texas, they earn $1.5 million a year. The top pay averages $1.35 million in Colorado, $877,466 in Arizona, and $1.1 million in Utah and Oklahoma.
The biggest earners in Connecticut and New York top $2 million annually on average.
The data for the remaining 99 percent confirm what we already know – that ours is a poor and poorly paid population. The average 99 percenter in New Mexico earns $36,883 a year. In Texas, the 99 percenters average $46,102. In Colorado, the average is $50,367, it’s $46,612 in Utah and $41,995 in Oklahoma. Arizona is near New Mexico, at $37,811.
It takes remarkably little income for a New Mexican to join the best-paid 1 percent. You are among the top earners when you make $240,847 a year. You have to clear $423,099 in Texas to reach that stratosphere. Nationally, the threshold is reached at $385,195.
Our highest earners, those whose average annual income puts them in the top 0.1 percent in New Mexico, are paupers compared with those in the rest of the country. You reach the top one-tenth of 1 percent here at $4.66 million. Nationally, you’d have to make $9.9 million to be in that company. The elite make $11.57 million in Texas, $8.37 million in Oklahoma, $6.25 million in Arizona, $8.4 million in Utah and $10.2 million in Colorado.
New Mexico’s solution to its capital drought is to depend upon the kindness of strangers.
We recruit out-of-state companies to deploy their capital here by locating operations here. We sell them on our low-cost labor force, our tax incentives, our cheap and abundant land, and our reliable utilities.
Companies that get started here have a similar reliance. They usually cash out or secure the capital they need to grow by selling to out-of-state interests. Albuquerque technology firm ClosedWon LLC, for example, sold to a Philadelphia company that promised it the capital required to help it grow. ClosedWon must do what is best for its owners, but the company is cutting some jobs, one of its founders is leaving for California to do another startup (which is a loss of experienced and valuable human capital). Meanwhile, the wealth ClosedWon manages to build in the future will appear on the balance sheet in Philadelphia, not Albuquerque.
Investment decisions, indeed most of the decisions that matter to ClosedWon’s future, most likely will be made in Philadelphia.
Debates over right-to-work and minimum wage increases will consume much of the oxygen available for economic policy questions during the current legislative session, and that is a shame. Right-to-work is another appeal to the kindness of strangers. A higher minimum wage might help some families, but it would do nothing to generate the capital an economy requires if it is to thrive.
UpFront is a daily front-page news and opinion column. Comment directly to Winthrop Quigley at 823-3896 or email@example.com. Go to www.abqjournal.com/letters/new to submit a letter to the editor.