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You Try to Live on 500K in This Town - Mark's Journal
mhaithaca
mhaithaca
You Try to Live on 500K in This Town
[This letter to the editor of The New York Times evolved out of a comment on a friend's journal.]

( Read the original NYT article... )

Allen Salkin's feature on how inadequate $500,000 will be to those enjoying New York's good life is informative but misses the mark. Salkin should have stuck to talking about the fact that people living in New York City legitimately have a much higher cost of living, but instead started talking about leisure and other optional nonsense that will let the bankers feel like they're bankers. Those three-bedroom apartments really are modest by the standards of living anywhere else; something those of us outside Manhattan would consider reasonably priced would be a closet-sized dump. And I don't mean a nice walk-in closet.

Most of your readers wouldn't buy the weekend house in the Hamptons or have a car and driver, but once you have those things, they're legitimate expenses. Do you want to tell the driver he's out of a job because Congress decided his boss is only allowed a tiny fraction of his previous pay? How about the housekeeper or nanny?

Here in Ithaca, New York, hours from NYC, we're seeing a similar trickle-down problem with local cafes and restaurants that do catering seeing a huge cut in their business from the university (where I work) and local companies. "Oh, cry me a river," say some observers who don't feel sorry for staff whose lunch meetings no longer mean a free sandwich, and yet the people who were making those sandwiches, including a friend of mine, are finding their hours cut and wondering how much longer they'll have a job at all.

$500,000 sounds like a staggering amount of money to me, but cross out the more asinine parts of Salkin's article, like buying several dresses a year for thousands each and the high-ticket vacations, and there's a legitimate point to be made that mid-level executives working hard to support their families have a real cost-of-living concern when they're looking at that $500K ceiling. We're not talking about the arrogant asses at the top of the food chain here, just the people who work for them. We're not talking about thousands for a commode in a million-dollar office renovation, but a place for a family to live. Salkin should make the point that real people have real expenses that are just higher in New York, and leave the amused chatter about $8.50 hot chocolates and $16,000 vacations to Tom Wolfe.
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Comments
glithander From: glithander Date: February 9th, 2009 03:21 pm (UTC) (Link)
Here is my question, and problem, then:

Between Laura and I, we're making under $100k/year. We've never broken 6-figures, yet we feel like we have a fairly good life - and with just a bit more financial planning and discipline, we'd be ok.

Then we hear things like 'there's a legitimate point to be made that mid-level executives working hard to support their families have a real cost-of-living concern when they're looking at that $500K ceiling' and I'm like... 'What?'

I've got three kids. We aren't well off, but we're better than some. Yet I'm no where close to making $500k.

If people are having problems making it on $500k. Heck, if they're having problems making it on $200k / year, then they need to review their finances and come back down to reality.

'Cause otherwise, there is no hope for us making below $100k/year. No hope at all.
kinnerc From: kinnerc Date: February 9th, 2009 03:46 pm (UTC) (Link)
The argument that Mark (or who he is referencing) is making is that the rich give jobs to the middle class and poor and the rich have to be rich in order to do that. It's an interesting trickle-down economic argument that is hard to refute, especially if you're rich and laying off the maid/driver/pool boy.

However, this argument doesn't just work for the rich, it works for everyone, and in my miind shows that the system is fundamentally broken. Not only will the maids and pool boys be losing their jobs when the rich get cut, but people like cable installers and DishNetwork technicians will be losing their jobs as things tighten up for the middle class. This is just not a rich argument, its a broken economy argument.

At best we need to restructure things. People will have to be retrained and find other careers. That's just the facts. Starbucks may not survive this economic downturn, and that's OK because, honestly, no one needs Starbucks! With luck, perhaps some of these people will find themselves in solar panel sales careers or something.
adelais From: adelais Date: February 9th, 2009 04:41 pm (UTC) (Link)
I thought the argument here was just that it's freaking expensive to live in Manhattan, even without household staff and charity galas. It was the original article that got into the firing-the-driver implications.
kinnerc From: kinnerc Date: February 9th, 2009 04:49 pm (UTC) (Link)
Pffffft. Its freaking expensive to live in Boston, too, but I make 12% of $500k.
adelais From: adelais Date: February 9th, 2009 04:54 pm (UTC) (Link)
I do think that was Mark's point, however.

I shouldn't talk; as far as I'm concerned, three people in Ithaca on 8% of $500,000 is quite bad enough.
nighthellcat From: nighthellcat Date: February 9th, 2009 05:23 pm (UTC) (Link)
I make less than 4% of 500k.

But I'm actually kind of poor and I live in Alabama.
chesther From: chesther Date: February 9th, 2009 04:09 pm (UTC) (Link)
Two thoughts...

1) Location, location, location. There are a lot of places where $100K goes a heckuva lot farther than it does in NYC. NY State has one of the highest tax burdens in the nation, and NYC tacks on a bunch of local taxes. So the take-home portion of a $100K salary in NYC might be a lot closer to $50K. Still not chump change, but it does make a difference.

2) Ch-ch-ch-changes. If you're living on a $750K salary, you're going to have a certain level of financial commitment based on that. If you turn around and find out that a government-mandated salary cap has cut your pay by 33%, it's going to screw you up just as badly as if that cut was taking a $75K salary to $50K. Not that you can't adjust, but it's gonna hurt either way. You can't go to your bank and say "gee, can't pay the mortgage this month because the government said I make too much money, see you next month".

When times were good, where was the clamor to straighten this stuff out? People are hurting, yes. And they want to see someone punished and made to take responsibility, and they see executive pay as a really juicy target.
glithander From: glithander Date: February 9th, 2009 04:24 pm (UTC) (Link)
When times were good, where was the clamor to straighten this stuff out? People are hurting, yes. And they want to see someone punished and made to take responsibility, and they see executive pay as a really juicy target.

Um. I've been clamoring for this stuff to be straightened out for years. I've always thought it was insane to have a broker making $10-20 million dollars in bonuses. I remember being outraged when Michael Eisner was bringing home $250 million dollars per year from Disney and was complaining about how $30,000 in taxes were unfair.

This system has been broken for a long, long time. And you are right, it isn't fair to hit someone making $750,000 and limit their income.

My complaint is with that attitude that '$500,000 per year is barely surviving, and just making cost-of-living'. I'm calling BS on that, no matter where you are living. It's called adapting. I had to do it when I lost my job, and took a 33% pay cut to find another decent job (one that required moving my family almost 1000 miles).

If we're expected to do things like that, then by god they should be expected to make some sacrifices too.
gregtrotter From: gregtrotter Date: February 9th, 2009 05:15 pm (UTC) (Link)
Location is pretty important. I remember that the cost was a key reason that JC Penney's moved from midtown Manhattan to Plano, Texas in the 80s. You pay a very, very high premium to have your headquarters in New York, and for a general purpose retailer, there wasn't actually any upside to that added expense. In the case of JCP, it did cost them $140 million to relocate -- but since the move cut their administrative overhead and taes by $70 million a year, it only took them about two years to break even on the deal.

That said, I think that there's a point to be made about $500K in New York. Because while there's no advantage to a retailer paying out the wazoo to have a NYC address, that's not true for financial firms. Banks, insurance companies, investment houses -- all of them need to have headquarters, or at least a significant presence, in New York.

But I do think that these executives who are under this $500K limitation certainly have other assets that they can tap. They have investments -- maybe not worth as much as they were two years ago, but they're there. They can liquidate some of those assets to get through these lean times.

After all, that's exactly what millions of other people have to do.
helianthas From: helianthas Date: February 9th, 2009 06:20 pm (UTC) (Link)
Where do you live? A shitty one-bedroom apartment with slanted floors that hasn't been cleaned or repaired in years can cost over $2000/month in San Francisco. My health insurance is over $500/month, for one person. Most people in SF who aren't married in their 20's and 30's and even 40's share apartments with 2 or more other people, and still pay $800/month for their little room.

In Ithaca I was positively rich on $15/hour, even with an astronomical part of it going to Health Insurance. In San Francisco, I could barely make it on $40/hour. Gas/electric, water/sewer, garbage, gasoline, parking, even my CSA farm share is almost $10/box more expensive than in Ithaca.

(And yes we can argue, get rid of your car (which at least 1 person I know here has done) but that is a huge lifestyle change; it takes me 20 minutes to get to work by car, and 1 1/2 hours by public transit.)

Yes, get rid of the lattes and the house in the Hamptons. But there is truth to what Mark is saying. What is everyone whose rent is so high supposed to do? If suddenly one can't pay the rent, there will be massive flight from the cities, even if it's just the richer middle-management people moving down to take the poorer people's apartments when they leave...



Edited at 2009-02-09 06:21 pm (UTC)
glithander From: glithander Date: February 9th, 2009 06:35 pm (UTC) (Link)
We live in Kansas City, MO - actually a suburb on the East Side of KC. Rent costs us $1300/mth for a house that, while big enough for us, is in horrible shape. We have to have two cars, but there is one bus route from here that heads into town.

There is a big difference between $40.00 per hour (which has you struggling in SF) and $240.00 per hour (which, roughly, is $500,000 per year). I imagine, like us, if you actually made $500,000 per year, you'd be hard pressed to spend all of it in one year. :)

For us, that is a 'dream salary'. We'll never see that much money in a single year, short of winning some kind of lottery or lawsuit. That really doesn't bother me as much as the people that are *making* that much going on about how hard it is to live on it.

Yes, rent can be high. Cost of living differs, but not that much. I could buy that argument up to, say, $200,000 per year. But complaining about how rough you'd have it at $240.00/hour kinda falls on deaf ears when you are making $40.00/hour (or $30.00/hour). We can make it work... so why can't they?

And if I sound bitter about this, I'm sorry. This is after a long time of living in Michigan; and watching, say, K-Mart go bankrupt and the CEO collecting his golden parachute as the company burns; and the CEO of the Gas Utility I worked for doing the same thing just before the stock crashed; and the Bank I worked for dumping virtually every US employee just to make it an attractive target for another bank to purchase (I'm looking at you, Bank of America). And so on, and so on. There was little consideration there for the families that were displaced, or for the rent/mortgages/car payments that those families had. The CEO's just sliced, diced, and ran - then collected multi-million dollar payments for their troubles. And these are the people that we need to feel sorry for now, that may have to find a way to *make it* on *just* $500,000 per year? Sorry. I've got no sympathy for them. I'd even go further and limit them to $100,000 per year - let them get a good look at the life style's they're forcing on the underclasses to help maintain their status-quo.

Alright. Sorry. Done venting. :)
jccohen From: jccohen Date: February 9th, 2009 06:58 pm (UTC) (Link)
Is the solution then to limit the salary of a successful CEO or to penalize the golden parachute of the slicers and dicers?

In other words, can we use a scalpel instead of a cudgel?
helianthas From: helianthas Date: February 9th, 2009 06:26 pm (UTC) (Link)
The property taxes alone on a large house in a tony suburb of New York is $75,000/year. Imagine that. Sure, who needs a large house in a tony suburb of NY, but what happens if you already got it and now you can't pay the taxes, much less the mortgage.

I really can't read too much about the financial crisis b/c I get totally freaked out that I'm going to wind up on the streets. :/
seity1 From: seity1 Date: February 9th, 2009 04:04 pm (UTC) (Link)
Cry me a river. Rich people can move to smaller homes or cut expenses and still be living in luxury. Any one who has a job that is seeing loss of business can try and find a way to adapt. Look for other markets or if the demand isn't there, I'm sorry, but then they go out of business or lose their job and will have to find other work.
mhaithaca From: mhaithaca Date: February 9th, 2009 04:33 pm (UTC) (Link)

Can they move to smaller homes? Who's going to buy the one they have now? They could just default on their mortgage and then we have to pick up the pieces in another round of bank collapses...

My point is that it's not as simple as to say "Well, obviously everyone can make do with $500,000."
adelais From: adelais Date: February 9th, 2009 04:47 pm (UTC) (Link)
To be entirely fair, the Times does keep telling us that Manhattan is still one of the stronger real estate markets in the country. Furthermore, as I understand it, the bill applies only to executive compensation, i.e., not the new hires. I think it's safe to assume that anyone qualified is already independently wealthy (that is, if they haven't managed to save enough money to become independently wealthy over the course of their careers, they aren't qualified). The real compensation will be the notoriety as the dude who saved Citigroup, and you can bet that will be worth something in his next job.
helianthas From: helianthas Date: February 9th, 2009 06:22 pm (UTC) (Link)
my understanding is that base salary is limited to $500,000 but not stock dividends, etc. (I didn't read the article, just Mark's letter...)
helianthas From: helianthas Date: February 9th, 2009 06:21 pm (UTC) (Link)
exactly.
bcampbell From: bcampbell Date: February 9th, 2009 06:09 pm (UTC) (Link)
Take that $500,000 and divide it amongst 20 households who corrently make $50,000-$70,000.

Now, instead of one household buying sandwiches and going to the movies and getting their drycleaning done, you have 20 households with an extra $25,000 in income to do these things. Guess which model creates more jobs.
helianthas From: helianthas Date: February 9th, 2009 06:30 pm (UTC) (Link)
Mark, I'd recommend making the letter a tad bit shorter; my experience with getting letters to the editors published is that the more concise ones get picked more frequently, and even then they tend to edit them down. (Although the main section might be different than the Magazine section, that's been my experience). Also, I might be hesitant to make assumptions about "most of your readers" -- it's the New York Times, I'm betting that article is for their $500,000/year readers...

(here's one of my claims to fame: Dina basks in her 15 seconds of fame

fabunobo From: fabunobo Date: February 9th, 2009 07:02 pm (UTC) (Link)
I'm amused.
aregulardyke From: aregulardyke Date: February 9th, 2009 09:19 pm (UTC) (Link)

One of Your Friends, A Sandwich Maker

I did the math - and in my job, which is working for a local higher-end cafe' and catering business, I make around 2 % yearly of that 500K.

It would also take me 35+ years, at my current wage, to make 500K. I doubt I'll even live another 35 years.

Yeah, it's all trickle down. If people don't make money, they can't spend it. And spending money on where I work could, around Ithaca, be considered a luxury. I mean, really, who *needs* fancy sandwiches ? Why can everyone eat canned beefaronni for dinner at least once a week, like I do ?

The economy is going to remain the same as it is, as long as individual people, as well as society in general, continues to look out for the individual instead of the common good. Face it. NO one really gives a shit about us down here in the trenches, because if they did, someone'd be finding a way to make health insurance affordable for me to buy, as well as a myriad of other "luxuries" I'll never be able to afford.

Yes, those who are working for places who're getting government bailout bucks should be limited in their income. After all, IT'S MY TAX MONEY - and when is my tax money going to start working for * me * ??





ruhe From: ruhe Date: February 9th, 2009 10:29 pm (UTC) (Link)
You know? Even if you earn 500K a year doesn't mean you have to spend it (silly people probably can eat in every once in a while). For example, I certainly don't spent 8x more income now than when I was in grad school. I generally go out once - maybe twice - a week to lunch or dinner, but generally I have PB&J or leftovers at work and cook at night. However, some people "need" or "deserve" stuff they can't really afford like the first years in my office who eat out every day and party every night - and thus, they wind up in trouble.

Anyway, personally, I don't think that a pay cap is a good idea (especially since Boards of Directors seem to believe that you pay for what you get - and tend to do deferred compensation that wouldn't fall under the cap), but I REALLY liked this recent op-ed by Reed Hastings, CEO of Netflix ("Tax Me More": http://www.nytimes.com/2009/02/06/opinion/06hastings.html). Makes sense to me!
perisoft From: perisoft Date: February 11th, 2009 02:32 am (UTC) (Link)
Mark is right. Money doesn't just disappear. It doesn't matter whether it starts with one guy making 500k or 500 guys making 1k.

When that exec in NYC doesn't buy my motion simulator (which is actually a literal possibility) and when my company folds as a result of that, who's going to tell my machinists' kids that they're not going to get a new pair of glasses because people are angry at rich dudes?

All it takes is for a couple of 'useless, needless luxury' purchases to disappear, and ten people in my company are directly out of work. My coder in Albany doesn't buy a new monitor. My web guy in LA stops getting his hair cut at Trujillo's Hair Conspiracy, and the single mom stylist there gets laid off.

Money doesn't disappear.

Stop making policy based on anger.
Don't make extremely rapid changes without considering the knock-on consequences.
It's not a good idea.
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