It’s interesting the categories the author chose, as I had a similar tone with my mother when I finally started making good money.
I grew up in a divorced household. On one side I had a father and step mother who made large amounts of cash in a relatively inexpensive area. They vacationed regularly to Hawaii and Las Vegas, and prioritized spending money on themselves.
My mother and step father combined to earn around $30k, were hyper frugal, and stressed about every expense. Any expense whatsoever was agony, and they made sure my sister and I understood their inability to buy things on a whim.
So, as I bounced between houses each week, I yo-yo’d between borderline poverty (although they made it work) and quite high wealth.
When I hit my mid to late 20s, my wife and I hit a point where we had no debt. Could go out anytime. Could rent any reasonable home in our area (couldn’t buy because we didn’t have that kind of down payment money), and traveled a few times a year throughout the world. When I contrasted this against how I felt after undergrad, while in grad school, where I was heavy in debt, had no car, and felt constant financial stress, it’s remarkable.
As I’ve continued to grow older, I’ve now come to realize it wasn’t the travel, eating out, or the things I could buy that helped me to be less stressed, it was the lack of burden of worrying about how I would pay for X, Y, or Z. I make way less money now as I run my own startup, don’t go out that much as I do all the cooking, don’t travel that much because we can’t afford it, yet I carry the same lack of stress and worry as I did years back.
Part of why I’d like to see universal, free at the point of delivery, health care in the United States is for this very reason. I’ve first hand experienced and witnessed the choice of not going to get needed medical care because of the financial burden. UBI is still highly experimental, and many other wealth normalization techniques have severe downsides that potentially outweigh the benefits; however, universal health care has enough clear data points of success in the rest of the world, from my vantage point, that maybe that can be the “level 0” of wealth in the United States.
My wife and I are about 30. We still have ~50k in student loan debt. We make enough that her entire paycheck goes towards our student loans and we should have it paid off in a year and a half or so.
However, we want to have children and we don't want our debt to impact their lives. How sad is it that American workers can't afford to have children because of how expensive our education is? Imagine if one of us had medical debt...
College education and healthcare /should/ be free for all in this country(USA). They are fundamental to the social mobility and freedom that our founding principles were created for.
One thing I'd like to see added to freebies discussion is the meaning behind of the word 'free'.
For example: 'College education and healthcare /should/ be free for all in this country(USA).' really means 'College education and healthcare /should/ be paid with taxpayers' money for all in this country(USA).'
This really adds to discussion as people get also to discuss if they really want to spend more of their own money. The word 'free' in this context seems to automatically dismiss any discussions about tax rise and public spending.
Disclaimer: I'm Brazilian, not some angry republican.
And what person wouldn't want to fund and invest in their own future? Using tax money to fund free education for every child and healthcare so no one has to be burdened for life with debt is one of the best return of investments of your taxes in the long run.
I'm Brazilian and living in Sweden, that is how society here thinks (mostly), social mobility here is absolutely real. Just as an anecdote, I have friends who are 1st generation born here from very poor immigrant families, they are architects, engineers and fashion designers with good careers ahead. That was only possible because they had access to free education for all of their lives.
I am proud to pay my taxes here and fund this, even though I never have used (and don't plan to have a family), as many issues as this society has it works and tries to improve itself, coming from Brazil it's another world.
So I don't appreciate the rhetorics around not funding public education and healthcare, these are basic tenants of the societies of the future.
The parent post is about college, so this is not about children anymore. I think what making it all free takes away, is the importance of making good decisions about college. If it were all free, I bet a lot fewer students would take it seriously and be more likely to enroll in less practical degree programs -- english, psychology, american studies (not architecture, engineering, design, as you mentioned). They would also not have any urgency to finish in time, to see well-paying careers afterwards.
> If it were all free, I bet a lot fewer students would take it seriously and be more likely to enroll in less practical degree programs -- english, psychology, american studies (not architecture, engineering, design, as you mentioned). They would also not have any urgency to finish in time, to see well-paying careers afterwards.
What are those people doing now if they didn't go to college because it was too expensive to pursue an "impractical" degree?
Wouldn't providing people the option for further education be a net good for society in general?
I'll choose to ignore the entire notion of "impractical" degrees. The society I want to live in is not without music, literature, and art. But those are "impractical" studies.
GP here...while I think it is a given that what I meant is that these would be free for all by leveraging taxation, I don't think we(average joe) really need to spend any more money to accomplish these things. Our politicians gladly pour money hand over fist into private defense contractors pockets and I think this is wrong. We should be spending this money on Education and Healthcare for all, instead.
>College education and healthcare /should/ be free for all in this country(USA). They are fundamental to the social mobility and freedom that our founding principles were created for.
We had this. It was called high school. But then standards were lowered so it was no longer a good filter for intelligence and conscientiousness. Standards were lowered to increase "social mobility." This did not work. Now college performs the same function. But the average IQ of college graduates will continue to decline as the percent of the population that graduates approaches 100, and so masters degrees are becoming increasingly common.
Will this, too, increase social mobility?
Social mobility in a meritocratic society is hard given the heritability of valuable mental traits. If we keep sacrificing our schools on the alter of social mobility, we will end up burning the first 30 years of or lives getting Phds in mopping floors.
First of all, your post shows that you think that education or going through a school is a social signal rather than an educational experience. I disagree with this.
Secondly, you seem to imply that no improvement in the education level has happened because of the normalization of high-school education. I disagree with this also. I have no numbers to back this up, but by looking at the world around us, at all the inventions and the added complexity and our increasing ability to handle complex systems, I think we have become smarter.
Thirdly, maybe social mobility was hijacked by some rhetoric or became a symbol for this or that group. But at its core, social mobility means allowing people to rise to their potential and not stifling them. How can we be "sacrificing our schools on the alter of social mobility" when social mobility is supposed to be _more_ meritocratic, not less?
To your first point, you may be interested to read Bryan Caplan’s “The Case Against Education.” He makes a very strong, quantitative case that education is primarily a signaling device.
For instance the difference between 3.5 years without graduating and 4 years + graduation is immense, whereas in a non-signaling model, they should have very similar outcomes.
There is a huge selection bias in these groups. 3.5 years without graduating is likely to be students who are doing poorly since if you were a top tier student you aren't going to quit 0.5 years off from a degree under most circumstances. People quitting university after 3.5 years most often have a number of failed courses and aren't 0.5 years from a degree.
Another example then: college students forget a lot they learn inside of a few years. The only thing they hold for a significant amount of time is the prerequisite knowledge they needed to learn everything else they were taught. This applies especially to subjects largely unrelated to their degree / interests.
I think are two different stages we're conflating here.
Education, in the resume / HR sense is absolutely a signal.
Education, in maintaining and excelling in your profession is knowledge.
It's lamentable that degrees are used as filters, but I wouldn't trust someone to do an electrical engineering job who didn't have a related degree. There's simply too much to learn. (Yes, exceptions do exist, but they're not common)
I'd argue the more pointed questions to colleges should be: if you're not equipping your graduates with the latter knowledge, then what are they buying? And why should they continue to pay you?
Standards have never been higher. Students face pressure from college admissions and teachers face pressure from national standards bodies. Policies that have enriched standardized testing companies.
The real issue: Labor power has never been lower. Wages have been stagnant for the past two decades. You need a college degree now because safe middle class lifestyles that were previously available to graduates of high school are now limited to those with certain bachelors degrees.
Whether this is due to political collusion with capital, increased automation, globalized labor or a combination of the three is up for debate. The middle class you're imagining was fueled by an economic engine tooling up to rebuild Europe and a political climate that taxed the rich at 80-90%.
Requiments change based on availability of labour and is not entirely related to the difficulty of the job.
The exact same type of jobs often have different requirements year-to-year. Recruiters start adding or removing requiments based on how easy it is to find people for a role. It just acts as a filter but is often unrelated to the actual difficulty of the role.
Recruiters don't want to have to judge people entirely on merit as it is hard. They pre-filter the pool to focus their search and make it easier to manage and vary the constraints based on number of applicants.
This means people perfectly capable of doing a job get excluded for a superficial reason other than ability or competence and it overly effects people from a poorer background.
[citation needed] On all the bullshit "IQ claims". At my alma mater (and I suspect a similar national trend at schools of equal standing) SAT scores among admitted students is the highest it's ever been. The world is just getting more competitive; there's no grand conspiracy, and there definitely never has been a meritocracy, and our elite institutions remain elite (even if people like you would no longer be able to get in).
>SAT scores among admitted students is the highest it's ever been.
And the GDP of Venezuela as measured in bolívar
is the highest it's ever been!
"More comparisons on new SAT scores versus critical reading and math scores on the old SAT:
A new 1200 corresponds to an old 1130.
A new 1300 corresponds to an old 1230.
A new 1400 corresponds to an old 1340.
A new 1500 corresponds to an old 1460.
But a new 1600 is just as perfect as an old 1600."
This argument exactly is why I posted the older fact book. The recent change doesn't explain the uptick going on for the past 40+ years. Also even if you take off 40-60pts there's still a rising trend.
Underestimate the caliber of the rising population at your own peril. The failing generation can only cry ageism for so long before their jobs are eaten.
You may be aware of this, but just to add to your point, the Flynn effect[0] of IQs consistently rising pretty convincingly rebuts the idea that higher SAT scores are _only_ due to the test getting easier.
I avoided mentioning the Flynn effect because it tends to attract naysayers (see below, with some embarrassingly poorly structured studies pulled straight from google).
The argument against the downfall of society stands pretty well on it's own without it though, mostly because there's no evidence the tests are getting easier (regardless of recent score changes a 1600 is still a 1600) and even less evidence the test takes are becoming less accomplished.
Extrapolating data from 90 years of an isolated island nation to evolutionary timescales is the major assumption. The other weak foundation is the assumption that this gene should correspond to educational level. It was weakly correlated in the early 20th century, less correlated now, and we can't put any weight on to what it actually controls (maybe it's related to IQ, maybe it's delaying gratification, who knows, the writers don't claim to).
I think it's a bold conclusion to leap from one genetic marker doesn't seem as strongly correlated to education levels among Icelanders to "cognitive genomics is on the decline".
SAT scores among admitted students is the highest it's ever been.
My older son needed a certain ACT score to get into the school he wanted. He wasn’t anywhere near the score. After 10 one on one tutorial sessions at $100 a pop with former college professors. He got in. He didn’t all the sudden get smarter. He had access to resources.
Another anecdote, I had the highest SAT score in my school and I believe at least the second highest in my city out of 5000 graduating students (not a large city). How much of that do you think was due to me being one of the smartest or hardest working students in my city (usually ranked near the bottom in income in the US) and how much was it due to my mom not only being a high school math teacher but she also had done SAT workshops for years?
I didn’t have to go to a “SAT Tutorial” class with 30 other students where an overworked teacher volunteered to come in the morning for an hour before school started. I had all the help at home I needed.
This. I once had a friend on an admissions committee at my alma mater look at my old application to see if I could get it. That was seven years after I was admitted and the answer was "No".
It's not difficult to have a free or nearly free college system. Many European countries have this and participation rates are still generally in the same range as US college participation.
Unfortunately this is likely correct. The race to the bottom with credentialism will continue until we break the game. The answer isn't more credentials (free college, etc), but to make credentials worthless as a social signal. Educational backgrounds should be made a protected class, much like race or religion is. Then employers will have to rely on examinations or merit (see: Bar exam for attornies), rather than pedigrees. If you can't judge or ask about your college degree or lack, the job market becomes a vastly more level place.
You're just replacing one credential (University degree) with another (has passed specific test). Go ask any CISSP how well they think exams work as a test of ability or knowledge.
I agree with you on healthcare, disagree on college. College is largely a positional good - it's an earnings advantage by putting you ahead in the line of job candidates. If everyone goes to college, that doesn't advance everyone ahead in line. A good chunk of the effect of free college would be making it more like a high school degree for more and more jobs in the economy.
More important is to ensure that a college education is not required and not useful for social mobility.
But better knowledge will always be important for social mobility, at the very least via earning more money.
OTOH the traditional college may be not the best way to acquire certain kinds of knowledge. In many cases learning outside campus using recorded lectures, books, and computers may be as efficient, and visiting labs for necessary work could be vastly less expensive than doing full-time college.
I suspect the value of certain independent examinations / certifications, that is, the comparative advantage they give, will grow with time. The effort of passing them will be (or already is) university-level high, and the prices will also grow, but definitely not to the level of college prices.
This will democratize learning because of the lower prices, easier choice of time / pace, and easier choice of what you really want to learn. It's already happening, of course, but it's low-key by now. I posit that it will be a major force.
Certain things, like medicine, are not amenable to this approach, or course. But a lot of STEM, financial, media, even liberal arts curricula can benefit from such an approach.
>But better knowledge will always be important for social mobility, at the very least via earning more money.
College doesn't only improve your income via teaching you valuable skills that demand a higher wage on the job market. It also tells employers that you're the sort of person who can successfully get through college, and employers rightfully discriminate based off this signal.
Furthermore, there's a selection effect too. Colleges don't necessarily make their students better, but can often simply find better students. If you took Stanford and replaced 100% of the instruction with putting the admitted kids in a room together, the "graduates" would end up out-earning others simply because of the kind of person that they are.
There's some debate about the relative sizes of these three factors, but it's my opinion that the human capital theory is a relatively small portion of it. Under 20%, I think.
Sure, there is a lot of signal in having passed certain exams (like Stanford admission exams). This is why I think that examination per se, done by likes of Stanford, but also by now-being-establishing institutions, will be increasingly useful.
In a narrow IT industry sense, having an MSCE, or JCP, or Cisco certification used to be somehow valuable. But tech moves fast, so topic-bound certifications don't keep their value for very long.
If everyone would go to university, nobody would earn more money. It'd just push the boundary where people are separated.
In my country, vast majority of people go to post-high-school education. The result is that a lot of people have bachelor's or even master's yet end up working shitty dead-end jobs. Which they could do as well right after high school. In fact, many places prefer to hire people without degrees for such jobs for various reasons. Effectively higher education becomes net negative if you went there for the lulz and didn't make it.
Its being accessible is the issue, that is, we don't want to miss a bright child of not so well-off parents who can't afford to pay a lot. Hence education credits: if you're bright and determined, a good education will give you a lot, and land you in a financially more gainful place.
OTOH a diploma becomes a token of costly signaling, "all good kids get a degree", so a lot of people go to college just for lulz, or to appease parents, which is a pretty bad use of their time, and also a source of crippling debt.
Here's where differentiation actually occurs: it's between the determined kids who actively work on and benefit from education, and unmotivated kids who just fool around, because peer pressure, parents, or fashion pushed them to a college which they don't care much about, or which teaches only unmarketable skills. It's a pretty painful and costly way to differentiate; I hope the society will eventually find a different way to achieve a similar effect.
(To say nothing of the rising cost of education, fueled by the unending source of the educational credit money.)
For the record: I did not press my son to go to college, and he decided not to go. I'm fine with it. He's got an engineering job anyway.
Yes, accessible, but not universally accessible. And yes, accessibility should be merit-based. If you're smart and get good grades in high school - university should be available. But then some people start complaining how it's unfair and smart-but-poor kids can't get on the same level during high school. Thus we should push that one step further.. Which IMO is bullshit. People can use up any leeway given to them.
If all of that knowledge and skills were marketable - yes. But many people go study bullshit degrees. They then expect good jobs and cushy salaries because degree. But apparently somebody needs to do dirty jobs too. Society would be much better off if a portion of people went to vocational school or were just trained at work.
Good plumber can advance standards of living and overall wealth much more than another failed literature critic. Who feels too smart to go to vocational school to learn plumbing after spending 4 years for useless diploma.
But at the same time shutting out the poor from college unless they're also straight-A students and somehow magically come from an area with good schools despite being poor...
This is not a problem that has any easy solutions. I've been kind of partial to making tuition free for four years (paid for by the state) as long as you can maintain a 3.0 GPA. Basically extended public school but more aggressive about weeding out people who are not cut out for school. The state would negotiate appropriate tuition each year to discourage ever inflating rates.
The issue of unaffordability of universities if loans were drastically reduced would be a painful transition, but only a transition. Universities are unsustainable from a customer perspective as they are, and something needs to give.
A 4-year degree should also not be as widely required as it currently is, which is something else that needs to correct, which would happen with a collapse of graduates.
But as mentioned upthread, if we simply keep things as they are and throw good money after bad, people are going to have to be in school until they're 30 in order to meet the minimum requirements for mediocre jobs. Better to have some tough times to weather, given that you can always enroll later in life after things have settled, assuming it's something around a 5-year correction.
If you've read Debt: The first 5000 Years, historically, debt has been one of the biggest factors in enslaving the poor. I think we'd be much better off with a system of credit instead of debt. For example, maybe instead of borrowing to go to school, a college gets 10% of your future wages for 5 years.
I'm a fan of the public/military service as payment for higher education (or vocation educational, albeit for less time). It's possible to also serve and learn concurrently for a period of time.
1. Provides government with cheap, high-quality workers.
2. Teaches leadership, discipline and other necessary soft-skills.
> But at the same time shutting out the poor from college unless they're also straight-A students and somehow
So, stop federally guaranteeing (and issuing) student loans (which mostly don't go to the poor) and increase need-based, and public-service-based, grants. Widely available no-need loans drive up prices but also insulate people from the immediate effects at a time when they are cognitively least able to appropriately assess long-term costs.
> But at the same time shutting out the poor from college unless they're also straight-A students and somehow magically come from an area with good schools despite being poor...
Is this better or worse than the credential treadmill and a lifetime servicing debt? At least when college was cheap in the 70s, you could pay for it with a summer job and part time work during school.
> more aggressive about weeding out people who are not cut out for school
You can barely pay what it takes to just exist on a minimum wage full time job these days. I wouldn't expect tuition to ever drop to the point where people can get through college on summer jobs or part time work without a serious shift in the labor market.
Education is only “expensive” because people choose to overspend on it. The cost of my education was less over 4 years than a lot of people paid in one year. There were plenty of people sitting right next to me at 25 years old in tens of thousands of student loan debt making the same amount I was.
I was accepted to a well known engineering school. I chose to go to a much cheaper state college and stay at home. Looking at the salaries reported by the engineering school for graduates three years out, I was making the same.
Setup a corporation owned by a trust, all your assets go into the corporation. If you have a catastrophic life changing event, your base will be secure.
You can also rent your home back from yourself and write off things you can't do as a homeowner (depreciation, upgrades, interest, etc.).
Moving your assets to their own entity is how you protect them. Should something go wrong, you have no assets for them to come after as they're owned by the trust. You can use your lifetime estate giving to help avoid taxes on the first few million. Plus if you're putting things in there before they've appreciated over decades, it will be at a lower cost basis as well.
Discuss this with an accountant and attorney that understands trusts and the tax implications of course.
If your assets will be over 5.4 million (the current exempt amount from estate taxes) for a couple you should have a trust, if you're no where near that, then yes, a trust for your home alone is pointless. The business write-off part still stands.
I have a lot of debt from a private university, so I'm aware of that side of things.
But, in-state tuition at universities can be very affordable. The average public four year tuition is $6,841. Knock out two years at junior college and it's even cheaper.
There are pretty generous subsidies based on income, where you can get junior college almost for free.
Yes private university tuition is very expensive, but public colleges are not.
“Expensive” private universities often have lower net costs for the poor than public universitied, even though the sticker price is higher, because they can offer their own need-based grants.
(Lots of poor people applying for colleges don't know this, of course, and restrict themselves to “cheaper” public schools.)
Have you talked to a financial advisor about this? Interest rates are low enough now that this might be your best use of the money but there have been many periods where holding onto your student loans and investing the money you haven't paid yet is a net increase in income.
The mental shift and peace of mind GP is talking happened for me when we could pay off all of our debts with our liquid assets. We chose not to do this however because of interest rates, and because the nest egg meant we never had to pay for anything, even a broken car or arm, on credit. I believe that you will discover you feel the same way.
Don't confuse 'no debt' with 'wealthy'. Wealthy people take loans too, when it's cheaper than the alternative.
Be very careful investing with loans that aren't cleared in bankruptcy. If you misbalance a portfolio and get overexposed to a downturn you might be throwing away your entire financial future. Restarting from $0 in bankruptcy is very different than restarting in lots of debt with high interest. Even if this is sometimes +EV it seems worthwhile to pay off the student loan just like it's sometimes worthwhile to buy insurance.
That's the tricky bit with student loans, yes. Part of why I opened with 'financial advisor'. With low interest balance transfers and mortgages the math is much simpler.
I think about this a lot and weigh your line of reasoning heavily. My reasoning is that we(my family) would like my wife to be able to focus on raising children and only work if she wanted to...we could, in theory, afford to do this on my paycheck alone - but not if we also have to pay minimums on student loans. Therefor it makes more sense to us to focus on paying them off as quickly as we can so that her time becomes freed up.
I understand the financial reasoning behind not paying them off...but I think her time is worth more to us than whatever money we would save if she had to continue working.
I think the previous poster is trying to say something slightly different.
If the interest rate on your student loan is lower than the investment returns you make, then you:
(1) End up with more money if you don't pay off your student loans, and
(2) Can still pay off your student loans whenever you need to, so your wife would not have to continue working any longer than she would otherwise.
It is strictly more money, and doesn't change your wife's timeline. You basically get free money at the spread in yields between your student loan debt and your investment returns.
One way to think about it is this: If you could borrow $50k at (say) 3% interest and could invest it in a way to make (say) 8% returns, why wouldn't you? You'd make 5% on that $50k!
The fact that you already have the debt, and the cash comes from saving monthly instead of in a lump sum doesn't change that basic math, and doesn't change how long you need to keep saving for -- in fact, it would lower it!
Of course, that assumes a low student loan interest rate and a high rate of return on investments, as well as risk tolerance, etc. etc. etc.
That's part of what I was getting at. But in addition to the math you're talking about, there are some pretty big psychological factors at play here, and I think we neglect them at our own or each other's peril.
If you ever want to be comfortable (nevermind wealthy for the moment), you must overcome the urge to spend money that you have 'lying around'. The forced austerity of paying off your loans as fast as you can is a different kind of discipline that is useful, but it avoids temptation. When you pay off your loans you make that money disappear, in a much more concrete way than for instance setting up automatic transfers.
Eventually, you have to learn to resist that temptation, and I think it's healthier and more efficient to exercise those muscles long before you hit a net worth of $1. You have to get comfortable having liquid assets, and still live below your means. To spend it when it's wise to do so instead of when you want to. If you can do that your wife can quit her job, or you can take a chance on that new job that is in a new town, or might explode in a fiery cataclysm. You can remodel your kitchen to make your house worth more than you spent on the remodel.
Even simple stuff like putting aside money for a new TV or laptop and then not buying it until there's a sale can make a huge difference in your spending money. Or bigger, like a car. Don't get the one without air conditioning because it's the color you like. Just wait.
The rationale is that instead of paying extra on your student loans you invest the extra and so long as the return on your investments is higher than your student loan rate you come out ahead. When the rates flip, such as in a market downturn, liquidate the investments and apply it to the student loans.
If you feel you do not have the discipline to avoid dipping into your investments, then by all means continue as you are.
No, not really. But I understand that I, for the most part, have to participate in a system that I believe is fundamentally broken.
There's almost nothing I learned during my 4 year college education that prepared me for any of my (tech) jobs post-graduation. And, due to poor decisions that I made, essentially as a child, I dropped out of high school when I was 16. So, a GED and a college education seemed like the only way out of the hole I dug myself at the time.
I guess now that I am 30 and know myself a lot better, what I do regret is not being more creative. I probably could've figured out a way into a job similar to the one I have now if I had been more creative and avoided getting a 4 year degree.
>There's almost nothing I learned during my 4 year college education that prepared me for any of my (tech) jobs post-graduation
Did you participate? I've always been an avid and successful self-teacher, but college gave me opportunities and goals that I would have as an individual "smart" person. Everyone I've met who "tried" in an educational setting has come out knowing more than when they went in.
I wouldn't be quite so quick to dismiss the ability of a college diploma to get you past the first level HR filters at so many companies, especially for tech positions. When there are a ton of candidates for a job it's really easy to circular file the ones that have just a GED and no secondary education.
It's not so much that it doesn't help as, is it worth the cost? Community colleges, with a transfer to in-state public universities, should be a relatively affordable option for that use case.
I'm 37. I made an idiotic decision several years ago and got some crippling debt.
Now I have a stable relationship and I'd love to have children... but I can't, because 70% of my income goes to debt payment. My country has no US-style bankruptcy (if I stop paying I'm a pariah for life).
Absolutely agree about universal healthcare, that's something my country does well, and would improve the life of Americans.
Education... well, I'm more on the fence. I think current college prices in the U.S. are too high, but there's so much amazing free education... but yes, some basic level should be free. Maybe UBI would enable self-taught or other alternatives (I know there are some YC startups focused on alternatives).
Most people's prime taxpaying years are after the most common going to college years, so that's exactly backwards if it is the same “you” in both halves.
UBI frightens me (in a dystopian underclass kinda way) but I can't agree more about universal healthcare.
Living life knowing you can at any time be bankrupted and homeless from an injury or disease in your household is not the kind of "freedom" we should value.
As a relatively healthy someone who has experienced both universal and US healthcare (Kaiser) I can tell you that KP is far superior to any experience I've had in Canada.
So whilst Canada has a far better "average" I would say that for proactively healthy people the US system appears to be superior. The main issue in the Canadian system is that even if you can pay cash for something you cannot have it done and must join the long universal wait list. This includes simple things like finding a GP, getting standard lab work...
As a young, relatively healthy someone who has also experienced both Canadian and US healthcare, I much prefer the Canadian system. In the US, my insurance was billed 14k USD for a simple diagnostic procedure (stress echocardiogram) that normally would cost a few hundred dollars. I ended up being on the hook for over 2000 USD.
Yes, I got an appointment within a few days, and I got the cardiologist's report shortly after. But when I had a simple question about the report, my doctor suggested I book a follow-up appointment (and get charged another few hundred dollars) to get my question answered. I said no thanks - I'll take my chances and ask my friend in med school. If I knew ahead of time how much the original diagnostic would have cost, I might have had second thoughts about that as well. And while there seems to be nothing wrong with me, for other people in a similar situation that decision could end up being the difference between life and death.
I've had standard lab work done in Canada and have no complaints about the wait. But I'd take waiting a few weeks if that means no one will choose to forego life-saving diagnostics because of extortionate health care costs.
From a cost point of view, I think that's totally reasonable for most care. If you have something catastrophic and need quick access to top-notch care, you don't get that from the Canadian system and our Canadian relatives and friends don't even know how bad it is because that's all they've ever known (wife is from Canada and now realizes how bad it is and is trying to move her parents to the US so that they have access to US care).
We (my wife and I) currently pay out of pocket for them to see specialists or to get an opinion so that they can see a specialist in Canada. If we apply now, they qualify for medicare in X years and they get higher quality of care + we don't pay out of pocket.
> In the US, my insurance was billed 14k USD for a simple diagnostic procedure (stress echocardiogram) that normally would cost a few hundred dollars. I ended up being on the hook for over 2000 USD.
I agree that the insurance aspect of the system is difficult and could use mild regulation. But I think that the single-provider nature of "universal healthcare" is probably what causes issues with the Canadian system, more than the single payer aspect...
This is what scares me about the push for universal health care in the US. For the majority of the hacker news crowd with employer sponsored care, they'll see a regression to the mean and poorer overall care. I do think there needs to be an option for the poor, but not at the expense of world class care with no wait times.
This is all anecdotal, but here is my experience with the Canadian system:
1. Uncle died of cancer and waited 8 months for chemo and never got it.
2. Almost no family doctors are taking new patients in Vancouver. You can't see a specialist directly unless referred by a family doctor.
3. When mother in law needed a breast scan, we called like 10 different hospitals to ask if they had a breast MRI machine because the wait times were so long and we only found 1 machine.
4. She was also mis-diagnosed with asthma for 3 years because they didn't have the diagnostic tools. We sent her to an allergist in the US and it turned out it was allergies. We've taken to seeing doctors in the US to get referrals to specialists in Canada.
5. Wouldn't let a friend see an OB until 23 weeks and she was bleeding. Friend didn't think it was a thing and we were appalled.
6. Grandfather was mistreated for a low platelet count.
7. No private rooms - if you're deathly ill you're in a hospital bed next to others who are deathly ill.
Why can't we have a combination? Basic free healthcare for those who can't afford to pay for it, and premium care for those who can afford private insurance.
Almost every market in the world has this - if you want and can afford private healthcare, or your employer pays for it, no-one is going to stop you using it. Medicaid alone is more expensive and less effective than the public healthcare systems in other countries and still doesn't provide universal coverage.
It'd be great if there was both but it's not allowed in Canada so the net effect is you get less tail outcomes, both positive and negative. For folks in the US with insurance, it's a big drop in the standard of care and for folks without, it's a big improvement.
One other thing that's not often mentioned is the best doctors tend to move. When my grandfather was super sick, he was next to a man who's 3 sons were there looking after him. They were all doctors and came to the US to practice because Canadian salaries were so low (they too were ranting about how bad the care there was).
That's what the UK has. In fact the free healthcare is better than basic. It's generally very good quality, to the extent that many people don't buy private even if they can afford it.
In the UK you can choose to purchase private health insurance on top of the state provided health care if you so wish. A quick search suggests the same is true for Canada.
I don't think "proactively healthy people" is the right dividing line. It's more like "wealthy people". The point of the universal system is to provide a reasonable baseline for everyone. In my experience the UK system does this. Of course it has issues. So does the US system. The real debate is about which tradeoffs are preferable at a society-wide level.
I'm happy to have a public system to raise the baseline and to act as a safety net as long as there's still a private system and employers still provide insurance.
Having similarly done both, I agree. But, its only because I'm privileged in the US. And I think OP was talking about raising the median, so at least they no longer have to worry about affording health care. In that respect, the Canadian system works great.
If you can afford private care, and are lucky enough to have good insurance through your job, you'll get better care in the US. Not in terms of quality, but in terms of wait times, and how nicely people treat you. I think the actual medical interventions are just as good either way.
I don't know if it would be possible to have it both ways. Give universal health care that's decent to all, yet give even better care to those willing to shell out extra.
I know in Canada its always a big debate. Some people think a hybrid public/private system could do it. Others worry it will just marginalize the affordable health care and lower its quality and increase even more its wait times.
>Isn't that basically saying "lucky to be full-time salaried"? I don't know anyone in such a position who has bad insurance.
I do. A friend of mine had a cushy tech job in Chicago. He recently quit to start his own business. I asked him about health care. His employer provided insurance was quite bad (high premiums). He's paying only about a $100/mo more than when he had the job.
And then there's the issue of what you mean by "bad insurance". I work in a top tech company which gives us multiple options for insurance. For most people, it works out alright, but for each option, you won't have much trouble finding some employee who thought he got shafted with a high bill (things like someone in the chain of care ended up being out of network even though he had done due diligence to ask all people involved).
The quality is also better if you have insurance. Firstly, because it's easy to see a specialist. Our friends in Canada don't even know you're supposed to see specialists for a lot of ailments. Second, most facilities have access to diagnostic equipment that even hospitals might not have in Canada (MRI machines, etc).
We see these as positives in the US (yay! more specialists! more MRI machines!) but they don't improve outcomes on a population basis and they drive up the cost of care. An MRI machine at every hospital in a metro just means that every hospital will try to get you to use them -- they've got to recoup their costs.
>As a relatively healthy someone who has experienced both universal and US healthcare (Kaiser) I can tell you that KP is far superior to any experience I've had in Canada.
Some questions:
1. Did you pay the full premium for KP, or was some of it employer funded?
2. How many people are you paying for?
I once had KP through an employer. Best provider ever. However, at some point I was pondering quitting my job and looked up how much I'd have to pay in premiums to get the same copay, coverage, etc. It came out to over $900/mo for me + my spouse. That's almost $11K per year. Imagine how much more it would be if I had 2 kids.
I thought I'd just check now to see what the cheaper plans look like. The cheapest plan is $527/mo. Deductible is $6550/person (over $13K for household). So I'd pay over $6K if I didn't seek any treatment. And I could pay as much as $19K out of pocket (premium + deductible) before insurance kicks in.
KP is an awesome provider when I'm not paying for it :-)
BTW, I do have KP currently, under a different employer. Current wait time to see my PCP is 3 weeks (I've seen as high as 4 weeks). It used to be 1-3 days - I always wonder if changing employer plays a role (same PCP).
Kinda interesting that your experience with US healthcare is Kaiser, because being a totally integrated healthcare system, they act most like a good universal system might.
KP is more or less what one could expect from an integrated, universal health care system that is still forced to be competitive and value customer satisfaction..
Plus they have good incentives to do things like focus on preventative care because they lose money by having to treat vs clinics which will make money treating.
On the downside sometimes they try to deny treatments a little to eagerly, when I broke my clavicle, Kaiser suggested I could go without surgery, while a private practitioner said I needed immediate surgery, pronto, right now. Kaiser ultimately had me wait over the weekend 3 days before the surgeon got in on Monday. But the service itself was good.
I have to say, declaring the US system better because Kaiser Permanente is good is a bit like declaring rotten foods are better than fresh because you like yogurt.
Lots of Americans don't have anything like Kaiser, and under the old rules, you could simply die of cancer because you couldn't afford to buy treatment or insurance (as a high school classmate of mine did). 27 years old in 2009; she died of adrenal cancer that probably started in 2004 or earlier but wasn't diagnosed in 2005 because she had no care. She couldn't be covered under her parents' care after college, couldn't get into a state program (they lost the paperwork, then told her she was ineligible because she earned too much at her retail job the year before), then she finally got into another state insurance program once she was poor enough (unemployed & living with parents again after having a surgery to remove a 14-centimeter tumor), and then she finally qualified for General Assistance/Medical Assistance/Medicare. Just about everyone agrees that the progression would have been different if she'd been diagnosed and treated earlier. To not be diagnosed with cancer until your tumor is like 12 cm in diameter because you simply can't afford a visit with a primary care physician --
As someone who has also experienced the US and Canadian healthcare systems I agree. The “average” in Canada might be higher than the US, but people with good insurance in the US (read - middle class job) have access to better healthcare in the US. Of course it also costs them more.
Point being, if the US moves to a single payer system in an effort to lower healthcare costs, a lot of people in the US are going to have to readjust their expectations.
>but people with good insurance in the US (read - middle class job) have access to better healthcare in the US.
Careful. If you read the article, the threshold for middle income in the US in 2014 for a couple is under $35K/yr (household). I doubt most people with that salary get a pretty good insurance policy through work. To give you an idea of what that can cost, see my comment here:
Canadians with enough funds can use the US system or other countries. In addition there are also private medical clinics. If you can get past the high taxes, it is nice to have this optionality.
By design the US system should work better for those with more money.
An anecdote with the Canadian system:
A family member was diagnosed with Stage 3 form of cancer, and was receiving Chemo within a week. They have received excellent treatment the past 4 years and have "beat the odds" so far. I'm pretty sure the bill for this would be somewhere in the range of 500K to 1M in the US. The main costs for this so far has been parking, and some travel expenses for an out of City surgery.
I also know of someone of similar age who was going to be waiting well over a year for a hip replacement. (They went out of country I believe)
Try New Zealand. Here the ACC will cover most things up to and including various forms of cancer treatment. You might wait a few hours if you just drop into the hospital unannounced but it doesn’t feel like a system that doesn’t work.
Prohibition scares me and that only lasted 13 years. If it fails we can always revert back but if it succeeds it'll lift up more people than we could imagine. Stress kills.
>As I’ve continued to grow older, I’ve now come to realize it wasn’t the travel, eating out, or the things I could buy that helped me to be less stressed, it was the lack of burden of worrying about how I would pay for X, Y, or Z.
Excellent post, and I love this observation. Security is the main thing people need to have a chance at happiness.
And that security threshold is much different for everyone.
For example I'm not happy unless I have at least 12 months of runway to survive in my current state without dipping into long term savings investments.
It just puts my mind at ease to know I don't have to think about rent, food, basic entertainment, etc. for a year at a time. Depending on what you do this could let you experiment without having financial motives. This is coming from someone who is a freelance developer for context.
It’s called paranoia, generally. There’s probably at least 20% of the population of whichever country you live in who can’t have any savings beyond a single week after their payday.
Statements like yours downplay the actual needs of someone in need.
That isn't what is meant by security. Security means adequate housing (where "adequate" is clean with sufficient space for each person in the household to provide some privacy for hygiene, sleep, etc. and perhaps communal areas for cooking and laundry), adequate food (providing sufficient quantity and variety for thriving: neither excess nor deficiency, and not bare minimum), and adequate health care regardless of time frame.
What you describe as your requirement for happiness is possibly well above or below what is meant here (depending on your lifestyle).
When I first knew my mortgage was going to be paid no matter what, it made it a lot easier for me to take certain job offers. I didn't have to take the safe bet all the time.
I'm in a safe bet now due to a couple contracts not going great. It's stressful enough that I'm spending money I shouldn't be on stress relief. But my emergency fund is full again, and I can't wait to get back to doing interesting, new, and/or important things.
UBI is probably a bit too far in one direction to be a palatable solution. However Healthcare not being a financial concern for an individual or family is a very compelling idea.
But can a universal healthcare system resolve many of the emerging rent-seeking behavior costs peripheral to the actual hospital costs? Things like medical supplies that, in the U.S. are significantly more expensive than elsewhere. Would a universal healthcare system only further subsidize that kind of exploitative pricing?
Things like medical supplies that, in the U.S. are significantly more expensive than elsewhere
Yes, because a single buyer has enormous purchasing power. The insurance-based system is the reason these costs are so high in the US and lower elsewhere.
Would a universal healthcare system only further subsidize that kind of exploitative pricing?
It has not in any other country which offers universal healthcare. I have no idea why people in the US are so averse to this idea - you can still have great private healthcare if you wish and can afford it, but public healthcare provides far better healthcare to the poor, lifts people out of poverty, and it's cheaper for everyone too (public expenditure per capita is dramatically lower). Everybody wins.
> The insurance-based system is the reason these costs are so high in the US and lower elsewhere.
No, that can't explain it, because it's also lower in other places that use a mixed public/private system with mandatory insurance purchase and public fallback for the medically indigent, instead of a single buyer.
Food for thought... Japan also has private insurance/providers, mostly through employers, just like the US. But they have half our cost, universal coverage, and better outcomes. Why? The big difference is that Japan has strict price controls. Insurers and providers don't negotiate with each other (in network vs out of network in the US). Prices are set to make sure providers and insurers are both profitable but not profiteering.
Of course, such an idea here would be seen as straight-up Marxism.
Capitalism is such a core part of the ethos of the United States that we believe it is the best answer for all problems. Problem is, healthcare is about as inelastic a market as you can have.
I really think we might be close to the tipping point now. Plenty of people on both sides of the great political divide are starting to appreciate that no matter what we try, health costs continue to spiral out of control. That and the hard core folks are starting to die off.
This is why I think a lot of people on the left are misguided in their commitment to single payer solutions. They're putting means ahead of ends. It's perfectly feasible to get universal coverage and sane costs, while preserving the existing insurance/provider model - thus minimizing political resistance from both the industry and the socialism-phobic public.
There's something uniquely pathological about the US system to lead to costing about twice as much as any other industrialized nation per capita, while leaving millions uninsured, causing hundreds of thousands of bankruptcies per year (even if insured), and frankly having pretty crap outcomes. It's not just that we need a system that would be better... it's that it's hard to imagine a system actually being worse, if one is being realistic and not merely partisan.
Another thing toxifying the discourse is American Exceptionalism, that underlying believe that America is better than everyone else at everything. It's hard for a lot of people to even admit that our system isn't the best. There's a lot of "Yeah, it's expensive, but look at our technology!" I don't really know how to argue against the Exceptionalism argument.
> It's perfectly feasible to get universal coverage and sane costs, while preserving the existing insurance/provider model
Okay, but how? I have 'good' insurance and it still blows.
My most recent example -- I had a Holter monitor for a day and I paid 50% more for the 24 hour usage of that monitor than I can buy it for brand new. And then I paid $350 for a technician to tell my cardiologist how many events were recorded (being as optimistic as possible, that most likely involved verifying that the machine counted correctly).
Contrast that to a couple weeks prior in Hyderabad India, I went to the local CARE Hospital, which is actually a precent decent place -- the equipment was state of the art, and I did not interact with technicians, but actual doctors. Had an echocardiogram done by an actual doctor, consulted with another cardiologist, as well as an electrophysiologist. Total cost? 4400 INR. Do that math on that one.
I definitely expect the costs to be lower in India for obvious reasons, but the dichotomy is nuts.
> It's perfectly feasible to get universal coverage and sane costs, while preserving the existing insurance/provider model - thus minimizing political resistance from both the industry and the socialism-phobic public.
Single-payer has had more public support (usually majority public support) than other routes to universal healthcare all the way back to and before when Bill Clinton campaigned heavily on health care reform in 1992; Democrats keep putting up complex, unpopular insurance industry kickback schemes instead, which end up easing Republicans effort to kill them either in advance of implementation (as with Clinton's effort) or afterwards (as with the ACA's progressive dismantlement since Obama left office.)
Be careful not to assume that implementation is much simpler than it actually is. Oversimplification is a political problem for both right and left when it comes to health care.
Also, definitely avoid conspiracy theory thinking that Democrats wound up with ACA rather than "single payer" out of corruption and malice, rather than realistic political consideration. That's another pathology. I don't believe there are any Democratic politicians who want health care to be more expensive and difficult! They want cheap, universal, quality, and fair. Duh.
You have a mandatory insurance provided by private companies in Switzerland and the prices of services outside of your insurance as well as the one billed and covered by insurance are still reasonable.
There is something else which makes American system not working. I suspect high barrier to entry, huge lawsuit risk and heavy regulation for entering the market. If there is no real competition to provide cheaper services it's no wonder existing players charge ridiculous amounts.
I investigated suing a doctor due to a medical error. Unless it cripples you for life or kills you no regular person would be able to win a malpractice lawsuit. It is insanely expensive. Another medical professional would need to speak against the other doctor or pharma company. Speaking against pharmaceutical companies is pretty risky for doctors.
I think the cost of healthcare is expensive due to high education debt, lack of price regulation, and very little consumer protection as far as pricing goes.
I like that you count their power in souls, a little like landowners in feudal Russia trading in dead souls.
Back to the point, I think the purchasing power of a state entity combined with its control over the market is a powerful combination, but also the dysfunctional US market seems to reward healthcare insurers for paying more - they don't care after all if they get ever more money from the poor suckers who have to pay for insurance, they can take a larger cut of a larger pie.
I'm not saying insurance markets can't work (someone cited Switzerland above), just that the current US insurance market is out of control and needs solutions (like Obama's solution which has now been wrecked, or single payer which works well elsewhere). What the US has currently doesn't work, fails to serve much of the population, and even then is much more expensive than equivalent services elsewhere.
So the purchasing power of a state entity - exactly the solution I proposed for the US. The state has subtle levers of control over all the participants in this industry, which other players (no matter how large) simply don't have.
This is not an objection to using single-payer in the US, quite the contrary.
In France, they solve that for Drugs with downward pressure by the government. Basically a company that wants to put out a drug has 2 options:
- 1. Sell a whatever price they want. But then they don't get a patent and anybody is free to legally copy it.
- 2. Get a patent. But then they must enter the cost negotiation process with the government and prove why they require a particular cost. This is the option that is almost always chosen.
Sitting in the US, it's then sickening to see the same drug developped in France go for 5x the price, just because they can sell it here for whatever the market will bear.
The book Against Intellectual Monopoly explains that the reason American and (especially) German pharmaceutical science advanced more quickly than in the U.K. and France in the early part of the 20th century is because it was more difficult to obtain patents on drugs. In Germany in particular IIRC you could obtain a patent on a manufacturing method only, not on a medical use.
Did some digging... you are right (I thought there was a patent exclusion for "prix libre" drugs but I guess I was wrong). There's no reimbursement but still a patent. But in that system, no reimbursement kinda kills the market for a dug.
> can a universal healthcare system resolve many of the emerging rent-seeking behavior costs peripheral to the actual hospital costs?
Yes. Universal healthcare systems almost all (with some notable exceptions) can and will negotiate with providers and suppliers to control costs. They are typically the largest buyer, so of course they have a lot of negotiating power.
Notable exceptions include Medicare in the US being legally forbidden from negotiating drug prices.
Notable exceptions include Medicare in the US being legally forbidden from negotiating drug prices.
That's not really accurate. Medicare doesn't negotiate, they just defacto tell drug companies what they'll pay. Plus on the outpatient side, it's the private insurers who negotiation on behalf of Medicare.
At any rate, drugs are ~10% of all Medical costs. Why hasn't Medicare negotiated down the other 90%?
> Healthcare is expensive largely because the decision-maker does not foot most of the bill.
No, it's not, at least that's not the reason it's uniquely high cost in the US compared to the rest of the developed world, because that's not a differentiating factor.
Is there anywhere where (1) prices aren't fixed (2) one party decides which healthcare services to receive (3) a different party pays the bills and (4) cost is significantly less than in the US?
Thanks for being careful to say "free at the point of delivery" - that was always one of the core principles of the UK NHS and everyone knows its not "free" - we all pay for it in our taxes - which I'm personally quite happy about.
>we all pay for it in our taxes - which I'm personally quite happy about
The problem is that there seem to be entirely too few people in the US willing to pay for some benefit that other people receive, even if it would help them too. There are just so many people hung up on how "unfair" it is to have to pay for someone else's food stamps or health insurance or whatever.
I don't have any problems with paying money for other people's benefit, but I do have a problem when I'm forced to do so. Would it be fair if I took money from you and gave it to someone else who needed it more? Why is it fair when the government does it?
Curious that I'm downvoted for coming out as one of the "many people hung up on how "unfair" it is". If you disagree with me you could at least answer my questions or try to change my mind.
I didn't vote you down - but I suspect the downvotes are because that is the often repeated "taxes are bad" argument. All I would offer to counter your argument is:
You're downvoted because so many people say it's "unfair" except for the 911 services they value, the fire department, roads, water, plowing in places with snow... It seems it's fair if it's services you use or fail to appreciate as services at all, and unfair if it doesn't serve you directly. And if you've thought in so little depth about the fairness and benefits of these services, the yield of an online discussion has a low expected value.
More downvotes. /shrug so much for discussing dissenting opinions.
My point is that it is unfair to the productive to take by force the product of their labor and give it to those who are unproductive.
If you doubt this and you have children, try an experiment. Children have a good sense of fairness (it's inborn). Take (without their consent) something they earned (and value) and donate it to Goodwill. Afterwards, when you tell them what you did, you can explain to them it's for the good of society if you want. See how they react.
My argument doesn't hinge on the opinion of children. It was just a thought experiment. My point was that children have an inborn sense of fairness and are less likely to have ideologies lodged in their head. So perhaps they would be a better judge of what is fair.
Maybe because when we do that we pay a dollar for every cent of benefit delivered. The answer to a corrupt and inefficient system is not to shovel in more money. If we were getting $.050 on the dollar you'd see a lot more people willing to kick in.
I can totally relate. When I was in my early 20s, I was debt free, but was not earning a super high income. I could go for coffee whenever I wanted, ate at restaurants once in a while, but generally didn't stress about money because I was living simply. Those were happy times.
Later, I earned much more, but invested to start my business and had to carry a far heavier burden financially - the kind of burden that would wipe me out quickly if I stumbled. It ate away at me and was probably unhealthy.
I think economic policy should aim to maximize the number of people who can live in the stress-free bracket. Not super wealthy and able to go to Hawaii every winter; just able to make ends meet and have a bit of reserve for a rainy day.
Most western economies are not geared in this way at the moment, and I think that's a huge shame.
the lack of burden of worrying about how I would pay for X, Y, or Z
I had the same experience of once worrying about that, and now not really having to. It's incredible. Imagine what it's like raising a family while having to worry every time you buy diapers or milk.
And 57% of American adults have less than $1,000 and are in that category of worry. Wealth inequality is the central problem of our time.
Level 0 is missing here. They want to know if they can afford rent AND food this month. They might be able to squeak by if nothing goes wrong. But something always does. Whether the 12 year old car needs an expensive repair or someone gets sick and misses work or even a parking ticket can leave them struggling to get by.
Also missing is level 4: I don't have to work to be at level 3 levels of comfort.
There's a tiny fraction who own significant wealth that are in a special level 5 or higher. "I don't care what anything costs."
There's a tiny fraction who own significant wealth that are in a special level 5 or higher. "I don't care what anything costs."
I think there is a point where the costs become non-monetary.
Which is to say, there is a level up where the things you wish to do with your money require regulatory or social approval which can be quite a bit more "expensive" and onerous.
Here is an example:
In recent years, George Lucas wanted to build a third rural campus in Marin county[1] on a piece of ranch property that he already owned. Despite providing his own, fully staffed, private fire department[2], bequeathing a vast majority of the land to open space, and generally absorbing all possible costs (and, in my opinion, developing with a very high level of taste and restraint) he was denied at every turn and eventually had to give up on the project.
This was not due to lack of funds.
[1] The first two being Skywalker Ranch, home of Skywalker Sound and Big Rock Ranch, home of the new winery/retreat.
[2] Which also responds to public emergencies off the ranch.
The article is about level of wealth, so in a sense a level 0 means "does not qualify as wealthy". I think the scale is fine on the lower end but agree it could go "higher". Although your example of level 4 takes into account some sort of ROI, which is not present in any other level.
I don’t know... all these levels are over complicating a simple concept. The way I look at wealth is binary: “Can I stop working today and maintain a lifestyle that I am comfortable with indefinitely?” Most people, even those who consider themselves well-off, cannot say yes to that question. People like to try to gauge whether they are middle class or upper middle class or upper lower middle class... whatever. There is no real defining characteristic. At the end of the day, most of us are N missed paychecks away from insolvency. N may be large but unless it’s infinite, we are in the same bucket: our labor pays for our existence, not capital.
There are people who can just sit there collecting checks and their lifestyle is never in jeopardy, because of investment income. They’re the only ones I’d consider truly wealthy.
Yep, people in the "upper-middle class" delude themselves into thinking they are in some special transition zone between the serfs and the aristocrats. A grasshopper is much larger than an ant, but neither are worthy of notice next to a bear.
I strongly urge you to review that perspective on wealth.
First of all, the real fuck you money is enormous if you really want to forget about money problem altogether. You don't want to wonder if you can afford that expensive car and if it will impact your ability to buy an expensive car 10 years down the road. Second, you do not want to worry about your wealth in general. If you would just have it in a bank, then you definitely should. Inflation being just one of many things to consider. You could spread your investments all around the world and be doomed only in case of some world war or other catastrophe, but to do it well you need a lot of funds and a lot of effort.
So what you would really want is a cashflow. Your assets providing you comfortable enough paycheck each month without your wealth diminishing too much. Real estate investments seem like a pretty good option for that, although you probably still want to diversify not to depend on a single government. But without any effort on your side, optimistically, your income will only stay the same. Which is likely not to make your brain very happy because it is really good at adaptation.
You may think I'm overcomplicating it, you still can choose to work if you want to, it's the comfort that you don't have to and can continue without worrying about basic needs (whatever they may be for you). In that case though, if you are living in SF, there are so many places in the world where you can move with little to no savings and be set for life.
Would you want that though? Or do you prefer to be coding/creating or whatever it is that you are doing? Skillset also can kind of work like FU money. Knowing that at any point you can find a decent job and have money problem solved.
But my short point, apart from suggestion to reconsider the attitude yourself, which you can do much more through-fully that I can in a comment, is that you either are doing what you like - in which case keep doing it, especially in IT it is likely that you have the money problem solved, as long as your passionate about it - or you don't, in which case you can start doing something else and switch to the first scenario or just quit and live a slow life in some place where your money is worth a lot.
Number of people with FU money attitude who will actually achieve it, without lying to themselves, is infinitesimally small. Question to how many of them it will bring peace/happiness/satisfaction I leave unanswered.
There's a scene in an episode of the "Parks and Recreation" show where Peter Serafinowicz is playing "His Royal Excellence Lord Edgar Darby Covington, 14th Earl of Cornwall-Upon-Thames and 29th Baron of Hertfordshire". He and Andy (Chris Pratt's character) are standing in a courtyard and His Excellence is pointing out the buildings his family owns.
Andy: "So what else does your family own?"
Edgar Covington: "Well... have you heard of Scotland?"
level 3 includes your level 4, there is no "having to work or not" stipulation, so that's fine. One higher level of "I don't need to think about what anything costs", however, would be useful, if only to unpollute the numbers by taking out the folks who can walk into a marina office, buy a 30 million dollar yacht on the spot, and walk out still having roughly the same amount of money as they did before they walked in.
Practically speaking, the people in your level 0 category would respond to a financial setback by accumulating debt, generally via credit cards. This puts them below level 1 by definition. Being at level 1 means being wealthy, though obviously not level 2 or level 3 wealthy. I think this is clear from the article, especially the "no longer" in the level 1 definition.
There's definitely another level of wealth there for the very few. Weird thought one day while dreaming, if I somehow managed to get a job where I cleared $1 million a week, it would still take me over 1500 years to attain the net worth of Warren Buffet. If I managed to up that and clear $1 million a day, I still wouldn't manage in my lifetime (224 years). That to me put in perspective the insanity of the wealth of the very rich.
If you made $52M a year, with 5% growth per year in some super conservative investment, you'd have Warren Buffet's wealth in 87 years
If you got 10% it would be 50 years
Warren Buffet is definitely impressive, but compounding capital is a huge benefit
(Ok ok I ignored taxes, inflation blah blah)
Edit: just because this is fun: at $365M a year, you get WB wealth in 50 years at 5% and 32 years at 10%
Edit2: if you take Berkshire Hathaway's historical annualized return (20.8%), compounded quarterly, starting with $52M and no additional capital after that, you get WB wealth in 36 years.
To be fair that would get you WB's present wealth. If Warren Buffet was still alive and investing just like you did, you would never catch up. This is one of the reasons social stratification can increase over time.
A valid point, but missing the point of the question, which I take to mean "Warren Buffet's current level of wealth". I don't think the desire is to catch up to Mr. Buffet.
The wording is a bit confusing, but I believe they are saying that it would take that long to catch up to Buffett's current wealth. If you assume his assets continue to grow at the same pace as yours, you will never catch up.
Yeah sorry, I was assuming he will die sometime in the next 50-87 years being discussed and his money will be donated to charity. So Hypothetically if he became immortal or decided to give all the money to his children. Since historically the rate of return on capital is higher than the growth in income the gap between people who inherit a lot of capital and wage earners tends to increase over time.
Totally! This is actually how the rich lived back in the 1700-1800s in Europe. They had an inherited estate and just lived off of the interest earned on it. It's a big reason why it's a good idea to have a reasonably large "death tax" specifically to prevent the exponential buildup of unearned inter-generational wealth.
That being said, it's also very fragile in a way. Not having skills or a wage means your wellbeing is subject to the overall economy. A lot of multi-generational fortunes were wiped out in WW2 and the great depression and never recovered.
Warren Buffet is a funny example. He likely fails all three levels of wealth because he is infamously frugal [1]. This is probably a big part of what got him to where he is today. Your comment demonstrates that you think about money in terms of something you work for, which is why you value inflows more than what you have. When you value pennies, the compound interest on those pennies ends up making you invaluable.
I think about this very topic sometimes, but my levels are different. Mine are something like
1. Paycheck to paycheck. Includes constant worry and frustration about living expenses and basic necessities. Any unexpected cost will lead to not being able to pay the bills. Money is on your mind 24/7, life in this category is hell. Very difficulty to escape this category once you fall into it.
2. Able to afford living expenses with a little left over. I guess you'd call this middle class? Or maybe upper lower class. These people have an income that lets them pay their bills without worry, so they have a cushion of a few hundred/thousand dollars a month. These people don't experience stress over standard bills anymore, they are free to enjoy living life a bit fancy. Can go out to eat at good restaurants, can afford to do miscellaneous activities.
3. Anything above #2 really. This is the bracket and beyond that has plenty of income in that expenses don't matter anymore. Stress about affording living expenses is non-existent.
I would disagree with 3 because there are many in 2 and 3 which can go to 1 just by losing their job and e.g. having one high medical bill (in the states at least).
So surely there must be differentiation on whether any given job or emergency can affect your standard of living significantly.
Medical bills aside (the US system is batshit!!) good financial planning should make going from 2 and 3 to 1 far less likely. Unfortunately many people don't bother to save significant backup funds while things are going well.
I'd say look at this generically, without adding exceptions for outliers. Even for #3, a multi-million dollar medical bill could be a huge setback. I'm talking more along the lines of standard happenings. Say if a kid gets sick and the parents need to fork out a few hundred/thousand dollars for treatment. #2 would be able to rely on their cushion to avoid being cast down into #1.
So in your classifications the "I don’t care what stuff costs in restaurants" and " I don’t care what a vacation costs" would fall into the same category? To me being able to afford living expenses with a little left over would likely qualify as middle, not having to care about restaurant cost would qualify as upper-middle, and not caring about vacation cost would be upper. There's a pretty huge gap between being able to drop $1000 at a restaurant, and people able to spend tens, if not hundreds of thousands of dollars on a vacation.
There is also not caring about the cost of a restaurant on the odd occasion and not caring about the cost of a restaurant for breakfast lunch and dinner every day.
The problem I have when discussing "wealth" is that it's almost always done in comparison to others at this time. For example, I'm "rich" or "poor" compared to the richest and poorest people around me today.
If we compared it with other people internationally, or even historically, we're filthy rich at almost any level of the ladder.
In some ways we are, but in other ways we aren’t rich at all.
In our ability to procure food and entertainment and travel, even a very poor person is pretty rich compared to the historical average. But if you consider our ability to have leisure time, walk away from an employer, or get other people to do stuff for us, the moderately wealthy of the distant past were still much richer than today’s middle class, let alone today’s poor.
What you say is true, but what fraction of the population was "moderately wealthy" in the distant past? What fraction of the population could walk away in the past, and what fraction can walk away today?
All good things to keep in mind, but the comparison here was with the wealthy of past eras. I often see the statement taken to extremes, saying that a poor person in a first world country today is better off than an ancient king. And in many ways, it’s absolutely true! But in other ways it’s not. My main point is that wealth is as much about power as it is about possessions, and when it comes to power, your relative wealth is all that matters.
That's a good point. I also don't like that these discussions of wealth are always accompanied by a discussion of income and then they end. Especially in an article where debt is featured so prominently. Significantly raising one's income and seeing it as the sole dividing factor between oneself and others becomes part of a false system of hope for many.
A saving habit _and_ reasonable living on one's income, no matter the level, will _often_ quickly result in the kind of savings that will pay for those big restaurant meals, if needed, or those vacations, if needed. My friends who are good savers tend to take vacations to really nice places without needing to spend a lot when they get there. So they have more money for the next vacation, etc.
There are people who are unfairly saddled with debt, to whom this doesn't really apply as readily, but it'd be nice if messages like "wow, sad, income levels make life so hard" could be accompanied by "but here's what many of you who are reading this can do at any level to feel on top of things." We are short-changing our children by not bundling that more realistic discussion with discussions of income.
That's an interesting comment. It made me think about having two different kinds of wealth: wealth enabling things and wealth freeing from problems. If you can do fancy things with careful planning, that's one thing. Doing fancy things without burdening yourself with complicated cost-benefit analysis is the other, and it's probably the latter that gives more freedom and the one the article talks about.
Reading "The Millionaire Next Door," as much a of a cliche or a classic as it is right now, really opened my eyes to some of this nuance for me. The book points out that many high earners are still living paycheck to paycheck, and some lower earners do quite well by saving aggressively. So who is rich, the software engineer who earns $120k/year in a LCoL area and takes expensive vacations and buys photography equipment and has a nice house & great car and has little saved, or the senior school teacher who makes $80k and saves a ton, but doesn't take the expensive vacations, drives a 20-year-old Civic, and enjoys gardening? What's the definition of rich? What's the definition of value? What do you want in life?
The other aspect is (as you and parent posters note) the comparison with others. If you live in an expensive area where everyone drives a nice car, pays for a gardener, and sends the kid to a high-tuition school, you'll stand out if you drive a 2008 Civic, have an adequate but not nice yard, and send the kid to the public kindergarten. "Comparison is the thief of joy," said someone. I personally was much happier with my un-professionally-landscaped yard and small house and used car in my middle-class neighborhood when I realized that those were reasons we have a higher net worth than most of our peers, not signs that we don't.
Wealth is a relative thing, not an absolute. The distribution of wealth is one of the most interesting aspects of it, which is why that is commonly discussed.
This is not true. Wealth is choices: how many different things can you choose to do? The average person today has a multitude of choices that were not available to the richest person in the world a century ago, and for that reason is wealthier than the richest person in the world a century ago.
Relative wealth is very important because it distorts the market. Even if you are well-off compared to a larger population, if many others around you are even better off, it’s going to suck for you. See Bay Area housing prices for a concrete real world example.
> Relative wealth is very important because it distorts the market.
No, that's not correct. What distorts the market are artificial constraints on the market. You mention Bay area housing prices, but you fail to point out that those prices are skyrocketing because of enforced scarcity: the supply of housing in the Bay area is not being allowed to grow in response to growing demand, but instead is held fixed by local laws and regulations. That is what is distorting the market.
Relative wealth does give an advantage in this kind of situation, but that doesn't mean fixing the wealth disparity will fix the market. It won't; it will just mean that the scare Bay area housing gets rationed by some other method than who has the most money. It will still have to be rationed because demand far outstrips supply; and no matter how it is rationed, many people will be left out and will complain that the system is unfair. The only long term fixes for that are to either expand the supply of housing (by letting it respond normally to market forces), or for a lot of people to stop feeding the monster and abandon the Bay area for someplace that offers them better opportunities--which again is a normal response to market forces. And what empowers people to make those choices is absolute wealth, not relative wealth.
There are always going to be limited quantity goods, and inequity will drive up the price of those goods. Land is a fantastic example of this, and the Bay area housing problem is made worse by laws and regulations, it is not created by laws and regulations.
Harvard only produces a limited quantity of lawyers every year, and those lawyers are paid a premium in large part because of the limited supply. A Harvard education isn't a process that can be infinitely scaled.
Income inequality drives up the prices for limited quantity goods.
> There are always going to be limited quantity goods
Some limited quantity goods are unavoidable, yes. The quantity of land in the Bay area is limited.
But the quantity of housing in the Bay area does not have to be limited by the quantity of land. If it is, that's a choice people have made to impose scarcity. And decreasing relative wealth inequality won't fix that problem; you have to fix it by taking away people's power to impose scarcity to further their own ends at the expense of other people's.
> Harvard only produces a limited quantity of lawyers every year
Yes, which is another example of a choice to impose scarcity. See below.
> Harvard only produces a limited quantity of lawyers every year
But you don't need a Harvard education to become a lawyer. A Harvard educated lawyer might be better able to handle certain legal matters, but most people who need lawyers don't need that level of expertise.
In fact, most people these days who need legal documents prepared don't even need lawyers; the free market has created plenty of services that provide such products at a much lower cost. The only reason why many people still need lawyers is artificial scarcity: lawyers write most of our laws, and of course have written laws saying that you have to have a licensed lawyer to prepare various legal documents, even though the lawyer doesn't actually add any value to the process. You can't fix that problem by reducing relative wealth inequality. You have to fix it by taking away people's power to write laws to benefit themselves at the expense of other people.
And that richest person a century ago is totally irrelevant in most conversations about wealth except as a counterexample that economics is not zero-sum.
> that richest person a century ago is totally irrelevant in most conversations about wealth
I agree that this is true as a practical description of how most conversations about wealth go. But to me, that is a bug, not a feature: it means most conversations about wealth are ignoring the huge increase in absolute wealth that has occurred as a result of advancing technology. In other words, people are being encouraged to ignore this huge positive impact on their lives, which, if they only realized it, empowers them to do all kinds of things, and are being told to focus instead on relative wealth disparities that, in a sane world, would have negligible impact on their lives.
> You're still talking about wealth like it is relative and not an absolute. You're just comparing modern wealth to early 20th century wealth.
Nobody in this discussion is using "relative wealth" to mean comparisons over long periods of time. Everyone is using it to mean comparisons between different people's wealth at the same time. If what you're concerned about is the advantages that relative wealth gives you in competing for scarce resources, that makes sense; but nobody today is competing with people a century ago for scarce resources, so using the term "relative wealth" for that kind of comparison makes no sense.
no, not even for a moment. if you have a million dollars, you have "a lot" of money. great. but what about your ability to turn your mass of money into societal influence? you can't buy congress if someone out there has a billion dollars. your chump change doesn't move the needle even if you are "rich" because they have so much more money that the sums they can offer are much greater. as the level of wealth rises, the costs of bribing politicians rises too. absolute wealth doesn't help you gain influence.
it's all about relative wealth. if you are more wealthy, you have relatively more say in the way society goes, at least in the way that things are configured currently.
> it's all about relative wealth. if you are more wealthy, you have relatively more say in the way society goes, at least in the way that things are configured currently.
This is a problem with the way things are configured currently. It doesn't mean absolute wealth doesn't matter.
This is pretty weird. I don't care how much flights and lodging costs, not because I can afford to do whatever I want, but because I simply don't take travel vacations very often. I can spend somewhat outlandishly on travel and not ruin my annual budget. On the other hand, there are things I do routinely that I have to be price sensitive about; for instance: I am price sensitive about parking fees. For that matter, despite its status as "wealth level 2", I am more price sensitive about restaurant meals than about travel.
Travel is highly variable and can get really expensive if you aren't super careful, even if you aren't really going all out. A two-week vacation for two to Europe, staying in the (not over the top) Four seasons, and going to reasonably nice-restaurants could easily cost $20k airfare +8K accomodation + $5K daily incidental. You have to be at different level of wealth to take a $33K vacation without worrying about how to pay for it. I don't have any friends at that level.
On the flip side, going out to dinner with friends, and discovering that you may be on the hook for $100, and not stressing about how you are going to pay for it, is withing reach of a lot more people. I have several friends who have reached that level.
I think the levels are pretty good. Though I would also add two levels of wealth that materially change people's happiness - L0 (Can I pay my bus fare, rent, groceries without stressing. L0 is very, very real). And also, L4 - which is no longer flying commercial. Being able to go where you want on your schedule, without ever having to walk through an Airport/TSA is, I have heard, a material change to personal happiness.
You can just as easily spend $1500 a person for a two week vacation in Europe and enjoy essentially all the same things as if you're paying 10x as much.
$5K daily incidental, are you kidding me?
Don't fly business class unless your business is paying or you're on a honeymoon or something.
$5K over two-weeks. Definitely not absurd. Remember how this conversation got started - we were discussing "Level 3" wealth, that is, people who don't need to worry about how much a vacation costs. People who pay $1500 per person for a two-week vacation in europe are definitely not in what we would call "Level 3" wealth. Anybody who flies in Coach is absolutely not Level 3 wealth.
So that employees don’t try to avoid critical business travel.
When Apple started flying engineers in business class to China, suddenly they got dramatically more likely to go to work out production issues rather than trying to convince management that the issues would work themselves out. A few million dollars in employee travel was immaterial to the increase in production reliability.
My prior company had a policy that all flights greater than 6 hours were business class flights.
There were a few reasons - there are health issues associated with flying packed into a coach seat. Employees who have to fly a lot for work, if it was requested they fly in coach, might decide to leave their jobs pretty quickly if they couldn't fly business. And, somewhat related, it's considered a "soft benefit" (and 100% non-taxable benefit by employees in the USA) being able to fly business, stay in five star hotels, and have a reasonable ($100 or so) per-diem when engaging in business travel.
Generally it is to ensure their employees are well-rested ahead of the important meeting if it is a very long flight. Add in frequent flyer programs to reward an employee’s airline loyalty, and many business class seats are free upgrades for the employee. After a while, it really becomes a consolation prize.
For two? Not at all - I've been on a couple of $9k-$10k business trips that I booked following company policy (advance notice, take advantage of best available pricing, etc...). And this is just business class for a couple, as well. I'm not even thinking about flying first class in emirates, or, heaven forbid, having to fly with children. I booked my mother using points from Canada to Singapore, in business, and the flight (if I had paid with cash) would have been $8300 - and that was after looking 3-4 days in either direction for best pricing.
I find this laughable. I thought it was common understanding that business class prices were significantly disconnected from the prices that the average person pays for a flight
I'm not sure I understand what you are saying. I'm referring to the seats in the front of the plane, somewhat wider, lie-flat on long flights, better food. This is the type of flight that people who aren't being super-price conscious fly, so called wealth level 3. By definition, anybody flying in coach is not level 3.
My spouse and I could spend whatever we wanted (your 20k or whatever) on flights to Europe from the US in business class; we could pay in cash tomorrow and not really have to worry. But we don't, because that would be stupid.
Flying business class to Europe for 10k each is not something we value.
Similarly, we don't buy steak when we go out to eat. My spouse can cook a steak from our local farmer better than any steak I've paid $45+ for. We don't feel restaurant steak is a good value. Seafood? Yeah, we'll pay for that -- don't know how to cook it well, so it's a good value for us.
There is a significant difference between price and value. Coach is a fine value for me. I'm short, and I want to give my money to restaurateurs in Portugal, not American Airlines. The pleasure per dollar is a much better ratio. (BTW, Portugal is a great value :) )
The only people in their right mind who would subject themselves to the ungodly dignity/torture of coach travel rather than business would be those who don't have money and can't afford the significant difference in comfort that you get in business. I'm 5'6" (short), and travel about 140K miles/year, and I can't think of anything I do each year more miserable than sitting in coach for 14-16 hour flights.
But note - I'm not suggesting that you are making the wrong decision - just that you are making it because you have to think about the cost of flying coach, you aren't at "L3" wealth and so need to think about the marginal value associated with the money you are spending. 99% of people at L3 don't hesitate for a second to book a business class ticket. (In fact, when you are truly at L3 you probably consider flying first class (emirates has awesome First Class Cabins) - or, if we want to stretch the definition a little, opting out of flying commercial altogether)
When I first started traveling for work 10 years ago I thought it was nuts to pay $8K-$10K for tickets, and usually just had the company buy coach tickets for $1800-$2k. My thinking was that for the 12-14 hour flights, it seemed to my naive mind that spending an extra $6k was "wasteful".
After many years of traveling north of 100K miles/year, trust me, traveling in coach sucks, and anytime I'm forced to do so I'm miserable. If I had the money, I would never, ever, take any flight > 6-10 hours in coach.
Then why flying business class if you care about that sort of cost? I've heard horror stories about economy class in USA, but I've flown 9h flights European-level economy and that's quite bearable (though not so pleasant) experience.
I was kind of thinking the same thing reading this and the above comment. I'm sure with a bit of saving I could afford a business class trip, but spending the money to spend extra time on vacation or doing something interesting seems to outweigh the thought of having some extra legroom or food.
Most millionaires I know don't fly business class. People whose company is paying for their travel (and possibly are billing back a client), people using points, and the ultra-wealthy (>$5mm net worth) are the only people I know who would drop $10K on a 15 hour flight.
Hotels run up the scale to 67,000+$ a night. That's the tipping point for not caring about travel costs not simply bounding your costs by a hidden 'within my price range' scale. Interest on 1 billion will cover a 70k / night hotel room for the rest of your life it's simply not important.
Ok, but if that's really the definition we're using, there's a pretty enormous gap between "not price sensitive about food* and "not price sensitive about travel", so much so that most very rich people are in the middle; after all, even very reach people occasionally fly commercial, or fractional-ownership a private jet.
Meals can easily cost 2,000$ a pop. So it's more like a 10x - 100x jump. Which IMO is a reasonable scale for wealth going from 10,000$ to 10,000,000,000$.
Your price sensitivity would rationally be set to look at the opportunity cost across spheres of spending- an extra $100 on your flight is 10 days of parking tickets or something like that.
It seems like you're falling to the "Mental Accounting" [1] fallacy, wherein you create buckets of money but forget that they're fungible. You splurge in one area and cut back in another. [0]https://en.wikipedia.org/wiki/Mental_accounting
No, my point is that different decisions in how I park can make a bigger impact on my bottom line than whether I fly Southwest or American First Class. I take a real travel vacation maybe once every 3-4 years.
Agreed, I spend about 95% of my earnings every month and dont worry about any of these. I live a privileged life yet I have only accumulated $80,000 in assets over the years which puts me in the lowest 40 to 59th percentile and below the average americans net worth of 100k.
Fascinating post. I'm a little surprised that the private jet levels seem to be "off by one" too high. (Most people I know in the $10-30MM set are already users, sometimes heavily, of fractional programs, NetJets, etc.)
I strongly disagree with the proposition that the final level is "you don't care how much your vacations cost"-- in fact I think it's downright ridiculous and a person would only stop there for lack of imagination or for modesty.
Because beyond those 3 levels is the world of "I can spend money to improve the lives of people around me, or to improve the world in general" e.g. starting foundations, making donations, seeing things created like hospitals or homes or new companies....all of these are things some people would like to do, and which require a level of wealth far beyond "I don't care what my vacation costs."
Sure, but in the context of lifestyle changes those are really the three major leaps. This is a paradigm that looks at what categories of stress are removed as your wealth increases, not how your raw capability to drive the means of production changes.
The distinctions laid out across these three tiers are both practical and relatable. Each step is another dimension of stress which subsumes the ones below it, which implies that eliminating one level also eliminates the level below it.
Level 1 means you have no debt. That already puts you well ahead of e.g. most Americans. It means you don't have to worry about your purchases in the past. Level 2 is a step beyond that, because it means you need not care about the cost of small luxuries in the present. And at level 3, you need not care about the size of large luxuries in the present.
The floor and utility of money increases categorically at each stage. Without debt, you can focus on "things" unencumbered. If you don't need to worry about the cost of restaurant bills, you can focus on "luxurious things". Vacations realistically cost thousands of dollars. If you don't need to worry about the cost of those, you can happily spend four or five figures on an "experience" that lasts perhaps a week to a month. And if you're not truly not caring for the cost of these things, at each step you can partake of the benefit many times in one year.
I concur with another commenter that you can formulate a step 4, which is "I don't need to work to enjoy step 3", but beyond that I think you're really splitting hairs when it comes to lifestyle changes.
This used to work better than it does today due to the rise of very high salaries in the past 30 years. It used to be that very rich people didn't work. Now there are quite a few people who just get paid a ton. Though the question of whether that's properly understood as wages or capital gets blurry.
(Of course, if you work at a salary of $500,000 for a few years you start to accumulate capital pretty quickly, but it would take a lot of saving for investment income to get bigger than your salary.)
Even in medieval and ancient times a certain portion of the very rich people were merchants/bankers/entrepreneurs - though the stereotypical "very rich" of the time is a major landowner, there are even richer-than-whole-empires people like Fugger or Crassus who did work just as much as the founder-owner-CEOs of modern technology megacorps.
I wish there were data that distinguished between top 1% by income and top 1% by wealth. Income inequality may be worth targeting in itself, but if the turnover of top-1% income earners is high it doesn't matter as much as if it's fixed. Similarly, if wealth is not being maintained generation after generation then concentration is not as important either.
Check out "Capital in the 21st Century" by Thomas Picketty. The picture is bleak, and it describes how the truly wealthy (top 1% of stored wealth) must self regulate or risk passing a tipping point.
And how they are failing to do so between 1980-2010, as modern conditions globally approach those of the French Revolution.
Other than focusing on caring about the price of restaurants or vacations, what about adding financial independence to the equation?
Somehow that is something that does not seem to be valued enough when it comes to this type of discussions.
Financial independence does not mean necessarily being rich, as much as it means not needing to work for someone else and still be able to make a comfortable living.
The independence can only ever be relative. No one is truly independent. As a self-sufficient farmer, you depend on weather. As a millionaire, you depend on the continuing functioning of the financial system.
The fed’s net worth quantiles are all positive. It’s depressing to learn that I came from the bottom of the bottom tier. Income was median, but my dad bought (mortgaged) an ‘unbuildable’ foreclosed lot and we built a house as a family activity in a rich town. I never knew the difference, didn’t even notice the fancy clothes and expensive cars. I still don’t know what wealth is supposed to feel like, nor do I care. I have zero interest in restaurants and luxury travel. The more free I am with purchases, the more bullshit accumulates in my life that I never use. If I had to choose objectively based on experience, I’d probably stick with being poor. The best was zero money and possessions as a vagabond because I was forced to be social to survive. But I’m not throwing it away just yet, because that next level of wealth is supposed to be oh so much better. Can’t wait for the disappointment on that one.
Along a similar vein, I define "rich" as "Could live comfortably for the rest of one's life without ever 'working' again". No need for a wage-paying job, or owning a business that requires day-to-day attention.
It's interesting that the charts everyone uses for share of household wealth are from the 1970s until today. If you take it back a bit further, to the 30s/40s (or even further to 1916) the share of the lowest and middle classes is significantly improved and the top 1% has lost wealth. It IS true that that trend has been reversing since the 70s, but it's still not close to pre 30s levels of inequality. I agree we need to figure out what's been going on since the 70s, but I also kind feel like we need to include all the charts for the best perspective.
Class 1: you can afford your current lifestyle without concern for daily expenses, and could withstand 1 or more major emergencies (job loss, car destroyed, $30,000 bill) without reducing your lifestyle.
Class 2: your assets are sufficient that with a reduction in lifestyle you never have to work again.
Class 3: your assets are sufficient that with no reduction in lifestyle you never have to work again.
Class 4: no amount of incremental wealth will increase the amount you’d spend on a primary home, and you never have to work.
Class 5: no amount of incremental wealth will affect your spending on vacation homes, yachts, or planes and you never have to work.
There are obviously levels of subsistence below these. But these are, to my mind, the levels of wealth/freedom. Below these I wouldn’t call someone financially secure or say have “financial freedom.”
I think when creating these tiers it’s important to acknowledge that lifestyle is a variable and some people’s preferences make it easier to achieve different levels. If you have caviar tastes, you need more money to make it into class 1. If you are extremely frugal and well paid, it doesn’t take much actual money to make it into class 5. Lifestyle vs freedom is a choice and there’s a trade off - do you use extra money to buy lifestyle or to buy freedom?
I'd make it (and like the ones in TFA, those all start above normal middle class status and end below < 5 million dollars -- beyond that it's mostly extravagance and political power and influence rather than actual quality of life changes).
1) Level 1. I’m not stressed out about debt: People who no longer have to worry about their credit card debt or student loans.
2) Level 2. I can buy for anything I fancy within reason (e.g. I could get buy a new high-end laptop every year, lots of clothes, eat out regularly at fancy restaurants, have a $5K watch and so on), but not extravagant stuff (e.g. no Ferrari collection or yacht).
3) Level 3. I might work, but I don't have to work. I can take a vacation anytime I want for as long as I want, and stay in a 5-star hotel for as long I like.
I'm kinda amazed by how many wealth ppl there are in America, especially given all the negative headlines about debt, student loans, ppl not having enough for retirement, etc. It's actually easier to be a multi-millionaire (statistically speaking) than a member of Mensa.
There's always a $150 plate of macaroni and cheese, or a $25,000 heli-skiing trip.
Don't define wealth by saying "you don't care what a meal or vacation costs." You always care, it's more that most meals and vacations are easily affordable.
I would expect there's a level of wealth (well, well above mine) where you only ration time and attention and completely stop rationing money on meals and vacations.
I think there are much more interesting ways to view hierarchies of wealth.
Level one is living on the fruits of ones labors. Your wealth is based on what you do.
Level two is living on your assets, or capital. Your wealth is based on what you have.
Level three (rare in 20th/21st century) is living on your conquest and subjugation of others. Your wealth is based on who you are.[1]
[1] I speak not so much of colonial conquest, or subjugation of native peoples by outsiders, but rather of local conquest - you may not have killed all the other claimants to the local throne, but your grandfather did and nobody is challenging you.
I think once you hit his final wealth level you realize there’s another one that isn’t obvious to people lower down the wealth ladder. At some point your assets are making a substantial portion of your annual income for you passively. If you’ve hit that point, congrats. If not, you definitely know it and are probably working toward it. And I wouldn’t be surprised if there isn’t another break point above that, probably to do with how much you think about the cost of large purchases like a home (or homes).
I find Yonatan Zunger's "financial shock wealth" far more useful:
This number is probably the truest measure of a person’s real wealth: What is the largest unexpected financial shock you could sustain without the cost of that to you suddenly becoming ten times the original cost or more?
I think there's a 4th level of wealth that wasn't mentioned which is financial independence. This is independent of how you think about expenses - it's more the freedom and stress removed of knowing you don't care if you're RIF'd and you don't need to impress someone or depend on someone for income or a job.
It's strange that he would classify how wealthy you are to be how discriminate you are with prices in level 2 and 3. Spending as much as possible without considering the value isn't something I would associate with wealth.
I think there are better, more tightly specified definitions in this thread.
i get what the author was trying to say, but i'd put it differently (as others in the thread have already indicated). i envision a few different modes of life. these modes or levels are strongly entrenched. downward mobility is more likely than upward mobility by a huge margin, but it still takes a large negative shock to generate downward mobility.
level 0: primitive accumulation of non-liquid assets. the image here is a homeless person trucking around all of their possessions in a shopping cart or perhaps someone living in a shantytown. there is no ability to pay for any kind of costs, except by the generosity of others. severe mental illness is guaranteed.
level 1: destructive equilibrium. wealth remains constant (and low) despite consistent or inconsistent income. this is where many of the working poor are -- no getting ahead, but a large potential for falling behind. a small number of fixed costs may be sustainable, but stability is very low and anxiety is very high. there is no purchase which can be made without budgeting. mental illness is highly probable.
level 2: unstable accumulation. wealth is low, but there is a slow rate of accumulation of wealth. the wealth is often dipped into during times of crisis, so on the long run, there isn't much compounding going on even if the wealth does accumulate. many purchases require budgeting, but the smallest of purchases (like a pack of gum) can escape deliberation. the rest of the working poor and most of the "middle" class fall into this category. mental illness is probable, because there is never true stability -- the amount of wealth in the bank is never enough to protect against more than one problem at a time.
level 3: stable accumulation. wealth accumulates reliably, and compounding interest makes the long-term view rather rosy. less-trivial purchases like TVs or nice dinners don't require deliberation. the real defining feature of this level is that for the first time, the means for having nice things increases over time. someone might be only able to afford one vacation a year at the start of their career, but if they stay within this level they could afford four by the end. mental illness is less likely because there are enough resources to protect against more than one shock at a time. note that major purchases like houses or cars are never beyond at least some deliberation for this level, even if other things are. this is the "upper" middle class.
level 4: accelerating accumulation. these are the upper classes. shocks are irrelevant to this level because a shock of sufficient size to threaten their well-being would probably be the end of the world or at least major chaos. at this level, budgeting does not really exist. the economic deliberations of the lower levels are replaced by a consumption deliberation. the question is no longer "can we afford this" but rather a purely hedonic "would i like to have/do this". the wealth base at this level is so large that even excessive consumption will not slow its accumulation by an amount which would require cutting down on future excessive consumption. the people at this level hold most of the world's financial resources.
is this view of things reductive? yep. the takeaway lesson is that the vast majority of the people with a positive net worth do not have genuine stability.
I think you're overstating the effect of money on mental health. While I don't disagree that homeless people suffer mentally and the working poor's high stress levels are bad for health, it's not a guarantee that you'll go nuts. People are more resilient than that. They had to be or we would have never survived as hunter-gatherers.
I would like to reinforce your point about the super rich. They have so much money now that it's basically impossible to spend it faster than its growing. They will continue to accelerate away from the general populace for the foreseeable future. This represents a tremendous failure of policy on the part of our government. It's locking up more and more of the wealth of the country at the top where it does nothing useful while the majority of the people who drive the economy get squeezed harder and harder. It is the government's responsibility in a capitalist system to prevent the capital feedback loop from destroying the system--nobody else has the power or will to do it.
These are to a large extent the same observations as the ones made by Thomas Piketty in _Capital in the 21st Century_. I’m a classic liberal in the Smith/Mill sense, but nevertheless found it to be a thoughtful criticism of the capitalistic system. Besides a thorough look at the dynamics of wealth and income inequality, Piketty’s main thesis is that the higher rate of return that you typically see on capital, as compared to the equalizing effects of economic, will lead to an ever increasing concentration of wealth unless checked. I didn’t find his position to be anti-entrepeneurial, rather he seems bothered by the fact that collecting rent tends to pay better than value-creation through labour, including entrepeneurial efforts.
The self-identification chart is pretty interesting. It looks like within the past few years ~10% of people who would have identified as lower/working class are now identifying as middle/upper-middle despite the middle class continuing to decline while the lower and middle-upper classes have slowly increased
The title is a bit misleading. This is mostly about inequality, using the "three levels of wealth" are a jumping off point to explore how income inequality has changed over time. The conclusion is nothing new: inequality is rising.
I grew up in a divorced household. On one side I had a father and step mother who made large amounts of cash in a relatively inexpensive area. They vacationed regularly to Hawaii and Las Vegas, and prioritized spending money on themselves.
My mother and step father combined to earn around $30k, were hyper frugal, and stressed about every expense. Any expense whatsoever was agony, and they made sure my sister and I understood their inability to buy things on a whim.
So, as I bounced between houses each week, I yo-yo’d between borderline poverty (although they made it work) and quite high wealth.
When I hit my mid to late 20s, my wife and I hit a point where we had no debt. Could go out anytime. Could rent any reasonable home in our area (couldn’t buy because we didn’t have that kind of down payment money), and traveled a few times a year throughout the world. When I contrasted this against how I felt after undergrad, while in grad school, where I was heavy in debt, had no car, and felt constant financial stress, it’s remarkable.
As I’ve continued to grow older, I’ve now come to realize it wasn’t the travel, eating out, or the things I could buy that helped me to be less stressed, it was the lack of burden of worrying about how I would pay for X, Y, or Z. I make way less money now as I run my own startup, don’t go out that much as I do all the cooking, don’t travel that much because we can’t afford it, yet I carry the same lack of stress and worry as I did years back.
Part of why I’d like to see universal, free at the point of delivery, health care in the United States is for this very reason. I’ve first hand experienced and witnessed the choice of not going to get needed medical care because of the financial burden. UBI is still highly experimental, and many other wealth normalization techniques have severe downsides that potentially outweigh the benefits; however, universal health care has enough clear data points of success in the rest of the world, from my vantage point, that maybe that can be the “level 0” of wealth in the United States.