It is interesting that people spend their money more or less on the same things proportionally, regardless of their wealth and income. Two exceptions: Richer people spend more on education and long-term assets that generate further wealth.

There is a threshold where you have enough so to speak and can start investing in the future. I would say this is typical for the middle class. There is potential to spend in a smarter way here. You get more opportunities, social currency etc.

But being poor is expensive. You have to spend money on subpar quality products because you need them. You pay interest on different forms of debt, which keeps you down. You are constantly worried about the next large bill and are being pestered by bureaucracies and owners (banks, state, landlord etc.).

So below the threshold you get pushed down, above the threshold you get lifted up. It takes incredible effort and discipline to pass the threshold from below.

> 2. How to deal with chronically indebted people who can't or won't save money?

1) There's two aspects to this. One I described above and I'm pretty sure this represents the vast majority of cases. Cover the basics with free education, cheap housing and good infrastructure and allow debt forgiveness or just give them money or interest free loans. Basically make sure that the lowest points in the graph (OP) is livable and dignified. This way everyone gets more opportunities to do really good stuff and everyone benefits from that across all layers. Plain and simple.

2) There are also people who are just wired to fuck this up for whatever reason, they need more support and care than anyone else. If they are uncooperative you have to let bang their head into the wall and hope they learn from the pain. You can't help everyone though. It has to be a two way street.

> It is interesting that people spend their money more or less on the same things proportionally, regardless of their wealth and income.

Where are you getting this from? It’s definitely not true when it comes to savings and investment. It’s not true for food, as I linked below. Its not true for travel. It’s not true for housing either. Why do you believe this?

https://www.ssa.gov/policy/docs/research-summaries/housing-e...

“Low-income families spent a far greater share of their income on core needs, such as housing, transportation, and food, than did upper-income families.”

https://www.pewtrusts.org/en/research-and-analysis/issue-bri...

I wish I could pull it up, it had much more coarse grained categories than what you linked and long time periods. It might have been a meta study.

For example in one of the links they discriminate food away from home etc.

It's not the one I'm remembering but it looked a bit like this one: https://flowingdata.com/2018/02/08/how-different-income-grou...

It looks rather proportional. But I have to admit, here housing is fatter at the low and. Personal insurance/pension gets fatter the more you move up. Education is interesting as it is fat at the very low end, gets thinner for a bit, but after the lower middle gets fatter again continuously. It also cuts off after 200k yearly income, so there's that.

> spend their money more or less on the same things proportionally

I guess I must be misunderstanding you, because this seems obviously wrong. A very poor person spends ~100% of their income on nutrition and shelter, and their investment rate is 0%. A very rich person spends ~0% of their income on nutrition and shelter and their investment rate approaches 100%.

It's counter intuitive but its roughly the same percentages for most things. You'd be surprised at just how much a rich person spends on food, shelter transport etc. typically they will pay for very high quality, labor intensive and exclusive things. The difference is really just education and investment.

> It’s counter intuitive but it’s roughly the same percentages for most things.

Do you have evidence for this claim? I don’t believe it’s true. Take food, for example, the US government publishes the fact that food spending as a share of income declines as income rises.

https://www.ers.usda.gov/data-products/chart-gallery/gallery...

https://www.ers.usda.gov/data-products/ag-and-food-statistic...

A rich person lives in a mansion, and a poor person in a cardboard shack. And everything inbetween depending on wealth. Adam Smith observed years ago that when people get more money they typically spend it on 'better' housing.

You will die, some religions will let you take it with you, but none that are popular today. So you may as well spend whatever you earn on things that you think will make you happy.

Adam Smith was well aware that the rich man spent a smaller percent of his income on his mansion than the poor man did in his shack. The rich person also has, statistically speaking, a year’s income in liquid cash, a few mil in stocks and bonds, some expensive cars, maybe a boat, some expensive sports hobbies, a travel budget, good food at all times, and a will to divvy up all the wealth among their children.

> So below the threshold you get pushed down, above the threshold you get lifted up. It takes incredible effort and discipline to pass the threshold from below.

At the very low end you could be pushed down. If you can only afford $5000 for a car, it'll be expensive in the long run. But its also true that on the high end you get pushed down as well. If you have a lot of money and feel the need to buy an expensive car that's no more reliable than a much cheaper car. Plus you have to pay more for insurance, maintenance, etc.

A $5000 car is about the cheapest in the long run - most of the depreciation is done with. There is still maintenance, which can be expensive, but not nearly as expensive as payments on a new car. Payments are easy to budget for $400/month, no maintenance for 6 months than a $2000 bill is hard to budget even though it is less total.

Agreed. I had a car I paid $8k for, and I ended up selling it for pretty close to what I bought it for. Maintenance was very minimal. A brand new car absolutely is not necessary.

Expenses by themselves aren’t what “pushed down” means, the term was referring to the discrepancy between income and expenses going negative, so whether someone on the top end is pushed down depends completely on their income, right? (And it might be reasonable to assume they’re on the high end already because their income exceeds their expenses, no?)

The reason the pushing down is asymmetric for rich & poor when it comes to cars is that cars have some minimum expenses that can be pretty high relative to a poor person’s income, and below that minimum they lose access to a car (which in reality pushes them down eve further). Someone on the high end might choose to spend more on a car than their income safely allows, but they actually have a choice of how much to spend on a car, whereas someone on the low end might only have the choice to spend slightly more than they can actually afford, in other words very little choice.

That really doesn't count as being pushed down. That's you burning money for fun. I know what that's like too but it sure doesn't count as the Man keeping me down, you're describing one hell of a 'first world problem' that doesn't really make sense in the context of this discussion.

Wanting a 5 million dollar car doesn't count as getting pushed down. And its unreliability isn't really in the same context as depending on the $5000 (or $500) beater. If your 5 million dollar car conks out, you are more frustrated than endangered: no thing that you do is seriously at risk, as you'll have alternate ways to get to work etc., including the random acquisition of the same $5000 car, which to you is pocket change, beneath consideration.

> That really doesn't count as being pushed down. That's you burning money for fun. I know what that's like too but it sure doesn't count as the Man keeping me down, you're describing one hell of a 'first world problem' that doesn't really make sense in the context of this discussion.

Maybe its fun burning money, working a job you hate, spending time away from your friends and family, working till you drop dead. I don't know I'm not rich.

> If your 5 million dollar car conks out, you are more frustrated than endangered: no thing that you do is seriously at risk

You have a very weird perception of things. First, there are no $5 million cars. Have you ever met someone with money? Are they chill about trashing their property? Oh I totaled my $150k car, no big deal! I have an infinite amount of money. People go broke all the time.

Take it from a literal billionaire and former CEO of Goldman, Lloyd Blankfein:

> “I can’t imagine how all this is going to come out when you publish,” he says, looking fleetingly concerned…. Blankfein insists he is “well-to-do”, not rich. “I can’t even say ‘rich’,” he insists. “I don’t feel that way. I don’t behave that way.” He says he has an apartment in Miami as well as New York. But he abjures most of the trappings. “If I bought a Ferrari, I’d be worried about it getting scratched,” he jokes.

No one has enough money or doesn't care about burning money.

https://dealbreaker.com/2020/02/blankfein-sanders-trump

> I don't know I'm not rich. > First, there are no $5 million cars.

There are cars selling $4M new from the factory.[0] Because of the scammy economics of these limited edition hypercars, if you are eligible (!), you can buy these and instantly flip them with a million or two in profit.

If you get into vintage collectible cars, there is no real upper limit. Here is a 1955 Mercedes for $140M: [1]

If you think that is ridiculous, you are too mild. But it is real.

[0] https://www.caranddriver.com/bugatti/chiron-2021 [1] https://edition.cnn.com/2022/05/19/business/mercedes-worlds-...

https://twitter.com/search?q=0th%20world%20problem - it seems like hundreds of people have independently coined '0th world problem' to name such non-inconveniences.

Edit for two Examples:

* I want ice cream but I don’t want to actually leave my apartment and none of the grocery stores have delivery slots open for the rest of the day.

* Champagne cork flying damaged my priceless artwork

> This tells me that having debt and no way to reliably pay it off is a really bad situation to be in.

How do you get that from this model? In this model it's equally as likely to go from -50 to 50 as it is to go from 100 to 150.

What I get from this model is there may be natural discrepancies in wealth not necessarily attributable to a systematic bias. It's what Taleb likes to call Mediocristan vs Extremistan. The tallest person won't be 100 times taller than the median person, but the richest person may be well over 100 times richer than the median person.

https://albertoguerrero.net/mediocristan-vs-extremistan/

> In this model it's equally as likely to go from -50 to 50 as it is to go from 100 to 150.

It isn't. You can see that the distribution isn't symmetric, that the individual bars aren't random walks and the equations used are explained down below the graphs.

I think by definition it is, but people assume because it is, that means the distribution will be relatively sane.

The whole problem is that it's just as likely to go from -50 to 50 as it is to go from 100 to 150, but this does NOT in any way change the fact that actors will exist within the system that end up at 1000 for no good reason, causing lots of other actors to be at -50 for no good reason.

The fact that it's just as likely for one of 'em to randomly get lucky and start surging up to 1000, as it is for the actor at 1000 to go to 2000, is not the point. Point being, it's not about merit, it's about the automatic emergence of that distribution when it's not warranted and is in fact harmful.

(assuming that the points being awarded in an economic model have anything to do with existence and the ability to function, create and innovate versus being stifled and unable to execute on ideas)

> How to convince people who are doing OK to consistently spend less than they earn?

OR, rephrased

How do you convince people who are doing OK to not increase prices so that other people's expenses won't exceed their incomes?

Author here (late to the show). I think, there are two things to be learned from this:

a) Inequality is not just the fault of some actors, who are either ingenious/proficient/hard-working/greedy or incompetent/insufficient/lazy, but a natural byproduct of interaction.

b) We should be careful when attributing economic success to merit, since this may be just a tautological assertion of inherent random processes, even in a model as simple as this.

Now imagine, what will happen, if we add systematic biases of all kind, the costs (and profits) of debt being another of these factors. What this may mean in terms of politics and if there arises any kind of obligation for the society that enables and necessitates these interactions is left to the beholder.

Even without debt (i.e. if a person has no money for a round it won't give a dollar to anyone) the result is more or less the same: https://www.masswerk.at/misc/wealth/

Yeah, that model is assuming everyone consistently spends about what they earn without people having a saving/spending personal drift. Which is cool enough, models can assume what they like.

But that certainly isn't how people should operate - if you spend what you earn, sooner or later a surprise will bankrupt you. Helpful tip: nobody should plan to get that outcome. It sucks. Save some money.

Of course! It's the Natural Distribution at work.

Death is natural too. As intelligent people, we're not only obliged but fascinated with the problem of overcoming harmful things in our environments.

This distribution is without merit and counts as a harmful thing. I'm not sure why any intelligent person would be enthusiastic about it when by definition it represents nothing useful, and at worst damages potentially useful economic players for no benefit at all.

> 1. How to convince people who are doing OK to consistently spend less than they earn?

I don't believe we can.

Not sure under what premises we should, in a way we (society) already do, personal finance training is only a quick google search away. Free will has its price.

> 2. How to deal with chronically indebted people who can't or won't save money?

We (society) can offer tools, but then it's up to the individuals to use them, or not:

* Bankruptcy

* Personal Finance training that's only a quick Google search away.

In both cases we need to thread carefully, Free Will and Agency are things that we (society) don't want to mess with.

1. That's their personal choice. The only thing you could do is find them a financial advisor or tell them about investing. People change their financial attitudes when they understand that money can be used to make more money. 2. Analyze their spending and understand what skillset they have that would allow them to obtain either a higher paying job or become self-employed.

"2. How to deal with chronically indebted people who can't or won't save money?"

Why save a money when they are worthless (inflation)?

> then falls apart following some reasonably short-term time horizon.

Only if it's student debt you owe. It can still take years to foreclose on a house.

> 1. How to convince people who are doing OK to consistently spend less than they earn?

Rental prices increase to capture any excess income, on average you can't save money because the rental prices will increase to capture it all. One way to avoid this would be to take 10% in taxes and not allow access for X years, thus forcing everyone to save 10%, and thus allowing less money to be spent on rent.

Crime increases to capture any excess resources in the absence of functioning society, too.

Generally, in a functioning society, price-fixing and collusion and extortion count as crime. I would say the distinction between this and collective rent fixing (coordinated, or as an epiphenomenon of the underlying system with self-interested rational actors) is pretty moot: society either decides to dictate the limits of this behavior, or it does not.

The idea that exploding rent prices are inevitable and unquestionable is… well, it's an idea. One might contest the idea of building a functioning society on that assumption. Might consider that behavior being something in the way of criminal behavior, at least on the scale of petty larceny, if not something more serious.

Not really, when demand outstrips supply prices will rise, econ101