Mike Green: The Affordability Crisis & Rethinking the American Dream
In this episode, Adam Butler is joined by guest Mike Green to discuss his viral Substack articles on the American affordability crisis. The conversation explores the significant gap between official economic statistics, like CPI, and the lived financial reality for the middle class, a phenomenon Green argues is often dismissed by an expert “mockery machine.” They also discuss the use of LLMs in his research process and debate potential policy solutions to address widespread economic precarity.
Topics Discussed
- The use of Large Language Models (LLMs) as productivity tools for research and writing.
- A critique of the “mockery machine” in public discourse that dismisses legitimate concerns about the cost of living
- The disconnect between formal economic definitions of inflation and the public’s lived experience of unaffordability
- The concept of a “precarity line” for a modern family versus the technical definition of a poverty line
- The economic pressures leading to “ghost households,” where young people forgo having children due to high costs
- Flaws in economic metrics like the CPI, particularly how quality adjustments mask the true rise in essential costs
- The societal gaslighting by the economic establishment and its political consequences.
- The “Valley of Death” or benefits cliff, where withdrawing government support creates a barrier to entering the middle class
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Summary
Mike Green joins Adam Butler to dissect the public reaction to his viral analysis on the escalating unaffordability of middle-class life in America. They begin by defending their use of LLMs as powerful productivity tools for research before diving into the core of the debate, which Green frames by critiquing the “mockery machine” used to dismiss legitimate public concerns about the cost of living. He clarifies that his controversial “poverty line” figure was meant to highlight a “precarity line,” the income level below which a modern family cannot realistically pursue foundational life goals like raising children without extreme financial stress. A major trend identified is the growing disconnect between official economic statistics, like the CPI, and the public’s lived experience of financial strain. The speakers argue that metrics which adjust for quality improvements in goods effectively mask the true rise in essential costs, leading to a form of societal gaslighting by the economic establishment. This disconnect fuels the formation of “ghost households,” where young people forgo having children altogether due to insurmountable costs for non-substitutable items like childcare and safe housing. The conversation explores the political consequences of this disenfranchisement, which pushes people toward populist or socialist alternatives when they feel their reality is ignored. They also touch upon structural economic barriers, such as the “Valley of Death” where government benefits are withdrawn too quickly, trapping families in a cycle of dependency. Finally, they debate potential policy solutions, ranging from tariffs to direct government investment and incentive-based programs, to address the deep-seated economic precarity facing many households. The overarching theme is a call for economic models and public discourse to align more closely with the tangible realities faced by ordinary
Topic Summaries
1. The use of Large Language Models (LLMs) as productivity tools for research and writing.
Mike Green and Adam Butler begin their discussion by addressing the use of Large Language Models (LLMs) as productivity tools for research and writing. Green explains that he does not have LLMs write articles for him from scratch; instead, he treats them as a staff of numerous motivated but untrustworthy first-year analysts. His process involves sending them on purpose-driven missions to gather information, which he then vets using his own domain-specific knowledge. He utilizes multiple professional subscriptions, including ChatGPT, Gemini, and Claude, often having one model “steelman” or critique the output of another to refine arguments. Butler agrees with this approach, suggesting he may use them even more extensively for tasks like finding credible sources, synthesizing counter-arguments, improving language, and organizing citations. Both emphasize that the human user remains in complete control, scripting the narrative, checking sources, and ensuring the final thesis is coherent. They find it silly that people object so strongly to using these tools, viewing them as significant productivity enhancers that credibly improve their output. While they acknowledge the limitations of LLMs, such as their tendency to make mistakes or exhibit obsequious behavior, they see these as manageable challenges. Ultimately, they frame LLMs not as a replacement for human intellect but as invaluable assistants that augment the research and writing process for experienced professionals.
2. A critique of the “mockery machine” in public discourse that dismisses legitimate concerns about the cost of living.
Mike Green introduces the concept of the “mockery machine” to describe a coordinated campaign of public ridicule aimed at suppressing legitimate economic concerns. He was prompted to analyze this phenomenon after witnessing the reaction to an influencer who observed that a single income in the 1950s could afford a comfortable, middle-class life. Instead of engaging with the core message about declining affordability, a tribal pile-on occurred, featuring absurd comparisons designed to dismiss the observation entirely. Green views this as a sad and counterproductive trend, particularly within the financial community, as it moves into a “suppression mode” to shut down uncomfortable conversations. This mockery prevents a thoughtful evaluation of what people are actually experiencing regarding the cost of living and raising a family. He draws a parallel to his own intellectual journey, arguing that when established models fail to describe people’s lived reality, the models should be re-examined, not the people ridiculed. The mockery machine serves to enforce an orthodox view and gaslight those who feel economically precarious, telling them their experience is invalid. This approach avoids confronting the difficult truth that the basic necessities of a middle-class life have become significantly less affordable for many. Ultimately, this dismissal of legitimate grievances prevents constructive dialogue and contributes to broader societal and political disenfranchisement. Green believes the most interesting opportunities for analysis arise from investigating these disconnects, rather than participating in the mockery.
3. The disconnect between formal economic definitions of inflation and the public’s lived experience of unaffordability.
The conversation highlights a fundamental disconnect between the formal economic definition of inflation and the public’s lived experience of unaffordability. Mike Green explains that while economists correctly identified inflation as a transitory rate of change, they failed to acknowledge that the public was struggling with the high absolute price level, leaving many feeling financially “underwater.” This gap in understanding leads to a phenomenon where the economic establishment effectively gaslights the population, insisting things are fine based on models that do not reflect reality for many households. The controversy around Green’s article, which proposed a new “poverty line,” exemplifies this clash; critics focused on the technical definition, while Green was describing a “precarity line” where families can no longer afford to pursue middle-class aspirations like having children.
The discussion critiques the Consumer Price Index (CPI) as a primary source of this disconnect. The CPI’s use of quality adjustments, or hedonics, treats improvements like air conditioning in an apartment as a price reduction, masking the real increase in cash outlay for consumers who lose the choice to buy cheaper, lower-quality goods. Furthermore, the metric assumes consumers can substitute goods, but for a family, essential costs like housing, childcare, and healthcare are a non-substitutable bundle. The aggregate nature of the CPI basket also fails to represent the specific, inflexible spending patterns of lower-income individuals. This flawed measurement contributes to the creation of “ghost households”—families that are never formed because the financial calculus of having children becomes impossible for young people. Ultimately, the economic establishment’s reliance on these abstract models leads them to dismiss legitimate public sentiment, a tendency Green labels the “mockery machine,” which ignores the real financial stress and precarity experienced by a large portion of the population.
4. The concept of a “precarity line” for a modern family versus the technical definition of a poverty line.
The conversation distinguishes between the technical, historical definition of the poverty line and a more modern concept termed the “precarity line.” Critics of Mike Green’s analysis focused on the official poverty line, which is a subsistence-level metric designed to measure the income below which a person cannot afford basic necessities like food and safe shelter. This definition, established decades ago, is concerned with mere survival. In contrast, the precarity line represents the income threshold where a modern family can finally escape a state of constant financial stress and instability. It is the point at which a household is no longer “barely holding on by their fingernails” and can begin to realistically plan for the future.
Reaching the precarity line means having the capacity to start saving for retirement, funding a child’s college education, and making life choices beyond immediate needs. This concept acknowledges that raising a family today requires a non-negotiable “bundle” of significant expenses—including childcare, healthcare, and adequate housing in a safe school district—that cannot be easily substituted away. The journey from the official poverty level to this line of stability is made exceptionally difficult by the “Valley of Death,” or benefits cliff. This is the income range where, as a family earns more, government benefits are withdrawn, creating a structural trap that prevents them from getting ahead. Therefore, the precarity line is not about avoiding destitution but about reaching the first rung of the ladder toward achieving a middle-class life and what was once considered the American dream.
5. The economic pressures leading to “ghost households,” where young people forgo having children due to high costs.
The concept of “ghost households” refers to the families that never form because young people feel they cannot afford to have children. This phenomenon arises from a stark “fork in the road” where a materially comfortable, carefree existence is possible without children, but starting a family has become economically prohibitive for many. The decision to have children introduces a bundle of immense, non-negotiable costs that cannot be substituted away, including larger housing in a safe neighborhood, childcare, healthcare, and education savings. Many young people find themselves at a “precarity line,” where they are barely holding on financially, making it impossible to even begin planning for these major life objectives. This reality challenges traditional economic ideas like “revealed preferences,” as forgoing children is often not a free choice about lifestyle but a forced decision due to a lack of resources and systemic support. The speakers argue that this is not just an individual problem but a societal one, as these ghost households represent a loss of future taxpayers, professionals, and citizens necessary for a functioning society. This economic pressure creates a “dilution of life,” where people are forced to substitute major life goals for lesser ones. The biological reality of a limited fertility window adds further pressure to this already difficult financial calculation. Ultimately, these ghost households signify a crisis where economic conditions prevent people from pursuing fundamental life aspirations, with significant consequences for both individuals and society at large.
6. Flaws in economic metrics like the CPI, particularly how quality adjustments mask the true rise in essential costs.
The discussion highlights significant flaws in economic metrics like the Consumer Price Index (CPI), arguing they fail to reflect the true financial pressures on households. A primary issue is the methodology of “quality adjustments,” which systematically understates the rising cost of essential goods and services. For example, when an apartment’s rent increases after adding an air conditioner, the Bureau of Labor Statistics (BLS) doesn’t record the full price hike, instead attributing a portion of the increase to a quality improvement. This practice effectively treats the enhancement as a price reduction, masking the actual cash expenditure required by the consumer. Over time, this understated inflation is compounded, creating a permanent and widening gap between official statistics and the lived reality of affordability.
This same principle applies to other necessities like automobiles, where once-optional features such as backup cameras and advanced safety systems have become standard and mandatory. While these innovations undoubtedly improve quality and safety, they also eliminate cheaper, more basic options from the market. Consumers are therefore forced to pay a higher baseline price for essential goods, a cost increase not fully captured by the CPI. This process removes choice, particularly for financially stressed individuals who can no longer opt for a less-featured, more affordable alternative. The result is a statistical framework that contributes to economic gaslighting, where official data suggests minimal inflation while families experience immense pressure from the rising costs of non-discretionary items like housing, childcare, and transportation. Ultimately, these flawed metrics create a distorted picture of economic well-being and contribute to policies that are disconnected from the challenges faced by ordinary people.
7. The societal gaslighting by the economic establishment and its political consequences.
Mike Green and Adam Butler argue that a significant portion of the population is being subjected to societal gaslighting by the economic establishment, which has severe political consequences. This gaslighting involves dismissing the lived financial struggles of ordinary people by insisting that economic conditions are good, a narrative that directly contradicts their daily experiences. The establishment employs tactics like the “mockery machine” to ridicule dissenting observations and focuses on rigid technical definitions, like the official poverty line, to avoid addressing the broader concept of widespread financial precarity. The core of the issue is a disconnect between the establishment’s economic models and the reality people face, where metrics like CPI fail to capture the true, non-substitutable costs of essentials like housing, childcare, and healthcare required to raise a family.
This persistent invalidation of people’s reality is not just an academic debate; it externalizes economic pain into a political cost, fueling disenfranchisement and anger. The speakers contend this phenomenon was a key factor in Donald Trump’s 2016 election, as he made a struggling populace feel “seen” and understood. By continuing to tell people that their lived experience reflects an inability to understand reality, the establishment pushes them to seek radical alternatives. This dynamic creates a dangerous trajectory where citizens, misidentifying the current system as “democratic capitalism,” reject it in favor of its perceived opposite, such as socialism. The speakers warn that this failure to honestly address economic hardship risks further political upheaval, potentially leading to movements like a “Mamdani takeover” and a fundamental breakdown of the existing political-economic order.
8. The “Valley of Death” or benefits cliff, where withdrawing government support creates a barrier to entering the middle class.
The “Valley of Death,” also referred to as the benefits cliff, describes the challenging financial phase where individuals begin to earn too much money to qualify for government assistance. As a person’s income rises, critical benefits like food subsidies (SNAP or EBT), childcare support, and Section 8 housing are gradually withdrawn. This withdrawal creates a significant structural barrier to entering the middle class. The core issue is that the individual must then use their increased cash income to pay for the very services that were previously subsidized, often negating any real financial gain from their higher earnings. This dynamic creates what Adam Butler terms an exhausting and discouraging “two steps forward, one step back” scenario.
Mike Green’s analysis identifies the income range of roughly $100,000 to $140,000 as the point where a household can finally overcome this cliff. Only after reaching this threshold can a family realistically begin to save for long-term goals like college education or retirement. This is the point where they can escape a state of precarity and start building a cushion of financial safety. The system effectively creates a powerful disincentive for people to improve their financial situation, as each step up the income ladder is met with a material clawback of essential support. Ultimately, this valley makes the journey from subsistence to a stable middle-class life structurally and emotionally arduous for many families.
9. Debating policy solutions like tariffs, direct government investment, and incentive-based programs to address economic precarity.
The conversation transitions to potential policy solutions for the widespread economic precarity affecting families, revealing different philosophical approaches to the problem. Mike Green advocates for reintroducing degrees of policy freedom through tools like tariffs, which can counter corporate offshoring and protect domestic interests from unfair global competition. He argues against simple handouts, proposing instead that government programs be redesigned to create powerful incentives for positive behavior. For example, he suggests linking the Earned Income Tax Credit to tangible outcomes like a child’s academic growth, thereby rewarding effective parenting rather than just the act of having children. This reflects his broader capitalist philosophy where the government’s role is to set clear societal objectives and then pay the private sector to innovate and achieve those goals most efficiently.
In contrast, Adam Butler emphasizes the need for more direct government investment over fiscal stimulus, pointing to the nation’s massive infrastructure deficit and decaying educational systems. He specifically champions universal childcare as a foundational public investment that would build a better societal architecture and free up significant financial resources at the household level. While Green favors market mechanisms and Butler leans toward direct public works, they find common ground on the state’s responsibility to act. They agree that the government must establish a mission and create the conditions for both private and public sectors to solve critical societal problems. Ultimately, both speakers lament the abrogation of responsibility in modern society and conclude that the nation must move beyond corporate capture and political paralysis to collectively decide what it stands for and actively build a system that supports its citizens’ aspirations.
Michael Green
Chief Strategist & Portfolio Manager
Michael has been a student of markets and market structure, for nearly 30 years. His proprietary research into the shift from actively managed portfolios and investment funds to systematic passive investment strategies has been presented to the Federal Reserve, the BIS, the IMF and numerous other industry groups and associations.
Michael joined Simplify in April 2021 after serving as Chief Strategist and Portfolio Manager for Logica Capital Advisers, LLC. Prior to Logica, Michael managed macro strategies at Thiel Macro, LLC, an investment firm that manages the personal capital of Peter Thiel. Prior to Thiel, Michael founded Ice Farm Capital, a discretionary global macro hedge fund seeded by Soros Fund Management. From 2006-2014, Michael founded and managed the New York office of Canyon Capital Advisors, a $23B multi-strategy hedge fund based in Los Angeles, CA, where he established their global macro strategies, managing in excess of $5B of exposure across equity, credit, FX, commodity and derivative markets.
In addition to his work as a market theorist and portfolio manager, Michael has been noted for his work as a public speaker and financial media participant. He is a graduate of the Wharton School at the University of Pennsylvania and a CFA holder.
TRANSCRIPT
Backgrounder
[00:00:24]Adam Butler: Good morning or good evening, whenever you are joining us. I want to welcome my guest today, Mike Green, Chief Strategist at Simplify Funds, and also author of the “Yes, I Give a Fig” Substack, which we are gonna spend most of our time today discussing.
I am gonna get started on, this obviously was an article that you wrote, Mike, because you are interested in the subject. I know I am interested in the subject because I have kids who are either in college, or about to exit college, or about to enter college, and I am thinking very deeply about what their future looks like. I know you have children who are just a little ahead of mine, and I suspect that was at least some of the catalyst for why you have an emotional stake in this, that drives you to start thinking right about this.
But, and we have, I know we both have a lot to say about it, and I cannot wait to get to that, but one thing that I was surprised about is among all of the different comments on your piece, was that you used LLMs to write it. So maybe first of all, let, I guess we have gotta start with what exactly did you write about, and then, we are going to carve off a second to talk about how you used LLMs to write it, and then we will get into the meat. So, what was this piece about, first of all?
[00:01:53]Mike Green: Yes, first of all, look, you know my blog, you know how I write, you know what I am interested in, and I write about things that interest me more than anything else, right? And obviously that includes markets, that includes topics that you hear me talk about all the time—the impact of passive investing on markets—but also things like interest rates, inflation, geopolitics, all things that are of interest to me, and that candidly, I am very fortunate that my job and elements of my career allow me to have involvement in those areas.
In this case, I actually was extending some analysis that had been done over the past couple of weeks where I really started to look at this issue of, is life actually affordable? And candidly, it is a little bit of a shame on me, right? Because like many people who have a formal background in finance or economics, I immediately know what is meant when people say inflation, right? Inflation is the rate of change and the general price level.
And so when the discussions around transitory inflation kicked in, it became very clear to me that that is exactly what we were experiencing, that it was a transitory inflation in which the Consumer Price Index (CPI) was going to retreat back towards a level that, at least historically, has been relatively low, and certainly nothing like what we have seen in the 2022-2023 time period, really ‘21-‘22.
Part of what happened as I went through that was realizing that what people are actually talking about is the price level, and they are talking about it for a very good reason because they are underwater. And so inflation means something different if you are currently incapable of meeting your household’s needs.
It is an annoyance to somebody like myself who has enough income that I never really have to stop and say, can I buy this? Can I not buy this? There are lots of things my wife imposes that constraint on, but the simple reality is that I do not have to do it. I do not walk into the grocery store and say, gosh, I would really like some ice cream, but it just does not fit in the family budget. I am extraordinarily fortunate in that context.
And so the price of ice cream going from $5 a half gallon to $5.50 or $6 a gallon—I mean half gallon—does not meaningfully affect me in any real way. But for somebody who is at a point at which they are already making the sacrifices and giving stuff up, that incremental inflation, that 2% to 3%, particularly if they are not seeing it in their incomes as well, causes them to basically get further underwater, right? You are drowning faster, effectively, you have less hope of putting your head above water, and I think that was really the breakthrough for me, to understand that it is both level and rate of change that is really sitting at the core of a lot of the concerns that we have.
As I dug into that a step further, and again, this is part of the LLM process, right? I do not have LLMs write things. It is not like I type in, hey, write me an essay on X, right? What I do is, and I have described it this way, and I think you do it in a very similar way, is I treat it as if I am having a conversation with 15-20 first year analysts, can they do good work for me? Can they gather information for me? If I send them in a purpose-driven way to obtain X information and then present it to me, do I have the domain specific knowledge to be able to look at it and say, no, that is wrong. Let us try this again, or let us look at it in a different way, or what are the implications of this, if this is correct, versus if it is incorrect.
That is how I use it. I have repeatedly emphasized this. I treat it effectively as if I have a staff of a nearly unlimited number of first year analysts who are very motivated, very articulate, very passionate in their work, and I do not trust them any further than I can throw them.
[00:05:49]Adam Butler: Yeah, the thing that I think a lot of people get a little bit embarrassed about the idea that they are using LLMs to help with writing. I would say I probably go a little further than you. A lot of my, obviously you and I have written dozens probably on the order of like over a hundred articles or papers, et cetera, over our professional lifespan before LLMS came about, right?
We know how to write, we know how to do analysis, we know how to check sources, we know how to run numbers. We know how to compute tables. But, LLMs have come far enough to be able to find credible sources, both primary and secondary. They have become very good at vetting one another. So, have an LLM frame a thesis, have another LLM steelman the counter argument, have another LLM synthesize, build out a hardened thesis, correct it, get better sources, iterate, et cetera, improve the language, make it approachable, make order citations, et cetera. There is an enormous number of different tasks that LLMs are very good at.
Ultimately, I am scripting the narrative. I am checking the points. I am checking the sources. I am making sure that the thesis is coherent, et cetera. But as the LLMs get better and better, they become more and more useful, and it is, we should be using them to improve our output in whichever way makes sense, and actually does credibly improve our output, and I think it is silly that people object so strongly and broadly to the use of this tool.
[00:07:40]Mike Green: Look, first of all, it was a politically charged piece, and so people were going to react to it however they were going to. I have written something like 150 substack posts since I launched my Substack. My Substack was a follow on from a Medium platform, which in and of itself was a follow on from an email chain that I had started when I launched a hedge fund in 2014.
So I have written literally something in the neighborhood of 30,000 pages of documents over the course of the past, give or take 15 years, and I just see them as productivity enhancing exactly as you are describing, and that is exactly how I use it. I have a professional subscription to ChatGPT. I have a professional subscription to Gemini. I have a professional subscription to Claude.
I fully understand that is not available to most people, right? It is something like $600 a month I am spending on LLMs at this point, and I am very fortunate to be in a position to be able to do that, but that is exactly how I use it, right? I will dump from one to the other and say, steelman this in the same way that I would say to a first year analyst, hey, take a look at Jim’s work. Before I really dig into it, could you offer any constructive criticism, et cetera.
One of the benefits is, I have yet to encounter an LLM that is secretly trying to sabotage the other LLMs. I see that all the time in analyst communities where it is oh yeah, Jim wrote this and this is obviously garbage, et cetera, much more like the interaction that you tend to see on Twitter. The LLMs actually tend to work together in a really positive manner, and, yes, part of that is their fawning nature in which they are saying, oh, this is the most brilliant thing you have ever written.
But the simple reality is just that a first year analyst is going to say that too. Gosh, Mr. MG, you are the most wonderful, brilliant person I have ever met, right? I would never question anything that you say to me. It is the same phenomenon, and we have been doing this for a long enough time, that it is really not meaningfully different, and that obsequious behavior is in part, designed to get you to use it more.
[00:09:48]Adam Butler: And also I like, I think first of all, the labs have done a really good job of mediating that sycophantic orientation. Like the new Gemini..
[00:09:56]Mike Green: Oh, I, I actually enhance that feature on mine. I make…
[00:09:59]Adam Butler: Me too. Yeah.
[00:10:01]Mike Green: … only person who says you are brilliant anymore.
[00:10:05]Adam Butler: Absolutely. And the thinking models also do a much better job of pushing back and avoiding sycophancy. But, yeah, you have gotta be aware of the challenges.
[00:10:16]Mike Green: Yeah. No, you have to be aware of their limitations. You have to be aware that they will make mistakes. You have to acknowledge that you will make mistakes.
[00:10:24]Adam Butler: Yep.
[00:10:24]Mike Green: This is one of the weird things about this experience is it does not seem to matter how many times I say, yeah, look, this is directionally correct. I do not think it is the right answer. It is meant to spur discussion, et cetera. It is oh, see, he is admitting he has lied. It is, I did not, I do not quite think that is the translation, but fine. If that is really where you wanna end up, that is okay. And I just end up muting most of those guys eventually, and then we move on.
[00:10:50]Adam Butler: Yeah, awesome. All right, let us dig into the series itself, and I actually would argue that the series starts with the piece you wrote about the mockery machine. I think that is actually the perfect frame for this. So what was that about? Because I, I think that sets up the rest of this conversation.
[00:11:11]Mike Green: So that piece was in reaction to a very coordinated mocking campaign that came in response to a quote unquote right wing influencer who made the simple observation in the 1950s, a single income could afford X, right? And it was a house that was too nice, et cetera.
But it spawned this incredible coordinated response that, like you literally could not have imagined a more planned, whether it was planned truly, or whether it was simply, hey, look at this silliness, we can all pile on and show we are parts of the tribe, and that is what happened. It literally turned into this complete dismissal of the message in exchange for various absurdism of, in the 1970s, a peanut farmer could afford this house, right?
And of course, it is the White House, right? And my observation is, that actually did happen.
But, it is a very sad thing for me to see the financial Twitter community basically move into this suppression mode, the mockery machine in which it is designed to take what is a legitimate observation—life, or the basic necessities of life for most people in the middle class, were eminently more affordable in prior periods.
Things could be done on a single income that freed mothers to stay at home, to raise their children. Communities were richer because of that presence in the local community in which both parents were present, children were playing in the streets, et cetera.
These are all wonderful things that we remember and we experienced, you and I probably experienced these firsthand—to lose that in this coordinated mockery as compared to a thoughtful evaluation of what are they actually saying? What are they experiencing, et cetera. That, for me is where I have always actually found the most interesting opportunities, right?
You know this, in my work around passive, I was a value investor. I thought all people were thinking in terms of discounted cashflow models and building reasonable projections of how things should work, et cetera. And somewhere around 2016, the scales fell from my eyes and I discovered that was not actually the case, and that has been a very fruitful avenue of exploration.
As I dug into this problem, I found that it was very similar, that one of the real challenges we have in economics is our concept of homo economist rationales, right? The idea that everybody is totally rational in their behaviors, and we can break it all down to NPV calculations and all this sort of stuff. That school of thought seems to pretty much be in the camp right now if we just tell people how good it is, eventually they will believe us.
And the, what I actually think we are experiencing is the same phenomenon that in many ways leads me to be very critical of behavioral finance or many other schools of thought, which is by trying to shoehorn people into, let us just show them the facts as compared to considering, maybe our facts do not actually align with what they think they do, is, to me, one of the most powerful questions you can ask, right? It is, at the end of the day, these are models, they are descriptors of the world. If they are not adequately addressing the way that people are experiencing their world, then I am not going to yell at the people. I am going to figure out what is wrong with my model.
[00:14:37]Adam Butler: Yeah, and I think something that you have done a good job of highlighting throughout the whole series is that there are definitions that we establish at certain points in time that then become antiquated.
One of the things that I think you may have invoked for effect, but which ended up being the thing that everybody seemed to focus on, or at least everybody in the classic economic establishment seemed to focus on, was the word poverty, right? Or poverty is the line, right? You said $140,000 is a new poverty line.
And I came out and said, look, I am not sure that was, like Mike is not making a technical point about the poverty line, in the way that the poverty line was defined in the 1960s, but is rather using it as a jumping off point for a broader concept of people’s, the middle income being a lot more precariously positioned economically than the establishment.
Then we have good metrics to describe using normal economic terms, right? And so the economic establishment ends up gaslighting people that are at this precarious end of, just at the verge of being on the middle class, and then considering having children, or considering having more children and realizing actually that is out of reach or the sacrifices required both for the children that you are having and you as a person are so substantial, that you cannot make the math work. So how did you find that people mischaracterized or zeroed in on really technical details and missed kind of the forest for the trees?
[00:16:26]Mike Green: Look, so first of all, you, among very few others hit on what I think is the single most important point that comes out of this experience, which is the ghost households, effectively, the households that do not form, that choose not to have multiple children, that choose not to engage in those next stage of life choices, that are happening because they simply do not have enough money.
And so my work was very specifically focused on, if you are a family of four with two earners and two kids, here is what this world looks like right now that was presented in all sorts of different ways. That is not descriptive of the average household. No, of course it is not.
It is descriptive of a two earner, two child household, and then I introduced the idea of look, the poverty line is set at $30,000, the median household is around $80,000. So you would think that indicates you are very well off and you and your spouse would look at each other and say, okay, we are ready for that next step. Let us have a kid. Let us have two kids.
And the simple reality is, if you are doing the calculus at that point, your answer is, I cannot. I cannot do it because having kids does not magically make me more money. I have to make the money in order to make it past that point. And historically, that is not how families worked.
I had my first child at 29 years old. I had some money. I certainly did not have anywhere near as much as I have today, and my wife and I had to seriously sit down and say, what does our budget look like? Can we pull this off? Can we buy a house sooner than we thought we were going to? Can we move from a carefree existence where it is just two people who are now cohabiting and reducing our living expenses to a world in which suddenly we have got lives that are dependent on us? That was a choice that we made.
We did the calculus and we said, we can do this. I think what you and I are both identifying this is, more and more young people are looking at this and saying, I cannot do this.
[00:18:19]Adam Butler: Yeah, absolutely. I have been thinking about this in the context of my own children and their futures, for over a decade really, as they began to approach high school and into university, and also as the world began to really change, as housing prices got really unaffordable in major urban centers, where I assumed that they would want to live for interesting work and great job opportunities.
And, it has become increasingly clear to me that there are, there is a fork in the road that I am not sure was nearly as explicit when we were having to make the same choices, and that is that you can genuinely live an extremely materially fruitful, carefree existence in the modern world, if you decide that you do not want to have children, you can stay in a fairly small place.
You can live in a great city, take advantage of all of the lifestyle options for eating out and theater and travel, being near international airports, et cetera, and if you wanna opt out of that rat race, you can move, to go India and with an internet connection and do gig work for 25 years. And all of these are very viable options as long as you do not wanna have children.
But the second that you wanna have children, all of the calculus changes. You now need to think about having a home that is large enough to house them in a neighborhood that is safe enough for them to go outside and near a reasonable district with a decent school.
You need to think about childcare or, the balance of spouse working or not, and the extra costs of that and all of, saving for education, which, the cost of education has gone up at a much higher rate than the cost of TVs or seats on airplanes, et cetera.
And we are not calculating in any of our statistics, the fact that there is this fork in the road. And I think we are really, all of our statistics are focused on, can a person live a nice lifestyle with no other responsibilities? But once you add in these other ambitions, which I think we would both argue are extreme positives for the future of society, then things get almost impossible. Is that what you were seeing as you were, your kids were getting older and…
[00:20:50]Mike Green: Yeah, no, absolutely. So my kids, as you pointed out, are a little bit older. My oldest son is 25 years old. He has had a successful career by any reasonable metric. He works at a financial services firm, has his own place, is doing very well, and candidly is personally past the point that would require any form of precarity to his existence, in addition to having support from the bank of Mom and Dad. The reality is he will never know poverty.
I grew up in significantly more difficult circumstances. My parents largely shielded me from the consequences of that, but they also made extraordinary sacrifices to give me an education that was far above what I deserved, quote unquote, given my family’s income and the area that I lived in, there were extraordinary sacrifices.
But as I indicated in my first piece, I actually partially credit for driving my mother to the point that she ultimately became clinically insane. The stresses of doing that were really unfortunate, and some of my opponents might argue that I am clinically insane, and so maybe that is just a genetic predisposition to this.
But the reality is as I look at my children and I look at the lives that they would like to live, they and their friends are facing challenges that did not really exist for you and I. You nailed it when you said this is a societal good. People choosing to have children is ultimately what generates our future taxpayers is what generates our future doctors and lawyers and teachers, all the people that are ultimately necessary to create functioning societies going forward.
So we can either live in this kind of millennial fantasy, and by millennial I do not mean millennials. I mean like millennialism, right? It is the end times, right? This is the last human existence and then we are gonna be taken over by robot overlords.
Man, that is a terrible philosophy to approach life with, right? It could be true and that would be catastrophic, and it would make me extraordinarily sad. But, what will actually help us not make those choices? Raising kids who actually have a kind of a sense of what the world should be.
[00:23:09]Adam Butler: Exactly. And, that is why I was so disappointed with the vector of attack on your piece and any follow ups. There was, there seemed like to be a coordinated blindness to the objective of the writing.
Keep in mind, nobody writes a Substack assuming that every one of their pieces is gonna go, is gonna go massively viral and need to be defended against all of the top people in the field that your piece is adjacent to. You, I imagine your process a little bit like mine.
Okay, I have committed to writing a piece every week. I am going to write about this week, because I am curious about what the math looks like. I have a day job, I am curious, I am interested, I am going to do my best with the time I am allotting to this, to put a piece together. I am going to give it a title that has a chance of attracting some attention and engagement and I am going to do my best. And then you are not like trying to make, you are not writing a major technical…
[00:24:28]Mike Green: It is not a research paper, right? It is not a white paper. I am not trying to produce something that is gonna hold up to doctoral level dissertation defense standards.
[00:24:40]Adam Butler: Right.
[00:24:41]Mike Green: Now that can be interpreted in any number of ways, and I think those who have chosen to treat it un-charitably, which is unfortunately a word I have been learning more and more, because there is really a degree of charity that you should bring to any reading. It seems that many people have decided that, I decided to make it $140,000 because that would have attracted more attention, right? Like in all seriousness, if I had said a million dollars, would that have gotten more attention? Feels like that would have probably been dismissed as completely absurd and nobody would have actually paid attention to it.
If I had said $65,000, would that have gotten a lot of attention? That is twice the existing poverty line, right? The reality is I did not pick a number to try to generate interest. I picked a number that actually reflected the analysis that I had done, and as I indicated in the piece, I was as surprised as anyone.
What was really amazing about it was the people responding across multiple platforms—The Washington Post, the Free Press, my Substack, et cetera, Twitter, for that matter. If you actually look at the vast majority of comments, Instagram, which has now taken off, radio programs, et cetera, the listeners who are calling in, I have had, I have been privileged to listen to people talk to this, and they literally are saying exactly what I think got Trump elected in 2016. I feel seen. Oh my gosh, somebody actually understands what I am going through.
[00:26:16]Rodrigo Gordillo: Sorry to interrupt, but I did want to take a quick second to remind listeners that while we do absolutely love providing our audience with world class guests and weekly investment insights, we wanted to remind you that we actually do our best work outside of this podcast, and we try to do this by providing cutting edge, globally diversified, and systematic investment strategies that are designed to be broadly non-correlated to traditional equity and bond portfolios. So, we actually manage private and public funds, as well as bespoke separately managed accounts for investors that seek the potential to smooth out portfolio returns in the long run. So, if you do want to see that theory that we have been talking about put into practice, please do go ahead and check us out at www.investresolve.com. Now back to the podcast.
[00:26:58]Adam Butler: Yeah, no, so I guess that is the populist angle that some of your interlocutors latched onto, right? That you seem to have connected with what Kyla has maybe called the vibe session, or vibes or what have you, and there seems to be like a complete dismissal of that reality, right, because it is not well defined using the terms and the frame of, let us call it neoclassical economics or like the dominant economic canon, right? We are fumbling around a little bit at the edges. We are maybe, I would like to think that maybe you used like poverty line as a little bit…
[00:27:49]Mike Green: To be very clear for me, poverty line means something very specific to me. It is the transition to middle class, right? That is really what it indicated to me, is at what point would we actually accept that people are starting to become middle class.
Now, there is something, there is a component of fatness to that, right, or arbitrariness, is some of my haters have perhaps labeled it. The reality is it is arbitrary, right? What is the poverty line? Historically, it was set at a level at which 20 percent of the population was quote unquote the poverty line.
We then evaluate that over time. It is totally arbitrary to pick whatever point in time that is, and it is particularly arbitrary to treat it as an absolute level of outcome. Poverty will always be a relative concept, and so to say something like poverty used to be 20%, but now it is 11%, that does not actually mean anything.
What you are really saying is the quality of life of people, when it was 20%, 10% of them now have a meaningfully higher quality of life as measured by CPI, versus that number. That is what we are really saying, and I will fully concede that. But I also think that it is really important for people to understand that these quote unquote sophisticated economic arguments that are being made are actually not at all sophisticated, because their response is basically, sure it used to be done that way, but then we started updating it with CPI. CPI, as we have multiple CPIs, we have CPIs for wage earners. We have CPI for urban consumers, we have CPI for the elderly. We have CPI for people of certain races. We have CPI for different household sizes, et cetera.
The reality is that CPI, as an aggregate, describes the purchasing pattern and behavior of a large aggregate group. It does not describe the behavior that is experienced by people who are at the poverty line, and people at the poverty line have the least amount of choice. They do not get to wait for the tires to go on sale because they have driven their car with the tires to the point that it is so worn down that they are gonna fail inspection if they do not replace the tires.
If they fail inspection, they are going to lose their job because they cannot get to work, right? So they do not have the luxury of making the choices and doing the extended shopping pattern, et cetera, that I as a man love doing, right? Amazon is my jam, right? I can be on Amazon for hours and find all sorts of stuff and put it in my basket and wait until it goes on sale and do all these sorts of things. Those are behaviors that are engendered by surplus.
I do not really need anything. So everything is a luxury for me and I can spend time shopping for it. Within the CPI itself, the vast majority of the deflationary goods and services that we experience were prior luxuries that over time become part of the standard basket. Right now, the way the CPI handles that, the way the Bureau of Labor Statistics (BLS) handles it is it shows the aggregate price level lowered by the contribution of declining prices from those goods and services. But the reality is they were not part of the poor person’s, the stressed financial condition, individuals purchasing basket, and so they did not benefit from that price decrease.
This is most egregious in things like housing in which people will point out and say, look, houses are 50% larger today. We also simultaneously have articles in the New York Times that are highlighting the fact that we no longer have SROs, standing room only hotels where people could rent a single room without a kitchen, et cetera. Why, because we made them illegal, right? So it is all well and good to say the quality of your living conditions and the quality of your living conditions have improved because of the innovations that we have had, et cetera.
But if we have simultaneously removed choice from that, that is not a net gain for that consumer, right? It is simply a statement of what everybody else has experienced, and so it is not appropriate for discounting for those purposes. And by doing it in that manner, we have led to a poverty line that is so far below reality for most people, at $32,000 for a family of four with two earners.
It does not even cover the healthcare, the childcare budget. I am sorry for a family that is really trying to make it work, right? And that was the other really revealing thing, right? It is just how out of touch many young people and older people were on the childcare component. That was the one that should have really clued people in, right? Because the number I came up with is $32,000 for two children.
All sorts of people said, the BLS is the average is $16,000. Yeah, but that is because it is for one child, and it is also across multiple households and everybody’s different experience, et cetera. If you actually dig in, you look at the data between 20-40% of young families’ income is being spent on childcare. That was, like, it is just not, I cannot even begin to tell you how unthinkable that number would have been to my parents.
[00:33:07]Adam Butler: Yeah, I just think it is really useful to try and distinguish between the, like a poverty line as being the level below which a person cannot afford the items in Maslow’s first layer of his pyramid, right? You cannot afford sufficient nutritional content. You cannot afford safe shelter, right? Like, literally you, this is like the subsistence line where your health is deteriorating by the day, because you just cannot afford the very basic inputs to life to sustain your own health and safety, right? And so I think it is fine for lifetime economists to dig in on the fact that, look, we have an established definition.
You need to read the term sheet. The poverty line is the level of subsistence. You invoked the poverty line, and now, so now I am gonna take a hard stance on the poverty line. I just think it is worth for the sake of being able to have constructive discourse, it is worth letting go of this poverty line as being the most important term that we are gonna focus on and try to focus something else.
I proposed the precarity line. I, that is probably not a good one either. I am sure someone come up with something, but it is really like the point at which you can realistically hope to reach for the very first rung of the social ladde,r or reach for or have the potential or optimistic vision of grasping something that approximates what we might have defined as the American dream 25 or 30 years ago.
[00:34:56]Mike Green: I do not even think it is 25 or 30 years ago. So the title of my next piece is called The Pursuit of Happiness, right? And it refers to the very intentional choice that Jefferson made to replace Locke’s life, liberty, and property. Life, liberty and the pursuit of happiness. What he meant by that, right? Remember, this is a scholar of ancient Greece. What he meant by that was the Greek term eda, I believe it is pronounced, that means your life’s aspirations, to fulfill your life.
Not like how are you feeling today? Oh, I am happy. Oh, good. Thomas Jefferson must be really thrilled, right? No, it means to actually meet your life’s subjectives to meet, to have a fulfilling life.
And people that are at that precarity line that, that, as I have sought for ways to describe it, it is that feeling where you are barely holding on by your fingernails, and the firemen can say to you like, are you okay?
You are like, yeah, I am okay, but I could really use a little help here, and escaping that is a precondition for even beginning to think about achieving those life’s objectives.
And what we know across our society is that among those things are getting married, having children, creating a future, right? And unfortunately, we are creating conditions under which more and more young people are not making those choices, and they are not making them because they lack the systems and resources. And they see the societal lack of support and disdain for it, candidly, right? And then they are confronted with people basically saying, I made it work.
You can make it work. Kids just complain. This is the least thankful group that, the whiniest group in the history of the world really coming from the baby boomers really? Come on.
[00:36:48]Adam Butler: Yeah, it is this mass gaslighting exercise, which I am just constantly in awe of. It is amazing. But one of the things too that I think is not well either understood or documented by economists, is, for so part of the CPI basket is this idea of substitution, right?
[00:37:12]Mike Green: The CPI basket does not have direct substitution. It has substitution that kicks in. It used to be every two years. Now they have shortened it to every year, but it is a fixed basket, which is one of the reasons why it runs hotter than the Personal Consumption Expenditures (PCE) traditionally, because PCE allows you in real time to say, beef went on sale this week, and therefore I am gonna buy X quantity of beef, or food fell relative to gasoline, therefore I am going to make fewer trips to the store. I will buy more when I am at the store and I will eat a little bit larger.
Those are captured in the PCE. That type of substitution exists in the PCE as distinct from the CPI. It is one of the reasons why PCE tends to run a little bit lower than CPI does.
[00:38:00]Adam Butler: Right. But the CPI does capture those effects.
[00:38:03]Mike Green: Well, over an extended period of, right over an extended period of time. And this is again, one of these things that you see, these sophisticated responses. They will highlight papers that say something along the lines of the consumption basket of the poor has been far more smooth than the income basket of the poor.
One, that is simply saying in many situations they have access to credit or they have access to drawing down their savings. This is particularly true when you start talking about the older poor who have accumulated resources and savings that they dis-save in order to produce their consumption baskets, but it is a very disingenuous approach when you think about a young family who is trying to gain access to credit, often already credit constrained by things like student loans, et cetera, right?
To turn around and say, oh, they should just dollar, they should just smooth their consumption over time by taking on debt.
They are doing everything they can to make things work as it exists. Debt introduces the risk that if you made a mistake, if you lose your job, et cetera, you get basically sent to jail in the Monopoly game for a period of up to seven years, and for many people, that is just not something they can do.
[00:39:19]Adam Butler: Yeah, I guess where I was trying to go with that, I, totally acknowledge all that. The, other angle I was trying to take with this was that, there is this in the PCE basket or in CPI with different lags, there is this idea that you are a family of four. There is gonna be expenses on childcare, expenses on housing expenses, on health insurance expenses, on saving for college, et cetera.
If one of these things gets expensive, you are gonna substitute out, right? You are gonna spend less on childcare and more on housing, or you are gonna spend less on health insurance and more on childcare or whatever, and what seems to be lost is that, no, this comes as a bundle, right? If you are a family, you cannot, there is no substitution here. You need all of these things, and you need all of them at the same time, up against a biological clock that does not wait for you to get wealthier or make different choices.
[00:40:20]Mike Green: Yeah. No, I think that is absolutely correct, and I think that is part of what is underappreciated in economics, right? This falls into the category of the ergodic versus non-ergodic framework, right? If we take the average across everybody in our society, it is somewhat predictable what you are going to do at 32. It is highly unpredictable what you as an individual are going to do at 32, right? This is a genius behind residential mortgage backed securities, ABS, et cetera.
We recognize that we can combine any number of individuals and their properties, and if we combine them together into an actual financial security, it does behave with statistical properties, right. That is super valuable, but that is not how people live their lives, right? People have roughly a 15 year fertility window.
Women in particular have roughly a 15 year fertility window in which they have to simultaneously find the right mate, right, achieve enough wealth to be able to put themselves into a secure and stable place, achieve a degree of career that allows them to either take time off, or to work from home, which requires a degree of professional capability that is increasingly challenged in a move away from the work from home world, et cetera.
These are all realities that are faced that do not seem like that big of a deal when you are a 55-year-old multimillionaire. But if you are a 28-year-old, it is a really big deal, and it is a very serious question that, if they do not have the answer to it for 10 years, what can they do? They can have at most, one child at most.
[00:41:55]Adam Butler: Or not even…
[00:41:57]Mike Green: Because to…
[00:41:58]Adam Butler: …a child, so you substitute a dog, you cannot afford a dog, so you substitute a phone. Like it is just this constant dilution of life, but none of which is captured in the CPI or the PCE basket, and none of which is in any way that I could tell, addressed by the many Tier One economists that weighed in on the…
[00:42:27]Mike Green: It was not remotely addressed, and part of that is because economics has locked itself into this frame of rationality, right? Everybody should behave in X rational fashion. I believe it was your piece that actually brought up the revealed preferences, right? This idea that, somehow or another, if I choose not to have kids, then I value my lifestyle more than my children.
Again, to your point, there is this giant package out there that is, we calculated, and I think your numbers roughly agree with mine, is somewhere around $50,000. The minute you decide that you are going to start having kids, if you do not have access to parents or to a superlative career that can allow you to finance that $50,000, there is no amount of revealed preference that is actually occurring there. It is simply the reality of I cannot drive somewhere because the car does not start. It is not that I wanted to walk. It is not that I wanted to do these things, et cetera.
The second component, and again this goes back to the construction of the CPI, just think about the reality. The way we measure housing costs on for the BLS and CPI is we treat quality improvements as a reduction in price. So if I am a person looking for the cheapest apartment in the period in which air conditioning is becoming widely distributed, the cheapest apartment is actually gonna be slightly cheaper than it otherwise would be, because people will look at an apartment without air conditioning and say, I do not necessarily want that. That makes it more available for poor people.
But as every new apartment has air conditioning, eventually that arbitrage disappears, and as a poor person, you are suddenly told by the government, you didn’t actually pay more for the place, it is just that the place got better.
[00:44:16]Adam Butler: Yeah, so I think we, it is worth actually digging into what, like using an example here, right? I think the, I think you, we could do with cars or we could do with apartments. I think maybe the apartment with air conditioning is actually really good because the chaining of the rates makes a huge difference here.
We introduce an air conditioner unit to an apartment. The apartment was originally a hundred dollars a month of rent. It is now $110 a month to rent. But when the BLS measures the increase in the price of that apartment, they say, yeah, the apartment went up by $10 a month in rent, but it is a much better apartment. So we are gonna deflate the increase in that price by some amount that is gonna reflect the difference between an air conditioned apartment and a non-air conditioned apartment.
And, so in fact, that apartment did go up by $10 a month, but the BLS only measures it as a $5 increase, for example. And importantly, that is now embedded in that monthly CPI increase forever, and is used against it for compounding purposes, and that true increase in the price is lost forever.
[00:45:30]Mike Green: It actually goes even further than that. One of the pieces that was cited by one of the economists, Jeremy Orbital, and I believe it was mentioned by Scott Winship and Tyler Cowen as well, is this focus on consumption baskets, and what is amazing about that is that they used what is called the C-P-I-R-S-E to determine that.
These are, this is an experimental series that effectively says if we were to take all of these improvements and carry them all the way back through time, what would we actually see as the consumption basket? And unsurprisingly, if you restate CPI to incorporate all of the qualitative improvements that have occurred over time, it is gonna say things were much more expensive in the past because they did not have that quality component to it.
Now the cash expenditure is the same, right? And then almost certainly higher because of nominal depreciation. But this debasement, right? Traditional inflation. But the reality is that they are now looking at and they are like, oh, look how much richer all these people are that they used to be. And those people are going, what are you talking about? I cannot save two nickels.
[00:46:44]Adam Butler: Yeah, look, I think it is important for us to acknowledge that when everybody gets an air conditioner, everyone’s quality of life improves, and not only the quality of life, but also your ability to concentrate for longer over homework and therefore have higher achievements in school and get a better sleep and do better in sports.
The next, there are all sorts of societal benefits, is there is improvements in car tech for safety standards. Like you look around, having a supercomputer in your pocket is unbelievable. Like all our quality of life in general, there is no question it has improved.
That can be true at the same time that we acknowledge that you can no longer buy a home or make a decision about whether you wanna own a home with air conditioning or not, or own a car that does not have lidar and a backup camera and et cetera, et cetera, et cetera, and yes, the cars have gotten much better and safer, but you also have to pay more for them, and you have to pay more for them then the marginal increase you have gotten in your pay for the median earner, and it is the same for housing, et cetera.
Like it is just, there are all these moving parts that there is no conspiracy at the BLS, though I do think there is a bit of a conspiracy among certain schools of economists who try to use chain CPI to make policy assertions that the CPI is not designed to support, and I think a lot of this comes down to that dissonance.
[00:48:13]Mike Green: Yeah. No, I think that is right. And again, in revealed preferences, those many of those who objected to my piece very loudly, what they are really saying is, this is scary because this opens up the avenue of progressive taxation that we might get charged for fixing this. That is really what they are scared of.
And to be totally clear, and I try to convey this, I am an economic conservative. I am also scared of opening up the populist framework in which we decide we just need to take a little bit more from the rich people and the rest of us can have everything we want. It does not work that way.
We know that is not the right approach, but that does not mean that the right approach is to lie to the people who are struggling and say, you have never had it so good, and if you do not do exactly what we tell you to do and you do not do it with a smile on your face, we can make it so much worse, which is the implicit threat that is effectively being levied at them.
The reaction to Mamdani is not a soul searching that says, how could we have allowed conditions to deteriorate under which people would respond in this way, that they would make this choice that seems so clearly economically disadvantageous, right? Instead, we are like locked in this framework that says something along the lines of, gosh, all these people are so stupid. We should really be giving people more freedom, but not those people.
[00:49:37]Adam Butler: Exactly. And the consequence of that is we are just externalizing what might have been an economic cost into now a political cost, and it is gonna be like a, I think Mamdani is symptomatic and also is forecasting a trajectory of political opinion, where if you are gonna continue to gaslight a sufficient proportion of the population into, into telling them that their lived experience is, reflects their own inability to understand reality, rather than acknowledging that there are elements of their lived experience that are not well captured by the economic paradigm that drives policy, then we are just going to, we are gonna continue to drive more and more people into disenfranchisement and they are going to go looking for alternatives.
And we have simultaneously told all these people that what we currently practice is democratic capitalism, and so they point at what they were told as democratic capitalism and say, this does not serve me, so I reject democratic capitalism.
What is the opposite of democratic capitalism? Socialism. So I am going to go for socialism instead of realizing that what we have is nothing like democratic capitalism, that they are pointing the finger at crony capitalism, and now instead of saying what I actually want is democratic capitalism, they are saying, I want socialism because they have got a complete misapprehension of the dimensions of the political economy.
[00:51:15]Mike Green: Yeah, I, again, like in my piece, I make liberal use of references to Ayn Rand and to Animal Farm and all of these components. I think one of the things that to me is so shocking is that those on the left and the right seem increasingly unaware of the consequences of the message that they are sending, right? On both sides. They are effectively using the Klaus, whatever his name was. You will own nothing and be happy, right?
Again, go back to Jefferson. What did happiness mean to him? Happiness meant fulfilling life, right, meeting your life’s objectives, and I am sorry, but you do not meet your life’s objectives by really struggling to get to work. That does not make you happier, that does not fulfill your life objective. Nobody wakes up as a three-year-old and says, what I really wanna do is make sure that I fight all the slings and arrows that are required, the hail, sleet, snow, whatever the mailman used to confront, right, so that I can get to work. That is absurd. That is not what people want out of life, and by the way, part of the problem is we gave it to them for two years. This is one of the things that was really shocking…
[00:52:30]Adam Butler: They had a…
[00:52:30]Mike Green: …is that you cannot explain the dramatic increase in savings by the relatively modest, and I understand that they do not feel that way, but they were relatively modest stimulus payments. The vast majority of the stimulus payments went in the form of the Paycheck Protection Program and the employee retention credits, which were used to keep you in your job, but the actual stimulus that was sent to households is not what drove the savings.
What drove the savings was you did not need childcare. You did not need as much transportation and you did not need to clean your clothes nearly as much. You did not need to wear nicer clothes to work. You could show up in pajamas basically over Zoom as long as you quote unquote had on a tie. All of these things exposed Americans to lifestyles that candidly, you and I have led for an extended period of time. I have not worked in an office since, I think it was 2019,
[00:53:22]Adam Butler: Yep.
[00:53:24]Mike Green: Right, and, my life consists of hotel rooms, trains, planes, automobiles, various luxurious destinations around the globe, et cetera, and then each point I am able to say, you know what, I can just hop onto the computer and do the work that I am required to do, right? Americans had a taste of that, and now it is being taken away and people are saying, wait a second, I am incurring all of these incremental costs that went away for a brief period of time, and by the way, they are inflated by 20% versus what I remember.
No wonder people are angry and frustrated and giving us very poor scores in terms of sentiment and perception for personal outlook and perception for the country. And this is one of the things that, that I find so frustrating. Again, one of my challengers in this debate has made a big deal of the fact that things really have not deteriorated nearly as much as people think.
If I look at the difference in individual happiness and satisfaction scores versus country satisfaction and scores, we do not see anywhere near the drop.
I am sorry. That is a category error. We actually know that we have two separate distributions with different means and different standard deviations, right? You do not solve the two axis chart complaint by saying, we are just gonna put them both on the same axis and treat them as if they are the identical data sets, right? They are not identical data sets. They have to be characterized by their own components.
If we do something like convert those to Z scores against their own populations, people are just as depressed about their own outlook as they are about the country, and it is matched perfectly against the consumer sentiment scores that we are getting from polling entities like the University of Michigan, right?
These are simply untrue representations that they are trying to convey to people, and there will be a cost that likely manifests itself in something like a Democratic sweep or a Mamdani takeover in which these people will then be able to comfort themselves with their political views and say, it was not happening under my watch. No, it did happen under your watch. You failed to create the alternative.
[00:55:37]Adam Butler: Yep. No, totally agree. Another thing that is ignored by economists is, and it is a strange thing where we have a whole canon or school of economic thought where everything should be market priced, right, which is the neoclassical view, right? And yet you have got all these off balance sheet liabilities, or which are externalities really, right?
Childcare would be a lot more expensive if you did not have a bunch of families that were able to lean on aunts, uncles, moms, dads, to take on an substantial portion, if not all of that childcare responsibility to free up to adults in a household to go and make an income to support the house and healthcare costs, for example, and other ancillaries that are required for a family of four.
And first of all, this is externalized, not captured in any of the economic indices, is a very meaningful proportion of the total economy, but it also shifts the demand curve to the left, and therefore shifts the price of this commodity of childcare to the left. It is, we are under pricing, the actual cost of this really important dimension of having children in the modern context because we happen to have a generation who is able to take on some of this responsibility. It is not costless to that generation. It is not costless to the current generation, and it is not counted as a cost anywhere in the aggregates.
[00:57:31]Mike Green: I, again, this is one of these things where perversely, what we actually have is subsidies for those who are at the very low end, so they have lower incentives to build those extended family networks that could actually contribute to normative behavior and better outcomes overall.
Single mothers, children born out of wedlock, et cetera, continue to grow as a proportion of our society, and part of that is because we subsidize those behaviors. That is obviously not helpful. But we also have to recognize that at some point you do put a tourniquet on somebody who is bleeding to death, right? The objective is not to really force them into destitution and absolute poverty, and by the way, if that is your objective, if your view is, there is, that is not real poverty.
You should have seen poverty in the 16th century, right? This was an explicit part of the discussion that crept in from traveled, world famous economists, right? If you think that is poverty, you have never been to Guatemala, right? Of first, I have been to Guatemala and I understand that there is, there are degrees of poverty who have also been to Africa and India, et cetera.
So like, I understand there is far worse outcomes than being in Cleveland, for example. But the simple reality is that is a choice that we are making to define it that way, and I do not see where anyone gets off and basically saying, you are not really poor. I remember poor when I was a kid, meant you did not, you had to sell your teeth in order to afford things, and that is true, by the way. There were people who got by selling their ivory teeth to wealthier individuals. But man, I do not want to go back to that. I do not want anyone to go back to that. That is completely absurd.
[00:59:17]Adam Butler: Yeah, exactly. So we, I do not, we have not really spent a lot of time, I didn’t really spend any time in my follow-up piece, so I have not even published yet. But, you have not yet gotten to the point where you are proposing some kind of loose framework for how some of these imbalances or structural issues can be addressed.
One of the things you did highlight was that the tax, the odd tax structure with this sort of Death Valley, I think you called it. So what is the Death Valley, first of all, and then we can talk about other?
[00:59:56]Mike Green: Yeah, and the Valley of Death, as I define it, or other people refer to it as the benefits cliff, is the point at which you start making enough money that the government starts withdrawing the benefits that you are receiving. Food subsidies in the form of Supplemental Nutrition Assistance Program (SNAP) or Electronic Benefit Transfer (EBT), childcare subsidies, section eight housing, reduced price lunch, et cetera. All of these are resources that you benefit from when you are quote unquote officially poor.
As you move away from that level of officially poor, those benefits start to be withdrawn, which creates a need to replace them out of cash income, and as a result, you do not actually save, right? That level of $100-$140,000 is really basically the calculation at the point at which you can say, okay, this person should actually begin, should be capable of beginning to save towards college educations, towards their retirements, et cetera. That is really what that line means, right, in my analysis.
Again, I think you framed it beautifully by using the term precarity. It is the point at which I can put a little bit aside for next month, right? And if I do not touch it next month, then I am gonna set even more aside for the month after that, and eventually I build up a cushion of safety that allows me to say, maybe I will engage in an entrepreneurial venture. Maybe I will go on vacation. Maybe I will do X,Y,Z, all things that add to the richness of life, and allow you to get closer to that point of achieving happiness in the sense that Thomas Jefferson meant it.
[01:01:33]Adam Butler: Yeah. So yeah, so you work, you grow, you better yourself. You get, you climb the income ladder, but from that subsistence level up to the very bottom of where you might begin to think about middle class, each step that you climb, there is a material claw back, right? So it is two steps forward, one step back, which from an incentive standpoint is very discouraging, I am sure, but just from a structural standpoint just makes it that much more difficult to go from subsistence to a threshold above precarity. Just like structurally, there are too many hurdles in front of you. It has gotta be just exhausting and discouraging.
[01:02:23]Mike Green: It is exhausting and discouraging, and I will also tell you candidly, it is often unproductive, right? Many people, myself included, who have children who move to New York, they encounter realities that you wouldn’t even think about.
Most investment banks when I was graduating from college would actually give you your signing bonus in advance. The use of that signing bonus was by and large to facilitate your move to New York City or Boston or wherever you were going, right, because it does cost money to set yourself up, right?
Now, most of those investment banks and programs will actually make that part of your second paycheck, and perversely, it is because it is easier, right? We have more complex forms for Human Resources (HR) onboarding. We have more things that have to be filled out. We have more challenges associated with compliance, et cetera, and so it is more dangerous to effectively create 1099 type checks in the form of advanced bonus checks that would facilitate that move. But what that also means is you cannot take those jobs unless somebody is willing to lend you that capital to make the move.
[01:03:29]Adam Butler: Right.
[01:03:31]Mike Green: And that would be a perfect example. I am sure there are tons of highly qualified individuals that could go to work for Goldman Sachs. There is nothing uniquely talented and skilled about the individuals at Goldman Sachs relative to much of the rest of the population that is competitive for those jobs, right? These jobs have 1% acceptance rates on top of universities that have 4-5% acceptance rates.
The simple reality is, that is not really a merit level. It is, there is a component of luck, right? And people understand that and recognize it. Were they in the right place at the right time to identify the internships that lead to the jobs? Did they have parents who knew to tell them to look for these things? Did they have friends who knew to look for these things? Did they do it with their friends to make sure it all turned out better? Did they know how to write a resume properly? Did they go to a school that had an elite career planning and placement service? All of these are the things that determine whether you end up going to Goldman Sachs, not your innate brilliance.
The people that work at Goldman Sachs, I have worked with many of them over the course of my career. They are among some of the smartest individuals that I have ever encountered. Very talented, very capable. But you know what? The people at Jefferies are too, and the people at Morgan Stanley are as well, and the people at Fidelity and Vanguard are often in that category as well, right?
There is tons of people who could basically pick up and slot and place these people in different roles, and that is one of the reasons why investment banking programs get to be so abusive. Because the reality is what is a kid gonna do? Complain about working 110 hours a week when this is now the path that could set you to actually escaping that precarity, because that is where they are, right? They are 22 years old, they are making $130,000 a year. They are already there. Their parents have given them everything. They are there.
But it is that other component also that I think often gets lost, is that it is not just the stress of those who are under that $140 and $150, and I think their stress is the single most important, but also face the reality of those that are in the $150 – $400 range, where the reality is they can save for their retirement, they can make their lives better, they can add richness to their children’s lives, but their children are increasingly competing for a smaller and smaller subset of opportunities relative to the population, and so they engage in all sorts of antisocial behavior, right?
I am going to cheat and hire a consultant who can get my kid into X,Y,Z school. It is only going to cost me a hundred thousand dollars. Most people look at that and they are like, I cannot even imagine spending a hundred thousand dollars. I promise you it happens, and I promise you it happens at 20 times that amount.
And we should not deny those people that opportunity, but we also should be realistic about it and say, wait a second, if it costs me 2 million to get my kid into the elite schools that allow them to begin competing for a life that looks like mine, we gotta be much more realistic about the barriers that we are putting up.
[01:06:32]Adam Butler: For sure. I do not wanna lean too heavily into trying to cultivate sympathy for newly…
[01:06:38]Mike Green: No, please do not try to cultivate sympathy. For me, I wanna be very clear. I have been incredibly fortunate and I, like I, I wouldn’t trade my life for anything.
[01:06:49]Adam Butler: Yeah. So aside from maybe restructuring that Valley of Death from a tax incentive and structure standpoint, what are some other sort of broader policies that we might think about in order to alleviate some of the stress at that precarity line?
[01:07:17]Mike Green: I think this is, again, one of these wonderful things about existing in this point in time because we have introduced degrees of freedom that were previously unthinkable.
Tariffs can be a very important role, right? They are effectively a gatekeeping access to the citizens that you wanna sell your products to. If you introduce tariffs, then suddenly companies do not have the same threat of, oh, I am just gonna move, right? If you raise corporate taxes, I am gonna move offshore, and then I am gonna sell, and you are not gonna get any of those taxes. Oh, you just create a differential tariff that says if you have a U.S. entity that is importing stuff from abroad, it is a 10% tariff. If you have a foreign entity that is importing stuff from abroad, it is a 30% tariff.
It is a really easy solution to that, by the way. You simply have an incorporated subsidiary in the United States that pays some employees in the United States, pays taxes in the United States, et cetera, right? And allows you to avoid that 30% tariff. Not hard, eminently doable, right? Why do we refuse to do it? Because candidly, we are caught in this corporate grift framework, right? This corporate capitalism that you were identifying before, that is basically saying something along the lines of, this person paid, this entity paid a lot of money towards my reelection. I gotta look out for their interests over and above those of the citizens that I ostensibly represent.
[01:08:44]Adam Butler: Yeah. So I would love to, I would love to be able to end on some kind of direction of, there are ways forward, there are decisions that we can make, there are actions we can take that would help us take steps in the right direction.
I certainly, I agree with you that what we have is a state that has been in very, to a very large extent, captured by an overdeveloped corporate sector, and it, at every decision point we seem to leave citizens at the back of the line. Are there any degrees of like realistic degrees of freedom that we can point to?
[01:09:33]Mike Green: Again, I actually think that is what is exciting, is that we have reintroduced degrees of freedom that are really quite powerful, right? So tariffs play a very important role if you have capital mobility, right? This world of free trade, et cetera. John Maynard Keynes and any number of others have pointed to it and said, hey, wait a second. You cannot actually have open capital accounts and open trade accounts. That leaves you subject to other countries deciding not to engage in that behavior, in which case they actually are determining your industrial policy, not you, right?
It is a cop out to turn around and say, oh, we are just gonna do free trade, right, with anyone who wants to, without considering that there are systematic strategies that can be made by other countries to impoverish their citizens relative to their productive, their productive capacity, and that is what China is doing.
China is artificially suppressing the wages and incomes of Chinese who would otherwise really like to acquire things from around the world, and gain experiences in travel, and gain experiences that we have heard over and over again echoed from within China, not the not Western observers saying, hey, we would really like these people to have this, right? These are revealed preferences inside China that are being suppressed, right?
We wouldn’t accept work that was produced under true slave conditions if we were made aware of it. I am somewhat skeptical that is entirely true for some of the members of our society, but broadly, I think that we would agree. We do not want to buy things that have been produced by slaves, because what you are actually doing there is simultaneously devaluing the productive capacity inside your own country while participating in the devaluation of another human being.
You have ways to address that, and tariffs are one of those tools. Trade barriers and trade standards and trade agreements are other ways of handling that, but you cannot abrogate that responsibility and that if Adam, you know me well enough to know, like that is the thing that drives me the craziest about the environment that we are in right now.
We abrogate our responsibility for selecting our investments for retirement. We abrogate our responsibility for the selection of our politicians saying, the two party system, what am I gonna do about it? We abrogate our responsibility for raising our children in many situations, saying, I do not really have a choice. These are like, these are criticisms that are labeled, that are leveled from the right saying you are making bad choices. That is true.
[01:12:06]Adam Butler: Right.
[01:12:07]Mike Green: But we gotta provide people with the tools to evaluate those choices, and that Adam is why I am truly a capitalist, because at the end of the day, price is the mechanism of information exchange in a capitalist economy. We should be doing everything we possibly can to identify and provide those pricing signals to allow people to make choices, right? It is those choices that actually demonstrate true revealed preferences.
If I do not have a choice between left and right, if I have to go right, that is not a revealed preference. That is a law, and things like EBT plans and SNAP plans, et cetera, and you hear lots of people say, what we should really do is have a box, and then in this box there is an apple and a banana and a peanut butter and jelly sandwich, and everybody who is poor gets a box, right? That is absurd.
What you are actually doing is stripping a capitalist system of the information of what these people would actually like to do with this money. Maybe they do not want another peanut butter and jelly sandwich. What you are actually doing is creating prison conditions under which people get things from the dispensary so that they can trade them for things they really want. That, this is, it is just silly. I do not know why so many people who have the knowledge to express it in this way choose to hide from that.
[01:13:25]Adam Butler: This, yeah, so this is, this may be a point where you and I actually differ, or at least I would be interested in having you clarify things for me, because, my sense is that one of the big challenges is that we have over the last, let us call it since Reagan, we have chosen to, we have chosen fiscal stimulus via giving money to people rather than making direct investments.
We have got a, something like a $5 trillion infrastructure deficit that if we continue on the same plan, will be a $9.1 trillion infrastructure deficit by 2032. We have got decaying schools and a decaying educational architecture. We like, we, there are all these different projects that we could invest in. We could invest in a universal childcare that is delivered instead of giving people money to pay for childcare.
One of the challenges of giving people money to pay for this or that, is that as humans we are not very good at deciding what we want to consume now, versus what we need to invest in, in order for our lives to be better in the future, and I would argue the state needs to be quite a bit more interventionist in the term, in terms of like investment rather than subsidization, to build out the basic architecture of a good life, because it is just hard for people in the moment, especially people who live at or below the precarity line, to be able to focus on the long term, versus the short term. And if you provide universal childcare, that frees up an enormous amount of budget space at the household level for them to re-channel those, that income to other places, right? That frees up degrees of freedom at the household level.
So I would argue that we have, we are, we have got a major imbalance there. If anything, then the balance should be toward more investment rather than putting more money directly in people’s pockets.
[01:15:46]Mike Green: So it is a point of difference, right? And I would specify that there are, this is actually where a discussion of the genuine poverty line becomes important, right? The crisis line, the level at which you cannot feed yourself, at which it would be irresponsible for you to ultimately say, hey, I have got this kid and I cannot get adequate food, I cannot get adequate shelter, I cannot put them into a safe situation, et cetera.
If that is the level that you are at, I tend to agree that there is a component of paternalism that takes some of the cognitive load off and says, okay, here is the budget. Here is the housing, here is the food, here is all the things that are necessary to pull you out of this crisis component.
But the minute you are out of that crisis component, I think you face an even more important cliff, which is, maybe I would prefer to have my wife stay home and take care of my kids, and in exchange for that, the end result is the same. I have got a better educated, healthier kid who is gonna become a more productive member of society. But you need to actually set up a system of incentives associated with that.
So I will give you a really simple one, right? The earned income tax credit, why that is not linked to academic achievement or more importantly, academic performance and growth, where my grade, my kids’ grades are better this year than they were last year. Their competence on tests is higher this year than last year. Their nutritional quality is better this year than it was last year.
If you create a system that rewards people with those incentives, once again, not every individual is going to benefit from it, right? There will be people who try to exploit the system, and part of the job is to make the system not only robust at this moment, but on an ongoing basis. That is part of the process, but what we should be doing is creating incentives for doing a good job of raising your children, not for having kids, right?
Think of it as a simple one. Your kiddoes not go to school. Your kid has terrible attendance records. Then no, we are not gonna give you as much money. As a matter of fact, I will tell you what, you only get 20% of your Earned Income Tax Credit (EITC), right? If you do a better job or you ask for help, we are gonna help you and we will try to get you to the point that you are performing. But what we are trying to do is raise healthy kids, not give people money, right?
[01:18:14]Adam Butler: Sure. I just think that the…
[01:18:16]Mike Green: … in that process.
[01:18:17]Adam Butler: I like that and obviously the, those seem and I know we are not mapping final policy proposals here. Directionally, I think those, that incentive architecture makes sense and I do not think the two are mutually exclusive. Offering…
[01:18:34]Mike Green: Incentives matter, right? If there is one thing…
[01:18:37]Adam Butler: Do we, because I would argue that the U.S. health system, certainly the conservatives would argue, no private healthcare, you need private healthcare because it sets up the incentives. People…
[01:18:49]Mike Green: … is the objective of the U.S. health system,
[01:18:55]Adam Butler: No, I am just saying like…
[01:18:56]Mike Green: Right? What is the…
[01:18:57]Adam Butler: … is there is incentives to be healthy.
[01:19:00]Mike Green: … a service or is it to provide an outcome?
[01:19:05]Adam Butler: Yeah, sure, that is fine, but…
[01:19:07]Mike Green: But we actually know this. We know that if we actually charge people less, I will reiterate what I have said many times. The amazing thing about capitalism is I do not have to come up with a solution. I just have to pay the person who does, and so the reality is what I wanna do is create conditions under which we identify, here is the objective – raising kids who excel in an academic sense and are prepared to be extraordinarily productive members of society when they finish school, and by the way, we have created paths for them to begin learning how to do that as we go forward.
I should be willing to pay the private sector individual who figures that out, right? It is the same approach that Napoleon took towards creating the innovation we call canned foods. I am going to pay a ton of money. I am going to create an XPRIZE equivalent and give it to the private sector individual who figures out how to can and preserve foods.
[01:20:06]Adam Butler: Yeah, so I mean on this…
[01:20:08]Mike Green: … have a whole bunch of government scientists sitting around in a lab trying to figure it out because what they are being…
go,[01:20:17]Adam Butler: Yeah. Sorry. There is a delay. So it, we keep…
[01:20:21]Mike Green: I am sorry, you, go for a second. I am just gonna listen.
[01:20:25]Adam Butler: Yeah, so the, in I am, I think actually we are closer than we’re surmising, because the idea of create, let us have society create a mission. We want to create incentives and an architecture and services to upgrade child welfare, child development, child achievement. Go, right, private sector, go. That to me makes a ton of sense.
We want a private sector response that makes us more resilient in the face of future pandemics. I think there are elements that, there are roles that the state can play here, and there are roles that the private sector can play and where possible you want to hand it off to the private sector to solve it.
And where you cannot effectively do that, you need, the state needs to play a larger role, but in general, I think we are on similar pages, as long as we are agreeing the state needs to play a role by setting objectives and potentially setting up incentive architectures to achieve those objectives.
[01:21:37]Mike Green: This goes back to again, and one of the frames that I tend to use is that we have lost a lot of the wisdom of our elders, right? We have a lack of appreciation for economic history, for how it developed, what the discussions were, et cetera.
John Maynard Keynes has the famous expression. “You practical men who fancy themselves exempt are slaves to some defunct economists”.
We are all trapped in the Milton Friedman world at this point, where we just presume that the knee jerk reflexive reaction is, government can produce nothing good.
Government can create manifest destiny, and government can create the articulations behind the Constitution, the preamble of the Constitution of the United States, of the Declaration of Independence, or the Emancipation Proclamation. These are things that can only be done at a societal level.
You have to basically agree that you are going to decide that you stand for something, and that is, I think, really the thing that most people really struggle with today. What do we stand for? Do we stand for grifting corporate, grifting politicians who are enriching themselves at the public purse? Do we stand for nasty discourse in the public square, or do we stand for people who are genuinely trying to build something together? And I would like to believe that it is the latter still.
[01:23:02]Adam Butler: Yeah, me too. Alright, listen, we covered a lot. I bet the conversation is gonna continue to evolve on this thing and there will be other objections that are worth covering, and you will write more stuff, and thank you, thanks for being authentic. Thanks for writing the article that you wrote and sparking this conversation, and I hope it takes a constructive turn and it helps to nudge us in a new and better direction.
[01:23:32]Mike Green: I will tell you the single best thing that has happened from it is actually seeing how people are suddenly waking up to the conditions. It spurred conversations between boomers and Xers and millennials and Gen Z who are all actually starting to talk about these things. The number of people who sent me messages that said, we literally distributed the article to every member of our family and talked about it at Thanksgiving dinner.
[01:23:57]Adam Butler: Amazing.
[01:23:58]Mike Green: Man, that is an amazing gift you gave to me.
[01:24:02]Adam Butler: Yeah. No, that is tremendous. Incredible. Love it. Alright, thanks again, Mike. Really appreciate your time and your sharing your wisdom and look forward to next time.
[01:24:13]Mike Green: Alright, take care, Adam. It was great talking to you again.
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