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,