Last year, the affordability crisis impacting American politics led voters to reject Democrats in favor of another Donald Trump administration, whereas this year, a democratic socialist was chosen as the mayor of New York City.
TL;DR
- Michael Green argues the current poverty threshold is outdated and fails to reflect the true cost of living in America.
- He calculates a realistic threshold for a family to function is around $140,000, not the official $31,200.
- Green describes a "Valley of Death" where rising incomes lead to faster benefit loss, trapping people.
- This financial strain explains voter anger, with the middle class feeling squeezed by rising costs and aid systems.
This is contrary to economic indicators that suggest moderating price increases, consistent wage growth, and robust consumer expenditures.
However, Michael Green, who serves as chief strategist and portfolio manager at Simplify Asset Management, believes that standard metrics fail to reflect the extent of financial hardship Americans face due to the rising cost of living, impacting even those with incomes in the six-figure range.
During a viral Substack post last week, he specifically criticized the national government's poverty threshold, a measure originating from the early 1960s that was determined by multiplying the expense of a basic food plan by three.
“But everything changed between 1963 and 2024,” Green wrote. “Housing costs exploded. Healthcare became the largest household expense for many families. Employer coverage shrank while deductibles grew. Childcare became a market, and that market became ruinously expensive. College went from affordable to crippling. Transportation costs rose as cities sprawled and public transit withered under government neglect.”
Currently, a household requires two incomes to achieve what a single income used to afford, yet this necessitates expenses for childcare and the ownership of two vehicles.
Consequently, the poverty threshold's restricted attention to sustenance fails to account for the extent to which other expenditures are currently depleting earnings and underestimating the minimal sum individuals require to subsist.
Green calculated that sustenance accounts for a mere 5%-7% of domestic expenditures, while lodging represents 35%-45%, child care 20%-40%, and medical services 15%-25%.
“If the crisis threshold—the floor below which families cannot function—is honestly updated to current spending patterns, it lands at $140,000,” he added. “What does that tell you about the $31,200 line we still use? It tells you we are measuring starvation.”
‘The Valley of Death’
Concurrently, individuals in America who reside beneath Green's poverty benchmark continue to lag, despite their upward movement on the earnings scale.
This creates a counterproductive situation, as the most impoverished individuals, conversely, do not face increasing difficulties when assistance is withdrawn.
“Our entire safety net is designed to catch people at the very bottom, but it sets a trap for anyone trying to climb out,” he explained. “As income rises from $40,000 to $100,000, benefits disappear faster than wages increase. I call this The Valley of Death.”
The COVID-19 pandemic's lockdowns provided a break for numerous households, as employed parents avoided expenses for childcare and commuting while working remotely. Additionally, government stimulus payments boosted their earnings.
Following the economy's reopening, those expenses resurfaced, leading to a surge in inflation. Although it has significantly decreased since 2022, the general price levels have not fallen and continue to be elevated.
“This mathematical valley explains the rage we see in the American electorate, specifically the animosity the ‘working poor’ (the middle class) feel toward the ‘actual poor’ and immigrants,” Green said.
He further stated that the frustration doesn't originate from racial prejudice or a deficit of compassion. Rather, it's primarily linked to discontent with the administration.
“When you are drowning, and you see the lifeguard throw a life vest to the person treading water next to you—a person who isn’t swimming as hard as you are—you don’t feel happiness for them,” he said. “You feel a homicidal rage at the lifeguard. We have created a system where the only way to survive is to be destitute enough to qualify for aid, or rich enough to ignore the cost. Everyone in the middle is being cannibalized.”
Life is expensive
Certainly, Green conceded his figures stem from expenses in the New Jersey suburbs. His benchmark also surpasses the average family income for a four-person household in 37 different states, according to the Washington Post.
The Massachusetts Institute of Technology’s Living Wage Calculator and the Economic Policy Institute have similarly estimated that annual family expenditures in certain states exceed $100,000.
Meanwhile, financial strains from the higher cost of living also help explain why discount retailers like Walmart have reported seeing more upper-income customers shopping at their stores.
According to Green's perspective, the key takeaway is that sustenance remains reasonably priced, despite recent upticks in grocery costs. It's the general cost of living that has become steep.
“The real poverty line—the threshold where a family can afford housing, healthcare, childcare, and transportation without relying on means-tested benefits—isn’t $31,200. It’s ~$140,000,” he wrote.
His Substack article also reflected a recent survey from the Harris Poll indicating that a significant number of Americans making six figures, or even $200,000 annually, are privately struggling.
Among the discoveries was that 64% of those earning six figures stated their income isn't a benchmark for achievement but simply the essential amount for survival.
“Our data shows that even high earners are financially anxious—they’re living the illusion of affluence while privately juggling credit cards, debt, and survival strategies,” Libby Rodney, the Harris Poll’s chief strategy officer and futurist, said in a statement.