Question

In The $140,000 Question, I went over recent viral claims about poverty in America.

The calculations behind the claims were invalid, the central claim (that the ‘true poverty line’ was $140k) was absurd, but the terrible vibes are real. People increasingly feel that financial life is getting harder and that success is out of reach.

‘Real income’ is rising, but costs are rising even more.

Before we get to my central explanations for that – the Revolution of Rising Expectations and the Revolution of Rising Requirements – there are calculations and histories to explore, which is what this second post is about.

How are costs changing in America, both in absolute terms and compared to real incomes, for key items: Consumer goods, education, health care and housing?

That’s a huge percentage of where we spend our post-tax money.

And how is household wealth actually changing?

The economists are right that the basket of goods and services we typically purchase in these areas has greatly increased in both quantity and quality, in spite of various severe supply side problems mostly caused by regulations.

That is not what determines whether a person or family can pay their bills.

People keep saying and feeling that the cost of living is going up and things are getting harder. Economists keep saying no, look at the data, you are buying better goods, so you are wrong.

Both things can be true at once. It also means people talk past each other a lot.

There was an iteration on this back in May, when Curtis Yarvin declared a disingenuous ‘beef’ with Scott Alexander on such questions. A good example of the resulting rhetoric was this exchange between Scott Alexander and Mike Solana.

Mike Solana: guy will say “things are harder now than they were, harder than they have ever been, I don’t know how to make my life work in this new american economy” and an intellectual will show him a graph that indicates “median wages have increased 30% since the turn of the century.”

Guy will say the cost of a house has more than doubled. He’ll say he can’t afford his home town anymore. The intellectual will make a macro argument with another chart. it will seem smart.

Guy will still be miserable, his life will still be hard. And he will vote.

As with the $140,000 question, many of the specific cost claims of the various Guys here will be wrong, but their life will be hard, and they will be unhappy. And vote.

Evaluating and often refuting specific claims is a necessary background step. So that’s what this post is here to do. On its own, it’s a distraction, but you need to do it first.

Two years ago I covered the debate around Cass’s Cost of Thriving Index, and the debate over whether the true ‘cost of thriving’ was going up or down.

The Cost of Thriving Index is an attempt to assemble the basket of goods required for ‘thriving’ in each era and then compare combined costs as a function of what a single man can hope to earn, without regard to the rising quality of the basket over time.

The post covered the technical arguments in each area between Winship and Cass. Cass argued that thriving had gotten a lot harder. Winship argued against this.

My conclusion was:

1. Cass’s calculations were importantly flawed. My ‘improved COTI’ shows a basic basket was ~13% harder for a typical person to afford in 2023 than it was in 1985.

2. Critics of the index, especially Winship, misunderstood the point of the exercise and in many places trying to solve the wrong problem using the wrong methods based on a wrong model of the world derived from poor thinking. Unfortunately all their mistakes failed to cancel out.

3. You had to consume goods that cost ~75% more ‘real income’ in order to thrive in 2023 than you did in 1985. ‘Real income’ went up 53%. Are you better off in 2023 or in 1985? It is not obvious. One effect does not negate the other.

This calculation left out at least one very important similar consideration in particular that neither side considered: The time and money costs of not letting kids be kids, and the resulting need to watch them like a hawk at all times, requiring vastly more childcare. You can buy that, or you can pay with your time. Either way, you pay up.

The two sides continue to talk past each other. Before we can do a synthesis, we need to cover the actual cost details.

I don’t quite fully buy the Housing Theory of Everything.

But is close.

House prices have risen quite a lot, as have interest rates. So did incomes.

If you’re okay living where people don’t typically want to live, then things aren’t bad.

However, people are less accepting of that, which is part of the Revolution of Rising Expectations, and opportunity has concentrated in the expensive locations.

Noah Smith: In terms of wages, income, and wealth, Gen Z and Millennials are doing much better than previous generations. Corporate America is not failing the youth.

It’s only housing that’s really broken.

Charles Fain Lehman: Americans are unhappy because housing is illegal.

Zac Hill: illegal aliens -> illegal housing.

I would instead say, if housing was legal, there would be a lot less unhappiness.

More precisely: If building housing was generally legal, including things like SROs and also massively more capacity in general in the places people want to live, then housing costs would be a lot lower, people would have vastly more Slack, and the whole thing would seem far more solvable.

If you look at median home prices, things actually look like they’ve always been pretty terrible, as in this is a share of 200% of median income:

Ryan Radia:

The median household, with a median income and no outside help, does not by default buy the median house at today’s interest rate. Houses are largely bought with wealth, or owned or acquired in other ways, so by default if you’re relying purely on a median income you’re getting a lot less than the median house. Which is totally fine, the median house is historically huge, you can notch down a bit. Also, when rates go down we refinance and when they go up we delay moving, which lowers costs.

But if we suppose you’re a median income earner trying to buy the median house today. If you believe the above graph, it’s going to cost you 70% of your income to make a mortgage payment, plus you’ll need a down payment, so yeah, that’s not going to happen. But that number hasn’t been under 50% in fifty years, so people have long had to find another way and make compromises.

The graph does seem like it has to be understating the jump in recent years, with the jump in mortgage rates, and here’s the Burns Affordability Index, which divides the median monthly housing cost (all-in including insurance) for a 10% down, 30-year-fixed mortgage at current rates versus 125% of the median income (seriously, guys, 100%, use 100% and we can adjust for dual incomes):

I’m willing to believe that this jump happened, and that some of it is permanent, because interest rates were at historic lows for a long time and we’re probably not going to see that again for a while even if AI fizzles.

That 42% buys a lot more house than the 33% did in 1986. Compared to the early 1970s (so when interest rates hadn’t shot up yet) Gale Pooley says a given percentage of household income (counting the shift to two incomes, mind) gets you 73% more house, average size went from 1,634 square feet to 2,614, per person it went from 534 to 1,041, many amenities are much more common (AC, Garage, 4+ bedrooms, etc) and actual housing costs haven’t risen much as a percentage of income.

That doesn’t make the new house you need any easier to pay for. More people are working and paying a higher percentage of income in order to pay for that house, again especially in the places with futures (which also are the sources of media).

Things will look worse if you look at the major cities, where there is the most opportunity, and where people actually want to live. This is NIMBY, it is quite bad, and we need to fix it.

That includes increasing unwillingness to live far away from work, and endure what is frankly a rather terrible commute, Tristan’s here is relatively light.

Tristan Cunha: When I got out of college 20 years ago I applied to jobs online, found an apartment online, got a car loan online, etc. So I remember searching and comparing the price of everything.

When people complain about how tough things are now I search and can find the rent for an apartment in the building I lived in, or every level jobs at the first company I worked at, etc. and it doesn’t seem that expensive to me. Sure the nominal prices have gone up, but the rent as a percentage of every level salary is about the same.

I think the big difference is when I tell young adults now that I had a 30-60 minute commute in to the city on the train, and had a roommate in a tiny apartment in the suburbs, they think that’s a huge sacrifice.

For a while a lot of the story of things getting harder was that healthcare and education costs were rising rapidly, far faster than incomes.

Did we turn this around? Noah Smith strongly asserted during the last iteration of the argument that this is solved, the same way the data says that real wages are now accelerating.

He starts off with the famous Mark Perry price changes chart.

Noah Smith: And the story was compelling because it came with a simple theory to explain it. This was the notion that manufacturing productivity naturally increases faster than service productivity. Conceptually, it seems easier to figure out how to rearrange production processes in a factory, and apply new machine tools, than to figure out new ways to educate kids or take care of Grandma.

The story of healthcare and education goes beyond not getting the discounts on manufactured goods. It extends to a large rise in the amount of goods and services we had to purchase, much of it wasted – Hansonian medicine, academic administrative offices and luxury facilities, credential inflation and years spent mostly on signaling, and so on. Don’t try to pass this all off as Baumol’s Cost Disease.

Noah Smith: If service costs rise relentlessly while manufacturing costs fall, it portends a grim future — one where we have cheap gadgets, but where the big necessities of modern middle-class life are increasingly out of reach. And in fact, that was the story a lot of people were telling in the mid-2010s.

That story led to a certain techno-pessimism. If technology could give us cheap gadgets, but couldn’t make the basics of modern life any cheaper, what good was it?

Step back to first principles. This can’t happen purely ‘because cost disease’ unless the total labor demanded is rising.

1. You provide one person-unit of labor.

2. You buy [X]-units of labor to get [S] services and also buy [Y]-units of goods.

3. That only gets harder for you if either:

   1. The required quality or quantity of [X] or [Y] is rising.

   2. The cost of a unit of goods is rising relative to incomes.

   3. The labor you need is rising in cost faster than your own labor.

Which is it?

I assert that the primary problem is that [X] is rising, without much benefit to you.

The secondary issue is a fixed supply of healthcare-relevant [X]s via occupational licensing. Relative to required services, labor productivity and supply are falling.

The failure of educational technologies like online education only seemed to drive the point home — it seemed like we’d always just be stuck with a teacher giving lectures on a board to 20 or 30 kids.

The ‘failure of online education’ so far has been due to trying to duplicate that 20-30 kid classroom over zoom. That was always going to be a dystopian nightmare and wouldn’t save on labor anyway.

Why is a class of the same size so much more expensive in units of middle class labor? Noah focuses on higher education later in the post, but as an obvious lower education example: The New York City DOE school system costs $39k per student. You think that mostly pays for the teachers?

If all we do is hold the basket of required services [S] constant, we should require less labor units [X] to meet our needs as productivity improves, at least due to technology. Instead, we need more labor.

Noah then covers attempts to solve the cost issues via policy, or at least to stop making the problem worse via policies that restrict supply and subsidize (and I would add mandate) demand, and instead move around taxes and subsidies in smarter ways. The solutions he seems to favor here still mainly continue to look a lot like subsidizing demand and using transfers.

But, behold, says Noah. Health care costs have stopped increasing as a percentage of GDP. So Everything Is Fine now, or at least not getting worse. The ways in which he argues things are doing fine helped me realize why things are indeed not so fine here.

This chart represents us spending more on health care, since it’s a constant percentage of a rising GDP. That’s way better than the previous growing percentage. It is still a high percentage and we are unwise to spend so much.

OK but anyway, what we really care about at the end of the day is affordability — i.e., how much health care an average America can buy. A good way of measuring affordability is to look at median income divided by an index of health care prices — in other words, how much health care the typical American can buy with their annual income.

OK, so, this is total spending, not the price of health care. Is America spending less because we’re getting less care? No. In cost-adjusted terms, Americans have been getting more and more health care services over the years.

Importantly, no. We do not primarily care about how much health care an average American can buy and what it costs them.

We primarily care, for this purpose, about how much it costs in practice to get a basket of health care you are in practice allowed or required to buy.

That means buying, or getting as part of your job, acceptable health insurance.

The systems we have in place de facto require you to purchase a lot more health care services, as measured by these charts. It does not seem to be getting us better health.

Noah even says, look, healthcare is getting more affordable overall, even accounting for all the extra healthcare we are forced to buy:

This chart does not reflect true personal consumption expenditures.

As a person forced to buy insurance on the New York marketplace, I do not notice things getting more affordable. Quite the opposite. If you don’t get the subsidies, and you don’t have an employer, buying enough insurance that you can get even basic healthcare services costs an obscene amount. You can’t opt out because if you do they charge you much higher prices.

There are two ways out of that. One is that if you are sufficiently struggling they give you heavy subsidies, but you only get that if you are struggling, so this does not help you not struggle and is part of how we effectively trap such people in ~100% marginal tax brackets as per the discussions of the poverty trap. Getting constant government emails saying ‘most people on the exchange pay almost nothing!’ threatens to drive one into a blind rage.

The other way is if you have a job that provides you insurance. Securing this is a severe distortion in many people’s lives, which is a big and rising hidden cost. Either way, you’re massively getting distorted, and that isn’t factored in.

This thing is obscenely expensive and is de facto mandatory. Then we offer various conditional subsidizes and workarounds does not make the cost non-obscene. Then even after you pay you have to navigate the American Healthcare System and force it to provide the healthcare you bought.

The average cost is holding steady as a percentage of income but the uncertainty involved makes it much harder to be comfortable.

It could just be that Americans were willing to pay more for health care as they got richer, up to a point, but that at some point they said “OK, that’s enough.”

I believe the American people mostly would prefer to buy less rights to health care, especially if they don’t get insurance through their work and also even if they do. But the system won’t allow that and their major life choices get distorted by the need to not get crushed by this requirement.

It’s an insane system but we’ve given up on fixing it.

It’s not that much worse than it was in the 1990s, but in the 1990s this was (as I remember it) the big nightmare for average people. It isn’t getting better, yet people have other bigger complaints more often now. That’s not a great spot.

I notice that Noah only discusses higher education here. Lower education costs are definitely out of control, including in the senses that:

1. Public funding for the schools is wildly higher than the cost of teachers, and wildly higher per student, in ways that don’t seem to help kids learn.

2. Public schools are often looking sufficiently unacceptable that people have to opt out even at $0, especially for unusual kids but in many places also in general.

3. Private school costs are crazy high when it comes to that.

But sure, public primary and secondary school directly costs $0, so let’s focus on college. It does seem true on the base chart that costs leveled off, although at levels that are still a lot higher than in the 1990s, which was already higher than earlier, and also people feel more obligation to do more years of schooling to keep pace which isn’t factored into such charts.

Of course this doesn’t include financial aid (nor does Mark Perry’s chart, nor do official inflation numbers). Financial aid has been going up, especially at private schools. When you include that, it turns out that private four-year nonprofits are actually less expensive in inflation-adjusted terms than they were in the mid-2000s, even without accounting for rising incomes:

I do think people fail to appreciate Noah’s point here, but notice what is happening.

1. We charge a giant sticker price.

2. We force people to jump through hoops, including limiting their income and doing tons of paperwork to navigate systems, and distort their various life choices around all that, in order to get around the sticker price.

3. If you don’t distort your life they try to eat all your (family’s) money.

4. The resulting real price (here net TFHF) remains very high.

The actual hidden good news is that enrollment is down from peak, so people aren’t facing increasing pressure to do more and more secondary education.

I buy the thesis that higher education costs, while quite terrible, are getting modestly better rather than getting worse, for a given amount of higher education.

The trend is starting to reverse a bit, but it went up rather dramatically before it started to come down, until very recently this was offset by the rise in enrollment and graduation rates, and we force people into various hoops including manipulations of family income levels in order to get this effective cost level, which means that the ‘default’ case is actually quite bad.

Noah’s big takeaway is that services productivity is indeed rising. I notice that he’s treating the productivity statistics as good measures, which I am increasingly skeptical about, especially claims like manufacturing productivity no longer rising? What? How are all the goods still getting cheaper, exactly?

Noah agrees that even where costs are now stabilized or modestly falling, we haven’t undone the huge cost increases of the past. Mostly I see these statistics as reinforcing the story of the Revolution of Rising Requirements. If services productivity has doubled in the last 50 years, and we feel the need to purchase not only the same quantity of service hours as before but substantially more hours, that makes the situation very clear.

I also would assert that a lot of this new ‘productivity’ is fake in the sense that it does not cash out in things people want. How much ‘productivity’ is going on, for example, in all the new administrative workers in higher education? One can go on.

Ultimately I see the stories as compatible, and this is making me even more skeptical of what the productivity statistics are measuring. This goes hand in hand with the internet and AI showing up everywhere except the productivity statistics. Notice that these graphs don’t seem to bend at all when the internet shows up. We are measuring something useful, but it doesn’t seem to line up well with the amount of useful production going on?

Alex Tabarrok reminds us that modern clothes are dramatically cheaper.

We spend 3% of income on clothes down from 14% in 1900 and 9% in the 1960s. Yes, modern clothes tend to be more flimsy, but it is more efficient this way. The cost of replacing them is priced in and it’s good for clothes to be lightweight.

If you want ‘high quality’ durable and heavier clothes, we will sell them to you, and they’ll still be relatively cheap. And yes, obviously, the government wanting to ‘bring back apparel manufacturing to America’ is utter madness, this is exactly the kind of job you want to outsource.

Related to all this is the question of how much we benefit from free goods? A (gated) paper attempts to quantify this with GDP-B, saying ‘gains from Facebook’ add 0.05%-0.11% to yearly welfare growth and improvements in smartphones add 0.63%. Which would be a huge deal.

Both seem suspiciously high. A bundle of ‘free goods’ only helps me when I care about them. Much of this is positional goods or otherwise not obviously net good for us. You cannot eat smartphone cameras or social media posts.

The free services that do save you money are a different matter. A lot of those have effectively been lost due to atomization.

Here is a recent example of attempting to look away from the problem, in two ways.

1. To shift focus from what it costs to survive to how many goods people buy.

2. To shift focus to demand when we should be focused on supply, as if ‘our supply chains are intact’ means we’re not restricting supply and subsidizing and mandating demand.

Tyler Cowen: Most of all, there is a major conceptual error in Green’s focus on high prices. To the extent that prices are high, it is not because our supply chains have been destroyed by earthquakes or nuclear bombs.

Rather, prices are high in large part because demand is high, which can only happen because so many more Americans can afford to buy things.

I am reminded of the old Yogi Berra saying: “Nobody goes there anymore. It’s too crowded.”

I challenge. This is not primarily a demand side issue.

Over time supply should be elastic. Shouldn’t we assume we have a supply side issue?

What are the goods that Americans need, that have truly fixed supply that shouldn’t be elastic in the face of wealth gains and generational demand shifts? Where is this not mostly a self-inflicted wound?

The answer to that is positional goods. Saying ‘look at how much more positional goods everyone is buying’ is not exactly an answer that should make anyone happy. If everyone is forced to consume more educational or other signaling, that’s worse.

The biggest causes of high prices on non-positional goods are supply side restrictions, especially on housing and also other key services with government restrictions on production and often subsidized or mandated demand to boot. Yes, to some extent housing is a positional good as well, but we are nowhere near where that constraint should be binding us. I presume Tyler Cowen would violently agree.

When solving for the equilibrium, rising demand for a good causing higher prices should be highly suspicious. Supply tends to be remarkably elastic in the medium term, why is that not fixing the issue? If we’re so rich, why don’t you increase production? Something must be preventing you from doing so.

Often the answer is indeed supply restrictions. In some of the remaining cases you can say Baumol’s Cost Disease. In many others, you can’t. Or you can partially blame Baumol but then you have to ask why we need so much labor per person to produce necessary goods. It’s not like the labor got worse.

The burdens placed are often part of the Revolution of Rising Requirements.

Even if Tyler Cowen was entirely correct here? It does not change the key factor. Americans buying lots of things is good, but it does not impact how hard it is to make ends meet.

It is not a conceptual error to then focus on high prices, if prices are relevantly high.

It is especially right to focus on high prices if quality requirements for necessary goods have been raised, which in turn raised prices.

We also need to look at generational wealth levels. We constantly play and hear the ‘generation wealth level’ game, which is mainly about how old people are, and secondarily about home and stock price appreciation, and there was never that much story there to begin with, the gaps were always small?

The latest news is that Millennials, contrary to general impressions, are now out in front in ‘real dollar’ terms for both income and wealth, and their combined spending on housing, food and clothing continues to decline as a percentage of income.

The bad news is that if you think of wealth as a percentage of the cost of a house, then that calculation looks a lot worse.

Similarly, this is the classic graph on income, adjusted for inflation, after taxes and transfers, showing Gen Z is making more money:

Matthew Yglesias: An annoying aspect of the new political alignment is it’s hard to tell whether a given factually inaccurate declining narrative is coming from a left-wing or right-wing perspective.

Zac Hill: Right, and it’s precisely the *expectationscreated by these skyrocketing increases which is a major cause of this misplaced sense of decline.

Illustrious Wasp (being wrong): This is graph is straight up propaganda. Inflation hasn’t been actually measured for decades. Purchasing power is the lowest its ever been. Rent, food, and necessities are the highest fraction of income ever since the great depression and possibly even higher. The average American has literally zero dollars in their bank account and is living paycheck to paycheck.

Hunter: No.

Also, similarly, we have this:

Jeremy Horpedahl: The share of income spent on food, clothing, and housing in the has declined dramatically since 1901 in the United States. It’s even lower than in 1973, which many claim is the beginning of economic stagnation.

Bonus chart: if you are worried that the national average obscures regional differences, here is similar long-term data for New York and Boston

[These charts are from my post here.]

Such threads are always filled with people who do not believe any of it. The numbers must be wrong. Everyone is lying about inflation. Assertions of ‘misinformation’ and ‘debunked’ without evidence.

I strongly believe the numbers are right. One must then figure out what that means.

Are you more wealthy than a khan?

Ben Dreyfuss: So many tweets on this website are people describing the almost unimaginable level of comfort and prosperity enjoyed in this country and then being like “but it sucks” haha

Jane Coaston: this is American Beauty thinking, I was pretty sure we solved this with the Great Recession, and yet here we are, still believing that “a good life your ancestors died for” is secretly bad because you’re on the brink of death all the time

if you want to experience the very edge of human suffering you could just run an ultra like a normal person. Not to sound like a parent but if you would like to suffer to feel something boy do I have some ideas.

if you have a house, a spouse, and a Costco membership, you are more wealthy than actual khans of the ancient past

Mungowitz: Two things:

1. [The claim about being more wealthy than actual khans] is so obviously true that I can’t see why it is not just universally believed.

2. No one believes it.

I instead say: It is obviously true in a material wealth and comfort sense excluding ability to find companions or raise children, and no one believes it because that’s not the relevant comparison and they’re not drawing the distinction precisely.

There is a big difference between material wealth and comfort, and what is good or valuable in life. That’s the disconnect. Yes, in terms of material goods in an absolute sense you are vastly richer than the Khans. You are vastly safer and healthier than them, with a vastly higher life expectancy. You better recognize.

That doesn’t mean you are better off than a Khan. Even if you don’t care about status and ability to boss people around, or other ways in which it is ‘good to be the king,’ and we focus only on material wealth, you are especially not better off in the most important respect. Which is that, once again, your material wealth will still struggle to support a family and children, or to feel secure and able to not stress about money, and most people feel constrained by money in how many children they can have.

A Khan had the most important amount of wealth for personal use, which is ‘enough.’

What does it say about us if we are both materially more wealthy than a Khan, and that we are not allowed, culturally or legally, to turn that wealth into a large family?

Throughout, we see the combination of three trends:

1. People are making more money, and ending up with more wealth at a given age.

2. Real costs in these areas are rising more than they should be, but not substantially higher than real incomes.

3. This identifies important problems, but does not explain people’s unhappiness and felt inability to succeed or be in position to raise a family. More is happening.

As I said up top, the economists are right about the facts. Claims to the contrary are wrong. But those facts do not mean what the economists understand them to mean. They do not mean that Guy is not miserable or his life is not harder, or that Guy can afford his hometown, or to raise a family.

Whereas real wages have gone up a lot, so Guy’s life should be easier. Why isn’t it?

My answer, the thing I’m centrally building towards, is that this doesn’t represent the full range of costs and cost changes, centrally for two reasons: The Revolutions of Rising Expectations and Rising Requirements.

There was a no good, quite bad article by Michael Green that went viral. The condensed version was entitled ‘The Valley of Death: Why $100,000 Is the New Poverty,’ and a follow-up here.

His actual claim in that post, which was what caught fire, was that the poverty line should be $140,000, and even that this number is him ‘being conservative.’

Obviously that is not remotely true, given that:

1. America is the richest large country in history by a wide margin.

2. $140,000 is at or above median household income.

3. You can observe trivially that a majority of Americans are not in poverty.

Today’s post covers this narrow question as background, including Green’s response.

If you’ve already had your fill of that, including ‘well, yes, obviously, how are we bothering with all this, I know it went viral but someone was being Wrong On The Internet’ then you are not wrong. You can safely skip this post. It’s fine.

I’m writing this as a lead-in to broader future discussions of the underlying questions:

1. How hard life actually is right now in various ways, in various senses.

2. What costs in particular are rising versus falling.

3. What we can do to turn the problems around.

4. The roles of the Revolutions of Rising Expectations and Rising Requirements in all of it.

1. None Of This Makes Any Sense.

2. Let’s Debunk The Whole Calculation Up Front.

3. The Debunking Chorus.

4. Okay It’s Not $140k But The Vibes Mean Something.

5. Needing Two Incomes Has A High Cost.

6. I Lied….

7. …But That’s Not Important Right Now.

8. Poverty Trap.

9. Poverty Trap Versus Poverty Line.

10. Double or Nothing.

Michael Green’s calculation of an alternative poverty line does not make any sense, but he is correct that the official poverty line calculation also does not make any sense.

Michael Green: The statement was this: “The U.S. poverty line is calculated as three times the cost of a minimum food diet in 1963, adjusted for inflation.”

When I read it I felt sick. And when you understand that number, you will understand the rage of Americans who have been told that their lives have been getting better when they are barely able to stay afloat.

The official poverty line of $32,000 for a family of four seems both totally arbitrary and obviously too low if you look at taxes and transfers, in the same way that the median income of $140,000, where Green wants to set that poverty line, is absurdly high.

Neither number is saying a useful thing about whether people are barely able to stay afloat, or whether lives are getting better. My guess is the right number is ~$50,000.

The point of a poverty line is not ‘what does it take to live as materially well as the median American.’

Green literally equates the poverty line with median income, in two distinct ways. No, really. He equates this with ‘basic participation.’ That’s not how any of that works.

Poverty actually means (from Wikipedia) “a state or condition in which an individual lacks the financial resources and essentials for a basic standard of living.”

Neither of those things is well predicted by the same number of constant dollars over time. The first is especially not well predicted, and the second mostly is not either. The minimum basket of goods does not track inflation.

Before I get to the chorus of debunkers, I’ll briefly join that chorus for those who came in late and point out that the underlying math that Michael Green does is deeply, deeply stupid, it makes even less sense than you think, as in it is actually tautological equating of median income with poverty except with calculation errors.

I mostly wrote my debunk before reading the others, but we found the same things, so if you’ve read the others you can skip this section and the next one.

Michael Green: In 2024, food-at-home is no longer 33 percent of household spending. For most families, it’s 5 to 7 percent. Housing now consumes 35 to 45 percent. Healthcare takes 15 to 25 percent. Childcare, for families with young children, can eat 20 to 40 percent.

If you keep [the original] logic [of the poverty threshold]—if you maintain [the] principle that poverty could be defined by the inverse of food’s budget share—but update the food share to reflect today’s reality, the multiplier is no longer three.

It becomes 16. Which means…the threshold for a family of four—the official poverty line in 2024—wouldn’t be $31,200. If the crisis threshold—the floor below which families cannot function—is honestly updated to current spending patterns, it lands at close to $140,000.

As in, he’s taking a food, multiplying by (14 or 16), and calling that the poverty line, because food-at-home is (1/14th or 1/16th) of typical household spending. Even if his calculations were correct: Seriously, what? You presumably see (some of the) problems?

(The calculations also aren’t correct in other ways, at minimum he should be using total food share which only leads to a 7.8 multiplier, and the way he’s backing out minimum food costs is assuming costs rose exactly with CPI, but that’s not important right now.)

That’s the same as saying ‘the poverty line is equal to typical household spending.’

Well, it’s that plus the error from the conflation of food with food-at-home, the ‘what do people actually spend’ calculation should end up in more like $80k, almost exactly American median income Mike claims American households make (he’s wrong, it’s actually $125k for families of four, whoops).

That’s not a coincidence. This methodology would say that half the people will always be under the poverty line, no matter how rich or poor those people were.

Poverty here is being defined as ‘below the median.’ Except with a bug in the math.

Thus, contra Green, there’s no typical expense that this ‘doesn’t include.’

If your response is ‘parts of this are what the original calculation did, kind of’ my answer is: I do not care, not even a little, that a different calculation was also ad-hoc nonsense followed by CPI adjustments. We agree that the $32k number also isn’t right.

He then uses the ‘living wage calculator’ to assemble a typical household budget in Essex County, New Jersey, a relatively expensive metro area. His source says ‘typical expenses’ there require $96k in income if one parent is working, $136k if two parents are working, mostly due to a $32k child care gap which is nonsensical if the children are in school. All of which Scott Winship analyzes and finds patently absurd on multiple levels.

But once again ignore all those numbers because he’s literally using the ‘typical expenses’ calculation, which has basically nothing to do with the minimum spend or any reasonable definition of a poverty rate, hence the $32k in child care, the paying full healthcare premiums and so on. Once again this calculation makes no sense.

(Oh, and fun note via Noah Smith, poor people in America still spend about a third of their money on food.)

A chorus rose up to explain this person being Wrong On The Internet. Here’s some pull quotes and overviews. Several of these links go into great detail, some would say unnecessary detail but those some would be wrong, we thank all of you for your service.

Scott Lincicome called this a ‘nerd fight’ but I mean stop, stop, he’s already dead.

Noah Smith has some excellent common sense graphs for sanity checks showing Americans mostly do have adequate health care, food, transportation and space.

Scott Winship has the most detailed debunking methodology, if you want that. This includes noticing that in many calculations Winship goes beyond relying on medians. He instead moves to average (mean) spending in various categories, which is even more absurd a comparison point, and when he breaks down the ‘typical budget’ based on Essex County we see absurdity after absurdity.

His analysis also contains the central conflation I’ll be largely focusing on next time, which is that yes Americans now have higher real incomes and buy vastly more and better stuff, but that this does not automatically mean survival is easier because Americans now are required to buy and expect to get vastly more and better stuff.

Alex Tabarrok: Of course ⁦Jeremy Horpedahl⁩ is correct. I would just add that this is another example of grievance culture. Right or left almost everyone wants to blame someone else—billionaires, minorities, immigrants, foreigners, white people, systematic racism etc.

Ptuomov: There are two issues here.

The first is that Mike’s numbers are off, as explained in the link below. This is a minor issue.

The second and more serious issue is that I think he is confusing two very different questions:

1. What does it take to not be so poor in the US that poverty itself closes doors for you and your children?

2. What does it take for a family man to feel like a success in the US?

In my opinion, Mike uses the word “poverty” but is actually writing about the second question.

I’m no bleeding heart-liberal by any means, but I think there is legitimate reason to reduce the type of true poverty that causes a newborn child to be excluded from self-improvement opportunities of which he could realistically take advantage.

Scott Lincicome: Fortunately for us, subsequent scrutiny—including from some of Capitolism’s favorite scholars—revealed Green to have been spectacularly, demonstrably wrong in all sorts of obvious and less obvious ways. Most American families, it turns out, aren’t living hand-to-mouth, and, while real affordability challenges exist, the general long-term trend for both middle-class living and real poverty has been positive.

The Numbers—and Entire Premise—Were Nonsense.

Tyler Cowen: Fortunately for us, this [poverty line of $140k] is all wrong. The underlying concepts are wrong, and the user of evidence is misguided. There are genuine concerns about affordability in the United States, but the analysi in this article is not a good way to understand them.

Noah Smith: But despite its popularity, Green’s claim is wrong. Not just slightly wrong or technically wrong, but just totally off-base and out of touch with reality. In fact, it’s so wrong that I’m willing to call it “very silly”. I know Mike Green, and I count him as a friend, but we all write silly things once in a while,¹ and when we do, we deserve to be called out on it.

Jeremy Horpedahl: I think there are at least three major errors Mr. Green makes in the essay:

1. He drastically underestimates how much income American families have.

2. He drastically overstates how much spending is necessary to support a family, because he uses average spending figures and treats them as minimum amounts.

3. He obsesses over the Official Poverty Measure, since it was originally based on the cost of food in the 1960s, and ignores that Census already has a new poverty measure which takes into account food, shelter, clothing, and utility costs: the Supplement Poverty Measure.

We also have Eric Boehm in Reason, and no doubt many more.

Clifford Asness: The populist fabulists will only move the goal posts again.

It started as 140k was “poverty” moved on to something softer about “participation” (not that this isn’t a real concept it’s just not poverty) and now is down to “you can’t deny the ennui” and “all we meant was government programs are poorly designed to punish those seeking to leave poverty” something poverty scholars have only yelled about 1mm times.

Data + analysis >> vibes which sadly doesn’t mean they win in the court of public opinion.

Adam Ozimek: The defense of the $140k poverty line post have retreated to yes the data is wrong, yes the core claim is wrong, but it is a complaint about standard of living improvement in the US so I must nevertheless say it’s good.

Guess who led this chorus? Michael Green, saying that ‘accuracy’ was not the point.

If people keep insisting life sucks and the vibes are bad then you should believe them that there is a problem, that in some important way their life sucks and the vibes are bad. That doesn’t mean you need to respect the actual claims if they are false, but if you are trying to figure out what is true the defense of those claims is important evidence. Listen.

This also leads into themes I mostly am saving for next time, but needs to be mentioned here: A family with one typical income will increasingly fall behind.

That doesn’t mean you can’t make the numbers work that way. You can. Falling behind doesn’t mean starving. Falling behind still sucks. A lot.

Matt Bruenig: New piece at @PplPolicyProj. It’s my entry into the “$140k is poverty” discourse and the “you used to be able to live comfortably on a single income” discourse more generally. I think I know how to make sense of it that does not require nonsense claims.

One way to put it that I ultimately cut out of the piece is imagine your society went from a 20-hour workweek to a 40-hour workweek but not everyone went along with the change. You could accurately say that you used to be able to afford a normal life on 20 hours but now you cant.

But rather than seeing that clearly for what it is — the standard for a normal life has ratcheted upward with more income/output — there is a temptation to say that there is hidden costs or inflation or whatever that have fully swallowed increased income etc.

… If everyone around me started working 20 hours of overtime each week and I didn’t, then that would suck. Even if I followed suit, but didn’t want to, that’d also suck. Because inequality sucks. Being alienated from the society sucks.

Real wages for married men are up, but the median income for married couples is up a lot more because a lot more women are working, which means if only the man works you’re falling behind. You get punched in the face with the Revolutions of Rising Requirements and Expectations.

Matthew Yglesias: Some excellent charts and info here, but I think the impulse to sanewash and “clean up” false claims is kind of misguided.

If we want to address people’s concerns, they need to state the concerns accurately.

The claim that the *absolute affordabilityof being a married, one-earner family with kids has fallen would — if it were true — have straightforward win-win policy remedies like “higher wages and incomes.”

But it’s not true.

When you reformulate to a more accurate claim what you end up with is the observation that it is is hard for one person to earn as much income as two people and that the wedge has grown as women’s earning power has increased.

This is very true but what’s the fix?

One that would “work” would be to push women generally out of opportunities for careers and white collar work — something more conservatives are tip-toeing around but don’t quite want to say.

Family incomes have been moving up, much of which is increased female labor participation but a lot less than all of it.

Violeta: I’m following an insta acct who interviews elders from remote Romanian villages. Every single one of them speaks of how we now live in a God given infinite abundance so good that compared to their childhood &youth, they feel now they have more desire to live longer

a different POV

I know women in their 70s who for decades now, have been in grateful awe at how much easier they have it now. One of my aunts, mountain people, was raving when I last saw her about washing machines but also about *plastic bottles*, how practical they are during haymaking season

Green’s follow-up post might be the most smug and obnoxious ‘okay yes my original post was full of lies but I don’t care because it worked to get the discussion I wanted, so take that assholes who are in a grand conspiracy to keep us good folks down’ that I have ever seen. It somehow continues to fully equate the poverty line with median income, and to be arrogant about it, saying numbers shmumbers, they don’t matter.

And then he turns around and says, how dare you respond to my ‘legitimate grievances’ by pointing out that my facts are wrong and my arguments are nonsense?

Michael Green: In Are You an American?, I described “The Mockery Machine”—the ritualized pattern in which elites respond to legitimate grievances by distorting them into absurdity, ridiculing the distortion, and then shaming the “complainer” for even noticing the decline. I thought of it as a cultural reflex, a defensive maneuver performed mostly by Twitter avatars and partisans. I was wrong.

… Just like in Atlas Shrugged, all the sycophants wanted to display their loyalty to Balph. Check out the brutal assault on my childcare figure — “It’s not $32K — it’s $25.7K!!!!”

I mean, sir, that’s because your facts were wrong and your arguments were nonsense. No, it wasn’t ‘narrative discipline,’ it was caring about the accuracy of claims. And no, this wasn’t one isolated error, it was part of a string of errors mostly in the same direction, that people are very carefully and politely pointing out. All the careful pushback warmed my heart to see it. Have you tried making true claims instead?

The post went viral because of the false claims, and that was the message most people got. You can’t then turn around and say, why do you care about the false claims, I don’t care if my claims were false, that wasn’t the central point.

But yes. The fact that such obviously false claims resonated must be reckoned with, which is what the second post will be about, and these same people are also trying to say ‘and therefore everything is fine’ when everything is rather not fine.

Indeed, Green also correctly identifies the ‘making the goods better does not help you afford the goods’ problem with equating ‘real income adjusted for CPI’ with someone’s felt spending power and ability to survive.

This is written backwards by accident by Green, but correct once you fix it:

As others have noted, it’s great that the 1963 basket is so much higher quality than the 2025 basket that it’s “worth” much more, but it’s illegal to buy the 1963 basket.

Yes, that’s backwards – it’s the 2025 basket that’s worth much more, and rightfully so, but you still spent the same amount of money on the basket, and it’s still illegal to buy the 1963 basket, and that’s central to the argument I’ll make next time.

I’m definitely not here to say everything is fine. I’m not mocking the idea a lot of people feel like their lives suck, quite the opposite, stay tuned for the second post. But I absolutely, if forced to engage, will mock anyone who knowingly posts so much obvious nonsense and then pretends that this was fine because it worked and it wasn’t the central point, and only people with an agenda would call you out on it.

One other potentially good point Green makes there is that many individuals and couples don’t start families because they don’t feel they can afford one, which biases two-parent household income upwards. But in terms of impact on the averages it’s complicated, because there are kind of two fertility tracks, one for those who are trying to follow the ‘have enough money first’ playbook, and the other where some people go ahead and have kids anyway, and that second group is more present and has higher fertility at lower incomes. If you look at fertility by income, you see a U-curve, that fertility declines as income rises, until you get rather far up in income.

I do think that ‘a lot of people don’t have kids because they don’t believe they can afford them’ is central to the problem we face.

He then pivots (while continuing to assert various forms of nonsense along the way) into saying ‘the real point’ is two completely distinct other claims that are far better.

The first is that phase outs generate a Poverty Trap where effective marginal tax rates can be very high, even in excess of 100%. If marginal tax rates are very high, there’s no push to earn more money, so you don’t advance your career and you never earn enough to escape poverty. That’s a very real, no good, very bad problem.

Michael Green: This is the policy failure that was actually at the heart of Part 1: We have created benefit cliffs and income phase-outs that systematically capture the working poor, ensuring that climbing the ladder only leads to loss of essential benefits and permanent financial fragility.

Green’s version actually understates the issue. Assuming those numbers are right, yes, the post-transfers marginal tax rate there is obnoxious at around 45%, but that’s also the marginal tax rate at the top, and transfers are worth less than one dollar per dollar. Still, Green’s graph doesn’t look so bad, because the worst potential Valley is at $30k, and Green can’t count that low.

This, via Jeremy Horpedahl, is the chart that shows a real Valley of Death that can come up under some circumstances:

This graph is remarkably terrible. You could plausibly prefer $29k to $69k.

Here’s another graph that goes to the relatively expensive Boston and finds a trap that goes out farther, where you don’t escape until north of $100k:

Or this one looks less bad that has a small reversal around $63k:

Again, benefits are worth less than $1 per $1, so marginal tax rates are not quite as bad as they look on these graphs, but they are not great.

Once you get above these thresholds, I don’t want to say you are ‘home free’ but you are strictly better off each time you earn an extra dollar.

Contra Green, ~80% of families of 4 are north of the trap in practice.

Can these dynamics trap people in poverty? Oh yes, absolutely, it’s all quite terrible, and we should work on solutions to make this whole thing sane.

However, note that the basic problem will remain, which is:

1. To live reasonably, people implicitly need ~$50k in total pay and benefits, given the Revolution of Rising Requirements and what you by law have to purchase.

2. Thus, if you make less, we give you the difference, or your family starves.

3. If you make more, we are going to tax you to pay for all of that.

4. If you make the climb in effective pay steeper you make it suck that much more to make less money. You have to pick, how progressive will you make your taxation?

As an intuition pump to how tricky this is, redone from scratch for 2025, for families of exactly 4 only for now: We could change to instead provide a universal basic income (you can also call it a negative income tax) of $40k per family, plus a flat tax of about 25%-35% (depending on implementation details elsewhere) to $250k, then resume the current tax rates (so we don’t change how much we raise from the top of the distribution). No other default benefits, including Medicare and Medicaid, and no other federal taxes (no payroll, no Medicare tax and so on). My quick calculation says that’s roughly revenue neutral. Is that style of approach better? Maybe, but there’s at least one huge obvious problem, which is that this creates unsubsidized health insurance markets with no fallback, and so many others we’re not noticing. Of course, there’s huge upsides, especially if you fix the worst of the secondary effects.

Either way, good luck passing anything like this. The numbers are brutal if you’re not willing to blow up a bunch of sacred values somewhere.

The details Green discusses here are wrong again, including the fragility issue, but he’d be the first one to tell you the details and exact numbers don’t matter. His claim about a ‘different nature of the struggle’ doesn’t make sense.

But here, yes, this part’s very true and important, nail meet head:

The question we are increasingly asking is, “Why aren’t we having more families and procreating?” The answer, largely, is that we are asking families to make an investment in children that becomes a future common good and penalizing them for doing so.

Yes. Many people are saying. Children are an expensive public good. They are getting relatively expensive compared to other goods thanks to the Revolution of Rising Requirements. We are expecting parents to foot a huge portion of the bill, and that is the big problem.

It’s not a new big problem. The story of the world outside of farms has been, roughly, ‘spend your life trying to earn enough money to support as big a family as you can.’

He closes by making a bunch of other vibe-level and directionally correct but importantly false statements about the nature of wealth and transfers and the signaling theory of education, written to give a false impression, to equate the directional vibes with reality.

That works on a certain type of reader. To me and hopefully my readers, it’s toxic.

As a closing fun note, it can always be worse.

As in: You have to love the community note on this graph.

No, seriously, he took the MIT Living Wage Calculator and doubled it, and considers ‘comfortable’ to include 20% savings while meeting all ‘wants and needs.’ Must be nice.

Brennan Schlagbaum: For context…

SmartAsset studied how much families need to live a “normal” life in every US state. (covering needs, wants, AND saving 20%) The results are terrifying.

Okay, good. We got through that. We are now ready for next time.