Tuesday, January 18, 2011

The High Income Bidding War

Having seen chart after chart underscoring income disparity in the United States, it started me thinking about how all dollars are not created equal.

Three years ago at a different job, I was earning half what I make now. I should be rolling in the dough, correct? Unfortunately for me, the increase in salary has come at the cost of successively higher priced real estate markets. Where my current salary has increased 223%, my rent has increased 279%, and I am in roughly the same position I was three years ago.

The key is that, as my salary has increased, the salaries of those against whom I am competing for resources has increased as well. In terms of goods and services, I'm consuming approximately what I did three years ago, but at double the cost, because those I am bidding against in these markets have the same relative position. Therefore, within an economy, a currency can have differing real values, even though it is nominally the same.

If my supposition is correct, the rich consume far less than their income would imply. Their $3,000,000 Manhattan apartment may constitute the same resources as a $500,000 Minneapolis apartment, but there are fewer, deep-pocketed bidders in Minneapolis. They may be rich, but it isn't doing them as much good as you would think.

Now, at the rarefied level of the outrageously rich, I suppose this ceases to have meaning, but for the merely rich, they are only nominally so.

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