10/21/10 7:51 PMIn Which Mr. Deling Responds to Someone Who Might Be Professor Xxxx Xxxxxxxxx - Grasping Reality with Both Hands

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Grasping Reality with Both HandsThe Semi-Daily Journal of Economist J. Bradford DeLong: Fair, Balanced, Reality-Based, and Even-HandedDepartment of Economics, U.C. Berkeley #3880, Berkeley, CA 94720-3880; 925 7080467; delong@econ.berkeley.edu.

Economics 210aWeblog ArchivesDeLong Hot on GoogleDeLong Hot on Google BlogsearchSeptember 18, 2010

In Which Mr. Deling Responds to Someone Who Might Be

Professor Xxxx Xxxxxxxxx

I had published a link and a long excerpt from Michael O'Hare's rant after readingUniversity of Chicago Law Professor Xxxx Xxxxxxxxx .

And now somebody purporting to be University of Chicago Professor Xxxx Xxxxxxxxxwrites:

I'm shocked and saddened at the personal nature of these attacks. Wow.

As for Mr. Deling' attacks...

I would like to note for the record that I have not made any attacks, or indeedcomments at all--that all I did was to republish pieces of Michael O'Hare's attack. AndI was thinking if I had any comments worth reading or any time to write them down,and deciding that I did not.

But being called "Deling" makes me think I have no choice.

So here is the rest of the comment by Professor Xxxx Xxxxxxxxx (or the guy purportingto be him):

let me make just two observations. First, according to several tax sites, my taxeswill go up by thousands, not down. I'm not a tax lawyer, so I'm not sure why.

Second, his [i.e., Michael O'Hare's] attempted budget leaves out a large category--education and daycare. This year, they will come close to $60,000, which is about$165 per day. Subtract this from the crude budget and that leaves $80 per day forfive people.

But all this avoids the question of why we think the government will better allocatesome part of whatever my income is.

Dashboard Blog Stats Edit Post

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So here is what I have to say:

Back in 2000, the U.S. government's long-term budget was out of balance--althoughnot by all that much. The government had, you see, made promises--very popularpromises--for Medicare, Medicaid, and Social Security without proposing sufficientfunding streams to pay for those promises. So back in 2000, looking forward, we had achoice: raise taxes, or "bend the curve" by cutting the growth of spending.

Instead of doing either of these, we elected George W. Bush. Two wars. A big (and ill-advised) defense buildup that is very unsuited to protecting us from Al Qaeda andcompany. A huge unfunded expansion of Medicare. Plans for the unfunded expansionof Social Security that came to nothing. However, instead of raising taxes George W.Bush reduced them.

This simply does not work. As Milton Friedman liked to say, to spend is to tax. If thegovernment spends somebody will pay for it. And if you don't levy the taxes to pay forit now all that means is that the person who owes the taxes does not know it yet.

So unless Professor Xxxxxxxxx (or whoever) has plans for serious cuts to Medicare,Medicaid, Social Security, and National Defense--and I see none on offer--his lastpoint about government allocation is simply moot. George W. Bush has alreadyallocated it with his defense buildup and Medicare Part D. Taxes are going up over thenext decade--barring cuts of 1/3 to Medicare, etc. They can either go up smartly or wecan pretend they don't have to go up, in which case they go up stupidly. The argumentfor small government was lost long ago, and was lost again and anew in the pastdecade with Medicare Part D and the wars of George W. Bush. I believe XxxxXxxxxxxxx was a deserter in that war--a supporter of George W. Bush, and of hisunfunded Medicare Part D expansion, and of his wars of choice. So I don't think he hasstanding to make the small government argument--some people do, but he does not.

But Mr. Xxxx Xxxxxxxxx's (or whoever's) comment and his post were, overwhelmingly,not an argument for a small government.

They were an argument that whatever taxes were paid, he should not have to pay morethan he is currently paying because it is unfair: he is not "rich".

As best as Michael O'Hare could determine (and Professor Xxxx Xxxxxxxxx or whoeverit is does not challenge him), the Xxxxxxxxx annual family budget is this:

$455,000 a year of income, of which:

$60,000 in student loan payments$40,000 is employer contributions to 401(k) and similar retirement savingsvehicles$15,000 is employer contributions to health insurance$60,000 is untaxed employee contributions to tax-favored retirement savingsvehicles$25,000 building equity in their house$80,000 in state and federal income taxes$15,000 in property taxes$10,000 for automobiles$55,000 in housing costs for a $1M house (three times the average price in theHyde Park neighborhood$60,000 in private school costs for three children$35,000 in other living expenses

And of this budget, Professor Xxxx Xxxxxxxxx (or whoever) writes:

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Like most working Americans, insurance, doctors’ bills, utilities, two cars, daycare,groceries, gasoline, cell phones, and cable TV (no movie channels) round out ourmonthly expenses. We also have someone who cuts our grass, cleans our house,and watches our new baby.... [W]e have less than a few hundred dollars per monthof discretionary income. We occasionally eat out but with a baby sitter, thesenights take a toll on our budget. Life in America is wonderful, but expensive. Ifour taxes rise significantly... the (legal) immigrant from Mexico who owns thelawn service we employ will suffer, as will the (legal) immigrant from Poland whocleans our house a few times a month. We can cancel our cell phones and somecable channels, as well as take our daughter from her art class at the communityart center...

Now it is time for a reality check on this "most working Americans." The medianhousehold income in the United States today is $50,000. Half of all households makemore than this. Half of all households make less. The big expenses in the Xxxxxxxxxfamily budget--their $60,000 a year in contributions to tax-favored retirement savingsvehicles, their $25,000 a year savings building home equity, their $55,000 for housing,their $60,000 in private school costs, even their $10,000 a year for new cars--aresimply out of reach for the overwhelming majority of Americans. Half of all householdsmake less than $50,000 a year--the Xxxxxxxxxs make nine times that. 90% ofhouseholds make less than $100,000 a year--the Xxxxxxxxx's make 4.5 times that. TheXxxxxxxxx's are solidly in the top 1% of American households, in the select 1% groupthat receives more than $350,000 a year.

By any standard, they are really rich.

But they don't feel rich. They have a cash flow problem. When the bills are paid at theend of the month, the money is gone--and they feel that they have to scrimp.

I know how they feel. My household income is of the same order of magnitude thantheirs (although somewhat less) and we too had to juggle assets quickly when itdeveloped that an error in Reed College's housing system had caused them not tocharge us $5,000 that we owe. We too have chosen to put our income in places (tax-favored retirement savings vehicles, building equity, housing, private college costs)where we think it is better used than $200 restaurant meals, $1000 a night resorthotel rooms, or $75,000 automobiles. But I don't think that I am not rich.

Professor Xxxx Xxxxxxxxx's problem is that he thinks that he ought to be able to payoff student loans, contribute to retirement savings vehicles, build equity, drive newcars, live in a big expensive house, send his children to private school, and still haveplenty of cash at the end of the month for the $200 restaurant meals, the $1000 anight resort hotel rooms, and the $75,000 automobiles. And even half a million dollarsa year cannot be you all of that.

But if he values the high-end consumption so much, why doesn't he rearrange hisbudget? Why not stop the retirement savings contributions, why not rent rather thanbuy, why not send the kids to public school? Then the disposable cash at the end of themonth would flow like water. His problem is that some of these decisions would strikehim as imprudent. And all of them would strike him as degradations--doctor-lawprofessor couples ought to send their kids to private schools, and live in big houses,and contribute to their 401(k)s, and also still have lots of cash for splurges. That is theway things should be.

But why does he think that that is the way things should be?

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And here is the dirty secret: Professor Xxxx Xxxxxxxxx thinks that that is the waythings should be because he knows people for whom that is the way it is.

Cast yourself back to 1980. In 1980 a household at the bottom of the 1% richhouseholds in America had an income equivalent in today's dollars $190,000 a year.They know of 1000 people--900 of them poorer than they are in income brackets 90-99% and 100 people richer than they are in the top 1% income bracket. The 900 peoplepoorer than them back in 1980 had incomes from $85,000-$190,000 a year. Thoseare, if you are sitting at the bottom of the top 1%, the middle class who are not assuccessful as you. You don't look downward much. Instead, you look upward. Of the100 above you, 90 in 1980 had incomes less than three times their incomes. And theywould have known of 1 person of that 100 who was seven times as rich as they were.

Thus Professor Xxxx Xxxxxxxxx in 1980 would have known who the really rich were,and they would on average have had about four times his income--more, considerablymore, but not a huge gulf. He would have known people who were truly rich, and hewould have seen himself as one of them--or as almost one of them.

Now fast forward to today. Today a household at the bottom of the 1% rich householdsin America has an income of nearly $400,000 a year--the income of that slot in thelabor market has more than doubled, while the incomes of those at the slot at thebottom of the 10% wealthy has grown by only 20% in two decades. The 900 people heknows in the 90%-99% slots have incomes that start at $110,000 a year. Compared toXxxx Xxxxxxxxx's $455,000, they are barely middle class--"How can they afford cellphones?" Xxxxxxxxx sometimes wonders.

But he wonders rarely. He doesn't say: "Wow! My real income is more than twice theincome of somebody in this slot a generation ago! Wow! A generation ago the incomeof my slot was only twice that of somebody at the bottom of the 10% wealthy, and nowit is 3 1/2 times as much!" For he doesn't look down at the 99% of Americanhouseholds who have less income than he does. And he looks up. And when he looksup today he sees as wide a gap yawning above him as the gap between Dives andLazarus. Mr. Xxxxxxxxx doesn't look down.

Instead, Mr. Xxxx Xxxxxxxxx looks up. Of the 100 people richer than he is, fully tenhave more than four times his income. And he knows of one person with 20 times hisincome. He knows who the really rich are, and they have ten times his income: Theyhave not $450,000 a year. They have $4.5 million a year. And, to him, they are in adifferent world.

And so he is sad. He and his wife deserve to be successful. And he knows people whoare successful. But he is not one of them--widening income inequality over the pastgeneration has excluded him from the rich who truly have money.

And this makes him sad. And angry. But, curiously enough, not angry at the senior lawfirm partners who extract surplus value from their associates and their clients, or angryat the financiers, but angry at... Barack Obama, who dares to suggest that the U.S.government's funding gap should be closed partly by taxing him, and angry at the greathordes of the unwashed who will receive the Medicare, Medicaid, and Social Securitypayments that the government will make over the next several generations.

Do I wish that Professor Xxxxxxxxx had a little more self-knowledge? Yes. Is itpathetic that somebody with nine times the median household income thinks ofhimself as just another average Joe, just another "working American"? Yes. Do I find itembarrassing that somebody whose income is in the top 1% of American households

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thinks that he is not rich? Yes.

Do I hope to educate him so that he has a better grasp on reality and betterunderstanding of America and of public policy? Yes.

Here is Xxxxxxxxx's original post:

We are the Super Rich « Truth on the Market: The rhetoric in Washington abouttaxes is about millionaires and the super rich, but the relevant dividing linebetween millionaires and the middle class is pegged at family income of $250,000.(I’m not a math professor, but last time I checked $250,000 is less than $1million.) That makes me super rich and subject to a big tax hike if the presidenthas his way.

I’m the president’s neighbor in Chicago, but we’ve never met. I wish we could,because I would introduce him to my family and our lifestyle, one he believes iscapable of financing the vast expansion of government he is planning. A quick lookat our family budget, which I will happily share with the White House, will showhim that like many Americans, we are just getting by despite seeming to be rich.We aren’t.

I, like the president before me, am a law professor at the University of ChicagoLaw School, and my wife, like the first lady before her, works at the University ofChicago Hospitals, where she is a doctor who treats children with cancer. Ourcombined income exceeds the $250,000 threshold for the super rich (but not bythat much), and the president plans on raising my taxes. After all, we can afford it,and the world we are now living in has that familiar Marxian tone of those whoneed take and those who can afford it pay. The problem is, we can’t afford it. Hereis why.

The biggest expense for us is financing government. Last year, my wife and I paidnearly $100,000 in federal and state taxes, not even including sales and othertaxes. This amount is so high because we can’t afford fancy accountants andlawyers to help us evade taxes and we are penalized by the tax code because wechoose to be married and we both work outside the home. (If my wife and Idivorced or were never married, the government would write us a check for tensof thousands of dollars. Talk about perverse incentives.)

Our next biggest expense, like most people, is our mortgage. Homes near our workin Chicago aren’t cheap and we do not have friends who were willing to help usfinance the deal. We chose to invest in the University community and renovateand old property, but we did so at an inopportune time.

We pay about $15,000 in property taxes, about half of which goes to fund publiceducation in Chicago. Since we care the education of our three children, thismeans we also have to pay to send them to private school. My wife has schoolloans of nearly $250,000 and I do too, although becoming a lawyer is significantlycheaper. We try to invest in our retirement by putting some money in the stockmarket, something that these days sounds like a patriotic act. Our account isn’tworth much, and is worth a lot less than it used to be.

Like most working Americans, insurance, doctors’ bills, utilities, two cars, daycare,groceries, gasoline, cell phones, and cable TV (no movie channels) round out ourmonthly expenses. We also have someone who cuts our grass, cleans our house,and watches our new baby so we can both work outside the home. At the end ofall this, we have less than a few hundred dollars per month of discretionary

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income. We occasionally eat out but with a baby sitter, these nights take a toll onour budget. Life in America is wonderful, but expensive.

If our taxes rise significantly, as they seem likely to, we can cut back on somethings. The (legal) immigrant from Mexico who owns the lawn service we employwill suffer, as will the (legal) immigrant from Poland who cleans our house a fewtimes a month. We can cancel our cell phones and some cable channels, as well astake our daughter from her art class at the community art center, but these areonly a few hundred dollars per month in total. But more importantly, what is thetheory under which collecting this money in taxes and deciding in Washingtonhow to spend it is superior to our decisions? Ask the entrepreneurs we employ andthe new arrivals they employ in turn whether they prefer to work for us or get agovernment handout.

If these cuts don’t work, we will sell our house – into an already spiraling marketof declining asset values – and our cars, assuming someone will buy them. Theirony here, of course, is that the government is working to save both of theseindustries despite the impact that increasing taxes will have.

The problem with the president’s plan is that the super rich don’t pay taxes – theyhide in the Cayman Islands or use fancy investment vehicles to shelter theirincome. We aren’t rich enough to afford this – I use Turbo Tax. But we are richenough to be hurt by the president’s plan. The next time the president comeshome to Chicago, he has a standing invitation to come to my house (two blocksfrom his) and judge for himself whether the Xxxxxxxxxs are as rich as he thinks.

Brad DeLong on September 18, 2010 at 03:38 PM in Economics, Economics:Inequality, Philosophy: Moral | Permalink

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Comments

j h woodyatt said...My family income is about a third of this guy's. I'm sure he doesn't think I'm rich.However, if instead of working as an engineer at a certain formerly stripey-fruitcomputer company down the peninsula, I were making the same income as a publicservant on a government payroll, then I'm sure he would be howling like a mad thingabout how absurdly overpaid I am.

Reply September 18, 2010 at 03:56 PMCardinal Fang said...Hang on. Doesn't Professor Henderson know some people who are in lower incomebrackets than 90-99%? What about the baby's nanny, his housecleaner and hisgardener? Don't those people count?

Reply September 18, 2010 at 04:01 PMwill said...Very well said, I've been having similar thoughts. In New York that Henderson Feelingis probably even worse. But like Global Warming, the scope of the real problem is justtoo large, so people complain about the ice storms they can see ...

Reply September 18, 2010 at 04:04 PMallan said...One for the ages, Prof. Delong.But you might want to copyedit some of the percentiles before you are nibbled to death by McArdle and her ilk.

Reply September 18, 2010 at 04:06 PMLP said...Not a tax expert, but based on personal experience, I would think that someone in theincome range of prof. Henderson is likely to be paying the Alternative Minimun Tax. Ifso, his taxes may not go up at all.

Reply September 18, 2010 at 04:07 PMDrDick said...My household income is 1/10 of his and I am also a university professor. While I haveno personal animus and wish him no harm, I would point out that Prof. Hendersonand his ilk are the reasons we have revolutions - and guillotines. something they maywant to bear in mind. I do not advocate revolution, but he should be glad that I do notset tax rates, as I would tax everything over $250K at 50% (and at 90% for incomeover $1 million).

Reply September 18, 2010 at 04:11 PMDrDick said in reply to Cardinal Fang...What makes you think he even regards them as people?

Reply September 18, 2010 at 04:12 PMSamB said...Dear Brad,

Why are you indulging Prof Henderson in his conceit (or is it a "delusion") that* $60,000 in student loan payments* $40,000 is employer contributions to 401(k) and similar retirement savings vehicles

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* $60,000 is untaxed employee contributions to tax-favored retirement savingsvehicles* $25,000 building equity in their houseare "expenses" ?

The last time I checked "retitement savings" (which includes the repayments that arethe bulk of his "student loan payments") are exactly that "savings", mony being setaside to pay future (or prior) expenses. The are intended to allow his family tomaintain their expenses once he no linger receives his income ... so to count them asexpenses now is double counting.

If you count the way he does, then yes, spending $640,000 on a $455,000 income(when you count prefunding of expenses he aims to incur when he chooses to nolonger work) can be difficult. Perhaps he should consider matching his post-retirementexpectations to the value contribution (and thus income) he will be making at that timeand so avoid pre-funding these costs (or just limit the expectations to what the"average" social security funded retiree will receive, he will suddenly find an extra$150K in his household budget to fund the debts his government has run up - in partby subsidising the education system that enabled him and his wife to obtain theirDoctoral degrees at far less then full cost.

SB

Reply September 18, 2010 at 04:15 PMLisa Hirsch said...Right on, "Deling."

Someone should run the numbers on whether, if this couple were not married, they'dbe getting big tax refunds from the feds. I wonder if that is true. But, yeah, they'vemade the decisions they have made. You can get nice houses in the Chicago area forless than their large mortgage and I know people there who send their kids to publicschools. They could have a ton of money in hand if they were willing to compromise abit, or if they put less into retirement savings.

Reply September 18, 2010 at 04:18 PMJohn said...Just cause your rich doesn't mean you have common sense.

Reply September 18, 2010 at 04:20 PMDrDick said in reply to John...The available evidence would indicate that the inverse is more commonly true.

Reply September 18, 2010 at 04:22 PMBernard Yomtov said in reply to SamB...Good point, SamB. Savings are not expenses.

Reply September 18, 2010 at 04:22 PMMartin said...My household income is 1/8th of this guys. I work in the public sector. I live in high-rent SoCal. The median income in my zip code is $120K per year, twice what I earn. Ihave a nice house, and have about 65% equity built up even after the downturn. Ourcollege loans were paid off some years ago - we lived in a cheap apartment after we gotmarried and funneled one entire gross salary into eliminating them before starting tosave for our first house. My kids are getting very good educations in the local publicschools - every bit as good as the privates around here - because my city valueseducation and funnels as much tax revenue there as possible. We have two cars, bought

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new - cash. We have cell phones and cable and can take vacations in hotels and we eatout regularly, even with my temporary pay cut due to the state budget problems. In thelast 2 years we remodeled the kitchen and 2 bathrooms, affording it because we didmost of the work ourselves and we were smart shoppers for the materials. We're happyand in spite of being one of the lower income people in the area, consider ourself quitewell off because we can afford to do things for our kids that our parents couldn't affordfor us.

This guy has a problem because he's an idiot with entitlement issues. He makes badfinancial decisions:

$100K per year in retirement savings - how many retirement properties is he planningon living in?$60K for private schools that provide no better education, rather they just get his kidsin with the kids of 'the right people'Car loans? Only fools borrow money for depreciating assets.

And for the record, I think I pay too few taxes on my income. I get a lot of benefitsfrom those taxes, benefits that Mr. Henderson has foolishly opted out of and nowcomplains that he needs to pay extra for. If the new tax structure puts Mr Hendersonout of his home and cars, it's clearly a blessing in disguise. Raise the taxes higher andmaybe he'll cut back on some of those other stupid expenses.

Reply September 18, 2010 at 04:27 PMsherifffruitfly said...pwned.

Reply September 18, 2010 at 04:34 PMdilbert dogbert said...Prof Delong.Count yourself lucky to be only Deling. It could have been Dingaling.Best

Reply September 18, 2010 at 04:37 PMBrett said...Amazing post. Really a work of beauty.

Reply September 18, 2010 at 04:50 PMWordsmith said...If I may so bold as to ask (after all, I was sent 'over here' from Balloon Juice), who isMr. Deling?

Reply September 18, 2010 at 04:53 PMleo said...Wow, DeLing's sounding more and more like a socialist!

Reply September 18, 2010 at 04:56 PMeightnine2718281828mu5 said...I'm making less than half of what Mr. Henderson is making, save about half of my netincome, pay my cable and cell phone bills, and occasionally have a $200 meal at adecent restaurant.

If Mr. Henderson feels that he should be doing better, let him consult the Republicanscriptures: rise above perceived adversity, get a better education, increase your value topotential employers, or start a business.

But with his personal heliport tantalizingly out of reach, Mr. Henderson instead

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chooses to bind his wounded ego with a poultice of entitlement and victimization.

Reply September 18, 2010 at 04:56 PMdon said...Well, I think Prof. Henderson has trashed Obama's main argument for denying taxcuts to the rich - namely, that tax cuts for the rich won't help the economy, becausethey won't spend it :).

Reply September 18, 2010 at 05:01 PMdave said...The most enraging element of Henderson's petulant rant is his willful ignorance as tothe extent to which his and his spouse's high incomes rely directly on federal largesse.

Imagine what law school faculty salaries would be in a world where the federal gov'twasn't there to backstop $200k student loans. And imagine what oncologists' incomeswould be if their all patients had to pay full freight out of their own pockets or fromprivate insurance?

Reply September 18, 2010 at 05:01 PMdave said...You can't be too hard on this guy, DeLong, but I think your explanation of his plight,such as it is, is off. The simple fact of the matter is that this jackass has mismanagedhis household accounts. With all that student loan debt, why does he own two cars, livein an expensive house (Chicago is cheap compared to Washington, DC, where I live),and hire folks to do what he & his wife can surely do for themselves? And what's wrongwith the Hyde Park schools? If he can only afford public schools & Hyde Park's are nogood, he should be living somewhere else--that's how my first wife & I did.

Now I'm old enough that my kids are grown & on their own (public schools, all theway), and Obama's $250K threshold is not a worry (though, god willing, we'll getthere, and the sooner the better), but we've always managed things so that kids had daycare, excellent public schools, & fancy summer camps & we all took fabulous vacations,had a great wine cellar, ate sumptuously, saved for retirement & private collegesneither kid wanted (UGMA accounts meant they got the money anyway), & always hadthe money to splurge on restaurants & the like when we wanted. Of course, we live inan unfashionable area in an ugly but comfortable track house, drive little rice burners,and save first, spend second. That's how it's done, no matter how much you make.

Reply September 18, 2010 at 05:07 PMJames said...I lived in Chicago for 15 years. Ten of which I made do without a car. I suggest thatMr. Henderson take public transportation. The CTA is excellent. After totaling the costsyou save on cars, plus in Chicago, parking tickets and fines can run $1,000 a year. Ofcourse, he might run into his nanny or the people that do his lawn care.

Also, Jim's Original off the Dan Ryan has a great Maxwell St. Polish with fried onions,soda, and french fries for under 5 bucks.

Reply September 18, 2010 at 05:14 PMnumberski said...I'm curious, was private school that cost $20K/kid three decades ago seen as anobligation for top percenters three decades ago? One of the excuses some of mychildless friends give for not having children is their unwillingness to pay exorbitanttuition (because the alternative, public school, would be unthinkable). When did itbecome like that or has it always been that way? Also, they are very leveraged. Were

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top percenters carrying more than a year's income in student loan debt in 1980? Ifcurrent $455k was $190K then, that would imply much higher tuition than the roughly$5K/year you paid at Harvard College in 1980. I mean, the tuition for 8 yearsundergrad plus graduate school would still be less than 25% of a top one percentincome.

Reply September 18, 2010 at 05:24 PMDrDick said in reply to numberski...Upper income people in this country have pretty much always sent their children toprivate schools, though I have no idea what they cost a generation ago (or today forthat matter). I am also a bit surprised at all the student debt, given his position at theUniversity of Chicago, which normally hires from the Ivies where either your parentsare rich enough to pay your way or you are bright enough to get most costs paid for byscholarships, etc.

Reply September 18, 2010 at 05:30 PMdr2chase said...This guy made the mistake of deriving all his self-fulfillment from comparison withothers. Doesn't he enjoy his work? Doesn't he want to make the world a better place?Does he have any hobbies? Doesn't he have a happy marriage?

And in a good year, I think we make more than $250K, and I really think I need to paymore in taxes. The only taxes that have gone up, are the regressive ones (property andsales). We've got a great credit rating, we're still far from underwater, we get to refiwhenever we feel like it, and we just cut $100/month on our mortgage payments. Nomatter how much I might ever hate an income tax hike, I've been getting cuts whilemost of the people earning less than me have been getting hikes, and I get options thatthey do not.

It's absolutely, completely, unfair to the vast majority of the people in this country thattheir taxes should have gone up while mine (basically) went down. Does this richwhiny guy have no sense of perspective, no shame?

Reply September 18, 2010 at 05:37 PMtech98 said...$60K for private schools that provide no better education, rather they just get his kidsin with the kids of 'the right people'

For those without exceptional talent or intelligence, the reality is that 'knowing theright people' is their best probability for success in transactional careers like law andinvestment banking whose top ranks are filled with well-connected mediocrities, theGW Bushes of the world.

Not the way it should be (it stinks), but perhaps he's making a pragmatic investment inhis kids' futures. Maybe it's how he got where he is, since he seems to have a ratherblinkered and ill-informed Fox News perspective on his own finances.

Reply September 18, 2010 at 05:42 PMNick said...Prof. Henderson graduated from Princeton in 1993 with a degree in engineering andreceived his law degree in 1998. Even if we assume that both Prof. Henderson and hiswife are of humble origins and received no parental support for college, I'm a bitpuzzled how he and his wife (assuming she graduated around the same time) couldstill have 500K in student loan debt, assuming they have been paying 60K a yeartowards it for about 12 years (let's assume they haven't been paying for 3 kids in

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private schools over this whole period to make up for the fact that their salaries werelower starting off).

I don't know much about tuition at US colleges or interest rates on student loans(being a Canadian with 0 student loans over my academic career) but does the mathreally add up? The only data I could find says that U of C law school tuition is todayabout 21K. How could Prof. Henderson himself have almost 250K in student loans, 12years after graduating?

Reply September 18, 2010 at 05:43 PMCalvin Jones and the 13th Apostle said...Dr. Dick:Doesn't that tell you how smart(or not in this case) the antagonist is?

Reply September 18, 2010 at 05:43 PMDrDick said in reply to dr2chase..."Does this rich whiny guy have no sense of perspective, no shame?"

No. this has been another edition of simple answers to simple questions.

Reply September 18, 2010 at 05:46 PMCranky Observer said...> And what's wrong with the Hyde Park schools? If he can only afford > public schools & Hyde Park's are no good, he should be living somewhere > else--that's how my first wife & I did.

As a graduate of the Chicago Public Schools, and a south side school at that, I have tosay that it has grown increasingly difficult over the last 20 years for parents withacademic (or just middle-class) aspirations to send their children to city schools. Or inmany cases just aspirations to see their children come home without gang signs, blackeyes, or knife wounds. Particularly on the south side (including Hyde Park).

I will also say that while the aspirational areas of the City of Chicago are very expensive(contra dave, I believe more expensive than DC except during deep recessions to whichDC is immune) there are plenty of nice, affordable neighborhoods and suburbs withinan easy commute of Hyde Park. But they are to the south, and "no one" lives on thesouth side of Chicago (Hyde Park is granted an exception to the Chicago movers-and-shakers rule that there is no civilization south of 22nd Street until you get to Rio deJanero, or perhaps all the way around the globe to Cape Town).

Cranky

Reply September 18, 2010 at 05:48 PMJim said...Thank you Prof. Delong. Your post and candor is, as always, a breath of fresh air.

Reply September 18, 2010 at 05:50 PMColin Danby said...the 250K struck me as weird too -- dude says that his net worth is negative, in his owncomments.

It's not uncommon for people with large incomes to keep way more debt than most ofus would think sensible, and then of course that becomes an argument for howstraitened they are.

Still, the really shocking part if that a U of Chicago Law Professor, and one who lists"law and economics" among his research interests, makes arguments that wouldembarrass a first-year econ student.

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Reply September 18, 2010 at 05:52 PMeightnine2718281828mu5 said...---Does this rich whiny guy have no sense of perspective, no shame?---

The RNC believes shame is an emotion created by slaves to control their masters.

Reply September 18, 2010 at 06:01 PMBrad DeLong said in reply to Cardinal Fang...Re: Cardinal Fang: Hang on. Doesnt Professor Henderson know somepeople who are in lower income brackets than 90-99%? What about thebabys nanny, his housecleaner and his gardener? Dont those peoplecount?

No.

They are certainly not part of most working Americans.

Reply September 18, 2010 at 06:06 PMMaynard Handley said...@ numberski

"One of the excuses some of my childless friends give for not having children"

**excuses** WTF??? Are you unfamiliar with the word "reasons"?

Reply September 18, 2010 at 06:11 PMWilliam said...I cannot say how much I appreciate this thoughtfully phrased, even sympatheticevisceration of Todd Henderson's incredible sense of entitlement.

Reply September 18, 2010 at 06:14 PMTodd Henderson said...Some thoughts, here. http://truthonthemarket.com/2010/09/18/10-things/

Reply September 18, 2010 at 06:14 PMMaynard Handley said...""right people'

For those without exceptional talent or intelligence, the reality is that 'knowing theright people' is their best probability for success in transactional careers like law andinvestment banking whose top ranks are filled with well-connected mediocrities, theGW Bushes of the world.

Not the way it should be (it stinks), but perhaps he's making a pragmatic investment inhis kids' futures. "

Was he not informed beforehand how much it costs to raise (three) children, especiallyunder the conditions of "giving them everything they want, from cable tv and cellphones to private schools and a large house"?

Call it what you like, pragmatic investment or otherwise, but (a) the world does not owe him the right to raise as many children as he likes, at thestandard of luxury that he desires AND

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(b) he claims to have some knowledge of economics. Is he completely unaware of theway the pricing of positional goods works? The government (fed, state and city) couldstop taxing him tomorrow and what would happen? The price of his house would riseto eat up much of his extra cash ---- irrelevant to him now, since he has made thepurchase, but very relevant as a hypothetical in understanding the world. And likewisethe cost of private school --- the best such schools, because only the best for his kids --- would rise to eat up the rest of the surplus, and presumably he has not paid thetuitions of all three kids for 12 years in advance.

It is truly amazing to see this over and over again --- people who claim to be deepeconomic thinkers who appear completely unaware of the very concept of elasticprices, and how they apply ESPECIALLY to the largest costs in their lives. That's theway the capitalist system works --- these items are priced at whatever cash the richestn% that buy them HAVE to spend on them.Todd Henderson --- ignorant freaking moron.

Reply September 18, 2010 at 06:21 PMMartin said..."Some thoughts, here."

Yeah, that didn't really help. I graduated from college 2 years before you did and havea net worth of nearly 7 figures, excluding retirement savings, all on a public salary. Youstill suck at living within your means. That's neither Obama's nor Bush's fault. Clue:debt on appreciating assets should be paid as soon as they stop appreciating. Yourcollege loans stopped doing their job once you got yours. Pay them off. Cars only godown in value, they're the worst possible place to spend your money - never wastemore of it there than necessary. The private school isn't delivering the value you thinkit is. Move to an area with good public schools and use the money to take them toEcuador to build houses for Habitat for Humanity and shit like that. There are muchcheaper ways to give them experience with diversity. And the annual savings on theprivate school will likely cover the losses on your bad house decision.

Take some financial planning courses at your community college. They're cheap andyou need them.

Reply September 18, 2010 at 06:34 PMBrad DeLong said in reply to don...Touche...

Reply September 18, 2010 at 06:40 PMPhil said...I'm still trying to get past his idea that "someone to cut my lawn" and "someone toclean my house" are not "discretionary spending." Cut your own goddamned lawn!

Reply September 18, 2010 at 06:44 PMColin Danby said...Let's give him credit: the new post stops with the whining, and says several reasonablethings.

Maybe I shouldn't be hung up on this, but

"if our taxes go up ... we will have to cut back on our expenses"

Why, yes. If your income stays the same and your taxes rise, your disposable incomefalls. I think most people can work that one out even without the help of a professor.

"and this will put small businesses behind. That was my only point."

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Assuming he's not flushing money down the toilet, then yes, his spending is someoneelse's income. So if he cuts his housecleaner back to once a fortnight, yes, that's lessincome for that person.

That was his only point, indeed.

Reply September 18, 2010 at 06:45 PMBrad DeLong said in reply to Nick...Re: Nick said: "Prof. Henderson graduated from Princeton in 1993 with a degree inengineering and received his law degree in 1998. Even if we assume that both Prof.Henderson and his wife are of humble origins and received no parental support forcollege, I'm a bit puzzled how he and his wife (assuming she graduated around thesame time) could still have 500K in student loan debt, assuming they have beenpaying 60K a year towards it for about 12 years..."

It is barely possible if she is younger and if they have lived high on the hog--i.e., neverlived like assistant professors and borrowed all of her medical school expenses, formedical school can be horrifically expensive.

But you are right in your bigger point. We do have an unreliable narrator problemhere: people with incomes barely over 250K don't have taxable incomes enough over250K enough to find themselves paying materially more...

Reply September 18, 2010 at 06:47 PMMaxine Udall (girl economist) said...Thank you.

Reply September 18, 2010 at 06:47 PMEbenezer Scrooge said in reply to DrDick...DrDick,Henderson was talking about himself and his wife. His wife went to medschoolMedschool is expensive. Fancy Ivy law schools, not so much.

Reply September 18, 2010 at 06:48 PMMike said in reply to j h woodyatt...Watermelon, Inc.?

Reply September 18, 2010 at 06:48 PMJim said...I think, aside from from the whine about the "Marxian tone" and the snide allusion toTony Reszko, this is the sentence that makes me think Professor M. Todd Henderson isnot the sort of person whose opinion should carry weight, or whose veracity should betrusted.**We chose to invest in the University community and renovate and old property, butwe did so at an inopportune time.**

Strip away the tone of smarmy self-congratulation--which would be self-serving if itweren't too absurd to actually serve his case-- and the Professor and his wife boughtmore house than they could afford, and I'm willing to bet spent more than they couldafford on expensive and superfluous upgrades, at the peak of an inflated market. Theydid so while they are carrying significant student loan debt, and after they chose tohave three children, and to compound that expense by raising them in a very expensiveneighborhood. The way he attempts to make this sound like an act of altruism ("investin the University community") is incredibly obnoxious (you bought a house, Little LordFauntleroy. Get over yourself). If he's not the smug, prissy jackass this phrase suggests,

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he'll do till one comes along. The same kind of prim cluelessness can be found in hisreply (link above) in which he maintains that he's not a selfish prat because hisgrandparents were poor, he told his daughter about the homeless and then boughtdonuts for some street people.

** A quick look at our family budget, which I will happily share with the White House,will show him that like many Americans, we are just getting by despite seeming to berich. We aren’t.**Share it with all of us, M. Todd. Show us all how mean we are to suggest that you'renot a victim of the terrible Marxist in the White House, but a preening, entitled, status-obsessed yuppie who made a lot of poor financial choices that you think should besubsidized by an increased national debt.

Reply September 18, 2010 at 07:18 PMJ. Michael Neal said in reply to Martin...My household income is 1/8th of this guys.

My household income used to be about a quarter of his. Then I lost my job and mywife left. Now my income is somewhere around 3% of his. Do you know how muchsympathy I have for his problems? Zero. None. Nada. Zip.

People who should consider themselves very fortunate, but instead produce a lot of,"Woe is me," whining need to be the first against the wall when the revolution comes.I'm only barely kidding. If you're still reading, Prof. Henderson, you are the problem,not the solution.

Reply September 18, 2010 at 07:31 PMJP said...The law prof. does have one legitimate complaint: Tax loopholes, evasion and thingslike the carried interest rule, should definitely be tightened as well. An additional highincome tax rate is long past due. Simplification of the tax code so that evasion is moredifficult should also be added into the mix.

The other gripes are just absurd. With respect to "valuing education" -- there are manyfine public schools in the U.S., and I suspect a district with as many high-incomeearners as his probably has a high quality public school system. The private school mayhave more cachet; the school may offer some added value in terms of social networks,but in terms of the quality of education I would be surprised if the education willprovide his kids with an extra $1 million or so in life-time earning potential. He mightas well set the money aside in a trust and give it to them upon graduation from highschool or college. That money alone would give his kids a huge leg up -- especially ifthey don't have the burden of massive levels of student loan debt as most graduatestoday do.

The fact that this whine is in reference to a 4 percent increase in his federal tax rate isequally absurd. We should really also think about removing the ceiling on socialsecurity and Medicare taxes above the current threshold too.

When pundits talk about Americans sense of "entitlement" they are usually referring tomiddle and lower income families who hope to retire with some degree of securitywithout falling into abject poverty thanks to the existence of programs like SocialSecurity and Medicare. However, it would probably stand as a more accurate dictumthat no one has a greater sense of entitlement than those who are born into privilege.

Reply September 18, 2010 at 07:36 PMJacob Davies said...

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I am guessing our household income is somewhere between 1/3 and 2/3 of ProfHenderson's, somewhere in the top 10%, maybe the top 5% when my wife finds a job.We are extremely lucky. We try not to get too used to it because you never know what'sgoing to happen. And we certainly aren't in any danger from any marginal tax rateincreases. (If they increased the rate for over $100k, say, we'd be talking about a fewthousand dollars a year - a fraction of what we save every year.)

We live in a utopia, like most upper-income people do - or could if they chose to. I amstunned every day by the comfort we live in. We rent a big house in Alameda with anice yard, we have two nice cars less than 5 years old, we have all the gadgets onecould want, my work is interesting to me and does not involve physical exertion, ittakes me about 45 minutes to get to & from work with a bus that leaves 1/2 block frommy house and I can read the whole way, we have nearly brand-new appliances, we eatmostly organic food from Trader Joe's (a 3 minute drive) or the twice-a-week farmer'smarket one block from our house, public transit or freeways or (admittedly somewhat-potholed) roads make it easy to visit our friends, we have a baby who has more brand-new clothes than he could possibly need, and even with all that we save about 25% ofour income. Maybe more.

Sometimes we have a cleaner, sometimes (especially lately) we clean our own house,we'd probably get a nanny if my wife got a job, but please, let's not pretend thatcleaning your own house is an impossible hardship even for a professional couple. Mymother worked two jobs and cleaned the house while raising three children on herown. It would be a pretty profound insult to her to say that I am, what, too good to dothe same?

Helps that I went to college in the UK and had only $10,000 in student loans, and thatmy wife went to Mills and not Harvard. Helps that we are smart and that I work in anindustry that has been fairly recession-proof. We have benefited from a great deal ofluck in all that. I am grateful for that every day, or every day that I remember. We livein Paradise. I probably forget it more than I should. I am kind of a jerk and I am surethat I am entitled and annoying in all my own ways, but I'm never going to whine inpublic about any aspect of my financial life.

Now I see a lot of people - in similar salary situations to me, or better-off - who do notlive in Paradise. While they have benefited from the same kind of luck as me - beingsmart, being born in a Western country at a particular moment in time, having parentswho encouraged them - perhaps like Prof Henderson, they seem to have madedecisions in their lives that mean that they are constantly measuring themselvesagainst people who are richer (i.e. luckier) than them, and coming up short. Can'treally afford that big house in San Francisco - but can't be a renter in the East Bay.Can't send your kids to public school in SF, but can't really afford the private school.Have to drive a BMW instead of a Subaru (Subarus drive like BMWs, cost half asmuch) because you can't have your colleagues think you're some kind of hippie. Haveto have all the latest shiniest gadgets and keep them in pristine condition. In myindustry - have to be a wealthy hipster, but have to be *exactly the right kind* ofwealthy hipster, looking over your shoulder to make sure you're fitting in.

Not my idea of fun. I don't know what to tell them. Why give a damn what anyone elsethinks? Why not enjoy the incredible life that you're lucky enough to have? Why notenjoy your work and quit worrying whether you're going to win the rat race?

I guess if it was that simple they'd do it. I'm not immune to the temptations. I lovegadgets and consumer goods. I like fast cars and beautiful houses and good food. But

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you don't have to stretch yourself beyond your means just to please someone else'sidea of who you should be.

Reply September 18, 2010 at 07:50 PMRichard Careaga said...Two point to contribute:

1. Anyone with the gross income to pay nearly $100K in state and federal taxesshouldn't be doing his or her own taxes and his wasting time speculating about howmuch they will go up. If the Henderson family is in a household budget crunch, theyshould find out now how much they need to adjust in 2011 so that April 2012 doesn'tpresent a crisis. Depending on what does or does not happen in Congress, they areprobably looking at a monthly increase of $500-1000 in their income tax burden. Ifthe Republican plan were to somehow pass, it goes up $500; if nothing happens,$1000 with other outcomes within that range

2. So why is Professor Henderson obsessing about $500 a month? He clearly has theability to work around it. For example, he could ditch the home equity building(indulging in the assumption that property values are stable) and apply part to theincreased tax burden and the rest to paying down student debt. Something else is goingon, and I suggest it is an attempt to cope with a harsh reality. The cognitive elite arenot immune to the economy and, until they have accumulated sufficient savings, theyare no different from any other wage slave just a few paychecks away from falling downthe socioeconomic staircase. Granted that with his promotion to full professor thisyear, Prof. Henderson may be feeling more secure in his employment, but perhaps Dr.Henderson's medical position is less secure. Or, given the family's other expenses,disability income insurance may be lacking and a serious injury or illness would leavethe family unable to meet its obligations.

As ever, I could be wrong and all that is at work is an overdeveloped sense ofentitlement as a reward for doing so well getting one's ticket punched.

Reply September 18, 2010 at 07:51 PMDrDick said in reply to JP...In fairness, and God it hurts to be fair to this asshat, the Chicago Public Schools, with afew exceptions, really do suck. I lived there for twelve years (earning at most about 5%of what he does) and my son went to school at one of those exceptions and even it wasnot all that great. Even a lot of working class folks send their kids to the Catholicschools (a much more affordable alternative) in consequence.

Reply September 18, 2010 at 08:22 PMleo said in reply to James...I second the occasional visit to Jim's Original. Quite economical and tasty!

He's more than welcome to come and see how the rest of us making a tenth of hisincome live!

Reply September 18, 2010 at 08:39 PMJasonF said in reply to DrDick...You're right that Chicago Public Schools suck. That's why so many professionals withschool-aged children move out to the suburbs. If Prof. Henderson did that, he'd tradehis one-mile commute for a couple of hours in the car each day. And that would suckfor him, as it sucks for him that he has to shell out tens of thousands of dollars to gethis kids a decent education. And I'm willing to acknowledge that Prof. Henderson facesa substantial burden to provide his kids with that education. But not without also

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acknowledging that, even in the face of that burden, he is still so much better off thanmost of the country. Hell, most people don't have an income equal to his kids' tuition.It's that abject cluelessness about his good fortune that rankles so much.

Reply September 18, 2010 at 08:49 PMBarbara said...First, it is somewhat obscene that a person with income over $250,000 pays the samemarginal tax rate on that income as someone who has 5, 10 or even 20 times thatamount of income. There is strong case for a more graduated level of taxation, whichwould likely reduce the burden on the Todd Hendersons of the world. Somehow, Idon't think it would be prudent for me to hold my breath and wait for him to makethat argument.

Second, if you make $455,000 a year and you can't sleep at night out of fear that"small" hits whether in the form of taxes or any other of life's routine roadblocks (newwater heater, etc.) you need to re-examine your spending. A quick look at the abovefigures suggests that Mr. Henderson typifies the myopia of many Americans whomistake being "house poor" with being really poor. You are consuming too much house(and I add, snarkily, most likely, enjoying tax advantages of doing so that much lesswell-paid people don't get). Indeed, I dare you to publish your "real" tax rate,encompassing both income and employment related taxes as a percentage of AGI. Iguarantee it's lower than many people who make far, far less than you do.

Reply September 18, 2010 at 08:53 PMJim said...** if you make $455,000 a year and you can't sleep at night out of fear that "small" hitswhether in the form of taxes or any other of life's routine roadblocks (new waterheater, etc.) you need to re-examine your spending.**Precisely. in his position, I'd want to send my kids to private school, too. But the wholepoint it that he put himself in that position. Upscale urban neighborhoods areexpensive to live in, full stop. To raise kids in those neighborhoods is much moreexpensive than in the suburbs. To do so in a single family house, large enough to havea yard that is large enough require a lawn service, is that much more expensive.Henderson and his wife made a lot of very expensive life choices, all while they stillhad, he says, half a million dollars in student loan debt. They strike me as financiallyimprudent people.

Also, he says their income exceeds $250K "only by a little", so how much in actualdollars are we actually talking about? Until he provides the actual figure, it's hard tosay exactly how dishonest this post is.

Reply September 18, 2010 at 09:08 PMbitchphd said...This is yet another excellent reason for sending one's kids to public schools. We makejust over $100k, and our peer group--mostly the other parents at my son's publicschool--are *significantly* poorer than we are. We have friends who are on publicassistance and who are homeless. We are well aware of how lucky we are, our son isgrowing up with a far more varied peer group than he might otherwise have, *and* it'sa heck of a lot easier to keep one's spending in check when the "norms" for one's peergroup are camping on vacation and eating out at budget mom & pop restaurants.

Reply September 18, 2010 at 09:18 PMbitchphd said...Also, in re. "Chicago Public Schools suck"--the child of highly educated parents is going

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to have myriad learning opportunities outside of whatever is taught in his or herschool. Assume for the sake of argument that one's kid learns absolutely nothing ofacademic value in public school: there is a huge advantage to public education--especially in "sucky" schools--that the kids of educated and affluent parents almostnever have, and that is the ability to befriend and socialize with people frombackgrounds very, very different than their own. That alone is an extremely valuable(and almost never acknowledged) asset.

Trust me, the kid of a doctor and a lawyer is going to get into a good college. Even if heor she goes to a "sucky" public school.

Reply September 18, 2010 at 09:27 PMSam Lowry - Department of Works said...As someone who considers both himself and most of humanity as unremarkable, I washeartened that you took the time to make such an impassioned defense forbrotherhood and fairness.

Your posting will go viral.

Reply September 18, 2010 at 09:32 PMNoah said...Henceforth let it be known that when there is a righteous beatdown to be delivered, themild-mannered DeLong steps out for a coffee break, and his computer is taken over byhis alternate persona, DELING, a ruthless one-man engine of internet destruction...

Reply September 18, 2010 at 09:51 PMYatima said...Since we care the education of our three children, this means we also have to pay tosend them to private school.

Mr Henderson believes his taxes are too high, and also that public schools are notgood enough for his precious snowflakes.

He also believes that because I send my children to public school, I do not care abouttheir education.

I believe that Mr Henderson's opinions on public policy are contradictory and poorlyinformed.

Reply September 18, 2010 at 10:00 PMPJR said...I wish to thank Henderson, O'Hare, DeLong, and commentators here for giving us oneof the best blog postings ever, and Henderson in particular for being so honest andbrave to reveal a personal perspective that he undoubtedly shares with many others,painfully wrong as it is.

That Mr. Henderson has such attitudes is not surprising after 30 years of hero-worshipfor Mr. Potter of It's A Wonderful Life. Unless he's donating five-figure amountsannually to food pantries and similar amounts in holiday bonuses to his maids, he isjust another example of what's been wrong with the path we chose back then and whyit will be politically difficult to change that path.

Reply September 18, 2010 at 10:15 PMJager said...Look Henderson, you'll never make any real cash teaching and you know it. Get offyour ass and open a firm and specilize in personal injury, I know you think thatsbeneath you but a couple of decent cases a year will bring in well over a mil, hell your

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old lady can be your expert witness. In the personal injury game, every couple of yearsyou hit a homerun and rake 4-5 mil or more. Fuck teaching, get on late night cable,buy some billboards and get on the back of the god damned yellow pages. Henderson,you need to get your shit together and make some real money! By the way pal, yourkids won't give a flying fuck how you made it either and another thing, you'll makeenough to move out of that shit nieghborhood you live now! Hey did you say you've gotan engineering degree? Know anything unintended acceleration?

Reply September 18, 2010 at 11:36 PMMichael Turner said..."Deling" - heh. Though not quite as good as "LeDong" (from a previous major asshat,never mind.)

@numberski: "Now that I think of it, houses cost a lot more than three decades ago ...."

The guy confesses to having mistimed the market in both residential property ANDstocks, if you read carefully. If the bad house buy was "investing in the universitycommunity", what about the stocks? Was that "investing in the general welfare of theUnited States of America"? He hints that it seems "patriotic" at this point to buystocks. In general, it would seem he's God's gift to all of us, and that we'reinsufficiently appreciative of that fact. He gives and gives and gives and gives ... butwhat does he ever get? A measly few hundred bucks a month to eat out on. Give thatman a tax cut!

Let's hope there's a novelist with the combined flair of F. Scott Fitzgerald and PhilipRoth to do justice to this one. Turning out a credible fiction that's not as depressing asthe reality -- there's a challenge for you.

Reply September 19, 2010 at 01:11 AMGA said...By my count, $185k of his annual 'expenditure' is savings (including paying down debt,which is, of course, savings). I haven't counted his vehicles.

So his post really says not much more than "I do not seem to have the cash flow to livea wealthy (consumption) lifestyle while saving 40% of my pre-tax income."

There are so many ways to rephrase this to make it clear how astoundingly comical thisline of thought is that I cannot get started.

The only people I know saving 40% of their gross income are well aware that they arebeing quite frugal.

(Let's grant that he does not realise that in econ terms he consumed/dissaved/investedquite a lot in his education in the past, but he still does not get to count paying offstudent debts as anything but savings...or paying for what he already consumed)

Reply September 19, 2010 at 01:40 AMjames c said...Why can't he stop moaning and write a few text books.

Reply September 19, 2010 at 02:50 AMJoseph Dietrich said...Let it be known that peasants such as I, who make less than 10% of what Prof.Henderson does, have little patience for the cries of "unfair taxation" from the landednobility.

Reply September 19, 2010 at 04:33 AMBarry said...

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Brad: "I believe Todd Henderson was a deserter in that war--a supporter of George W.Bush, and of his unfunded Medicare Part D expansion, and of his wars of choice. "

This doesn't make him a deserter, it makes him a traitor. He aided and abetted thosewho financially trashed the USA.

Reply September 19, 2010 at 05:09 AMkbob said in reply to Brad DeLong...Phil: "I'm still trying to get past his idea that "someone to cut my lawn" and "someoneto clean my house" are not "discretionary spending." Cut your own goddamned lawn!"

As a former resident of Hyde Park, I'm still trying to get past the idea that he *has* alawn that requires cutting. Most HP properties either don't have a lawn, or the lawn isso small that it can be cut in 10 minutes with a pair of scissors.

And isn't the Lab School free for U of C professors' kids? I didn't have a kid when I wasthere and so didn't pay much attention, but I remember some of my colleagues talkingabout this benefit.

Reply September 19, 2010 at 05:15 AMDavidclinton said...I shall note here the intersection of the "pro tax cut" crowd and the "pro military"crowd . Mr Henderson and his wife never mention the possibility of enlisting under theArmed forces' generous loan repayment options. As a doctor and a lawyer, they wouldhave a good standard of living, with access to good schools, houses, etc. As a recruitingtool, perhaps the Bush tax cuts on those earning more than $250,000 could be madepermanent-- for veterans

Reply September 19, 2010 at 05:42 AMsave_the_rustbelt said...Given the country has way too many lawyers, and many of them are struggling to makea living, closing a third of our law schools, including UC, would be a wise course ofaction.

Being unemployed would cut Prof. Henderson's taxes and allow him time for mowing.His wife seems to have a job with some real value.

Reply September 19, 2010 at 06:00 AMaimai said...Oh, blessings on you Brad. What a fantastic birthday present this post was.!

aimai

Reply September 19, 2010 at 06:04 AMsave_the_rustbelt said...Speaking on behalf of "fancy accountant" CPAs, I hate being bad mouthed by a lawyer.

I probably could not save them all that much in taxes (all those "loopholes" rarely domuch for employed persons) but could likely save them enough to justify the fee andthrow in some planning tips.

And being a grouchy fancy accountant with a background in financial planning I wouldpoint out the lifestyle is the biggest single financial problem.

But lawyers generally are too arrogant to take advice very well.

Reply September 19, 2010 at 06:08 AMTravis said in reply to Cardinal Fang...They aren't really people to him. Not people who matter, anyway.

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Reply September 19, 2010 at 06:48 AMBarbara said...In looking further at Mr. Henderson's figures, it does seem he is in need of a goodfinancial advisor. I made one mistake that he also seems to be making, earlier on in mylife, and that is, "building equity" in my house. This makes no sense when you haveoutstanding student loans, because the student loans in today's market probably carrya higher interest rate than a mortgage, so they should be paid down first, and evenmore important, student loans are not dischargeable in bankruptcy so that if he foundhimself in real distress, those loans would continue to soak up current income. Indeed,one could make a pretty good case that his level of savings for retirement, to the extentthat the contribution is not in a tax advantaged vehicle, would be better spent payingdown those loans. Mr. Henderson, I did it and you can do it too. I made student loansa priority and paid them off within five years after graduate school. I had less of them,but my salary was much lower as well.

You also don't mention that U of C has a program that pays the tuition of the childrenof U of C professors. With three children, that's 600,000 of savings you don't need toworry about (or if it's less than full, whatever the proportionate contribution is theseday). That's a lot of future income you don't have to save that most of the rest of usshould but can't possibly pull off.

But to be a little bit more generous: the fact that you, making as much as you do, feeltrapped by circumstances should make you empathize with how hard you can workand how many things you can do right and still not come out "ahead." Now think aboutthe kid living -- oh say, five or ten blocks away who against all odds graduated fromChicago public high schools and worked his buns off at a for-profit trade school only tograduate with $100,000 in school loans and much less potential income upside.Because the real question is, why should his effective tax burden be so much higherthan yours?

Reply September 19, 2010 at 06:48 AMDrDick said in reply to JasonF...I agree completely with that and would point out that he can also get much more housefor less money in many of those suburbs. House prices in Hyde Park tend to be rathersteep.

Reply September 19, 2010 at 06:53 AMMpwdoyle said...What's really precious is that Mr. Henderson worked at McKinsey for five years as anEngagement Manager. Glassdoor has the mean salary of that position at $155k.Obviously that figure would have been less ten years ago, but you get the point. Thisguy is rolling in it but is whining because he can't budget his expenses for shit.

Reply September 19, 2010 at 07:25 AMpiledhighanddeep said...My short history as a student of economics drilled one key lesson into me: it's not rightto use the phrase "I can't afford it." It's "I've made this choice or that choice." Life isabout choices, and their choices have lead them to spend on services that mostAmericans provide for themselves.

I always love to see wealthy folks whine about their lot. Somewhere I read the phrase"It's not private jet money" to describe a guy like this....

Reply September 19, 2010 at 07:29 AMPlatypus said...

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I know my comments are a bit late to the game here, but my wife and I are in a verysimilar situation to Professor Henderson's - a lawyer, a doctor, Ivy League alumni, oneof us a professor at a major university, combined household income comfortably in thetop 1%, etc. One major difference - because we live in different G8 country, one with amore progressive tax structure than the United States, we pay a bit more than twice asmuch in taxes as Professor Henderson and his wife. E.g., this past year we paid aboutUS$160K on an gross income of around US$480K.

We also seem to know something that Professor Henderson doesn't - even after payingincome taxes, property taxes, VAT, etc. - We're still bloody well off, and so is hisfamily. Our country's tax structure makes our after tax income less than his and hiswife's, but we still manage, somehow, to scrape by in our own way - buy an penthouseapartment, travel extensively, send the kid to private school, indulge in small scale artcollecting, etc.

So how do we manage to survive under the jack boot of oppressive taxation that paysfor our country's universal health care system and robust social safety net? We've hadto make sacrifices - no second home for my wife, no mid life crisis Porsche for myself,we fly coach across the Atlantic, avoid 5 star hotels, etc. Like the Hendersons, we'vehad to suffer through those awkward encounters with our financial betters, such aswhen an old friend casually mentions that the one thing that she will miss most whenshe retires is being able to use the company plane for spur of the moment family trips.But we grit our teeth and bravely soldier on anyway.

The fact is that we and the Hendersons are damn lucky to be living in an era wherecognitive workers such as ourselves are able to find such high paying jobs. Yes, I'msure that he and his wife are talented, they worked hard all of the lives, etc. But so havethousands of other people whose household incomes will never reach the top 1%. Formultiple reasons, many of which are familial to readers of this blog, taxes in the UnitedStates will have to rise, and who, besides the Hendersons and their fellow top 1%earners, are in the best position to shoulder the burden? I don't disagree with hiscomplaint about the top 0.1% and tax avoidance, but he needs to stop his self indulgentwhining and readjust his spending priorities.

Reply September 19, 2010 at 07:33 AMa historian said...One point of fact needs to be corrected in Prof. Deling's excellent post: WE did notelect George W Bush in 2000. He was APPOINTED by the Supreme Court in 2000. Hewas, however, elected in 2004.

Reply September 19, 2010 at 07:37 AMDrDick said in reply to Platypus...Thank you.

It would seem that Brad and Henderson have strcuk a nerve here. This may well be themost epic thread I have ever seen in this blog.

Reply September 19, 2010 at 07:53 AMhoward said...yesterday was yom kippur, so i have a year to accumulate new sins to atone for nextfall, and i'm going to start with this one: professor henderson is an asshole.

anyone - anyone! - who says this (But all this avoids the question of why we think thegovernment will better allocate some part of whatever my income is.) is by definitionan asshole.

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but it's worse, because he's a law professor, who seems completely oblivious to the factthat the constitution determined that the government will better allocate some part ofwhatever his income is: it gave taxing power to the congress.

Reply September 19, 2010 at 08:01 AMPoorIngrate said...After reading the litany of woes that have decended upon Prof. Henderson, I'm goingthrough my 2-ply Walmart tissues at an alarming rate.

I'm a disabled veteran. My entire year's income would just about cover the gasolinecosts of the Henderson family. My wife and I get by, but do not envy those who enjoyhigher incomes than ourselves, which is the majority of Americans.

However, I find it almost amusing that someone with so many blessings can invert aBiblical quote, i.e.," How you treat the wealthiest of you is how you also treat me." Imight suggest to the good professor (and his entire family) that they cut their cloth tosuit their measure.

At the very least, the Henderson family does not have Sen. Alan Simpson askingveterans with health problems to patrioticaly die off as soon as possible.

Regarding the disparity between those of good economic fortune and those at thebottom of the heap, an old phrase comes to mind, "Pigs get fed and hogs getslaughtered." I fear an imbalance is arriving that is so unsustainable that civil unrestwould be a mild word for what's in store. It frightens me as it's so preventable.

I don't regret raising my right hand and taking an oath on behalf of my nation.Decades later I am told that it's not my nation, or even our nation. It's ProfessorHenderson's nation. And his "betters" I suppose.

Reply September 19, 2010 at 08:15 AMJames Wimberley said...DeLing (costly mistake fo rHenderson!) claims:¨They know of 1000 people ...¨

Evidence? I seem to recall that the approximate truth of the ¨six degrees of separation¨hypothesis depends on a small minority of people who know lots of other people (say1000) professionally - journalists, cops, teachers. Most of us know far fewer. DeLongand Henderson are in the key-linker group only as teachers, not socially.

How long is your Christmas card list? Mine is about 100.

The argument is actually stronger if we cut social acquaintance to a more realistic 200.We know people like us, and only a few significantly poorer, who are discounted, orricher, who become cynosures. This cognitive bias used to be called envy.

Reply September 19, 2010 at 08:30 AMBarbara said...Mr. Wimberly, speaking only for myself and my husband, because we send ourchildren to public schools, and because we are outliers within our own family, whichhas been touched on both sides by physical and mental illness, and because nieces andnephews are encountering a far different professional dynamic than we did, we actuallydo know a lot of people who are less well off. The majority in fact.

For people in the Hendersons' income bracket, you would have to be seriouslycocooned if you don't know people less well off. Their level of student debt alonemakes me doubt that they come from wealthy circumstances. I want to give them theirdue in this regard: people much wealthier than they are getting off virtually free in the

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social compact. Moreover, he is caught on both sides by a socioeconomic phenomenonthat is unique to the U.S. among developed nations -- his wife's medical student debt isa function of a tax-exempt institution that is using its professional schools as a cashcow even as it distorts the entire American medical infrastructure by making it avirtual punishment for doctors to work as primary care physicians, a not insignificantcontributing factor to the present situation whereby the U.S. spends nearly twice perperson for lousier health care than any other Western country. His income would go alot further were it not for the cost of health care and his wife's medical school debt. Butto correct for that we would need to be more like one of those countries where Platypuslives.

Reply September 19, 2010 at 08:52 AMJeff said...My grandfather used to say that it's not rich people who are obnoxious it's the peoplewho think they're rich. Based on whiny person's post I'd amend that to say that it's alsothe rich people who think they're NOT rich. Good grief what a stupid post.

Reply September 19, 2010 at 08:53 AMChris Negele said in reply to JP...Well said Jacob,

I earn a measly 75,000 a year, was 100,000 the recession killed that job but 75% isbetter than 0%. I still manage to save 25% a year and consider myself lucky. Differenceis I look below me rather than above. I have spent a large portion of my life travelingin the the 3rd (developing) world so I guess that gives me a better perspective on myposition in the world relative to the vast majority of the planets inhabitants. I'mavailable to take Prof. Henderson on a world tour to show him just how lucky he is.

Reply September 19, 2010 at 08:53 AMDonald A. Coffin said...Do you suppose that "Todd Henderson" is somehow descended from Professor "GHM":

http://delong.typepad.com/.services/blog/6a00e551f08003883400e551f080068834/search?filter.q=life+in+1900

who also seemed to have difficulty living with an income 3x to 4x as large as (or evenlarger than that) the average?

The whines of the professorial class are not new (speaking as a member in goodstanding of that class, but one who does not whine about this income or his taxes).

Reply September 19, 2010 at 08:55 AMEclaire said...Thank you, thank you for a great Sunday morning read! Beats the summer fictionofferings of the NYT Sunday magazine.

I hereby nominate Professor Henderson for the Marie Antoinette Clone Award. Andwho will be Robespierre?

Reply September 19, 2010 at 08:57 AMMarkusR said...If I made $450,000 for just one year....

Assuming $100,000 would go to taxes, at the end of the year I could:Buy a house with cashSet up kids' college fundPay off all our debt, including student loans

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Have a vacation to my home country

And to think some people make this kind of money every single year. And they still feel"poor".

Reply September 19, 2010 at 08:57 AMAlfGa said...Very good post -- I heard echos of Mark Twain! Also, greatly enjoying the comments...

Reply September 19, 2010 at 09:11 AMJay C said...Bravo Prof. Deling DeLong!

First, to make one (admittedly vague) defense of poor Prof. Henderson's complaint: inhis post, he is somewhat vague on the actual figures for his and his wife's gross income- rightfully, IMO, it's no one's business, really - so the analyses of his taxes andexpenses such as we have been batting around are, AFAICT, somewhat conjectural.

That said, however, it is blatantly obvious that the Hendersons, as a reasonably"upscale" professional couple, have chosen to live a lifestyle of a certain level ofaffluence financed in the now-standard American manner: i.e., by debt. Debt that theyfeel they have trouble covering on their salaries. Boo hoo.

THAT said, it is equally obvious (well, to me, anyway) that Prof. Henderson's whinesabout his Awful And Terrible near-confiscatory levels of taxation reveal him to be ashortsighted, selfish and self-deluding asshat: one would think that a Professor of Lawat a prestigious university would have the education and experience to have developedsomething a bit beyond the self-important I-me-mine attitude he displayed in hisblogpost, coupled with a near-feudal disdain for the financial needs of the polity("Obama says I'm super-rich"). And one would be disappointed. Welcome to America,2010.

Even worse, btw, was the comment thread on Prof. Henderson's original post: Icouldn't read past the first few dozen comments without signing off in disgust at theprimitive level of ignorance, spite and invective. If this (as I sadly suspect) is thegeneral [blogreading] public's level of knowledge of economics and tax policy, we areALL in trouble.

Reply September 19, 2010 at 09:18 AMDrDick said in reply to Jay C...It seems to be a fairly accurate representation of the level of understanding ofeconomics and taxation on the right in this country (like you I quickly bailed in disgustand despair).

Reply September 19, 2010 at 09:36 AMJacques Distler said...The problem here, in large part, is the analytical impoverishment of our discourse.Terms like "working class," having been long-banished from the lexicon, everyone withincomes above the poverty line and below that of Warren Buffet consider themselves tobe "middle class."

With only three categories ("poor", "middle class" and "rich") to choose from, is it anywonder that Professor Henderson puts himself in the middle category? The fact that hecan, with an apparently clear conscience, do so, whilst pulling down an annual incomenearly an order of magnitude larger than the median, is a travesty. But so is lumpinghim into the same analytical category as those whose incomes are an order ofmagnitude larger than his.

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Reply September 19, 2010 at 09:50 AMDrDick said in reply to Jacques Distler...I am sorry, but in any sane universe, no one in the top 1-2% of the income distributionhas any claim to "middle class." Maximally such a category might encompass themiddle 60-80% (realistically it should be the middle 50-60%). You are correct that weneed better descriptive language to define social classes in this country. Even termssuch as "Professional Class" do not adequately capture the reality as both Hendersonand I (who makes a small fraction - 10-20% - of what he does) fall into that category.

Reply September 19, 2010 at 10:01 AMmaggie said...I went to the U of C. Two of my best friends there graduated from the accelerated trackat the local public high school... Kensington? I knew many of their old friends, andthey were an extremely well-educated and interesting bunch, although they didcomplain a lot about Kensington.

I was assuming that Prof Henderson sent his kids to the Lab School, one of the bestprivate schools in the country, forgetting that it is free for professors' kids. So he is noteven sending his kids to the Lab School???

Prof Henderson, seriously, you need to see a financial planner because however onelooks at your expenses, they are not prudent. Taxes are the least of your problems. Youand your wife bought a house at the top of the market while you still had so muchstudent loan debt? You don't realize that 40% of your expenses is actually savings orpaying down debt? You live in an urban neighborhood and you don't think that payingsomeone to mow your lawn is a discretionary expense? You live within walkingdistance from work and you own two cars?

Frankly, I think Prof & Dr Henderson are lucky that so much attention is beingdirected to their finances because they are getting a lot of good free advice. I hope thiscauses them to take a closer look at their spending.

Reply September 19, 2010 at 10:01 AMbob said...Regarding Chicago Public Schools, it happens that the current issue of ChicagoMagazine includes a rating of the top elementary schools in the cityhttp://www.chicagomag.com/Chicago-Magazine/October-2006/The-A-Team/. Whilenone of the top schools is in Hyde Park, there are a number of magnet schools on thelist - admission to these isn't by district but by passing a test. So if the Henderson kidsare smart, presumably they could attend excellent public schools and save the moneyspent on the UChicago Lab School (though as noted in an earlier comment, Chicagofaculty get 50% off Lab School tuition). And as noted in another earlier comment,when the kids get to college, Chicago pays 100% of the tuition for faculty kids up toChicago's own tuition level, which is very high.

Reply September 19, 2010 at 10:18 AMCranky Observer said...> Also, in re. "Chicago Public Schools suck"--the child of highly educated > parents is going to have myriad learning opportunities outside of > whatever is taught in his or her school. Assume for the sake of argument > that one's kid learns absolutely nothing of academic value in public > school: there is a huge advantage to public education--especially > in "sucky" schools--

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Me: Economists:Juicebox Moral

Dr. B,That's the way it was for me in public schools on the South Side of Chicago in the1970s. In the 1940s my father's side of the family were the brass-knuckle-wieldinglower-class toughs that the "rich" kids had to avoid in the hallway and on theplayground, so I've been involved in both sides of that story. And on the north side ofChicago there are still some neighborhoods where the CPS schools are like that. Butthat is not, I fear, true anywhere on the south side today (I would be happy to hear ofsome exceptions). At the schools I graduated from in the 1970s, today, PK would eitherhave graduated from drug-deal lookout to drug-and-gun runner, and he would soon beexpected to take his place in the line of battle (with a 9mm, not the brass knuckles ofthe 1940s). If he refused, or you intervened, he or both of you would be dead. There'sno "avoiding the bad kids in the hallway" anymore; those who try to stay out of thegangs are tracked down at their homes and punished.

Given what I had to go through with my family to remain at my CPS high school andgraduate with my friends (and the many, many excellent teachers who were there),and given the number of my CPS classmates who tried to make a go of it as CPSteachers later in life, and as much as I like the South Side, it deeply pains me to saythat. But it is largely[*] the case.

However, as pointed out upthread, there are many choices for decent private schoolson the South Side that don't cost with the OP (original professor) is paying(presumably for the Lab School). Many of them are reasonably diverse in ethnicity andincome level, too. They just aren't upper-class status symbols.

Cranky

[*] Again, would love to hear of some specific exceptions (on the South Side).

Reply September 19, 2010 at 10:42 AMShow more comments...Comments on this post are closed.

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