Saturday, September 15, 2007

America’s rich paradox

America’s rich paradox
Copyright The Financial Times Limited 2007
Published: September 14 2007 15:05 | Last updated: September 14 2007 15:05


Yesterday was Tony Snow’s official last day as White House spokesman. The stated reason for his departure: “I ran out of money.” When he announced his resignation last month, Snow explained that his $168,000 salary wasn’t enough to support his family and that the money the Snows borrowed to supplement that income when their paterfamilias went to work for the government had all been spent.

Now, this is America, so talking about dosh isn’t the social taboo I found it to be when I lived in London. Nonetheless, I was astonished by Snow’s comments. Talking about your loot is all well and good if you are a hard-working genius entrepreneur whose capitalist success is part of what makes America great. But it is another thing altogether if you are a public servant and your point is that $168,000 – about 3.5 times the median household income of $48,201, according to a report from the Census Bureau last month – isn’t enough for you.

Even if that’s true, it seemed disrespectful and, what may be worse for a professional flack, like a PR gaffe to admit it. And it sounded an unnecessary one to boot, since Snow, who has cancer, could have trotted out the old workhorse about spending more time with his family and been pretty certain of a compassionate response.

So I went online, expecting to hear an electronic chorus of outrage. There were a few howls. Slate columnist Daniel Gross argued that Snow’s own life symbolised many of the problems with the Bush policies it was his job to advocate, from the high costs of healthcare to the dangers of privatising retirement benefits. A blogger on the Washington Post website delivered a more personal rant: “Tony Snow’s claim of needing more money ... is emblematic of just how tone-deaf and out of touch people in the White House are.”

By and large, though, the reaction was much more sympathetic, as captured by this Silver Spring, Maryland, blogger’s response to the above charge that Snow was “tone-deaf”: “Man, people should go easy on Tony Snow. I don’t even like the guy, as far that type of stuff goes, but jeez ... Let’s be realistic – if you have a big house and a couple of kids in private school (easy $20,000 a year around here) and medical bills from cancer, $168,000 after taxes is not really a ton of money.”

I suspect that one reason the blogosphere has been gentler on Snow than I would have predicted is his illness. That’s great: it’s good to know that even in this wired and partisan age, the crowd can be humane.

Mostly, though, I think Snow’s openness about his family finances has found a relatively sympathetic audience because a lot of its members, like the Silver Spring correspondent, don’t think it is at all absurd that someone with cancer, three kids, upper-middle-class aspirations and living in an expensive city like Washington, DC, might run out of money on $168,000 a year.

This is the paradox of life in affluent America today: in an era of unprecedented global prosperity, a lot of Americans, even those earning more than triple the median household income, aren’t feeling very rich. That is a sentiment that can tempt the finger-wagger in all of us, especially when faced with the lushness of so much of American life. After all, more than a million people have bought an iPhone, $4 has become an ordinary price to pay for a cup of coffee and otherwise normal women, if magazines from Vogue to the New Yorker are to be believed, apparently don’t blink at spending more than $1,000 for a handbag.

This conspicuous consumption has been cast in its most unappealing light by the summer’s credit crunch. But, as economist Robert Frank argues in his new book, Falling Behind, middle-class America’s perception that it needs more money to maintain its social rank is about more than unwise purchases of optional luxury goods. Prof Frank believes that rising income inequality has made it harder for middle-income families to live what they think of as a middle-class lifestyle.

Part of the dilemma is the old problem of coveting your neighbour’s ox – in many circumstances, the sad fact of human nature is that we care more about having more than the Joneses, than about what it is we actually have.

But Prof Frank also thinks that some of the things most of us see as necessities, particularly an excellent education for our children, are becoming harder for the middle- class to afford. As evidence, Prof Frank cites research by Elizabeth Warren and Amelia Tyungi showing that “most of the extra income earned by families as a result of the move to two-earner couples was consumed by higher housing prices as these families sought to buy homes in safer neighbourhoods with better schools.”

A few contrarian commentators have welcomed the new tougher lending standards and house-price declines in the hope they might slow down what Prof Frank describes as this “arms race” in middle-class America. But many of the economists who study income distribution aren’t betting on it. “There might be a slight blip from the credit crunch, but I don’t think that will be long-lasting,” NYU’s Edward Wolff told me. “The winner-take-all effect, where if you are at the top of your profession, your income just skyrockets, is unlikely to stop.”

Chrystia Freeland is the FT’s US managing editor

chrystia.freeland@ft.com

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