Voluntary Scarcity and the Myth of the Middle-Class Poverty Line

A recent article went viral, arguing that in the US, the poverty line should be set at $140k: what is needed today for housing, childcare, and other costs required to hold a job, raise children, and participate in society.

Here, I do not want to argue over whether $140k is the right number. Instead, I want to focus on whether money is the right yardstick for defining poverty in the first place.

So, let’s forget the $140k figure and, instead, consider the following example.

Alice and Bob

Both Alice and Bob live in the cold and rainy part of the country. Both earn $100k per year, both have a cost of living of $80k, and both save $20k.

One day, Alice decides she has had enough of grey skies. She moves to the sunny part of the country, where her income drops to $90k, her cost of living rises to $90k, and her savings fall to zero.

On paper, Alice is now clearly poorer. She earns less, spends more, and saves nothing.

Yet, according to her own judgement, she is wealthier. Otherwise, she would not have moved. She deliberately traded $20k of yearly savings for something she values more: sun, sea, and a different lifestyle.

Bob, meanwhile, stays in the cold and rainy part of the country, still earning $100k, spending $80k, and saving $20k.

If a tax agency looks only at income and savings, Bob looks richer than Alice. Some bureaucrat might even conclude that Bob can afford to pay more taxes to “help” people like Alice, whose cost of living is now higher.

But that feels unfair. Alice’s lower income and higher costs are voluntary, given available alternatives. Bob’s lower costs are the result of restraint. Treating Alice as poorer and Bob as richer, in a way that justifies taxing Bob more to subsidize Alice, ignores the nature of Alice’s choice.

If our poverty metrics classify Alice as having become poorer when she moved to the seaside, perhaps the problem is with our metrics.

The problem with defining the poverty line in dollars

If we define poverty purely in terms of dollars, we implicitly make a mistaken assumption: that struggling to make a living is always a sign of poverty.

Sometimes it is, and sometimes it isn’t.

A society where people live in tiny houses, using second-hand clothes, and struggling to get two warm meals a day is poor. A society where people live in large houses, have the latest devices, and eat more calories than their body needs isn’t poor, even if they don’t have savings at the end of the month.

Some of them, like Alice, are exchanging savings for a higher quality of life. Others are exchanging savings for higher expected lifetime earnings (for example, they move to where the best jobs are, even if that comes with more expensive housing, because everyone wants access to good jobs, and higher childcare costs, because it’s far from family who could help with that). In both cases, their struggle is not a sign of poverty but of deliberately choosing to live at the edge of their means.

None of this denies that true poverty exists. It does, and it is often not a choice. But here, I am not talking about those who lack food, shelter, or basic security. Instead, I am talking about people who live in large houses, have the latest devices, and eat more abundantly than most of the planet, yet still feel in a constant struggle.

“But Luca, childcare is not a choice, and it is the largest expense for many families.”

I agree that, for a newlywed couple with two babies and two careers, there is often no realistic short-term choice. They are locked in. That said, the question is how we arrived at a world where childcare is such a large share of household expenses. It happened through choices that accumulated over time. Young couples moved far from their extended families. They chose larger, more expensive houses that required two incomes to pay the mortgage. Societies chose regulatory frameworks that made kindergartens more expensive to run. These are not individual choices in the sense that any one family can simply undo them tomorrow. But they are collective and long-term choices, and they can be adjusted over time. But for that to happen, they must first be recognized as choices.

Of course, high taxes also make life more difficult, and so does heavy regulation. But taxes and regulations are so high precisely because, among others, we collectively let our desire to subsidize and regulate beyond basic needs expand to the limits of our means. Again, I do not mean this at an individual level (some people do recognize that regulation and public spending are not free of charge, and therefore we should only do the minimum necessary), but at a societal level, the desire to subsidize and regulate "just one more thing" is higher than the desire to have actually cheap goods and services.

Finally, there is the role of crony politicians. But again, instead of deciding to optimise our electoral choices for competence and integrity, we deliberately decide we can afford less competent and honest politicians, and prioritise other things. Again, it’s a collective choice.

This is not a moral argument

I’m not focusing on the middle-class struggle being a choice to blame anyone or to purport moral superiority; not at all. Instead, I focus on the collective desire to live to the maximum of our possibilities because, unless this is addressed, no other solution will lessen the struggle. Housing subsidies will result in larger houses, not more affordable ones; childcare subsidies will result in higher-quality childcare, not cheaper ones; and so on.

Reducing the struggle requires being honest about its causes.

If you enjoyed this essay, you might also enjoy my recent book, Poverty and Prosperity.