Four factors making even rich people live poorly and hence feel poor in our immensely rich modern economy: a sense of precarity, a lack of centeredness, failures of stewardship, and an absence of...
It wasn't that long ago that Scalzi wrote a post about how he had bought gas for his car and not checked the receipt for the first time in his life, ever. He was middle aged and had been a successful writer for decades. He grew up extremely poor and wrote an internet famous post about being poor which made the point that being poor is knowing exactly how much everything costs.
A lot of having enough money is about not having to know exactly how much everything costs. While the official inflation rate has been modest for decades, save for a brief period during COVID, the real inflation rate has been much higher while wages have lagged productivity. Business practices have grown increasingly predatory as antitrust action and regulation have been defanged. Maybe it takes $140K a year to not have to worry about what everything costs in terms of making housing payments, buying medical insurance, paying off student loans, stocking groceries and so on. It's less about the money than about the mental load. Women often complain about the grinding, unrewarding, often unacknowledged work of scheduling and planning for their families. Having to know exactly what everything costs is precisely that kind of labor.
As a graduate student, I had a limited stipend to cover my living expenses, but once I got a real job I could afford to buy anything that cost about $100 as long as I didn't do so too often. A mental burden had been lifted. Being poor is knowing that a dollar can buy one ten meals of ten cent ramen but only eight meals of twelve cent ramen. As one's income rises, one can afford to buy all the ramen one might care to eat even at higher prices, and as one's income rises further one can choose other foods more costly than ramen with decreasing concern about their price.
Maybe it isn't exactly a poverty line, and maybe $140K isn't the proper threshold, but there is something there, and most people know it when they sense it.
I read the post and was constantly thinking of all the lucky accidents in our lives that lifted us beyond precarity, lack of centeredness, failure of stewardship and absence of mindfulness. The parents we were born to. The color of our skins. The gender we were gifted with. The functioning bodies and brains. The nation and state we were born in.
I was also thinking of the cost of participation. The cost of having a house in Palo Alto within walking distance of downtown. The cost of having a house in San Jose. The cost of having a cabin at Donner Lake with a dock and all the water toys. The cost of having a horse property and 3 horses in the gamma quadrant of the Sierra foothills east of Sacramento. Because I have lived in shacks and public housing from age 5 to 19 I don't compare my life with our billionaire friends. I envy the young men and women I converse and flirt with at the checkout lane for their youth and the strength of their bodies.
I'm not going to bother with the Free Press, so I may be responding to the wrong thing, but I saw a recent piece making a claim like this based primarily on the costs of childcare, reported as something like $25k/yr/kid. If that's right, a couple with a joint income of $100k (which I think the study looked at), and two kids under school age would certainly have a tight budget, though only for the five years. Then similar problems when they reach college age.
In Australia most people get access to subsidised child care, as well as some parental leave, and uni is paid for by an income-contingent loan. But a similar squeeze arises for those who want to send the kinds to a high-end private school
The economic statistics developed for the New Deal have been feeling increasingly out of date. I've been following a variety of other indices, for example Cass's Cost of Thriving which uses housing, college, medical and vehicle costs and the rising number of weeks work at median income to afford them. I did my own analysis some years back, and came to a similar conclusion. The value of labor has not kept pace with the real cost of living or the level of economic production.
It may not be Malthusian, but the structure of rising prices is all too similar to the inflationary stage of the roughly two hundred year cycles that have characterized European historical economics since the Middle Ages. (The main difference is that now food behaves more like a manufactured good than a good derived from the ownership of land.)
If you drop the model that people chase utility (where everyone can have a share) and replace it with the model that status is the major game in town, then the absolute numbers matter much less and no income, no matter how high, is ever enough if status is zero sum. Substantial secular increases in utility /standard of living count for almost nothing as there is little status in comparing yourself with the past. On the contrary, as Trump keeps working to his advantage, imagining that the past was a place where all your current status anxieties didn't exist makes you angry enough about your current situation to vote for someone who will be cruel enough to some scapegoats to make you feel better. Of course it helps if everybody who can remember how national populism worked out last time around is dead.
Two things from a Nordic perspective and from someone who has American friends here in the Nordics, and over there. I have also just spent the better part of three weeks driving and bicycling around Florida. I think Noah Smith and your self massively underestimate how poor one both feel and one is when healthcare is both extremely costly and yet still economically insufficient for anyone but the absolute richest. From a Nordic perspective you are poor if you can go bankrupt from cancer, regardless of how many square feet, and how many big, comfortable cars you can afford. You are equally poor if child care can consume a significant part of your income for 4-6 years of a period in your life when many costs suddenly come into play.
Equally you are not middle class because you have to cars, when two cars is absolutely necessary to make everyday work.
From American friend having moved to Europe, this is what they describe as an enormous burden they didn’t realize they were carrying suddenly disappeared. And from friends still living in the USA, this burden is why Greens piece resonates. Because the worry, as you write towards the end of your blogpost doesn’t feel like one imagines middle class life should feel like.
The Thatcher-Reagan Restoration insisted that greater money orientation and elite savings would deliver cultural ease. Has there ever been a more discredited claim? At the cost of civics/humanities-oriented schools, slow-living, and human solidarity, we have universal anxiety. The housing stock has doubled in square footage, but nobody sane thinks that's anything like a doubling of its aggregate utility. It's not like there was another, better choice laying there in 1978, but we might at least talk about it now.
A bit wonky & jargony, but good advice nonetheless. I'm 78 & have always done this, plus one more thing: save first. live on what's left, & pay cash. Yeah, we've always lived in the wrong end of a WDC burb in far less than fashionable houses & driven rice burners. We've also sent kids to expensive camps every summer & taken fantastic vacations. Now in retirement it really doesn't matter to us or to our grown children who live as we have what happens to the economy as a whole.
Just think, there is technological progress in self-orientation. In the old days they had to go to church and do good for others whatever that meant and still went to bed angry. Now, in what would appear to a native indigene coming across an automobile in the jungle - all it is good for is protection against lions and shaving, So, all's _we_ have to do is watch our breath during TV commercials and all will be hunky dory. Once you've winnowed out all the possibilities, it's still an advancement in human science. BTW - mantra and mudra are the unexplored countries.
Against the side point on the financial industry/equity trading and leaving out actual financial services that are now performed on a distributed basis and so constitute trading activity that deserves to make a return (market making, the creation/synthetic hedging of options, facilitating index rebalances, risk arb, etc.): pod shops exist and they do seem to work and I don’t get why economists miss this.
The basic result, and I do believe this is known in the literature (Claude suggests Kacperczyk et al 2005), is that sector-specialist portfolio managers can earn low-single-digit percentage outperformance on a GMV basis after hedging factor exposures, with a sharpe maybe similar to the S&P or .4-.5. Stack a bunch of these together and you get low-single-digit returns on gmv with a sharpe of ~stupid and that’s the modern fundamental equity trading environment. Long-only no-leverage actives are not where you should be looking for equity trading skill; the talent wars between Citadel, Point72, Millennium, Balyasny, etc. should show that serious money can be made trading fundamental equity in a repeatable way.
Now, that doesn’t do much to change the outlook on personal investing — the proposition that if you make say semiconductor investing your entire personality you could outperform by <3%/year on your equity portfolio with a crappy sharpe on the marginal positions should be obviously unattractive to most nonprofessionals — but the overall point should stand that skill does exist and pod shops now monetize it pretty well.
I actually think that Nate Silver did the world a pretty bad disservice by making the investing side of “the River” be VC rather than the modern pod shop, possibly because nobody from the pod shops would talk to him much. The use of quant and data tools to make uncorrelated return streams with high skill is a very interesting change in the world, while I find it hard to believe VC is much more than gigantic unhedged industry beta. Tech beta may have been killing it for a while but that’s the very most classic way non-quant approaches mistake outperformance for skill.
There are definitely arbitrage opportunities, but for most people a statistical approach works best. That's why the Forbes dart board fund worked. That's why index funds are the only ones available to the general public that have produced consistent market tracking returns. Could pod shops produce those returns if they had to manage trillions of dollars?
Useful advice, unless and until the Zeitgeist drops a Hitler or a Trump on us. At times precarity and the human condition are pretty much synonymous, except that, like Gibson’s future, the former tends to be less evenly distributed. That’s where, if we’re doing the right thing, stewardship becomes a political as well as a moral practice.
It wasn't that long ago that Scalzi wrote a post about how he had bought gas for his car and not checked the receipt for the first time in his life, ever. He was middle aged and had been a successful writer for decades. He grew up extremely poor and wrote an internet famous post about being poor which made the point that being poor is knowing exactly how much everything costs.
A lot of having enough money is about not having to know exactly how much everything costs. While the official inflation rate has been modest for decades, save for a brief period during COVID, the real inflation rate has been much higher while wages have lagged productivity. Business practices have grown increasingly predatory as antitrust action and regulation have been defanged. Maybe it takes $140K a year to not have to worry about what everything costs in terms of making housing payments, buying medical insurance, paying off student loans, stocking groceries and so on. It's less about the money than about the mental load. Women often complain about the grinding, unrewarding, often unacknowledged work of scheduling and planning for their families. Having to know exactly what everything costs is precisely that kind of labor.
As a graduate student, I had a limited stipend to cover my living expenses, but once I got a real job I could afford to buy anything that cost about $100 as long as I didn't do so too often. A mental burden had been lifted. Being poor is knowing that a dollar can buy one ten meals of ten cent ramen but only eight meals of twelve cent ramen. As one's income rises, one can afford to buy all the ramen one might care to eat even at higher prices, and as one's income rises further one can choose other foods more costly than ramen with decreasing concern about their price.
Maybe it isn't exactly a poverty line, and maybe $140K isn't the proper threshold, but there is something there, and most people know it when they sense it.
I read the post and was constantly thinking of all the lucky accidents in our lives that lifted us beyond precarity, lack of centeredness, failure of stewardship and absence of mindfulness. The parents we were born to. The color of our skins. The gender we were gifted with. The functioning bodies and brains. The nation and state we were born in.
I was also thinking of the cost of participation. The cost of having a house in Palo Alto within walking distance of downtown. The cost of having a house in San Jose. The cost of having a cabin at Donner Lake with a dock and all the water toys. The cost of having a horse property and 3 horses in the gamma quadrant of the Sierra foothills east of Sacramento. Because I have lived in shacks and public housing from age 5 to 19 I don't compare my life with our billionaire friends. I envy the young men and women I converse and flirt with at the checkout lane for their youth and the strength of their bodies.
I'm not going to bother with the Free Press, so I may be responding to the wrong thing, but I saw a recent piece making a claim like this based primarily on the costs of childcare, reported as something like $25k/yr/kid. If that's right, a couple with a joint income of $100k (which I think the study looked at), and two kids under school age would certainly have a tight budget, though only for the five years. Then similar problems when they reach college age.
In Australia most people get access to subsidised child care, as well as some parental leave, and uni is paid for by an income-contingent loan. But a similar squeeze arises for those who want to send the kinds to a high-end private school
The economic statistics developed for the New Deal have been feeling increasingly out of date. I've been following a variety of other indices, for example Cass's Cost of Thriving which uses housing, college, medical and vehicle costs and the rising number of weeks work at median income to afford them. I did my own analysis some years back, and came to a similar conclusion. The value of labor has not kept pace with the real cost of living or the level of economic production.
It may not be Malthusian, but the structure of rising prices is all too similar to the inflationary stage of the roughly two hundred year cycles that have characterized European historical economics since the Middle Ages. (The main difference is that now food behaves more like a manufactured good than a good derived from the ownership of land.)
If you drop the model that people chase utility (where everyone can have a share) and replace it with the model that status is the major game in town, then the absolute numbers matter much less and no income, no matter how high, is ever enough if status is zero sum. Substantial secular increases in utility /standard of living count for almost nothing as there is little status in comparing yourself with the past. On the contrary, as Trump keeps working to his advantage, imagining that the past was a place where all your current status anxieties didn't exist makes you angry enough about your current situation to vote for someone who will be cruel enough to some scapegoats to make you feel better. Of course it helps if everybody who can remember how national populism worked out last time around is dead.
I meant to add. Maybe the Dems should run commercials about life in 1975 featuring the size of TVs, flared trousers and landline telephones. 'Great'!
Two things from a Nordic perspective and from someone who has American friends here in the Nordics, and over there. I have also just spent the better part of three weeks driving and bicycling around Florida. I think Noah Smith and your self massively underestimate how poor one both feel and one is when healthcare is both extremely costly and yet still economically insufficient for anyone but the absolute richest. From a Nordic perspective you are poor if you can go bankrupt from cancer, regardless of how many square feet, and how many big, comfortable cars you can afford. You are equally poor if child care can consume a significant part of your income for 4-6 years of a period in your life when many costs suddenly come into play.
Equally you are not middle class because you have to cars, when two cars is absolutely necessary to make everyday work.
From American friend having moved to Europe, this is what they describe as an enormous burden they didn’t realize they were carrying suddenly disappeared. And from friends still living in the USA, this burden is why Greens piece resonates. Because the worry, as you write towards the end of your blogpost doesn’t feel like one imagines middle class life should feel like.
The Thatcher-Reagan Restoration insisted that greater money orientation and elite savings would deliver cultural ease. Has there ever been a more discredited claim? At the cost of civics/humanities-oriented schools, slow-living, and human solidarity, we have universal anxiety. The housing stock has doubled in square footage, but nobody sane thinks that's anything like a doubling of its aggregate utility. It's not like there was another, better choice laying there in 1978, but we might at least talk about it now.
A bit wonky & jargony, but good advice nonetheless. I'm 78 & have always done this, plus one more thing: save first. live on what's left, & pay cash. Yeah, we've always lived in the wrong end of a WDC burb in far less than fashionable houses & driven rice burners. We've also sent kids to expensive camps every summer & taken fantastic vacations. Now in retirement it really doesn't matter to us or to our grown children who live as we have what happens to the economy as a whole.
Just think, there is technological progress in self-orientation. In the old days they had to go to church and do good for others whatever that meant and still went to bed angry. Now, in what would appear to a native indigene coming across an automobile in the jungle - all it is good for is protection against lions and shaving, So, all's _we_ have to do is watch our breath during TV commercials and all will be hunky dory. Once you've winnowed out all the possibilities, it's still an advancement in human science. BTW - mantra and mudra are the unexplored countries.
Against the side point on the financial industry/equity trading and leaving out actual financial services that are now performed on a distributed basis and so constitute trading activity that deserves to make a return (market making, the creation/synthetic hedging of options, facilitating index rebalances, risk arb, etc.): pod shops exist and they do seem to work and I don’t get why economists miss this.
The basic result, and I do believe this is known in the literature (Claude suggests Kacperczyk et al 2005), is that sector-specialist portfolio managers can earn low-single-digit percentage outperformance on a GMV basis after hedging factor exposures, with a sharpe maybe similar to the S&P or .4-.5. Stack a bunch of these together and you get low-single-digit returns on gmv with a sharpe of ~stupid and that’s the modern fundamental equity trading environment. Long-only no-leverage actives are not where you should be looking for equity trading skill; the talent wars between Citadel, Point72, Millennium, Balyasny, etc. should show that serious money can be made trading fundamental equity in a repeatable way.
Now, that doesn’t do much to change the outlook on personal investing — the proposition that if you make say semiconductor investing your entire personality you could outperform by <3%/year on your equity portfolio with a crappy sharpe on the marginal positions should be obviously unattractive to most nonprofessionals — but the overall point should stand that skill does exist and pod shops now monetize it pretty well.
I actually think that Nate Silver did the world a pretty bad disservice by making the investing side of “the River” be VC rather than the modern pod shop, possibly because nobody from the pod shops would talk to him much. The use of quant and data tools to make uncorrelated return streams with high skill is a very interesting change in the world, while I find it hard to believe VC is much more than gigantic unhedged industry beta. Tech beta may have been killing it for a while but that’s the very most classic way non-quant approaches mistake outperformance for skill.
There are definitely arbitrage opportunities, but for most people a statistical approach works best. That's why the Forbes dart board fund worked. That's why index funds are the only ones available to the general public that have produced consistent market tracking returns. Could pod shops produce those returns if they had to manage trillions of dollars?
Useful advice, unless and until the Zeitgeist drops a Hitler or a Trump on us. At times precarity and the human condition are pretty much synonymous, except that, like Gibson’s future, the former tends to be less evenly distributed. That’s where, if we’re doing the right thing, stewardship becomes a political as well as a moral practice.
"Diversify, diversity, diversity your investments" - yeah, but a big mistake I made was to diversify across countries.
Also BDL you might want to transmute the nouns to the verb.