TL/DR –
The article discusses the financial struggles of American households, arguing that conventional economic measures do not reflect the increased cost of living. Michael Green, chief strategist and portfolio manager for Simplify Asset Management, challenges the federal government’s poverty line, arguing that it doesn’t account for significantly increased expenses such as housing, healthcare, and childcare; he estimates a more realistic “poverty line” would be $140,000. Furthermore, Green highlights the “trap” of the current welfare system, where benefits disappear faster than wages increase as income rises, and financial strains from the higher cost of living are forcing even upper-income customers to shop at discount retailers.
Understanding the Affordability Crisis in America
Despite reports of a steady economy, the affordability crisis remains a significant issue in America, leading voters to support different political platforms and prompting the election of a democratic socialist as New York’s mayor. Analysts including Michael Green of Simplify Asset Management argue that conventional economic indicators fail to capture the actual cost of living struggles, including those faced by six-figure households.
In a recent Substack article, Green critiques the federal poverty line, stating that living expenses have drastically changed since its origin in the 1960s. He highlights the skyrocketing costs in housing, healthcare, childcare, and education while pointing out that the need for dual-income households introduces additional costs.
The narrow focus on food in poverty line calculations overlooks other major household expenses, according to Green. He suggests that food only accounts for 5%-7% of spending, with housing, childcare, and healthcare making up a significant portion. In his view, a more realistic poverty threshold would be $140,000, far above the current $31,200 line.
‘The Valley of Death’
Green further argues that his proposed poverty threshold shows how those earning below it are falling behind despite climbing income levels. He refers to this situation as “The Valley of Death,” where the loss of benefits outpaces wage increases for those earning between $40,000 and $100,000. This dynamic contributes to the resentment some feel towards the government’s perceived preferential treatment of the destitute and wealthy at the expense of the middle class.
The COVID-19 lockdowns brought temporary relief to households able to save on commuting and childcare costs. However, the reopening of the economy brought those costs back along with rising inflation, further exacerbating financial strains.
Life is expensive
Green’s data, based on costs in suburban New Jersey, corroborates with MIT’s Living Wage Calculator and the Economic Policy Institute’s findings that family expenses in some states exceed $100,000 a year. The higher cost of living has also led to an increase in upper-income customers shopping at discount retailers like Walmart.
Green’s arguments align with a recent Harris Poll survey that reveals even six-figure earners are privately struggling, with 64% considering their income as merely the bare minimum for survival. This data underscores the grim reality that the current economic system is failing to provide an adequate standard of living for many Americans.
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