Quote of the Day

In today's edition of the annals of the new gilded age, Hal Steger informs us that "a few million doesn’t go as far as it used to." As Gary Rivlin reports:

Silicon Valley is thick with those who might be called working-class millionaires — nose-to-the-grindstone people like Mr. Steger who, much to their surprise, are still working as hard as ever even as they find themselves among the fortunate few. Their lives are rich with opportunity; they generally enjoy their jobs. They are amply cushioned against the anxieties and jolts that worry most people living paycheck to paycheck.

But many such accomplished and ambitious members of the digital elite still do not think of themselves as particularly fortunate, in part because they are surrounded by people with more wealth — often a lot more.

This is part of the weirdness of the new era of hyper-inequality, where not only does the top one percent pulls away from the other 99 percent, but the top 0.001 percent pulls away from the other 99.999 percent. Even very rich people feel the even richer pulling further and further away and don't feel themselves to be as privileged as, objectively speaking, they really are.

Comments

Once you buy a Gulfstream 4 personal jet, you start meeting a lot of people who have a Gulfstream 5.

Posted by NE PDX | August 5, 2007 7:44 PM

Just goes to prove the statistics that once you pass a certain amount of wealth, money has little to do with happiness.

Posted by Dave | August 5, 2007 8:09 PM

So much for the rich being different from you and me. Maybe the super-hyper-meta-control rich.

Posted by RSA | August 5, 2007 8:14 PM

I wonder if that's so unique to our period of history. Seems to me, people (professional types at least) always manage to find someone richer, so they can always identify with the middle class, the moral worthiness that suggests, and the tax breaks they thus deserve.

Posted by Rob | August 5, 2007 8:23 PM

I don't think this desire to compete for status through accumulating money and then displaying it with conspicuous consumption has changed one bit. The top decile has always been more interested in making money and getting the status it confers than the rest of us.

Then too it isn't the absolute amount which really motivates them but their relative position. Think of all those pro athletes and the inflation in salary. You just know they don't need the next $50 million to "take care of my family", they just want to make as much or more than star X. We take for granted these athletes are completive. The same holds true for those striving to the top in the business world.

It's true that assets and income has skewed strongly to the tippy top but that hasn't made the strivers any more striving. The will always be grubbing for more. It's human nature, amplified by the realities of American culture.

As a modest midwesterner, and all my kind, that first visit to California was an eye opener. The wealth on display was simply mind boggling. The bar is higher there and so is the social imperitive to show it off but in the end the basic drive is exactly the same in Omaha. Live in the best neighborhood in town.

Posted by rapier | August 5, 2007 8:30 PM

The NY Times recently reviewed a couple of books by Robert Frank of Cornell University. The relative wealth anecdote that caught my eye was this:

When asked whether they’d rather have a 4,000-square-foot house in a neighborhood of 6,000-square-foot McMansions, or a 3,000-square-foot home in a zone of 2,000-square-foot bungalows, most people opt to lord it over their neighbors.

From Falling Behind: How Rising Inequality Harms the Middle Class.

NY Times review: http://tinyurl.com/2p4reu

Posted by mk | August 5, 2007 8:51 PM

Today's NY Times Book Review had a review of two of Robert Frank's books by Daniel Gross; the first book discussed in the piece covers much of the same turf as this article. It's worth checking out: http://www.nytimes.com/2007/08/05/books/review/Gross-t.html?adxnnl=1&ref=review&adxnnlx=1186362008-CpbJLl6/gH/b7cgHLZYOtQ

Posted by Elwood | August 5, 2007 8:55 PM

A million bucks ain't nothing no more. An upper-middle-class house is half a million. A small retail business is half a million. If you have both, you're a millionaire of sorts, but just upper middle class.

Posted by John Emerson | August 5, 2007 9:03 PM

The idea that people evaluate their status and performance by comparing themselves to others is a fundamental premise of social psychology, and tons of research has been conducted to set parameters on that phenomenon (i.e., whom do we choose as comparison others, under what circumstances are comparisons particularly important, are people depressed or motivated to work harder if their relative status is worse than someone else's)

In most areas of human endeavor, there is no absolute standard, so we look at others to assess ourselves. This natural phenomenon is exacerbated in our individualistic, achievement-oriented society. (In fact, one sub-field of research on social comparison involves cross-cultural studies.)

Don Campbell, one of the most famous social scientists of all time, coined the term "hedonic treadmill" to refer to the situation in which, when we reach a particular aspiration level, we become dissatisfied and strive for more. It as, as someone pointed out, a means of keeping score.

So deeply embedded in our society is this score-keeping that it takes a lot of cognitive work and, dare I say, courage to decide to hop off the treadmill and appreciate what we have.

Posted by THS | August 5, 2007 9:04 PM

The only answer is to raise their taxes. It's for their own good. Then maybe they'll move.

Posted by djslippyb | August 5, 2007 9:05 PM

There's been a couple of studies and experimients in behavioral economics wherein people will agree to a lesser reward/salary etc. so long as they continue to recieve more than another person or group.

We judge our well being by comparing how much we have or how much more we have than everyone else.

Posted by DRR | August 5, 2007 9:32 PM

Every time wealth is the topic someone comments about how 200K isn't that much money or that you need at least 500K to live in NYC or the Bay Area.

The national median price for a home peaked at $230K last year. In 2005 the median household income was $46,000. $55K puts you in the top 40%, $88K the top 20% and $157K the top 5%.

The top 1% are not the only ones who are confused as to how much money makes you rich.

Posted by fourth quintile | August 5, 2007 9:38 PM

I think there are a couple of aspects to this phenomenon. One is that people have a tendency to ratchet their lifestyles up with any increase in income, so that despite having made great strides they continually feel under pressure. I'm not real sympathetic with this tendency (although I'm quite guilty of it) because it simply isn't cognizant of how most people live and the very real constraints under which they operate.

However, the second aspect of this "wealth" phenomenon that I am more sympathetic to is the strange situation of having benefitted from a huge run up in real estate so that your net worth is seemingly quite impressive. But the reality is that many such people with hundreds of thousands in equity in their homes cannot really translate that wealth into much that is tangible for at least the moment. If you live and work in a high cost area you can't usually take advantage of your windfall until retirement, and then only if you are willing to relocate. In the part of DC I live in, the median home price is now $1 million. And that gets you a pretty modest three bedroom house that probably needs work. It's the kind of home that people in saner cost areas would pay $250,000 for at best. So while someone may be a millionaire on paper it may not mean much in terms of daily life.

However, I'm still a lot more concerned about the family living of $50,000 a year.

Posted by Klein's tiny left nut | August 5, 2007 10:48 PM

I think there are a couple of aspects to this phenomenon. One is that people have a tendency to ratchet their lifestyles up with any increase in income, so that despite having made great strides they continually feel under pressure. I'm not real sympathetic with this tendency (although I'm quite guilty of it) because it simply isn't cognizant of how most people live and the very real constraints under which they operate.

However, the second aspect of this "wealth" phenomenon that I am more sympathetic to is the strange situation of having benefitted from a huge run up in real estate so that your net worth is seemingly quite impressive. But the reality is that many such people with hundreds of thousands in equity in their homes cannot really translate that wealth into much that is tangible for at least the moment. If you live and work in a high cost area you can't usually take advantage of your windfall until retirement, and then only if you are willing to relocate. In the part of DC I live in, the median home price is now $1 million. And that gets you a pretty modest three bedroom house that probably needs work. It's the kind of home that people in saner cost areas would pay $250,000 for at best. So while someone may be a millionaire on paper it may not mean much in terms of daily life.

However, I'm still a lot more concerned about the family living on $50,000 a year.

Posted by Klein's tiny left nut | August 5, 2007 10:50 PM

Forgive the double post -- tried to correct a spelling error. I should know that is not really necessary here.

Posted by Klein's tiny left nut | August 5, 2007 10:51 PM

Every time wealth is the topic someone comments about how 200K isn't that much money or that you need at least 500K to live in NYC or the Bay Area.

The national median price for a home peaked at $230K last year. In 2005 the median household income was $46,000. $55K puts you in the top 40%, $88K the top 20% and $157K the top 5%.

The top 1% are not the only ones who are confused as to how much money makes you rich.

I live in Silicon Valley. If you live here and make $46k/year, you are not middle class, you are poor. The median home price here in Santa Clara County is not $230k, it is north of $700k, including condos. Just single family homes, it's above $800k.

http://www.viewfromsiliconvalley.com/id125.html

And these are not prices for McMansions, either. If you look at the numbers, the median home size is about 1600 sq. ft.

Personally, I'm doing fine. If I made the money I make here in most places in the country, I'd be considered wealthy, but then again, if I lived elsewhere, I probably wouldn't have the same salary. It's funny how that works.

Posted by Jeff S. | August 5, 2007 11:00 PM

When asked whether they’d rather have a 4,000-square-foot house in a neighborhood of 6,000-square-foot McMansions, or a 3,000-square-foot home in a zone of 2,000-square-foot bungalows, most people opt to lord it over their neighbors.

This sounds entirely unbelievable and contrary to everything I know about buyer preferences and real estate markets. Who the hell did they interview? Certainly not real home buyers. I followed the link and looked for a source for this anecdote but didn't find any.

In my experience, neighborhood status is one of the most important criteria people use when choosing houses. Location, location, location are the 3 rules of real estate. Any real estate with more than 5 minutes worth of experience is going to advice you to buy the smaller house in the better neighborhood rather than the larger house in the poorer neighborhood. The fact that two identical 3,000 sf houses will have vastly different values depending on the neighborhood is evidence enough. If the anecdote above was actually true then a hypothetical 3,000 sf house in a poorer neighborhood of smaller houses would be worth more than the identical house in a rich neighborhood of larger houses--if people would rather live in the neighborhood with small houses. The market tells us the opposite is true.

Posted by Kent | August 6, 2007 1:43 AM

One of the things I've never understood is the expectation that once one achieves a certain financial level, that they've proven they essentially deserve to occupy that tier. It's the tacit assumption that underlies divorce laws. You know, girl marries really, really rich guy, has kid, gets divorce. Court says guy owes girl and kid several million dollars so she can maintain her standard of living. I don't get this at all. It seems to me, outside of having a reasonable income for food and shelter (and here perhaps, my thinking is spoiled because I'm a po' boy), the whole concept of "standard of living" can't possibly have that kind of force. It's like saying, "Now that you're used to having a maid and wearing furs, we can't possibly take that away from you-that would be a horrible injustice". That doesn't make a hell of a lot of sense to me.

Posted by Gordon Lightfoot | August 6, 2007 4:11 AM

This is part of the weirdness of the new era of hyper-inequality, where not only does the top one percent pulls away from the other 99 percent, but the top 0.001 percent pulls away from the other 99.999 percent.

As the article points out, Steger isn't talking about the "top 0.001 percent". He's just the top 2 percent.

And let's recall that that the "new era of hyper-inequality" is really a Clinton-era era, as inequality was higher during Clinton's term than it is now.

Posted by Al | August 6, 2007 8:55 AM

Yes, yes, yes, everything bad that's ever happened is either the fault of Bill Clinton, or the fault of a previous Democratic president. Sometimes I come close to forgetting this ironclad, universal law, but I have people like Al to thank for reminding me.

Posted by Gordon Lightfoot | August 6, 2007 9:06 AM

The term "millionaire" has definitely become outdated. A million in assets does not make you financially-independent at a comfortable level today the same way it would have 40 years ago. I'd say you now need at least 5-6 million to achieve the level that most people associate with the term "millionaire." There's no good shorthand for this, though. Journalists still go buggy over the term "millionaire" even though it has lost its original connotation through inflation.

Posted by Virginia | August 6, 2007 10:04 AM

Yes, and the wealthiest 1% are much more likely to be friends with the wealthiest .0001% than other people. A personal anecdote: I am an 18 year old, born to a Wasp family that has been prosperous in a middle sized mid-western city since reconstruction. Still though, I will have to work (and make a lot of money) to keep up the lifestyle I have gotten used to. But a few months ago, I was going to a basketball game with a few friends and, as we drove through downtown, one of them casually began discussing where he should build a sky-scraper in the city. And he was being entirely serious and even reasonable, since this guy will inherit that type of capital. Needless to say, I did not feel rich at that moment.

Posted by John | August 6, 2007 10:25 AM

This notion that having a million dollars doesn't REALLY make you rich is absolute nonsense. Your house is worth $800,000? You are rich. You can sell it, and move to somewhere with cheaper houses, and live a lavish lifestyle off the difference somewhere where the cost of living is lower (head to any American city that has lost population over the past several decades, for example).

I've spent a lot of time in Silicon Valley (where housing prices might be the highest in the country). And what people are saying is true; the houses are not ostentatious. Most houses in Palo Alto are pretty modest affairs, and are worth between 700,000 and 2 million dollars. The people living in them may not live what they perceive as a life of wealth, but that's only because they are choosing to tie up all their assets to live in a place with really expensive houses. That doesn't make them middle class. That makes them rich people who have chosen to allocate enormous portions of their wealth to their domiciles (and to six dollar gallons of milk).

Posted by ol'jb | August 6, 2007 11:08 AM

Ol'jb what you are missing is that a lot of those people are career constrained. They could sell their house, move and retire. But if you retire with 1/2-1 million dollars before 65, that doesn't make you rich. It doesn't even really guarantee a median family income. They're better than a lot of people, but they are not just 'choosing' to invest those assets in a home in Silicon Valley. They are also getting a big pay bump to do so.

Posted by mpowell | August 6, 2007 11:23 AM

A friend of mine is from a wealthy family, his parents being worth upwards of $50 million. But my friend and his siblings often refer to "rich people" as if they weren't part of that group. The basic reason is that they were raised around people with far more money (the ultra-ultra-rich), so that even though they belong to the elite 1%, they regard themselves as middle to upper middle class.

Posted by Naveen | August 6, 2007 11:35 AM

> Your house is worth $800,000? You are rich.
> You can sell it, and move to somewhere with
> cheaper houses

You have to be a bit careful with that line of
reasoning. A lot of poor Americans could also
become rich by relocating to other countries.
It can be a middle-income country, doesn't even
have to be a poor country.

So unless you're willing to say that there's no
such thing as a poor American, you have to accept
that wealth has to be measured in relative terms.

Posted by DJ | August 6, 2007 12:15 PM

Naveen: " . . .even though they belong to the elite 1%[.]"

Um, there are less than 40,000 people in North America with over $30 million (excluding principal residence value); that's less than 0.007%--you friend's family is in the top 1% of the top 1%. That's serious denial.

ol'jb: "six dollar gallons of milk"

That's abnormally expensive? I guess I'm distorted by the price of organic milk in Chicago.

Kent: "This sounds entirely unbelievable and contrary to everything I know about buyer preferences and real estate markets."

Yeah, in the real world, with real dollars, one would be crazy to buy the most expensive house in a neighborhood. However, that's not the way the study was set up--I've read other articles about the same study and the question was posed separate from actual costs; thus the point was, if you could pick a free house, what would you pick. I think that an ignored part of the study (b/c it didn't fit with their premise) is that people want to live around "people like them" who they feel would be more likely to live in 2k sq foot houses.

Posted by zaleriana | August 6, 2007 1:52 PM

Zaleriana,

Yeah, but its funny how real estate agents encourage people only to think about resale value. Maybe someone would be willing to pay a price for that trade-off, so why don't they do it? Or is the value discrepancy we see the value of that trade-off already?

Posted by mpowell | August 6, 2007 2:39 PM

mpowell,

Real estate agents are self-interested b/c their compensation is based on how much you spend now and they have a reasonable expectation that they will make more when you list your (high-resale-value) house through them to sell. As has been demonstrated lately, most don't know anything about the housing market as a whole--they can dig up the facts (generally) but are worhtless for forward-going analysis. Rely on what they say at your peril.

If I'm reading your "trade-off" correctly, some people are willing to buy houses on both sides of the trade-off--as is shown by (1) larger/more-expensive houses in so-so neighborhoods selling at all (all real estate CW says to NEVER buy the most expensive house on the block) and (2) small houses in nice neighborhoods being more expensive. I think we here all here understand #2, but #1 is a real (though perhaps small) market--mostly people who, through ordinary financial success, can afford a bigger house/lot, but want to (or need to) stay in the same neighborhood (or working class suburb).

Some people do just want to show off and "lord it over" their neighbors, but I don't believe that's the major motivator of the choice (no matter what the study says)--you just can't control for all of the preferences of the interviewed and I think that they missed a major one.

Think about the metro area where you live and your perceptions about who lives in the neighborhood with the smaller (2k) houses versus the neighborhood with the McMansions. I perceive them as being full of douchebags. Maybe I am, too, but I don't want to signal that by my choice of home and I certainly don't want to be surrounded by it.

Then add the thought that, in the McMansion neighborhood, you'd look like the guy who couldn't afford a big house. This isn't really the inverse of wanting to show off, but it's a real reason to not want the bigger house--a fear of not fitting in. Now compare that to fitting in (or maybe looking like you're doing well, but still a regular guy) in the average house neighborhood.

If they made it a fair question to demonstrate their point, they should have assumed that both houses are in the same school district and they're the same distance from your job. (This is reasonable, at least in the Chicago area, as there are a number of execllent suburban school districts which encompass a wide range of housing; although it's almost always more expensive than comparable houses in "lesser" districts.) If you make those assumptions, then there is no way that the houses would have the same price, and that sort of counterfactual situation is contrary to getting good results from the survey. And there's also the cost of utilities and taxes and handling maintenance on the bigger house and how do you afford enough furniture to make the house look the way you want? All of those things will inevitably be part of one's consideration of this-house-or-that-house. Bigger is really not always better when houses are concerned.

All a (very) long way of saying that I think that the conclusion that "most people opt to lord it over their neighbors" is bogus and either (a) drawn to support the authors' initial suppositions or (b) more telling about the authors' biases than the interviewees' preferences, i.e. that the authors' concluded the only reason that anyone could possibly choose the smaller house in the "less nice" neighborhood is that they want to lord it over someone.

Posted by zaleriana | August 6, 2007 3:32 PM

Damn, the Times just can't stop themselves from running articles like this one, or the other recent piece lamenting the trials and tribulations of people with second homes, can they? If it wasn't for the fact that only members of the ruling class read the Times, I'd be convinced they were trying to gin up a good, old-fashioned class war, because it's hard to react to these "hard luck" stories with anything other than revulsion.

Posted by Nate | August 6, 2007 4:31 PM

DJ,
I don't think my line of reasoning implies that there are no poor Americans. An American with no assets whatsoever and a bunch of debt (and consequently no access to credit) cannot, in fact, relocate to a poor or middle income country to make the dollar go further. But I do understand your point.

MPowell,
In using the example of a person with an 800,000 house in Palo Alto, I'm not sure that applies to someone who has a job at a tech company or defense contractor who moved there recently and has to pay a mortgage. The people who benefited the most from the real estate boom in Silicon Valley are people who bought their houses twenty or thirty years ago for a fraction of what they are now worth, or who have inherited such houses from their parents. People who have 100% equity in houses like that have access to enormous capital that most Americans can only dream of, and could move to, say, Turlock or Modesto, get a shittier job and a much cheaper (but perhaps larger) house, and benefit from interest income on the money that used to be tied up in their old house. Just having a job that pays six figures in Mountainview is not going to translate into riches necessarily, due to ridiculous cost of living. It's the assets that are more important than the income in this case.

Zaleriana,
Chicago, while cheaper than SF or NY or Boston, is still pretty expensive. The number of Americans willing to pay 6 dollars for a gallon of milk, while no doubt growing, is probably still pretty low.

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