Zvi, I’d love to see you put together a “cost of participation” type inflation indicator. For example: CPI has new cars up 20% since 1990 (to 2021). In fact though, a Honda accord 2xed and a Mustang tripled. The answer is supposedly hedonic adjustments—which, yes the cars are definitely better, but that seems like thin comfort to people trying to participate in the American middle class.
My attitude is that the BLS has an impossible job (roll cost of living into one single number for everyone) and probably has understated how costly it is to be a middle class American, though all the alternative measures are worse in their own ways.
I'm doing pretty well -- the kind of guy who says "if taxes need to go up to pay for essential things I guess they should go up on me and people like me."
And I've never owned a new car ever in my life.
I strongly believe the two facts are related. If I got a new car every 3 or even 5 years, I might feel like I've been run ragged.
A more expensive new car will later on be a more expensive used car. Used car prices are a function of new car prices. You can compensate by going for an even older car, but the farther back you go, the fewer working cas of that age will still be extant, until you hit classic cars and prices go up again due to scarcity. The more people are priced out of cars of age X, the more prices will rise for the remaining cars of age X+1, due to fixed supply and increased demand.
Well the most obvious point is that 50k in Mississippi is quite different from 50k in Manhattan. Having a "universal" poverty line divorced from local cost of living is obviously part of the problem.
This error of reading average spending as minimum spending is rife in housing affordability discussions—how often have you seen a median price one bedroom apartment treated as the minimum housing needed, as if there were no way to get a smaller apartment or pay below median?
I run into lots of kids of the rich who grew up with a big house and never sharing a bedroom and they start talking about what it takes to be "comfortable" or "decent" or some other wishy-washy word to describe why a 700 square foot bedroom with a shared bathroom is intolerable.
The author is in the financial sector. One of the most imperative memetic strategies for financiers is to convince everyone that they need way more money and to feel insecure about their social status:
"Holy smokes! I make $100,000/yr but I'm Actually Poor™!"
That way, they can take your money and gamble with it (and charge you commission while they're at it).
This isn't to imply that there isn't a cost-of-living crisis in the United States around 3 sectors: healthcare, education and housing ("radicalism is when no house" h/t Gavin Newsom). In those 3 areas, we have indeed become a 'poorer' nation in some sense. (The Marginal Revolution podcast has an interesting discussion about this between Cowen and Tabarrok w/r/t the Baumol Effect, and also how the price of services like aesthetic car repair has gone up astronomically).
This type of discourse distracts from the real corrosion that may be occurring in the economy.
Hard agree, I think it's super weird the "Chief Strategist and Portfolio Manager for Simplify Asset Management" is being treated as a left-wing populist. That is obviously not his angle.
I was looking into getting housing assistance for a broke elderly family member. It turns out it’s all booked, and there’s multi year waiting lists.
Asking Opus about this, it says the biggest drivers of those cliffs on the “single mom” graph- housing and childcare subsidies- are used by only 1/4 and 1/6, respectively, of eligible families.
So now I’m worried about how many of these transfer programs are actually transferring? Because if they don’t, then there’s no cliff for most people, just regressive marginal taxation.
I live in France. Cliff Asness is right and I urge you to treat this as a highly adversarial move from Green. He might be friends with Noah Smith but he should be ostracised by everyone with any commitment to America until he agrees to stop.
These rhetorical moves, popularised in the US by Elizabeth Warren, are part and parcel of the European socialist playbook. This "nothing short of above average is ever good enough", coupled with Warrenesque: "everything above average should be taxed" is how you get to social spending at greater than the entire US State and Federal budgets combined, and incredibly compressed wages suppressing entrepreneurship and social mobility.
Zvi, sounds like you should read some Elizabeth Warren. The Two Income Trap (2004) covers a lot of similar dynamics.
Obviously, being Elizabeth Warren, she understates (including with some fishy swapping of absolute vs relative percentages) how much marginal tax rates contribute to the trap + ignores welfare cliffs in entirety (from what I remember), but I thought the book overall was worth reading at the time I read it.
now, it's probably mostly material you are familiar with, but worth asking your current AI Model of choice to summarize it.
Some of the numbers are a bit silly in the last picture but if you assume the person is living in a major city, owns their place, and wants to be able to save for retirement… it’s gonna be hard to pay for shit unless you’ve got that house paid off. Even then, you better not have a single fucking thing go wrong with that house because it’s gonna cost you more than you can handle and you are not young enough to do the work.
You could start saying things like reverse mortgage, etc. but I don’t believe that’s really a smart way to go. If you end up losing the house, now you don’t have housing. You’re gonna move to some other part of the country where you can live off of social security? Ok, yeah, just forget the past 50+ years your built your life up in that area and where your family is. You decide to stay but burden your children or grandchildren with them having to house you?
It’s all bad solutions. You need to save for retirement in these high cost of living states and cities.
If everyone lived in BFE and houses were all $160k then whatever. But that’s not where the majority of Americans live now - and certainly not the ones who are struggling to make ends meet and/or are immigrating to this country. The jobs are still in the big cities and a lot of them are in the expensive cities in the expensive states.
Wow...I had no idea I was officially Living Comfortably(tm). Needs are more than met, wants have tempered with age and wisom, and my savings rate is above 20%, even! Weird to manage that at like 1/5 to 1/6 of CA's $277k... (I mean yeah, I'd have answered I'm pretty happy with the current Dream Time anyway even without eyeballing numbers, but empirical confirmation is always nice.)
It is indeed frustrating when an attentional winner contains many important falsehoods and also important truths. Smoothing welfare cliffs? I'm all for it, that's technocratic wonkery at its finest hour, but damn if it isn't dreadfully boring to most people and politically uninspiring. Pronatalism, even if Green probably wouldn't use that term? Self-recommending, no notes needed. But paving the roads to those destinations with not-even-wrong math and <s>misinformation</s> alternative facts can't be The Way. You can't put a price on epistemic freedom; always never forget that. This rebuttal post simultaneously shouldn't have to exist, yet also I love to see it. Feels like just yesterday you were covering the whole Oren Cass "1950s basket of goods" thing. Or was that Vance and the fridge? Doesn't really matter, at a certain point the fact that some myths nevertheless persist is itself useful information. ("70% of Americans live paycheck to paycheck" called, it wants its viral memes back...)
It's simple to calculate the minimum income needed to rent an apartment for a family of four, a two-bedroom minimum is needed, and monthly income of 3x the rent is specified in the Georgia Apartment Association (landlord cartel) standard lease. For Atlanta metro, which used to be quite affordable, the minimum (about 85% cost more) 2-bedroom is about $1,600/mo., or $4800/mo. provable gross income to sign a lease. That's $57,600 per year. If you want a 3-BR (DFACS usually requires children to have separate bedrooms), not in a slum (excludes most of Atlanta), then it's easy to spend two or even three times that.
If you want your kids to go to a school with test scores above the national 30th percentile, then the options are very limited, basically private school is required, which will cost $30-$60k. If you want to retire someday, then you'll have to add at least $20k/ year, $30k is more like it (there is not only no guarantee of compound returns, it's more likely you'll lose net buying power over decades after fees, "bail-ins", tail risks, inflation, taxes on inflation...).
For the lower income groups, the assumption of automatic benefits is wrong. In states like Georgia, even most homeless are rejected for Medicaid and most do not receive EBT. Certain groups receive preference, others are excluded. The excluded definitely includes intact White American families with all children born in wedlock.
At least one disingenuous economist talking point can hopefully be laid to rest by their admission that the actual hard cost of living is much higher than the official poverty line, even though they continue to lie about just how much. (Oh, we only meant *real* people need to save for retirement! Not proles! And we're going to count benefits you can't actually get as part of your income and still sneer at you for being on welfare...) Taking anything approaching the actual minimum cost of living in place of the standard federal income tax deduction and calculating tax as a percentage of disposable income reveals that income tax is highly regressive, with every higher income bracket up to over $1M/yr. paying less percent tax than every poorer bracket.
https://www.cold-takes.com/this-cant-go-on/
Obviously this can and will go on for *some amount of time*, but I would bet closer to years/couple decades than decades/centuries.
Separately, I do think many people's happiness and mental health is being eroded by digital factors. Unclear on the overall sign though
Welfare cliffs are real and the policy solution is universal benefits. Like, give everyone food stamps. Yes even the millionaires.
Zvi, I’d love to see you put together a “cost of participation” type inflation indicator. For example: CPI has new cars up 20% since 1990 (to 2021). In fact though, a Honda accord 2xed and a Mustang tripled. The answer is supposedly hedonic adjustments—which, yes the cars are definitely better, but that seems like thin comfort to people trying to participate in the American middle class.
My attitude is that the BLS has an impossible job (roll cost of living into one single number for everyone) and probably has understated how costly it is to be a middle class American, though all the alternative measures are worse in their own ways.
I'm doing pretty well -- the kind of guy who says "if taxes need to go up to pay for essential things I guess they should go up on me and people like me."
And I've never owned a new car ever in my life.
I strongly believe the two facts are related. If I got a new car every 3 or even 5 years, I might feel like I've been run ragged.
A more expensive new car will later on be a more expensive used car. Used car prices are a function of new car prices. You can compensate by going for an even older car, but the farther back you go, the fewer working cas of that age will still be extant, until you hit classic cars and prices go up again due to scarcity. The more people are priced out of cars of age X, the more prices will rise for the remaining cars of age X+1, due to fixed supply and increased demand.
Well the most obvious point is that 50k in Mississippi is quite different from 50k in Manhattan. Having a "universal" poverty line divorced from local cost of living is obviously part of the problem.
This error of reading average spending as minimum spending is rife in housing affordability discussions—how often have you seen a median price one bedroom apartment treated as the minimum housing needed, as if there were no way to get a smaller apartment or pay below median?
I run into lots of kids of the rich who grew up with a big house and never sharing a bedroom and they start talking about what it takes to be "comfortable" or "decent" or some other wishy-washy word to describe why a 700 square foot bedroom with a shared bathroom is intolerable.
The author is in the financial sector. One of the most imperative memetic strategies for financiers is to convince everyone that they need way more money and to feel insecure about their social status:
"Holy smokes! I make $100,000/yr but I'm Actually Poor™!"
That way, they can take your money and gamble with it (and charge you commission while they're at it).
This isn't to imply that there isn't a cost-of-living crisis in the United States around 3 sectors: healthcare, education and housing ("radicalism is when no house" h/t Gavin Newsom). In those 3 areas, we have indeed become a 'poorer' nation in some sense. (The Marginal Revolution podcast has an interesting discussion about this between Cowen and Tabarrok w/r/t the Baumol Effect, and also how the price of services like aesthetic car repair has gone up astronomically).
This type of discourse distracts from the real corrosion that may be occurring in the economy.
Hard agree, I think it's super weird the "Chief Strategist and Portfolio Manager for Simplify Asset Management" is being treated as a left-wing populist. That is obviously not his angle.
Podcast episode for this post:
https://open.substack.com/pub/dwatvpodcast/p/the-140000-question
I was looking into getting housing assistance for a broke elderly family member. It turns out it’s all booked, and there’s multi year waiting lists.
Asking Opus about this, it says the biggest drivers of those cliffs on the “single mom” graph- housing and childcare subsidies- are used by only 1/4 and 1/6, respectively, of eligible families.
So now I’m worried about how many of these transfer programs are actually transferring? Because if they don’t, then there’s no cliff for most people, just regressive marginal taxation.
I live in France. Cliff Asness is right and I urge you to treat this as a highly adversarial move from Green. He might be friends with Noah Smith but he should be ostracised by everyone with any commitment to America until he agrees to stop.
These rhetorical moves, popularised in the US by Elizabeth Warren, are part and parcel of the European socialist playbook. This "nothing short of above average is ever good enough", coupled with Warrenesque: "everything above average should be taxed" is how you get to social spending at greater than the entire US State and Federal budgets combined, and incredibly compressed wages suppressing entrepreneurship and social mobility.
Zvi, sounds like you should read some Elizabeth Warren. The Two Income Trap (2004) covers a lot of similar dynamics.
Obviously, being Elizabeth Warren, she understates (including with some fishy swapping of absolute vs relative percentages) how much marginal tax rates contribute to the trap + ignores welfare cliffs in entirety (from what I remember), but I thought the book overall was worth reading at the time I read it.
now, it's probably mostly material you are familiar with, but worth asking your current AI Model of choice to summarize it.
When does ‘next time’ come?
Some of the numbers are a bit silly in the last picture but if you assume the person is living in a major city, owns their place, and wants to be able to save for retirement… it’s gonna be hard to pay for shit unless you’ve got that house paid off. Even then, you better not have a single fucking thing go wrong with that house because it’s gonna cost you more than you can handle and you are not young enough to do the work.
You could start saying things like reverse mortgage, etc. but I don’t believe that’s really a smart way to go. If you end up losing the house, now you don’t have housing. You’re gonna move to some other part of the country where you can live off of social security? Ok, yeah, just forget the past 50+ years your built your life up in that area and where your family is. You decide to stay but burden your children or grandchildren with them having to house you?
It’s all bad solutions. You need to save for retirement in these high cost of living states and cities.
If everyone lived in BFE and houses were all $160k then whatever. But that’s not where the majority of Americans live now - and certainly not the ones who are struggling to make ends meet and/or are immigrating to this country. The jobs are still in the big cities and a lot of them are in the expensive cities in the expensive states.
Wow...I had no idea I was officially Living Comfortably(tm). Needs are more than met, wants have tempered with age and wisom, and my savings rate is above 20%, even! Weird to manage that at like 1/5 to 1/6 of CA's $277k... (I mean yeah, I'd have answered I'm pretty happy with the current Dream Time anyway even without eyeballing numbers, but empirical confirmation is always nice.)
It is indeed frustrating when an attentional winner contains many important falsehoods and also important truths. Smoothing welfare cliffs? I'm all for it, that's technocratic wonkery at its finest hour, but damn if it isn't dreadfully boring to most people and politically uninspiring. Pronatalism, even if Green probably wouldn't use that term? Self-recommending, no notes needed. But paving the roads to those destinations with not-even-wrong math and <s>misinformation</s> alternative facts can't be The Way. You can't put a price on epistemic freedom; always never forget that. This rebuttal post simultaneously shouldn't have to exist, yet also I love to see it. Feels like just yesterday you were covering the whole Oren Cass "1950s basket of goods" thing. Or was that Vance and the fridge? Doesn't really matter, at a certain point the fact that some myths nevertheless persist is itself useful information. ("70% of Americans live paycheck to paycheck" called, it wants its viral memes back...)
It's simple to calculate the minimum income needed to rent an apartment for a family of four, a two-bedroom minimum is needed, and monthly income of 3x the rent is specified in the Georgia Apartment Association (landlord cartel) standard lease. For Atlanta metro, which used to be quite affordable, the minimum (about 85% cost more) 2-bedroom is about $1,600/mo., or $4800/mo. provable gross income to sign a lease. That's $57,600 per year. If you want a 3-BR (DFACS usually requires children to have separate bedrooms), not in a slum (excludes most of Atlanta), then it's easy to spend two or even three times that.
If you want your kids to go to a school with test scores above the national 30th percentile, then the options are very limited, basically private school is required, which will cost $30-$60k. If you want to retire someday, then you'll have to add at least $20k/ year, $30k is more like it (there is not only no guarantee of compound returns, it's more likely you'll lose net buying power over decades after fees, "bail-ins", tail risks, inflation, taxes on inflation...).
For the lower income groups, the assumption of automatic benefits is wrong. In states like Georgia, even most homeless are rejected for Medicaid and most do not receive EBT. Certain groups receive preference, others are excluded. The excluded definitely includes intact White American families with all children born in wedlock.
At least one disingenuous economist talking point can hopefully be laid to rest by their admission that the actual hard cost of living is much higher than the official poverty line, even though they continue to lie about just how much. (Oh, we only meant *real* people need to save for retirement! Not proles! And we're going to count benefits you can't actually get as part of your income and still sneer at you for being on welfare...) Taking anything approaching the actual minimum cost of living in place of the standard federal income tax deduction and calculating tax as a percentage of disposable income reveals that income tax is highly regressive, with every higher income bracket up to over $1M/yr. paying less percent tax than every poorer bracket.
https://x.com/armando1987dim/status/1645122514157203458
https://x.com/armando1987dim/status/1645122821490655232