Monday, January 17, 2011

Drum on lifestyle similarities between the rich and the middle classes.

Kevin Drum asked an interesting question a couple days back about whether the middle class feel closer to the poor or the rich in modern US society.  He asked, if you were earning $100,000 a year, and were given the opportunity to risk, on the toss of a coin, either living on $30,000 a year for the remainder of your life (heads), or living on $1,000,000 a year for the remainder of your life (tails), would you take the chance?  The answer he received was that no, not many people would take the chance.  This suggests that most people feel significantly close to the rich.  By his estimate, about 90% of respondents to his question would not choose to toss the coin.  They would accept the $100,000 a year status quo over the 50/50 chance of $30,000/$1,000,000. 

The follow-up question is, should we be surprised by this?  I don't think so.  While I am not operating within the US system, the Australian dollar is pretty much on par with the US one at the moment, and so my own experiences may mirror fairly well those of my US counterparts (or may not, I am not sure how significantly the social situation differs).  But $100,000 a year is not just comfortable, it is more than comfortable.  You have to make some extravagant choices to spend that much money.  Not simply eating well and travelling a bit, but buying houses and cars that are beyond your means.  It takes effort to spend more than you should in this context, and if you were earning 1 million dollars, the same would apply.  By contrast, earning $30,000 a year, it requires only bad luck to have to make hard choices as to what to spend your money on.  So there is a similarity shared by the 100k and the 1000k income, that differentiates them from the 30k income, and that similarity is in the control they have over their own lives.  Risking the loss of control, I suggest, is what prevents 9 in 10 people from taking the chance.

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