The Agenda

What Does It Mean to Be Better Off?

Forgive me for making a really, really obvious — but important! — point. Matt Yglesias cites a YouGov survey that finds that Americans overestimate the number of U.S. households that earn over $250,000 a year:

 

Any idea what proportion of American families make more than $250,000 a year? Or, to potentially make it easier, any idea what proportion of families in your state make more than $250,000 a year?

Don’t feel bad if you don’t know – most people don’t. The actual number, nationwide is somewhere less than 3% of families earn more than $250,000 a year. What did the survey respondents say when asked this question? The average response was close to 17%! – meaning your typical survey respondent thinks that almost 1 in 5 families in America earn that kind of money, when the answer is closer to 1 in 50!

Here’s how Matt interprets the finding:

That seems to imply that most people are underestimating how well-off they themselves are compared to other Americans. A family earning about $200,000 a year is better off than the vast majority of the country’s families, but might perceive itself as merely around the 80th percentile.

Here is another way to interpret it: many families earning over $250,000 a year are in many respects worse off than families earning, say, $100,000 in a lower-cost metropolitan area, where various amenities are cheaper than they are in the highest-wage, highest-cost metropolitan areas. As Christian Broda observed in a Vox EU column summarizing his work with John Romalis,

Poor families in America spend a larger share of their income on goods whose prices are directly affected by trade – like clothing and food – relative to wealthier families. By contrast, the higher your income, the more you spend on services, which are less subject to competition from abroad. 

To earn high incomes, households have to outsource more labor. And this can have baleful consequences for one’s well-being. Consider the so-called “Hispanic paradox” — the fact that Hispanics in the U.S. tend to have higher life expectancies adjusted for income than non-Hispanic whites. As Razib Khan explains, this also applies to many culturally distinct populations of rural non-Hispanic whites:

 

More broadly, there are broad swaths of the rural north where whites are relatively poor, but long-lived, in contrast to the South. What you see on the map on the broad purple swaths are the echoes of the Yankee Empire, and the New England Diaspora, which includes the Mormons of Utah. Yankee probity seems to have attracted Scandinavians, Germans, Irish, and Italians, of like mindset. Or the children of immigrants were acculturated to Yankee values.

What is the moral here? Economic development is broadly indicative of life expectancy, but in modern developed societies culture and social milieu matters on the margin, and can swamp the effects of economics. Just as heritability for height is higher in developed societies, so variation in life expectancy within developed societies may be more likely to track cultural categories than economics.

One can easily imagine a couple living in Iowa City — both public school teachers, for example — leading a much healthier, happier life than another two-earner couple living in New York city or Fairfield County in Connecticut. 

The key difference, of course, is that people living in high-wage, high-cost metropolitan areas are consuming valuable amenities, like the cultural and material variety afforded by high density. This in itself could make two-earner households in these regions “better off.” But it’s not obvious that this is true — or rather it’s fairly clear that only some individuals value these amenities. Those who do not might be sorting into lower-cost, lower-wage metropolitan areas because, for example, they place a higher priority on spending time with loved ones, etc., than attending, or rather having the opportunity to attend, lots of live musical performances. I happen to place very high value on density and variety, but experience tells me that this is not a universal trait. 

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