Tuesday, September 20, 2011

People with a high cost of living are getting what they pay for

Matt addresses one of pet peeves today: objectively rich people who absolutely cannot accept the fact that they are rich.  As he says, if you make $200K a year, you're four times better off than the average American.  Even if you "just" make $100K a year, you're twice as well off as the average American.   Seems pretty simple.

But I'm a little disappointed he didn't also address the phenomenon of "people insisting that they’re not 'really' wealthy because alongside their objectively high incomes they also live in expensive houses located in neighborhoods full of expensive restaurants."  It's an argument that comes up all the time among lawyers -- "My 120K starting salary doesn't make me rich because I live in Manhattan/Chicago/D.C., and I can't buy as much as you'd expect because of that."  

The obvious response is that I, along with many other people, would absolutely love to live in Manhattan or Chicago or D.C.  And the thing keeping me out of these cities isn't my literal physical inability to move into them, but the cost of living associated with them.  Rich people living in expensive, desirable neighborhoods are just making the same spending decisions as everyone else -- generally speaking, they've chosen to live in expensive desirable neighborhoods at the cost of maintaining "only" a solidly middle-class level of consumer spending.

The rich might still argue (do argue, in fact) that this isn't fair, because their jobs are often permanently located in high-cost cities, so they don't have the opportunity to opt for consumer spending in lieu of better living situations.  Maybe.  Maybe they don't really want to live in big cities and nice parts of town after all, and have been forced into it by economic pragmatism.  But this claim is easy enough to test.  First, most cities, even expensive cities, do contain a number of neighborhoods, which in turn offer a range of price options.  So if these people are right, we'd expect to find large numbers of high-earners moving into more troubled areas in order to buy bigger houses and nicer cars.  Additionally, if high-earners really are much less concerned about where they live than about how they live, there wouldn't be much practical difference between earning a fortune in NYC and earning a much more modest sum in, say, Minneapolis.  So job candidates would treat high-paying jobs in expensive cities as nearly equal to lower-paying jobs in cheap cities.

But since I don't see any evidence that either of these things is true, I'm going to have to continue assuming that living in expensive neighborhoods doesn't make a person poor -- it makes him wealthy.

No comments:

Post a Comment