The Smallest Violin

I admit to surfing on my iPhone during my photography class this morning. I'm such a bad student. One of the articles that I came across was this Bloomberg article, which describes the impact on Wall Street workers who haven't gotten a bonus in the past couple of years. 

It's gotten a lot of ire on the blogosphere today. Those stupid, rich people! 

Megan sort of defends them saying that it is tramatic to pull kids out of private school. Maybe they could use a little sympathy. The rich, like the middle class, invested in expensive mortgages than can't be cut back in lean years. So maybe it is better to rent, than buy a home.  

I don't know if the rich deserve sympathy or not. I do know that a lot of people at my husband's firm are hurting this year. They bought homes and created lifestyles for themselves a few years ago, that can't be sustained anymore. 

A few years ago, we did quite nicely. Steve got a bonus, and I was working. Since then, we've had a substantial drop in our income, but we haven't felt the pain, because we only made small changes to our lifestyle during the flush years. We still drive a very old Toyota that leaks oil on the driveway. I don't have a housecleaner (savings of $1,500 per year) or a landscaper to blow out our lawn. We do it ourselves. The couple of years that we did well, we dumped the money into our mortgage. 

In these times, I think it is always better to be prepared to live on less and to assume that your salary could be cut in half at any time. Could you do it? 

24 thoughts on “The Smallest Violin

  1. “In these times, I think it is always better to be prepared to live on less and to assume that your salary could be cut in half at any time. Could you do it? ”
    I agree. And, we can do it (and, we should be able to do it). On the other hand, most people can’t do it because they really can’t do it. I thought MM’s take was flawed, especially in light of a previous article in which she chided everyone to be saving more, especially the 99%. The 1% can clearly live on half their income, because most people do. They should calculate their spending during the “fat” years accordingly, subtracting more for the high beta of their likely income (when it’s based on bonuses and the like).
    The caveat is the group of people who have a pretty good idea of what their salary will be (mostly public employees, teachers, tenured profs, judges, . . . .). They can plan on their income staying the same. The rest of us can’t.

  2. In fact, I have a spreadsheet where I re-do this calculation every few months or so, calculating fixed expenses (that would be nearly impossible to unravel, like the cost of our house, and for me, the cost of cleaning it, since I wouldn’t want to live in this house if I had to clean it), the high priority expenses (the kids’ private school), the changeable expenses (the trip to Maui), the frivolous expenses (shoes). . . .
    People in the income brackets described have no excuses for not doing the same (and, yes, living in NYC is a privilege you have to figure out if you can afford, not a non-negotiable).

  3. I’d think that so long as SHOES/FOOT is under three or so, you should count shoes as a higher prioerity expense than trips to Maui.

  4. “In these times, I think it is always better to be prepared to live on less and to assume that your salary could be cut in half at any time. Could you do it? ”
    I’m adopting the same principle…our income has skyrocketed in the past year and remembering that either of us could suddenly lose or drop income at any time has really helped us reign back the temptation to just up our standard of living. I mean, we’ve upped our standard a bit, but not by the same amount our income has gone up.

  5. We already do live on less than half our income and have for a long time because my husband never thought he would stay with this company as long as he has. We dump the money into college/retirement. I want to pay for our kids to go to school and do anything in retirement that we can’t do now. Although we work for a company that has a generous pension plan, we have NEVER figured that into our planning. Now 12 years from the lowest allowable retirement age, we are looking at actually retiring at 55. It will have been worth the sacrifices we made.

  6. I think where I get caught up in many of these types of articles is the implied “Therefore . . .” I always read thinking what policy or issue is being discussed, either directly or indirectly, in the article.
    If the article is along the lines of “middle class people who used to give to food banks are now making withdrawals,” the social “therefore” is something along the lines of “support your local food bank” or “support policies that increase demand and employment because there are hard workers looking for jobs.”
    I read this article, and I think, what is the “therefore”? What policy should this article make me more or less likely to support?
    One non-offensive interpretation is that the “therefore” is “We’re all in this together, so let’s work together to improve the economy.” But I think that’s not really what going on — or at least not how a lot of people interpret it. At a point in time where the leftists talks about the “1%” and the Democrats talk about increasing taxes on people making over $200K, I think people read the article and think the implicit “therefore” is “therefore don’t tax the rich any more than you are because they are also struggling.” And if that is the subtext (and I think it is), then the article is — in fact — offensive.
    It is that second subtext that, I think, writers like Megan are not seeing when they defend the article against the midget violinists.

  7. ” . . . the implicit “therefore” is “therefore don’t tax the rich any more than you are because they are also struggling.”
    And, wasn’t the explicit implicit in Ted Henderson’s blog post (the law professor & his wife, who couldn’t live on 400K/year) (and who is also cited in the Bloomberg article)?
    I have another therefore, which is that tax strategies that are based on the wealth of the very wealthy will have huge variability, just like their incomes do.

  8. bj: The Todd Henderson number didn’t come from him, it came from someone guessing at how much he made.
    On the question of why do I tell people to save so much, and then have sympathy for those who don’t? Telling people that they should do something sensible is not the same thing as erasing all sympathy when they don’t. Say you smoke and get lung cancer. Maybe a pure rationalist would say, “Reap what you sow, baby, no sympathy here!” I’d say, Wow, that’s awful, I’m so sorry.
    Ragtime: there’s no “therefore” except “therefore we shouldn’t revel in the sympathy of others”. I thought that this was pretty obvious from the article, but legions of others have extracted horrible hidden meanings through some sort of Kabbalistic inference to things I didn’t write.

  9. Really? Are the inferences funny? Maybe I’ll have to check out the comment section.
    I do have some sympathy for the rich dudes in the city. But the some is pretty minor. I was listening to an NPR report last week about kids who were stealing ketchup packages from lunchroom cafeterias, so they could make ketchup soup for dinner. Switching to public school isn’t that horrific in comparison. Actually, Steve doesn’t even have sympathy for the Wall Street types who are over their head, and he works a couple of desks away from them. They really did over spend.

  10. We saw our family income drop by 1/3 a few years ago. As we’d lived under our limits, we weathered the storm by making a few more minor cuts.
    If our income dropped by half, that would require a fair bit more retrenching, especially as Eldest yearns to attend university somewhere else than where she gets free tuition.
    But I’d never tell anyone to feel sorry for me, financially. Even with the cutbacks and looming expenses, we can manage. The really hard hit people can’t (and, hint, they’re not the ones with multiple mortgages on ritzy properties and upset at having to settle for vacations in the Caribbean instead of in more exotic locales).

  11. “…for me, the cost of cleaning it, since I wouldn’t want to live in this house if I had to clean it)…”
    Very funny and very true.
    “I’d think that so long as SHOES/FOOT is under three or so, you should count shoes as a higher prioerity expense than trips to Maui.”
    I’m seeing a podiatrist again, and one of the things I’m trying to teach myself is to buy (and throw away) shoes more often.
    “Although we work for a company that has a generous pension plan, we have NEVER figured that into our planning.”
    Bravo.
    “I have another therefore, which is that tax strategies that are based on the wealth of the very wealthy will have huge variability, just like their incomes do.”
    Right. I’ve read quite a few articles featuring people who used to be mortgage brokers making $300k+ a year and now they are losing everything. (And you know exactly what kind of loans those were, too.) We’re never going to get back that particular tax base–it won’t be back within our lifetimes.
    In general, I think it’s very difficult for people to deal intelligently with intermittent income. I think it’s not an accident that the Millionaire Next Door types were often people with moderate but consistent incomes (teachers and engineers), rather than (for instance) salespeople.

  12. Ragtime: there’s no “therefore” except “therefore we shouldn’t revel in the sympathy of others”. I thought that this was pretty obvious from the article, but legions of others have extracted horrible hidden meanings through some sort of Kabbalistic inference to things I didn’t write.
    Not sure who was reveling in sympathy. Also, not sure whose article you are talking about (the Bloomberg article or your own). I was looking for the point of the Bloomberg article, assuming that there was a reason that someone who choose to write an article about the struggling rich.
    If the point is to increase our sympathy of the struggling rich, then that makes us less likely to support policies that hurt them further. Then, we have less money and so we tell the struggling poor that we can’t afford to extend unemployment by another week or two. It seems much more straight forward that a page from the Zohar.

  13. Megan McArdle,
    Why not? I wouldn’t say that to someone’s face if they were complaining directly in front of me (though I would sure as hell try to give them a sense of perspective), but why can’t I write in reaction to hearing about some stranger who is heartbroken they’re earning $400,000 instead of $500,000 and has to sell one of their unused motorcycles, “maybe you should have managed your money better?” I have finite emotional resources to devote to strangers, and there are many many more people in the world who I’m going to feel sorry for over some hedge fund manager who now earns in the top .5 % instead of the top .1%. (I could also point out the hypocrisy of having endless sympathy for rich people who were greedy and screwed up but absolutely none for a poor person makes a dumb decision or spends unwisely (or even spends wisely but out of their means). I have far more sympathy for a poor person who moves to an apartment they can’t afford because their kids got asthma from the roaches at their last place, or they were worried about their kids getting shot than someone whining about living in a 1200 sq. ft. apt instead of an 1800 sq. ft. one.)
    I’m going to take the sympathy I could have given to the guy who can only rent a summer home in Connecticut for 1 month instead of 4 and put it towards a writer my sister knows who is dying of breast cancer because she can’t afford effective treatment since she has no health insurance, and has no possible way of attaining health insurance, since she is considered uninsurable and couldn’t afford to pay the 10s, if not 100s of thousands of dollars a year an insurance company would ask of her even if they were willing insure her.

  14. See, I thought the Bloomberg article was mocking the rich folks. Maybe I should re-read it.

    Mocky headlines and section headings. But the text strikes me as intended to be serious — and we all know that the headlines aren’t written by the author.
    It’s sort of like watching Downton Abbey, but someone has dubbed in “Yakety Sax” from Benny Hill as the background music. The actors are trying to be serious, but you can’t help but laugh at them.

  15. Because of the progressive way many taxes are set up in the US, when millionaires get the sniffles, local and federal government gets the flu.
    “The chart, based on 2009 IRS figures, shows that the number of taxpayers reporting annual income over $1 million fell 39 percent between 2007 and 2009; the number of super-wealthy individuals making over $10 million annually plunged 55 percent.”
    “The carnage wasn’t confined to millionaires. The number of taxpayers earning over $200,000 per year also decreased by 612,000 – or 13 percent.”
    Note that the higher the income category, the steeper the plunge in the number of people earning at that level. The upper income tiers are very volatile. And in so far as their income has fallen and government at all levels is disproportionately dependent on their income, the less they take in, the less revenue the tax systems will take in.
    “In 2007, those making above $200,000 (but less than $1 million) paid $610 billion in federal income taxes. In 2009, it was only $434 billion – leading to a 29 percent decrease in government revenue.”
    “Since the top 5 percent of taxpayers paid 58.7 percent of all federal income taxes in 2008, the vanishing of millionaires is bad news for everybody.”
    http://campaign2012.washingtonexaminer.com/blogs/beltway-confidential/where-have-all-millionaires-gone
    So, if the question is, why should we cry for the millionaires, the answer is, do not ask for whom the bell tolls, because it tolls for thee.

  16. Could we get on with half the income? As renters, yes, by eliminating saving and non-essential spending and perhaps by yanking the kids out of school. After we buy the house we’re looking at, I’m not so sure.
    However, one thing to bear in mind is that as income goes down, federal taxes may go down disproportionately.

  17. You know what would make rich people better off? If they would just let the middle class be. When we had more redistribution of income, the rich were still rich and the middle class were still middle class, and there was a bit more of a safety net for the poor, and things kind of stayed that way. The Wall Streeters still got their bonuses and their summer houses and their extra motorcycles. But no, the rich had to get greedy. More more more. Bigger bonuses. A summer house on Hilton Head instead of on the Cape. A whole collection of motorcycles. So they fucked with the middle class, sending the whole economy into a tailspin, and now they can’t send their kids to private school. Boo frickin’ hoo.

  18. Note that the higher the income category, the steeper the plunge in the number of people earning at that level. The upper income tiers are very volatile.
    That’s really only a problem for the states, which have to balance their budgets every year. In particular, I think California got into a lot of trouble because of this, thinking that the dot-com bonuses were the new normal.
    For the federal government, it doesn’t matter if the income is volatile, if the money comes back after the recession. If you think the wealth is never going to come back — well, that’s a different issue and you’ve got bigger problems that uneven tax receipts because your economy is not growing.
    But with a normal economy and a government that can borrow in down years, the fact that tax receipts will be down in 2009, 2013, and 2024 is no reason not to skew your tax rates progressively.

  19. “But with a normal economy…”
    That’s a very interesting question, actually, what is a normal economy? We’ve had back to back bubbles (the dotcom bubble, followed by the housing bubble) punctuated by recessions. After all that whiplash, I don’t think we know what normal looks like.

  20. Speaking of small violins, we bought a 1/8th size violin for our son when he was little. I don’t know if it helped him with music or compassion.

  21. “For the federal government, it doesn’t matter if the income is volatile, if the money comes back after the recession. ”
    Yeah. Ragtime, sometimes you post my thoughts before I think them. Very strange, these internets.
    I’m generally of the opinion that one shouldn’t compare misery (i.e. the disaffected blogger with serious depression, the person with the aching back v the one with cancer v the mother who has lost 7 children to cold in afghanistan, . . . ). Misery is misery and deserves sympathy.
    But, I’ve realized that my sympathy seriously doesn’t extend to the person who is only going to have the 1 month rental instead of the 3 and been trying to figure out why. I think, probably, ’cause it’s like complaining about a pimple. Yes, I can commiserate just a little bit, if they’re not complaining in front of the person who has skin cancer or arguing that they should have to pay lower taxes so that they can afford their fancy skin cream (instead of giving the person with cancer treatment). But, generally, they just need to get over it. And, if they’re seriously miserable because of the pimple, well, then, I guess I can sympathize for the mental health issue that causes them to be so irrational.

  22. If I start quoting from the article in Scientific American about the writer with no insurance, I’m going to wind up quoting the whole thing. But here’s a key couple of sentences:
    “But many of the uninsured are like myself and just can’t seem to make the numbers work for a family of four each month by adding on private individual (i.e. non-group discounted) health insurance. Especially when you factor in the myriad other insurances we already pay: renter’s or home, wind and hail, flood, car, life, etc. It’s not that we are irresponsible, but the numbers. just. don’t. work.”
    Next paragraph:
    “When I started my family 6 years ago, I was on a path to a career in research and teaching. We had amazing health insurance through my institution and my wife and children-to-be were generously covered, no-questions-asked by the state of Pennsylvania during, and a year after, the pregnancies. We never saw a bill. After I got ‘real jobs’ upon completing my Masters degree, I entered a grey zone of contract teaching and research employment at universities. With a decent, regular salary we were ineligible for state aid, yet didn’t make enough to afford extra costs. Furthermore, the quality of the insurance kept lowering until I wasn’t even sure what I was paying for – even as the premium costs were rising.”
    There follow details about insurance coverage that doesn’t actually cover; payments the company takes in but never seems willing to pay out. I’m sure you all have or know your stories — which is itself a sign (like a roaring klaxon and a gigantic red light are signs) — but I will add my own: A friend who is an absolute winner in the tournament of academic jobs (tenured full professor at a well-endowed small, liberal-arts college) is now fighting the insurance company over follow-up for her newborn, who was not quite three months premature, on which medical attention is “approved for payment” or merely “approved.” If it’s like that at the top of the profession, what’s it like further down?
    Well, the SA writer tells us:
    “At Urgent Care, it is first-come first-served. We waited, about 3rd in line, while my son writhed in his mother’s lap. … He whispered to his mother that he couldn’t breathe. In a desperate voice she urged me to tell the receptionist. I got up and pathetically explained, ‘excuse me, but my son is having trouble breathing. He says he can’t breathe.'”
    And the macro picture:
    “Most of the uninsured in this country aren’t lazy, freeloading hobos who don’t wanna work. They span a wide variety of demographics. As a 30 something, white male with advanced college degree who works full time as a self-employed consultant and writer are you surprised that I cannot afford health insurance for my family? In fact, the majority of uninsured are in my age range and are full or part time workers earning incomes above 100% the federal poverty level. The fact of the matter for many of the uninsured is that employment-sponsored coverage has been in decline due to the escalating costs of health care. Employers can’t remain competitive and pay double the costs they were paying a decade ago for insuring their workers.”
    When we don’t see this kind of story anymore, then maybe I’ll spare some thoughts for the folks making 10 or 20 times what a starting schoolteacher makes.

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