I saw a fair amount of chortling this morning about this Bloomberg piece on wealthy financial-industry types who are having to cut back because of plummeting bonuses. And to be sure, some of the cuts are in the "Call me a Waaaah-mbulance" category: can't go to Aspen any more? Had to cut back that three-bedroom summer rental to only one month? Why yes, that is the sound of the world's smallest violin playing a dirge.
And yet, some of the difficulties that people are complaining about are genuinely, well, difficult. Yes, your kids have been absurdly privileged, getting to attend expensive private schools with lots of amenities. On the other hand, all my parent friends seem to think that it's actually really hard on kids to yank them out of school and move them somewhere else, particularly in the middle of a school year. I doubt that it gets any easier because your parents used to be able to afford stratospheric tuition.
Let's not forget that these are kids we're talking about--we shouldn't take joy in uspetting them, even if their parents happen to make a lot more money than we do.
Likewise, when middle class people take out a mortgage that's perfectly affordable on the income they've been enjoying for years, and then lose the house because they suddenly saw that income cut in half, we don't feel a delicious sense of joy because they finally got what was coming to them. We recognize that this it is really terrible to be forced out of a home where you've built loads of happy memories and dreams--and not incidentally, to possibly be forced to yank your kids out of the aforementioned schools.
Why are people supposed to shrug off the exact same thing because they're rich? It's still really awful to lose your house. I hardly think it's whining to worry about this when your income drops and your fixed expenses don't.
Of course--like many middle class families--wealthy families have taken on many more fixed expenses than they should. In America, at least, we tend to get this stuff backwards.
I believe that Elizabeth Warren has made this point--when people get into financial trouble, they often say, "Well, I didn't take fancy vacations or go to restaurants all the time or buy 17 pairs of Jimmy Choos." But (with the exception of some really compulsive spenders) this isn't the stuff that gets people into trouble. It's the big house with the stretch mortgage that you convinced yourself you had to have because it was in a good school district and you needed a yard and a bedroom apiece for the kids. It's that brand new SUV (or Volvo station wagon) you persuaded yourself to buy because it was important to have a safe car. It's the school activities or travel sports teams that cost thousands of dollars, which you let your kids start in ninth grade because you didn't know that you'd have to break their hearts by pulling them out in their junior year. The divorce decree you signed because you didn't realize your income was going to drop by a third.
Pricey vacations can be cut back. Mortgage payments can't. It's not the luxuries that usually get people into trouble--it's paying too much for "the basics".
And in New York, it's really, really easy to pay too much. One of the guys in the article makes $350,000 and lives in 1200 square feet with three kids. This is the way the lower rungs of the lower middle class lives in the rest of the country. New Yorkers face an overwhelming temptation to push their housing budget to the limit, because what's available on a conservative budget is really inconvenient unless you either make a whole lot of money, or lucked into a great deal in a down market or a transitional neighborhood.
That's not to excuse the folks who spend too much on housing--apartments in vibrant New York neighborhoods are a consumption good, not an entitlement, and people who find the privations unbearable should move to the suburbs. But I certainly understand it--especially because people tend to take cues on what is "safe" or "reasonable" from the behavior of the people around them. Virtually every single person I know in New York spends well over a third of their income on housing. Which is one of the reasons I no longer live in New York.
I could understand the laughter if the people in the article had been moaning about how terrible and unjust it is to be forced to suffer along on $350,000 a year. But in fact, none of the affluent people he speaks to hold out their experience as somehow equivalent to that of a famine-stricken child in Somalia--"they aren't asking for sympathy", says one source; "I wouldn't want to whine", says another. The closest we get to a "poor little me" is M. Todd Henderson: "Yes, terminal diseases are worse than getting the flu," he said. "But you suffer when you get the flu."
The fact is that no matter how much you make, seeing your income fall below the expenses you've committed to is difficult. Obviously, people whose expenses are closer to the minimum deserve more of our sympathy, and our help. But I'm not sure that this means we're supposed to be happy when it happens to someone richer than we are. It's not very attractive when conservatives rejoice to see union members thrown out of work. I'm not sure this is much better.
Update: From Lee,a bankruptcy attorney, in the comments
Another factor I've noticed with my bankruptcy clients is that a very rich person whose income takes a sudden precipitous drop to a still-pretty-good income can actually wind up in more financial trouble, faster, than a very poor person whose income drops to zero. If you were making $300k a year and spending $200k of it on fixed expenses, and your household income drops to $125k a year, unless you have substantial liquid savings or are able to sell your house and your car and your boat yank your kids out of private school REALLY fast, you're going to wind up in bankruptcy in a fairly short space of time. A person who was making $18k a year and suddenly finds themselves making nothing, as a practical matter, can often break their lease and move in with mom and get on food stamps until a new job materializes and wind up with only a couple thousand dollars in debt. Not that it's not still ultimately much better to be the rich person, but the rich person does get hit with a more panic-inducing financial calamity in the short term.
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