The Cost of Being Wealthy
Economists can quantify pretty much anything and get away with it. I’m sure physicists can, too, but why would physicists try to determine the value of having never existed? Economics is a more social science than hardcore physics. A physicist can answer “What’s the airspeed velocity of an unladen swallow?” An economist can tell you “How much are you really worth?”
There is one thing they cannot really explain, though: are you wealthy? Kind of funny that they can’t, since wealth is something of an economic value and they’re, well, economists. The title of wealthy is a very subjective term, though I’m sure someone out there has a purely objective definition and I just don’t know of it. The question is this: does someone making $250,000 deserve the connotative title of “wealthy”? It depends, and the answer is yes (subjectively speaking).
Recently, I shared a link to a friend about the value of golden-speckled shit and whether someone who makes $250k annually can be considered wealthy. I’d say yes, being the damned liberal commie socialist bastard that I am (see bio, it’s truthiness). That’s partly because the median* household income (PPP) in the US is ~$$52,029 and, well, anyone making about 500% of what I do is sure as hell going to be considered wealthy by my standards.
What the ever-populist Adam Ozimek was trying to say is that when you account for everything a person owns or partakes in, including income, someone who makes $250k is wealthy. This includes living in a safer neighborhood, being able to afford more children, and eating chocolate cake laced with gold. Frankly, Mr. Ozimek went a bit far and suggested someone making $250k would be able to afford such a flagrantly stupid dessert when, on average, someone with that income won’t. They won’t; that doesn’t mean they can’t: they can easily live frugally and save 3 week’s paychecks and buy it. Even if I could ever afford to shit golden turds, why would I?
That’s because the value of golden shit is still included in the value of the shitter. Lovely blog post, huh? Enough of this crap, I just ate.
Consider the wealth of an individual. People tend to argue that someone is wealthy by their annual income. That’s a reasonable way to look at things but then you also have to consider their expenses. If they have to live in a neighborhood of New York City (Manhattan, for example) because their place of employment is at Wall Street, their expenses are going to be outrageously high compared to if they lived outside of the city or in one of the other suburbs (Queens, perhaps, which has equally safe neighborhoods, if not more so).
Is it fair to say someone making $250k a year but has to pay an exorbitant amount in rent is still wealthy? Fuck yeah. When you quantify wealth, you also have to include what one owns and the extra fruits of their purchases bring them. What is the value of living in a safer neighborhood? It’s quantifiable. How much of your income would you pay in order to feel safer on your way to work? I’m sure you can quantify that, too. It may be more expensive to live somewhere safer but that is still a luxury. Just because you don’t have the cash in your hand when you pay your rent or mortgage doesn’t mean you’ve lost the value of that cash; you are still in possession of that cash value in the form of a safer neighborhood.
That is still wealth. That is why when you buy a home, it’s still considered a part of your wealth. If you make $250k a year and live in a cardboard box in the middle of the worst part of the city, and spend all of your income on hookers and blow, your wealth is transformed in the form of a whole lot of sex (depending on the prices hookers charge), a really fucked up nose (blow up your nose with blow!), and every STD known to man (you might even get famous for discovering a few new ones).
Let’s try another example. My wife’s daughter chose to have babies at an early age. Many kids do, to the detriment of their emotional, intellectual, and financial future (and that of their parents, too often). She’s lucky to have loving parents who are supporting her through college despite her actions; if it were up to most other parents, she would have been cut off and/or on her own. She has had a few jobs here and there but, for the most part, she hasn’t made that much money in her life. Surely she cannot be considered wealthy, right? Maybe, maybe not. It depends on how much you, or she, want to place value on her children; how much is a child valued, quantitatively? What’s the value of them not having been born?
As their grandfather, I can answer that easily. The value of them not being born is negative infinity because there’s no way I can possibly quantify their value otherwise. The world could end for all I care if I could observe an alternate universe where they aren’t born. Nevertheless…
Let’s pretend my daughter’s parents (me and my wife, by chance!) weren’t so nice and she was the typical 18 year old single mother with a deadbeat dad who didn’t feel up to getting a job or, even, a GED. She could have, instead, gone to college and lived a fruitful life as a doctor (as she originally planned) because she knew her parents would have supported her through it all. She could be one of those doctors making the $250k or more and producing golden turds (I know, I know, I did make a promise, didn’t I?). Instead, she chose to have babies. Two of them (and they’re adorable). If we want to play the zero-sum game (total gains are added up, and the total losses are subtracted, they will sum to zero) and place a value of 1 to college and 1 to having babies, she traded 1 for 1 and came out even (gain of 1 of babies, loss of 1 of income: 1 – 1 = 0). She traded that cushy $250k a year income for two babies and a whole lot of stinky diapers. If we are to stay with the zero-sum game, her babies are valued at what she lost, or $250k which includes the safer neighborhood she could have had.
So, yes, she is still wealthy despite not making that $250k. Life, however, isn’t a zero-sum game and she, actually, lost the game, when it comes to wealth and economics. The ones who won are rest of the world for having been awarded with two awesome babies who will some day take over and rule the world and bring about a golden era for all time. That’s for a different blog post, though.
Since we don’t live in a zero-sum world and in a world where my wife and I are total assholes who don’t support her through college, she would be one of those single mothers with two kids living on welfare and Medicaid, taking advantage of rent-assisted living and dreaming of snagging that $250k a year income doctor who got the scholarships, grants and loans she could have gotten. Is she wealthy in this scenario? No. It’s the doctor eating the chocolate cake laced with gold.
In conclusion, whenever you hear someone makes $52,029 and someone else makes $250k, yes, the latter is wealthy and the former isn’t. That’s because the median average is $52,029 and that means it’s the most common value of income in the general population; $250k is 5x above that median, meaning it’s very, very uncommon. That sure as hell is wealthy. It isn’t about what’s fair or whether it’s anyone else’s business**, it’s about economists quantifying pretty much anything and getting away with it.
* You want to use the “median” household income because averages lie. If person 1 makes $1 million, person 2 makes $250,000 and person 3 makes $52,000, the average income of those 3 people is $434,000. That’s almost twice as much as the person making
almost 5 times the lowest income. Averages lie. Medians rule.
** What others in a society make is everyone’s business because the income gap, and, more so, the wealth gap, has distorting effects not only on the economy but also on democracy. People complain that government representatives don’t listen to the people. Why should they when the wealthy can buy those politicians into office and the pathetic poor slobs who make a mere $52,029 aren’t worth their time compared to the doctor making $250k and can afford to give 5x more to a campaign?