Apathy could cost you 20pc extra income in retirement

Annuity rates have slumped alarmingly since the financial crisis and they have just keep falling.

Published: 12:52PM BST 01 Sep 2010

3 Comments

The financial crisis has wreaked havoc on our personal finances, so much so that few areas have escaped.

Shares have been volatile, mortgages difficult to get, while savings rates have been at rock-bottom levels. Yet there is another area that has also been severely hit – annuities.

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Annuity rates have slumped alarmingly since the financial crisis and they just keep falling. As at the end of March, a £100,000 joint life annuity for a man aged 65 and woman aged 60, with two-thirds spouse pension and level payments paid, would get you £6,080. Today, it would pay £5,749.

It is little wonder that people are delaying taking their annuity. According to Schroders, more than one in five were delaying taking an annuity because they felt the income returns were poor compared to other investments.

But the financial crisis is not the only thing contributing to lower annuity rates. The other main factor is how long someone will live. The trend is very much for longer lives, which has an adverse impact on rates. Increasing levels of impaired annuities (which pay people a higher income if they have suffered, say, a heart attack) mean that the "poor" lives are not subsidising the "good" lives as they used to.

Those in postcode areas where people live longer are also seeing a rate reduction.

It could also get a lot worse. New European rules could force providers to value annuity liabilities using gilt yields rather than bond yields as they do now. The result, experts predict, will mean an increase in capital requirements, which according to best estimates will reduce rates by between 20pc and 30pc.

The Coalition may have proposed to scrap compulsory annuity purchase but for the vast majority of people, this won't be an option because their retirement pots won't be big enough to pass over the need to lock-in an income level for life.

Yet buying an annuity is, arguably, the most important financial decision you will ever make. If you make the wrong choice it could cost you thousands of pounds in lost retirement income.

It is six years since the Financial Services Authority changed the rules to compel pension providers to inform customers about the open market option – the term given to the right to buy an annuity from any provider you choose.

The hope was that more people would scour the market for a better deal rather than accept the offer from their pension provider. But little has changed. The apathy is a major concern because people could boost their retirement income by as much as 20 per cent simply by shopping around.

One of the problems is that insurers have a vested interest in keeping quiet about the open market option because they do not want to lose business. They may have to tell customers that they can shop elsewhere, but they do not have to (and do not) offer comparisons to illustrate how good or poor their rates are against other insurers.

Add in the cumbersome process of buying an annuity from a company other than your pension provider – delays can leave you without pension income for at least a month – and you have another reason not to use the open market option.

Insurers reckon that most people do know they can shop around, it's just that they get a better deal from their pension provider. Yet financial advisers are not convinced – and
nor, it would seem, is the Government, which wants the industry to justify why the open market option take-up is low.

Advisers still believe that most people, to their cost, just grab the offer from their pension provider. Married people all too often opt for a single-life annuity when buying a joint-life annuity may be the better course of action, while most fail to consider the effects of inflation. Impaired annuities are also overlooked too often.

The golden rule is not just to take the first annuity that comes along. Check whether there are better rates on the "open market'' (look at the FSA's comparative tables on its website). And if you are in any doubt, take advice – annuity rates are not compromised by commission.

You have spent years grafting and saving for retirement. You owe it to yourself not to be hasty and simply tick the annuity box from your pension provider without a second thought.

http://www.telegraph.co.uk/finance/personalfinance/comment/paulfarrow/7975169/Apathy-could-cost-you-20pc-extra-income-in-retirement.html

UK facing 'Sober' decade, warns Bank of England Governor Mervyn King

Britain faces a "sober decade" of saving more and spending less after the easy excesses of the past 10 years, the Governor of the Bank of England has said.

By Philip Aldrick, Economics Editor
Published: 6:03AM BST 20 Oct 2010

80 Comments

UK facing 'Sober' decade, warns Bank of England Governor Mervyn King Photo: REUTERS

Alluding to the "Non-Inflationary Consistently Expansionary" [NICE] decade just passed and coining a new acronym to describe the years ahead, he warned: "The next decade will not be nice. History suggests that after a financial crisis the hangover lasts for a while. So the next decade is likely to be a 'SOBER' decade – a decade of savings, orderly budgets, and equitable rebalancing... A sober decade may not be fun but it is necessary for our economic health."

The Governor's call for a transformation in the national character comes as the Chancellor on Wednesday outlines the sharpest spending cuts since at least the Second World War. He will unveil detailed plans to cut spending by £83bn to address the £935bn national debt and £109bn structural deficit – the annual overspend left once the economy has fully recovered.

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Like the previous government, households overextended themselves in the past. Mr King said: "The counterpart to strong consumption was low saving. Having averaged close to 20pc in the 1960s and 1970s, gross national savings fell to just 12pc of income in 2009 – the lowest since the War. This was all the more remarkable because one might have expected saving to increase as life expectancy rose. In the coming years, we will have to save more."

A higher savings rate and a more prudent fiscal policy will be part of a vital "rebalancing" of the UK economy, Mr King said, as "we need to sell more to, and buy less from, economies overseas". "Such an adjustment is unlikely to be smooth," he added. "The path for the economy will be bumpy."

Greater prudence in Britain would be the UK's contribution to a "grand bargain" that countries worldwide must strike to see off the threat of protectionism and avoid a "disastrous collapse" in global economic growth, Mr King said.

In a speech to the Black Country Chamber of Commerce, Mr King called on nations to set aside self-interest and draw up a plan for common economic reform. Deficit countries, like the UK, need to save more while surplus countries, like China, need to "shift away from reliance on exports".

"All countries accept that global rebalancing is necessary," he said. "But there is ... a disagreement on the appropriate time path of real adjustment." Surplus countries need to move slowly so as not to destabilise growth while deficit countries "are under near-term pressure to reduce the burden of debt", Mr King said.

In an oblique reference to political pressures in the US, he added: "The need to act in the collective interest has yet to be recognised ... unless it is, it will be only a matter of time before one or more countries resort to trade protectionism. That could lead to a disastrous collapse in activity around the world. Every country would suffer ruinous consequences – including our own."

http://www.telegraph.co.uk/finance/economics/8074535/UK-facing-Sober-decade-warns-Bank-of-England-Governor-Mervyn-King.html

Apple CEO blasts Google, Blackerry maker RIM

REUTERS, Oct 19, 2010, 11.17am IST

Apple Inc CEO Steve Jobs went on the offensive after a rare disappointment in sales by the iPad maker. 

SAN FRANCISCO: Apple Inc CEO Steve Jobs went on the offensive after a rare disappointment in sales by the iPad maker sent its shares tumbling, but even his biting words failed to reverse market sentiment. 

Jobs, who has not addressed investors on an earnings call for two years, lashed out at competitors Google Inc and Research in Motion and dismissed the smaller tablets made by rivals such including Samsung and Dell. 

"The current crop of 7-inch tablets are going to be DOA, dead on arrival," Jobs told analysts on the conference call. "Their manufacturers will learn the painful lesson that their tablets are too small." 

Shares of Apple -- the second-largest corporation on the Standard & Poor's 500 index, after Exxon Mobil -- slid 6 percent in after-hours trading, which would be their biggest single-day loss since 2008. 

Supply and production bottlenecks kept iPads, which have a 9.7-inch touch screen, from store shelves and buyers waiting weeks sometimes for their gadget. The company sold 4.19 million iPads in the fiscal fourth quarter.

"A little bit disappointing there. Street was expecting closer to 5 million units. The problem is supply, they can't make enough of them," said Gleacher & Co analyst Brian Marshall.

Analysts said sales should ramp up in the holiday quarter as Apple resolves supply hitches.

Gross margins fell short of target as iPads, whose profit margin is lower than it is for iPhones, made up a larger proportion of Apple's sales. Investors had expected more from a company that had smashed Wall Street's targets in each of the past eight quarters. 
Gross margins came to 36.9 percent, below Wall Street's average forecast of 38.2 percent, despite better-than-expected components costs in the period. 

"The one surprise is on the margin side. Everything else is pretty spectacular," said Gartner analyst Van Baker. 

There was no disappointment in the iPhone, however, whose surging sales showed little impact from a PR debacle last summer over the device's antenna. 

Apple sold 14.1 million of the smartphones, a gain of 91 percent and better than Wall Street had expected. The company said demand is still outstripping supply, with the iPhone now available in 89 countries. 

Mac sales surged 27 percent to 3.9 million, at the high end of analysts' estimates. Apple Chief Financial Officer Peter Oppenheimer said the strong Mac performance was evidence that the iPad was not cannibalizing sales. 

Surveying the competition 
Jobs noted that Apple's iPhone outsold RIM's BlackBerry in its most recent quarter. "I don't see them catching up with us in the foreseeable future," Jobs said. 

And he criticized Google's Android as a "fragmented" operating system. RIM and Google did not respond to requests for comment. 

In the still emerging tablet market, Jobs said there appears to be just a "handful of credible entrants," and he said price points on rival tablets won't be able to compete with the iPad, which starts at just $499. 

Some analysts agreed with Jobs, and foresaw sales of the iPad, which came on the market only in April, jumpstarting next year as the gadget gets rolled out to more countries and to more mass-market retail outlets like Wal-Mart Stores. 

As an indication of industry bullishness, research group iSuppli said it expects Apple to sell a whopping 43.7 million iPads next year. 

"iPads were low, but I also think they had a lot of production problems getting that off the ground. So I don't think that really is a good demand indicator for iPad," said analyst Jane Snorek of First American Funds. 

Apple reported a net profit of $4.31 billion, or $4.64 a share, in the fiscal fourth quarter ended September 25, up from $2.53 billion, or $2.77 cents a share, in the year-ago period.

That was better than the average analyst estimate of $4.08 a share, according to Thomson Reuters I/B/E/S.

Revenue surged 67 percent to $20.3 billion, ahead of Wall Street's target of $18.9 billion. 
As it looks ahead to the holiday season, Apple -- which typically issues very conservative outlooks -- forecast current-quarter earnings of $4.80 a share on revenue of $23 billion. The consensus estimate is for a profit of $5.07 a share on revenue of $22.4 billion. 

Shares of Cupertino, California-based Apple slid 6.1 percent to $298.50 in extended trading, after a brief trading halt. They closed at $318.00 on Nasdaq.

Read more: Apple CEO blasts Google, Blackerry maker RIM - The Times of India http://timesofindia.indiatimes.com/tech/news/hardware/Apple-CEO-blasts-Google-Blackerry-maker-RIM/articleshow/6773120.cms#ixzz12uXX4yOV

Wi-Fi in homes can be hacked in 5 seconds

IANS, Oct 15, 2010, 03.52pm IST

The Wi-Fi hacking means criminals can spy on the activities of families

LONDON: Wireless internet networks in millions of homes can be hacked in less than five seconds. 

The Wi-Fi hacking means criminals can spy on the activities of families, perhaps stealing their identity and banking details to raid their accounts, says a new study. 

The hackers could also use the Wi-Fi access to tap into illegal pornography or upload and download stolen music and movies without being traced. An 'ethical hacking' experiment in six cities, using freely available software, found almost 40,000 home Wi-Fi networks at high risk, reports the Daily Mail. 

Separately, there are concerns about the security of those who use free Wi-Fi networks offered by coffee shops and other businesses. 

The study, commissioned by card protection and insurance firm CPP, highlights a cavalier attitude to keeping data safe. 

According to the findings, nearly a quarter of private wireless networks have no password attached, making them accessible to criminals. CPP fraud expert Michael Lynch said, "We urge all Wi-Fi users to remember that any information they volunteer through public networks can easily be visible to hackers."

Read more: Wi-Fi in homes can be hacked in 5 seconds - The Times of India http://timesofindia.indiatimes.com/tech/personal-tech/computing/Wi-Fi-in-homes-can-be-hacked-in-5-seconds/articleshow/6753911.cms#ixzz12uVtV2zp

4 Ways to quickly share your files

TNN, Oct 17, 2010, 08.24am IST

To share data between two laptops you can use a regular SD memory card if there is an internal memory slot

NEW DELHI: There are often situations when you want to share files on your PC with friends, family or colleagues.

You may know the traditional ways of attaching them to emails, or uploading them to a filesharing website. More complex ways like ad-hoc wireless connections exist too, but what if you just can't be bothered?

What if you need a way to share files without going through multiple steps? Whether the person you want to share the files with is sitting right across from you or halfway around the world, these are a few quick and easy ways you can share files.

The SD card method 
To share data between two laptops you can use a regular SD memory card if there is an internal memory slot. This should be preferred over using a USB flash drive if you're not too sure that the other machine is completely virus/malware free.

Copy the data onto the SD card and lock it using the little slider on the side of the card before inserting it into the other laptop. This will prevent any new data from being written (therefore, will prevent any inadvertent infections).

Kkloud sharing (www.kkloud.com)
Probably the easiest and quickest way to share a few small files with multiple users is to use the free online service Kkloud. Just open the website, create a share name and upload the files; no sign-in is required.

Next, all you have to do is to give the share name to anyone you want to share those files with. To access the files, they just have to enter in the share name on the website. The files remain available for sharing as long as you keep your browser window open.

Dushare (www.dushare.com) 
Dushare is different from browser-based files sharing sites like Yousendit and Hotshare because it doesn't involve uploading of files. Therefore, there is no waiting involved; it allows direct, encrypted P2P (peer to peer) sharing.

Once you select the file to share, it gives you a URL to share with the other person to initiate the direct transfer from your PC to theirs. While the file transfers, you can also chat with the person you're sharing the file with, right in the Dushare window. No sign-in is required.

Dropbox (www.dropbox.com) 
A little more complicated than the others, but Dropbox also offers a lot of features. Rather than just share, you can sync complete folders with multiple users by downloading the Dropbox application on your Windows, Linux or Mac machine.

Any changes, additions you make in the Dropbox folder on your PC will instantly be reflected in the folders of others, as long as they are connected to the Internet. A big advantage of Dropbox is that you can also use it to share files from your mobile phone (apps available for iPhone/iPod Touch, Android & Blackberry) or iPad.

Read more: 4 Ways to quickly share your files - The Times of India http://timesofindia.indiatimes.com/tech/personal-tech/computing/4-Ways-to-quickly-share-your-files/articleshow/6754079.cms#ixzz12uUviRRr

Your iPad, iPhone can give you infection

ANI, Oct 18, 2010, 11.05am IST

Apple iPad

MELBOURNE: People who use display iPads and iPhones at Apple stores are likely to get serious infections and the company should do more to maintain hygiene, says an Australian expert. 

Peter Collignon, a specialist in infectious diseases at the Australian National University, followed research that found a higher risk of transmitting pathogens from glass surfaces like on iPads to human skin. 

"You wouldn't have hundreds of people using the same glass or cup, but theoretically if hundreds of people share the same keyboard or touch pad, then effectively that's what you're doing," the Age quoted Collignon as saying in a phone interview. 

"The germs we transmit via our hands can frequently have germs that can cause anything from the flu to multi-drug resistant diseases." 

Scores of people visit Apple stores around the country every day to play with the company's latest gadgets. Earlier this year, an investigation by the New York Daily News found that of four iPads swabbed in two Apple stores, two contained harmful pathogens. 

One contained Staphylococcus aureus, the most common cause of staph infections, while another registered Corynebacterium minutissimum, a bacteria commonly associated with skin rash. 

A study published in the Journal of Applied Microbiology cautioned people against sharing their devices, as there was a higher risk of spreading germs from glass surfaces. Collignon said Apple and other gadget stores with touchscreen devices on display should make hand hygiene products "more readily available on counters." 

"It doesn't have to be anything fancy it just has to be a 70 per cent alcohol solution. Maybe the various computer stores can make a more frequent effort to clean their equipment," he said. 

"If you want to protect others then preferably don't share but if you do make sure your hands are clean before you touch it and afterwards," added Collignon.

Read more: Your iPad, iPhone can give you infection - The Times of India http://timesofindia.indiatimes.com/tech/personal-tech/computing/Your-iPad-iPhone-can-give-you-infection/articleshow/6767508.cms#ixzz12uTW16fU

Job visas only for highly skilled, salaried foreigners: Indian Govt

20 OCT, 2010,

Job visas only for highly skilled, salaried foreigners: Govt

NEW DELHI: In an attempt to prevent foreigners from getting non-technical jobs, the government has made it clear that citizens of other countries will be taken only for highly-skilled assignments in India and should draw an annual salary of over $25,000.

In an order, the Home Ministry nullified a Labour Ministry circular which allows one per cent foreigners among the total work force in any project with a minimum of five and maximum of 20 people.

"An employment visa is granted to a foreigner if the applicant is a highly skilled and/or qualified professional, who is being engaged or appointed by a company/organisation/ industry/undertaking in India on contract or employment basis," according to the Home Ministry guidelines.

Besides, the ministry made it clear that employment visa shall not be granted for jobs for which qualified Indian are available and also for routine, ordinary or secretarial/ clerical jobs.

"The foreign national being sponsored for an employment visa in any sector should draw a salary in excess of $25,000 per annum," it says.

However, this condition of annual floor limit on income will not apply to ethnic cooks, language teachers (other than English), staff working for the Embassy/High Commission concerned in India.

The Labour Ministry had ordered that visa applications could be cleared by the Indian missions abroad at their level if the foreign national is skilled and qualified professional, technical experts, senior executives or in managerial positions and those kinds of skills which are not available in India.

http://economictimes.indiatimes.com/articleshow/6780215.cms

China's rate hike complicates bid to control yuan

20 OCT, 2010

China's rate hike complicates bid to control yuan

BEIJING: China's first rate hike since 2007 has laid bare official fears over surging prices but could also complicate Beijing's controversial efforts to keep a lid on its currency, analysts said.

The move announced by the central bank late Tuesday caught global markets by surprise and came before a meeting this week of G20 finance ministers in South Korea , where currency frictions are expected to loom large.

Rising inflation and soaring property prices forced the government to hike one-year lending and deposit rates by 25 basis points each, after a range of previous measures introduced this year proved inadequate, analysts said.

They said the move may also indicate that third-quarter data China is to unveil on Thursday will show the world's second-largest economy grew faster than authorities had expected, easing any qualms about raising rates.

The "decision suggests the acceleration in growth and official worries about property and inflation are more serious than anticipated", said Ben Simpfendorfer, a Hong Kong-based economist at Royal Bank of Scotland .

The rate hike depressed stock markets across Asia Wednesday on worries that any Chinese slowdown could hit fragile global growth. Tokyo's Nikkei index closed 1.65 percent down and the Hang Seng in Hong Kong slipped 0.87 percent.

China's inflation has accelerated in recent months, rising at its fastest pace in nearly two years in August when consumer prices went up 3.5 percent year-on-year, as food prices surged after extreme weather hit crop yields.

At the same time, property prices in major cities have remained stubbornly high and bank lending has continued to grow, defying official moves to dampen both.

"The asymmetric hike suggest that the authorities wished to make deposits a more attractive investment proposition than property to discourage property speculation," Nomura analysts Tomo Kinoshita and Chi Sun said in a note.

Beijing has delayed raising interest rates until now partly due to concerns it could attract speculative money chasing a relatively higher yield, making it more difficult to keep the Chinese yuan stable.

The central bank has to buy the dollars flowing into China's export machine to prevent the yuan from rising too quickly. The dollars then pile up on the country's world-beating stockpile of foreign currency reserves.

Beijing pledged in June to let the yuan trade more freely and the currency has since strengthened slightly. But Beijing maintains a tight grip on the yuan despite US and European pressure to let it appreciate.

The yuan was trading Wednesday at 6.6546 to the dollar, weaker than Tuesday's close of 6.6447.

Critics of China's yuan policy say it undervalues the currency by as much as 40 percent to give Chinese exports an unfair edge on world markets.

Higher interest rates could lead to an "intractable monetary policy dilemma" for Beijing by encouraging more foreign capital inflows into China, said Nicholas Consonery, an analyst at Washington-based Eurasia Group.

http://economictimes.indiatimes.com/articleshow/6779921.cms

Why Buy and Hold Will Always Be a Sound Investing Strategy

It seems like the debate regarding the merits of the "buy-and-hold" investing strategy is alive and well. We always find these discussions amusing, because we believe that it is such a pointless discussion. There is no general argument or case that can be made to support the buy-and-hold strategy or to negate it.

The only true answer to the buy-and-hold argument is it depends on what and/or when you buy-and-hold.

• If you buy the right company at the right price, then buy-and-hold is a great strategy. 
• If you buy the wrong company at any price, then the buy-and-hold strategy is a dumb move. 
• Also, if you buy the right company at the wrong price, then buy-and-hold would once again be a bad move.

http://seekingalpha.com/article/230856-why-buy-and-hold-will-always-be-a-sound-investing-strategy?source=article_sb_picks

Public Bank Q3 net profit up 22.5%

Tuesday October 19, 2010

By SHARIDAN M.ALI

sharidan@thestar.com.my

Higher net interest, finance and operating income are main contributors

PETALING JAYA: Public Bank Bhd’s net profit soared by 22.5% to RM782.7mil in the third quarter ended Sept 30 against the previous corresponding quarter bouyed by higher net interest, finance and operating income.

Revenue for the period under review was up by 18% to RM2.88bil.Earnings per share was up to 22.35 sen from 18.52 sen a year ago.

In terms of its nine-month performance, Public Bank’s net profit grew 19.7% to RM2.2bil while revenue increased to RM8.06bil reflecting a 11.7% rise from a year ago.

Earning per share for the period under review jumped by 17% to 63 sen.

Tan Sri Teh Hong Piow

According to chairman Tan Sri Teh Hong Piow, the improved profit performance of the group for the first nine months was mainly attributed to the strong growth in net interest and finance income and higher non-interest income.

“The three increases in the overnight policy rate this year totalling 0.75% translated into an improvement to the group’s net interest margin.

“The improved net interest margin, coupled with the strong organic growth in loans and core customer deposits, led to the group’s net interest and finance income improving by RM525mil or 15% in the first nine months this year from a year ago,” he said.

Teh added that the non-interest income of the group also recorded a growth of 18% from last year.

“The group also recorded a strong increase in total loans and advances by 10.3% growth for the first nine months to RM151.7bil as at end of September,” he said.

The lending activities of the group remained focused on the retail sector, particularly in loans to mid-market commercial enterprises, residential properties and passenger vehicles which accounted for 78% as of September.

Other financial details for the first nine months saw total assets increased to RM220.6bil.

The gross impaired loans ratio of the group as of September remained low at 1.2% as compared with the industry’s ratio of 3.4%.

Its overseas operations recorded a 14% improvement in earnings, due mainly to the decline in loan impairment allowances for the period under review.

OSK Research said Public Bank’s nine-month results were largely in line with consensus and its full-year estimates.

“The nine-month results represented 72% and 79% of consensus and our full-year forecast respectively, which we deem largely in line.

“We expect stronger sequential performance underpinned by higher net interest income from a larger loans base and stable net interest margin, coupled with stronger unit trust management fees as a result of higher assets under management,” it said in a note yesterday.

OSK maintained its “buy” call and target price of RM14.20.

“The stock has been a laggard, with its immediate term catalysts being lower provisions, stronger net interest margin and upside surprise to loans growth,” it said.

http://biz.thestar.com.my/news/story.asp?file=/2010/10/19/business/7250276&sec=business

Income Inequality: Too Big to Ignore

By ROBERT H. FRANK

Published: October 16, 2010

PEOPLE often remember the past with exaggerated fondness. Sometimes, however, important aspects of life really were better in the old days.

David G. Klein

During the three decades after World War II, for example, incomes in the United States rose rapidly and at about the same rate — almost 3 percent a year — for people at all income levels. America had an economically vibrant middle class. Roads and bridges were well maintained, and impressive new infrastructure was being built. People were optimistic.

By contrast, during the last three decades the economy has grown much more slowly, and our infrastructure has fallen into grave disrepair. Most troubling, all significant income growth has been concentrated at the top of the scale. Theshare of total income going to the top 1 percent of earners, which stood at 8.9 percent in 1976, rose to 23.5 percent by 2007, but during the same period, the average inflation-adjusted hourly wage declined by more than 7 percent.

Yet many economists are reluctant to confront rising income inequality directly, saying that whether this trend is good or bad requires a value judgment that is best left to philosophers. But that disclaimer rings hollow. Economics, after all, was founded by moral philosophers, and links between the disciplines remain strong. So economists are well positioned to address this question, and the answer is very clear.

Adam Smith, the father of modern economics, was a professor of moral philosophy at the University of Glasgow. His first book, “A Theory of Moral Sentiments,” was published more than 25 years before his celebrated “Wealth of Nations,” which was itself peppered with trenchant moral analysis.

Some moral philosophers address inequality by invoking principles of justice and fairness. But because they have been unable to forge broad agreement about what these abstract principles mean in practice, they’ve made little progress. The more pragmatic cost-benefit approach favored by Smith has proved more fruitful, for it turns out that rising inequality has created enormous losses and few gains, even for its ostensible beneficiaries.

Recent research on psychological well-being has taught us that beyond a certain point, across-the-board spending increases often do little more than raise the bar for what is considered enough. A C.E.O. may think he needs a 30,000-square-foot mansion, for example, just because each of his peers has one. Although they might all be just as happy in more modest dwellings, few would be willing to downsize on their own.

People do not exist in a social vacuum. Community norms define clear expectations about what people should spend on interview suits and birthday parties. Rising inequality has thus spawned a multitude of “expenditure cascades,” whose first step is increased spending by top earners.

The rich have been spending more simply because they have so much extra money. Their spending shifts the frame of reference that shapes the demands of those just below them, who travel in overlapping social circles. So this second group, too, spends more, which shifts the frame of reference for the group just below it, and so on, all the way down the income ladder. These cascades have made it substantially more expensive for middle-class families to achieve basic financial goals.

In a recent working paper based on census data for the 100 most populous counties in the United States, Adam Seth Levine (a postdoctoral researcher in political science atVanderbilt University), Oege Dijk (an economics Ph.D. student at the European University Institute) and I found that the counties where income inequality grew fastest also showed the biggest increases in symptoms of financial distress.

For example, even after controlling for other factors, these counties had the largest increases in bankruptcy filings.

Divorce rates are another reliable indicator of financial distress, as marriage counselors report that a high proportion of couples they see are experiencing significant financial problems. The counties with the biggest increases in inequality also reported the largest increases in divorce rates.

Another footprint of financial distress is long commute times, because families who are short on cash often try to make ends meet by moving to where housing is cheaper — in many cases, farther from work. The counties where long commute times had grown the most were again those with the largest increases in inequality.

The middle-class squeeze has also reduced voters’ willingness to support even basic public services. Rich and poor alike endure crumbling roads, weak bridges, an unreliable rail system, and cargo containers that enter our ports without scrutiny. And many Americans live in the shadow of poorly maintained dams that could collapse at any moment.

ECONOMISTS who say we should relegate questions about inequality to philosophers often advocate policies, like tax cuts for the wealthy, that increase inequality substantially. That greater inequality causes real harm is beyond doubt.

But are there offsetting benefits?

There is no persuasive evidence that greater inequality bolsters economic growth or enhances anyone’s well-being. Yes, the rich can now buy bigger mansions and host more expensive parties. But this appears to have made them no happier. And in our winner-take-all economy, one effect of the growing inequality has been to lure our most talented graduates to the largely unproductive chase for financial bonanzas on Wall Street.

In short, the economist’s cost-benefit approach — itself long an important arrow in the moral philosopher’s quiver — has much to say about the effects of rising inequality. We need not reach agreement on all philosophical principles of fairness to recognize that it has imposed considerable harm across the income scale without generating significant offsetting benefits.

No one dares to argue that rising inequality is required in the name of fairness. So maybe we should just agree that it’s a bad thing — and try to do something about it.

Robert H. Frank is an economics professor at the Johnson Graduate School of Management at Cornell University.

http://www.nytimes.com/2010/10/17/business/17view.html?src=me&ref=business