Thursday, July 14, 2011

Four Dudes

Today, the tale of four dudes. Let's meet 'em:

First, we have Al. Al, like the others here, is a single fellow in a medium-priced U.S. city like the one I live in. This year, his income is $10,000. Yeah, ouch. At this income level, Al cannot meet even his basic needs on his own. He's either got to get significant outside help, from family, from friends, from the state, somewhere, or we'll soon find him in August three weeks unbathed, with a tan many high school girls would kill for, standing on the side of the interstate with a sign saying Anything Helps, God Bless. Al's main worry right now is just getting through the day. He doesn't have a steady job, obviously, and the longer he goes without one, the harder it will be for him to get one, and he knows it. Al, whether he's getting help or not, is almost surely a very unhappy fellow - there's a good chance he's clinically depressed and is at risk for developing any number of other coping deficiencies.

Next, we have Bob. Bob's income this year is $20,000. We wouldn't say Bob has it easy, but he's sure got it easier than Al. The difference between $10k and $20k is transformative: Bob has food, clothing, shelter, air conditioning, transportation. Bob's employed, though his job probably offers little fulfillment or advancement potential. He can get by, but man, it's not easy. Any false move or stroke of bad luck and he could be in serious trouble. He's either got crappy or, more likely, no health insurance. Bob knows about decisions like "if I buy this pizza tonight, I might have to donate plasma on Tuesday so I can pay the electric bill on Thursday before they cut my electricity off". Bob's pocketbook feels every mistake and bad break, even the little peccadilloes. But for now he's got a place, though it's small and the neighborhood's not the safest, and electricity and a beater car and a cheap TV and computer and some thrift store books and a futon and a well-worn guitar and some friends. It's not so bad. Bob has to spend nearly all his income on necessities, so unless he's extremely frugal he won't be able to save even a little for the future. Bob's treading water and who knows how long he can hold out, there's reason to fear in the small hours of the night, but it beats hell out of drowning like poor Al.

And then we have Chris. Chris's income this year, you guessed it, $30,000. While it's nowhere near the chasm that we saw between Al and Bob, the extra $10k Chris makes goes a seriously long way. He has a car, not a new one but a reliable import with 120k miles on it, and if you maintain those they run for years. He has health insurance. He has no trouble paying his monthly bills. He has a smart phone and some furniture and a few other nice things beyond Bob's reach. Chris can save some money, not a huge amount but enough to get the ball rolling if he's smart and watches his spending. It'll take some discipline for Chris to avoid living paycheck to paycheck, but it's very doable. Chris got a DUI earlier this year, for example: going to jail sucked and the $3,000 fine he definitely felt in the wallet, but it didn't break him. If Bob had done that, and Bob likes drinking just as much as Chris does when he has the means, he'd have been in dire financial trouble without a bailout. Chris can't quite buy a house yet, but he can rent a decent place in a decent part of town. He's not well off, but he's got all the basics without sweating them and he doesn't have to be close to perfect to stay safe financially. That's a lot of stress Bob has daily that Chris doesn't.

And finally there's Dave, who will have an income of $40,000 this year. Is $40,000 a lot of money, by American standards? Well, no. By the stats, Dave is lower middle to middle class. He can buy a modest house, or a new car, or a three-week European vacation. He can't buy more than one of these sensibly, but at least he has options. He also has the option to forgo those and save aggressively: Dave can sock away $10,000 this year and *still* have the life Chris does, which is hardly a beggar's life. Dave can think about planning his retirement - even if Dave isn't particularly good with money. Chris almost can but not unless he's excellent with his money, and for Al and Bob, even thinking about it hurts. The difference between $30k and $40k isn't near what the 10-20 or 20-30 differences are, but it's still one nice, fat cushion. When Dave buys beer, he doesn't have to think, oh yeah, I'd better save and buy that twelve of Natty Light. Dave drinks the good stuff.

To illustrate Dave's advantage more vividly, you remember when Bob was worrying about whether buying a pizza one night would make his life hard? Dave can buy a $17 large pizza every night of the year, wash it down with a $10 bottle of wine, spend $100 on cocaine every Saturday, lose $2,000 in Vegas on his annual vacation, and spend $150 on a call girl every first of the month, and he'll STILL have more money than Bob. This would be dumb, yes, but Dave could do it. If he's only half that stupid and blows just half those amounts on such things, he's still ahead of Chris even if Chris is a teetotaling ascetic who dines on Ramen noodles and water every night...but back to the real world. Assuming Dave and Chris are about equally sensible, Dave's extra 10k will help him sleep better at night, sure, but their lives aren't too different. Dave can go to Europe while Chris goes to Yellowstone; he can drive a 2007 car while Chris drives a 2003. He can have a bigger TV if he wants. He's 12% less likely to have a neighbor blasting his car stereo at 2 am. All of which adds up to...well, not diddly, but not a lot either. The only big deal is the ability to go hard on the retirement saving, I'd say.

(All dollar figures here are for single folks, remember. If you're thinking of families, 2x or 2.5x would be reasonable multipliers.)


I mention these fellows because I've been all of them, roughly speaking, and because it's been my observation that once people get much beyond the financial level Dave here has reached, they seem to forget what these guys go through and, more to the point, how money's ability to transform people's lives vanishes in a hurry as we move up the income scale. The notion of treating every dollar as equally sacred strikes me as ridiculous. Imagine the difference in poor Al's life if he suddenly woke up in Dave's bed (without Dave there). Going from $10k to $40k is profoundly life-changing - having had a similar experience myself, god, I can't even describe how good it feels. Better than all but the very best sex you've ever had. Going from $70k to $100k does far less to increase personal happiness, according to the studies I've seen, and going from $800,000 to $830,000, oh please, that's just numbers on paper unless you're greedy or perversely extravagant or overly competitive or you measure your human worth by how much money you have, none of which we should have any sympathy for. But it's a $30,000 difference all the same.

This all tells me that we should be doing whatever elevates as many people as we can into the working and lower-middle to middle classes, because that's where the largest potential gain in societal happiness is, by far. And the jobs that pay those salaries are jobs I believe most of the candidates could do, given opportunity and proper training. I've known people at all these lower income levels. Some are lazy or stupid, but most are not; they're more unlucky than anything, or if it's mistakes they've made, well...a good number of higher-income people are lazy and imprudent and drunkard too. Most of the benefit of increased income, as the examples above and my own experience illustrate, is not having to pay full price when you screw up. When $20k Bob screws up, it's a grievous matter and he's an immoral slacker we shouldn't enable - tough love, you know. When a federal judge making $200,000 gets a DUI blowing three times the legal limit, eh, he's just a good ol' boy, everyone goes a little far now and then, we're good forgiving folks, ain't we? It's a whole lot easier to look like a paragon of "personal responsibility" when you have a pile of money to insulate you from the consequences of your irresponsible decisions.

So if $20k Bob and $40k Dave are playing completely different games, and I'd say from firsthand experience that they are, then what of the gap between $40k Dave (doing darn okay, right?) and a hedge-fund manipulator who makes Dave's annual salary every 12 freakin' minutes? Totally off the grid. That presumably thoughtful people can look at this situation, the bizarre ratios involved, and conclude that disparities of that size have primarily to do with personal Maybe the numbers involved are so large and imposing that people can't think about them: I remember from an old Bill James Baseball Abstract where he quoted a veteran scout as saying that people get all excited about a kid hitting 35 homers in AA, but if the kid hit 66 they wouldn't know how to think about it so they'd just find ways to discount it, not think about it. I'm quite sure the scout was right, and I think the way we look at today's widening income inequality is a lot like that. The change has come so rapidly and so extremely that we don't know how to think about it, so we don't.


  1. Man, I'm enjoying your blog. This is good stuff, Geoff!

    I think you're quite right about going from $70k to $100k--and in a double income family, going from $150K to $180K is just completely different. I mean, the problems are quite different--should we buy the brand new minivan or stick with our old one which isn't costing us much? Should we buy the vinyl fence for $11K this year, or replace our deck instead? How will this affect the hardwood floor this year? Would we have to wait a couple of years before we redo the kitchen?

    They're all very first world problems.

  2. Thanks for the reminder, G. I forget, not having what we had as DINKs, to appreciate what we very much still have. We have enough to scrape by for now, and are rich beyond our wildest dreams with the love of family and friends.

  3. Thanks for reading, glad you're enjoying it...there is a call to gratitude in what I wrote here, though that wasn't my reason to write, and indeed we all have much to appreciate. Even poor $10k Al above can be thankful he's better off than billions of other people in the world.

    First world problems is right - those are the problems you want to have. I find it bizarre that anyone would feel that living in a 1500-square-foot house in a mid-priced area, driving a $20,000 car, taking one-week vacations and sending your kids to a decent state university unless they have big scholarships is somehow demeaning or beneath them. But thousands of people in our country think exactly that, to the point of forming angry political movements to give voice to those ideas. We see people yelling and making signs and whatnot over tax increases that would have virtually no effect on their standard of living.

    It is one of the foremost problems facing the ongoing American experiment: how to encourage a culture of freedom that values the individual without enthroning greed and selfishness as our supreme virtues? We haven't figured it out yet, and I think we've gone significantly backward on the question in my lifetime.