This is just the pool house.

Photographer: Photographer: Emile Wamsteker/Bloomberg

Admit It: You're Rich

Megan McArdle is a Bloomberg View columnist. She wrote for the Daily Beast, Newsweek, the Atlantic and the Economist and founded the blog Asymmetrical Information. She is the author of "“The Up Side of Down: Why Failing Well Is the Key to Success.”
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Jack Lew made a lot of money working for Citibank. So why, asks David Sirota, did he say last week that "My own compensation was never in the stratosphere"?

Jack Lew is not the only person who says this sort of thing. The media is routinely filled with people making six- and seven-figure incomes who modestly report that they are very middle class, struggling, really, to make it from paycheck to paycheck. And if you live in a big coastal city like New York, Washington, Boston or San Francisco, you don't need to wait until someone gaffes to the media; you can go to any private-school parents night or Ivy League alumni reunion to hear a veritable chorus of people remarking that they really don't know how they keep body and soul together on just $350,000 per annum. Be warned, however, that it is not polite to point and laugh the way that you would on Twitter.

Why is the 1 percent suffering from this peculiar mass delusion? Well, actually, it's not that hard to understand. Because if you're reading this article, chances are that you are in the top 1 percent of global income. And chances are also that you really don't feel like a tycoon.

The cutoff for the global 1 percent starts quite a bit lower than the parochial American version preferred by pundits. I'm on it. So is David Sirota. And if your personal income is higher than $32,500, so are you. The global elite to which you and I belong enjoys fantastic wealth compared to the rest of the world: We have more food, clothes, comfortable housing, electronic gadgets, health care, travel and leisure than almost every other living person, not to mention virtually every human being who has ever lived. We are also mostly privileged to live in societies that offer quite a lot in the way of public amenities, from well-policed streets and clean water, to museums and libraries, to public officials who do their jobs without requiring a hefty bribe. And I haven't even mentioned the social safety nets our governments provide.

So why don't we feel like Scrooge McDuck, rolling around in all of our glorious riches? Why do we feel kinda, y'know, middle class?

Because we don't compare our personal experiences to a Tanzanian subsistence farmer who labors in the hot sun for 12 hours before repairing to his one-room abode for a meal of cornmeal porridge and cabbage. We compare ourselves to other Americans, many of whom, darn them, seem to have much more money than we do.

But often, our comparisons are even more provincial. We judge our incomes against those of our neighbors, our colleagues, our family members -- hence the old joke that a rich man is one who makes $1,000 more a year than his brother-in-law. 

In expensive coastal cities, relative prices also play a big role. People focus less on the numbers on their paycheck and more on what they are able to consume. Compared to family friends who live in places like Kentucky, Ohio and St. Louis, our house is extremely expensive -- a mansion, really. But compared to those people, we also live in less square footage, have fewer amenities and suffer much more risk of crime. Which is the right comparison?

I'd argue that the correct comparison is the dollar value -- we are choosing to consume a lot of our income in the form of living in an expensive city, where work opportunities are also greater. But most people don't think that way. Instead, they ask questions like "how nice is my house compared to those of my friends?" By those standards, we are housed more than adequately, but hardly in lavish style.

So it's not surprising that Jack Lew compared his salary to those of the elite financial professionals with whom he worked and lived, rather than to the entire income distribution of the American population. And is that really more ridiculous than comparing your salary to Jack Lew's, rather than to the vastly more numerous people who live their lives in conditions that would hardly satisfy an American on an extended backpacking trip?

(Corrects description of income level in fourth paragraph.)

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:
Megan McArdle at mmcardle3@bloomberg.net

To contact the editor on this story:
Brooke Sample at bsample1@bloomberg.net