This is the idea I’m referring to. To be able to live comfortably and without financial stress, you must earn a ridiculous amount of money. The most common figures I hear are between $300,000 and $500,000. Have you heard this? This is something I’ve been seeing and hearing a lot lately.
I’ve recently been hearing this…thought. Do you know how ideas enter the collective consciousness and no one really knows where they came from — they’re just generally accepted as true? If they continue, they will become cultural norms — expectations that are simply taken for granted.
Because, as an economist, I find this to be a depressing belief. It’s an insane belief. Not because it’s incorrect. Because it’s most likely true. Nonetheless… the disparity between this emerging norm, this expectation — you need to earn more than $300,000, closer to $500,000, to feel financially secure, comfortable, and able to afford the trappings of a decent life.
What this belief really says is that most people will never have decent lives.
Whether or not this is “true” in some absolute sense — and my instinct is that it is, because, as I said, everyone I spoke to agreed, and statistics barely capture the struggle people’s lives have now become — the belief itself, which is damaging, is what I want to talk about
Why is it unfair that to live a respectable life, you now have to earn half a million dollars?
Because the median income in America is only $30,000 per person. That’s nearly 20 times the national median income. Even if you accept the lower end of the figures I cited — earning “only” $300,000 to live a decent life — that’s still ten times the median income.
So, as this norm becomes widely accepted, what we’re really saying is that you can’t live a decent life on anything close to an average income. To live a decent life, you must earn ten to twenty times the average.
Let us call this enormous, incredible, and shocking disparity the Rise of the New Poor.
The majority of people in society obviously do not earn anywhere near ten to twenty times the median income because, well, they are the average. To say that you need to earn ten to twenty times the average income to have a decent life is to say that only ten to twenty percent of a society will ever have one.
In reality, because wealth tends to concentrate, things are probably even more extreme — “by definition” means I’ve assumed that wealth is distributed linearly above the median.
Everyone I asked had the same reaction to my question. It wasn’t one they actually said aloud. Their expressions said it all. I’d elicited a stress reaction.
Because the truth is that having to earn that much to live a decent life is stressful in and of itself.
As a result, people find themselves in an impossible situation. If you don’t make enough money, life becomes unbearable, filled with the challenges of what feels a lot like poverty, which it is in a very real sense — only relative poverty, not absolute poverty. Earn that much, and congratulations, you’ve made it. Have you or have you not? Just thinking “this is what I have to make to have a decent life?” is extremely stressful. This is insane!”
Let me explain how having to earn this much in order to live a decent life now makes a lot of other things unattainable. Consider the case of retirement. How much do you need to earn to retire if you need to earn between $300 and $500K today to live comfortably? Is it a million? Who is it that does that? Who makes a million dollars a year or more? Because, remember, the median income in concrete numbers is still only $30K, relatively few individuals do, and the stories come to take an outsized place in our thoughts. We fall prey to cognitive bias, believing that there must be a lot more people earning those ridiculous sums than there are. Yes, there are a few.
Brookings found that 53 million workers in the U.S. aged 18 to 64, almost half of all workers, make only $18,000 a year.
The Ascension of the New Poor. This begins to rule out most of the institutions of modern society, such as a middle class, upward mobility, retirement, and so on, as well as democracy. I’ve already discussed retirement; now consider the middle class. What do literally centuries of socioeconomic thinking tell us about the need for political stability? A middle-class person. A broad and confident one, implying a large number of people who are not experiencing constant financial stress. However, the figures above confirm what other statistics show: the middle class no longer exists. How could it, when a decent life requires earning 10 to 20 times the median income?
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