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Newsletter #46: Financial Life in the Negative World
Welcome back to the Masculinist, the newsletter about how we live as Christian men and as the church in the modern world.
I like to mix issues that have bigger picture cultural diagnostics with those that give more practical applications. Today is one of the latter as I draw on my framework from Masc #13 of the “positive,” “neutral,” and “negative” world to talk about ways to potentially structure our life financially in today’s negative world.
Life in the Negative World
Masc #13 is by far the most popular issue of this newsletter I’ve written yet. It outlines the three different eras of how Christianity interacts with the culture:
Positive World (pre-1994): Being a Christian is seen as a social positive. Christian morality is still socially normative in society.
Neutral World (1994-2014): Being a Christian is a neutral status attribute. It’s one of many things a person can be in a pluralistic public square. Christian morality ceases to become socially normative.
Negative World (post-2014): Being a Christian is seen as a social negative, particularly in the professional-managerial class. Christian teaching is increasingly seen as undermining the new social morality.
The positive and neutral worlds each had characteristic Church ministry and political strategies. The positive world was the era of the Boomercon religious right. The neutral world era was that of the cultural engagers.
But what about the negative world, today’s world? I noted that other than Rod Dreher’s Benedict Option, which many Christian leaders from the Pope to the Evangelical elite rejected, there was not much out there on the horizon.
Today I’m going to talk about some potential strategies for financially structuring your life for the negative world. I will write about others in the future, as well as additional related subjects to start fleshing out what life in the negative world can look like for the church.
Failing Millennial Life Scripts
The need for new financial models is clear even putting Christianity aside. That’s because the life scripts that have been handed to the Millennials and Gen Z increasingly don’t work.
In the 1980s, people like me were told to go to college no matter what. We were told that manufacturing was in terminal decline and that the only way to have a stable career and avoid getting stuck in a “McJob” was to get a degree.
For my generation, this worked pretty well, if not as well as it did for the Boomers. This was especially true for those who got to ride the go-go years of the 1990s.
For Millennials, things have been different. Start with their much greater levels of student loan debt. I graduated from college debt free. Even in 2003 or so there was only about $250 billion in total student loan debt outstanding. Today there’s $1.6 trillion outstanding. That’s debt that you can’t even get rid of in bankruptcy.
Add to that a slow-growing economy. We’ve only had one year of 3% or higher GDP growth since 2000. Job creation was anemic for 15 years from 2000 to 2015. And wages were persistently stagnant until the last couple of years. There are not enough high paying jobs requiring a college degree to go around, leaving some degree holders not only saddled with debt, but proverbially working at Starbucks too. Washington, DC passed a rule requiring daycare workers to have a college degree. This shows that they fully expect to be able to fill those roles even with that requirement, indicating the high excess levels of people with degrees compared to good jobs available.
What good jobs do exist are often in very high-cost coastal cities like the San Francisco Bay Area, Seattle, or New York. This means a good chunk of people’s pay is devoted to rent. No wonder a big topic of policy debate in these places has been the legalization of so-called “micro-apartments” even smaller than studios. These are basically dorms for adults.
Things are not likely to get much better for the Millennials and Gen Z because of the fallout from decisions made by what curmudgeonly New York based analyst Larry Littlefield has labeled “Generation Greed.” This group, composed of the late Silent Generation and early Baby Boomers, have seen massive gains in their income and wealth over the course of their lifetimes, as subsequent generations saw a relative decline. He wrote in 2012:
We are at the end of an epoch in U.S. economic history. For more than 35 years the pay level of most American workers has been going down, starting first with high school dropouts and then moving up the educational and economic ladder. Many of those young folks protesting against the one percent are probably in the 20 percent, the offspring of those who were the last to see their compensation level fall in the workplace. First it was the top half who were becoming better off as the bottom half was left behind, then the top 20 percent, then the top ten percent, and now the one percent. Up next – only the .01 percent may be still be getting better off, and soon perhaps not even them.
During the economic epoch now dying out although the compensation of most U.S. workers was falling, American consumer spending and the standard of living continued to rise. The world’s companies would not have had anyone to sell to, and all those profits and paper wealth for the one percent would never have been created, if those who were being paid less did not continue to somehow spend more…During the 1970s and early 1980s falling wages were more than offset by a rising number of workers per household, as married women entered the labor force in large numbers. Household income, as opposed to individual worker earnings, continued to rise. Starting in the early 1980s recession, large private businesses cut the compensation of their workforces further by reducing their future income, as 401K plans were substituted for defined benefit pensions, and then employer contributions to those 401K plans were gradually eliminated, along with retiree health care. This long-term pay cut didn’t reduce consumer spending at the time, because Americans didn’t increase their own savings to offset their lower employer-funded benefits. But it will lead to a drastic reduction in well being in old age over the next few decades….The final phase of the old economic epoch was a debt explosion.
Again, Littlefield, a late Baby Boomer, is a curmudgeon with a particularly bleak future outlook but the historic trends he reviews in extreme statistical detail on his site are real.
No wonder we keep reading about 30 year olds still living with mom and dad.
So younger Christians need to rethink how they structure their finances and their careers in light of both the increasingly hostile social environment in which they find themselves, and the general financial squeeze they’ve been experiencing.
Financial Independence, Retire Early
A number of Millennials (and late Gen Xers) have already started rethinking how they live their lives in light of these new realities. One of the most intriguing responses is a movement that I first read about a couple of years ago called Financial Independence, Retire Early (FIRE). The New York Times highlighted it in 2018 in an article called “How to Retire in Your 30s With $1 Million in the Bank.”
Mr. Jensen was making about $110,000 a year and had benefits, but the stress hardly seemed worth it. He couldn’t unwind with his family after work; he spent days huddled over the toilet. He lost 10 pounds.
After one especially brutal workday, Mr. Jensen Googled “How do I retire early?” and his eyes were opened. He talked to his wife and came up with a plan: They saved a sizable portion of their income over the next five years and drastically reduced expenses, until their net worth was around $1.2 million.
On Tuesday, March 10, 2017, Mr. Jensen called his boss and gave notice after 15 years at the company. He wasn’t quitting, exactly. He had retired. He was 43.
This article generated a huge response from NYT readers, so it obviously hit a nerve. People asked a lot of how-to questions, which were compiled into a follow-up article.
The typical person pursuing FIRE (“firing” in their parlance) is a young techie who is “hacking” his finances to reduce expenditures to an absolute minimum in order to save a huge share of income. Apparently, a 70% savings rate is the aspirational target level, and these folks seem to be able to retire with only a bit over a million in the bank. This obviously requires a willingness to live a very lean lifestyle permanently.
The FIRE lifestyle appears to have become a popular niche. It’s even gone international. One nice thing about it is that, probably because it has a heavy tech industry draw, there seems to be a ton of detailed information about how to go about saving money on X, Y, or Z, etc.
The FIRE approach does two powerful things from the standpoint of the negative world Christian. First, after even a few years of savings it provides a significant cash cushion that can provide you with a form of “cancellation insurance,” giving you a long runway to get back into the job market if you are sacked.
Secondly, once you’ve “fired” (that is, hit your savings goal that enables you to retire), you’ve gone antifragile. Antifragility is a concept popularized by Nassim Taleb. I wrote about his work in Masc #14. Antifragile positions gain from volatility and extreme outcomes, in part because their downside is limited while their upside is unlimited.
Taleb notes that one way to create an antifragile position is through a barbell strategy in which you have a large safe position at one end and a very risky position at the other. Once you are at or near the amount of money needed to retire under FIRE, that’s your downside protection. Now you are free to swing for the fences in other areas of your life.
In other words, if you apply FIRE and hit your savings goal, you can afford to take very high risk in a difficult negative world environment for the sake of Christian mission (or work for 100% equity at a high risk startup, start your own capital-light business, support causes you care about, get involved in politics, or whatever else you want to do).
Household Economic Adaptations
The FIRE approach is pretty extreme. As with strict diets, it can be right for a certain personality type, but might not be for everyone. But there are alternative approaches that incorporate some of the concepts.
The key principle of the FIRE approach is generating a large surplus of income over expenses. This means living well below your means. Accomplishing that requires some mixture of raising your income or reducing expenses.
Larry Littlefield’s article above didn’t just complain about the world, it also outlined some proposed household strategies for living in the current environment.
He points out something that is very important, something that younger workers in their 20s rarely understand (I didn’t). Namely that while your pay goes up a lot early in your career, it’s probably not going to go up forever and there’s a high risk that at some point it actually goes down. He writes:
As I observe the lives of my peers and examine data on the public at large, however, I find that it is now very uncommon for the typical worker to stay in one organization and have their standard of living automatically carried up some kind of escalator. Pay levels rise very quickly early on, as people move from having little work experience and few usable skills to actually having value in the workplace, but after that all bets are off.
Downward mobility is a more likely pattern. Some start out worse off than their parents and remain there, particularly those that enter the labor force in a recession. Others remain employed but see their inflation-adjusted pay gradually drift downward during most of their careers, following the national trend. Still others happen to get lucky and fall into a situation that provides a higher standard of living for a while. They get the unionized job at the plant. They work in finance during a stock market bubble, or in IT during a dotcom bubble. They work as mortgage brokers, realtors or construction workers during a housing bubble, or in oil and gas during an energy boom.
These lucky workers could, and should, realize their good fortune in earning far more than others who are in reality worth just as much, understand that this is unlikely to continue, and put aside their excess earnings for the future, maintaining the lifestyle of their less fortunate peers. But inevitably most upsize their lifestyle as if whatever circumstance they are in will last forever. Then the plant closes, the company goes under, the bubble bursts. There are tens of millions of Americans who will never earn nearly as much, adjusted for inflation, as they did at some point in the past. There are tens of millions of other Americans who, it they were forced to find a new job, would earn far less than they are earning in their current job right now. During the recession, I read, the average worker who lost their job took a 40 percent pay cut.
As you get older, your pay will probably plateau with your career. And once you hit 40 and certainly 50, the risk of a major financial reversal is ever-present. You’ve probably read articles about the 50-something six-figure salesman or HR person who ended up losing his job in a recession and was unable to find another decently paying white-collar job for years, if ever. You might think this could never happen to you, but believe me, it can.
Littlefield’s first suggestion is to avoid ratcheting up your lifestyle over time.
One’s material lifestyle is a one-way ratchet. It is easy to slide up, quickly taking for granted every increase in goods and services consumed, but painful to go down. The higher the material standard of living that one requires to be happy, therefore, the weaker and more vulnerable they are. Beyond the real basics one does not miss what they have not had. But ratchet up the lifestyle to a level that is difficult to sustain, and one is more likely to experience what can seem like a diminishment of their life – or to constrain their options or make bad decisions to avoid that diminishment. Options as to where to live, what kind of work to do, how much time to spend out of work with young children, and how much can be donated to charity. Options like taking the risk of starting a business or running for public office.
When you are young and your salary goes up, it’s natural to want to stop eating ramen noodles and live a little. There’s nothing wrong with this. But there’s also nothing more natural than to essentially escalate your lifestyle lockstep with your income, which is extremely hard to reverse and makes you extremely fragile. As Byrne Hobart notes, corporations love this:
Big companies derive significant benefits from “lifestyle creep,” and all else being equal, they’d prefer that employees habitually spend as much of their disposable income as possible, so there are fewer alternative jobs they can take. If benefits encourage employees to move to a new city that’s trendy-despite-Covid, rather than never trendy and always cheap, the company comes out ahead.
Allowing lifestyle creep to make you vulnerable is not a good place to be in our society and in the negative world.
I embody the previous two points. I make significantly less money than I did little more than a decade ago, even in nominal dollars. On an inflation adjusted basis, I probably only earn about a third as much as I did back then, believe it or not. Some of this is from choices I made, such as switching into a different professional field. But regardless of how it happened, it happened. What’s more, I have a wife who is a stay at home mom to a young child. So that diminished income is supporting three people.
This required a very painful reduction in my standard of living. This was particularly true when I was living in NYC and had an apartment smaller than any place I’d lived in over 25 years. Don’t get me wrong, I don’t live like a monk. There’s still room for me to spend less, and I want to keep pushing that direction. But I have significantly reduced what I consume. It would have been much better if I’d never ratcheted up my lifestyle so high when working in the management consulting industry in Chicago. It’s very easy to go upward, much harder to go downward.
What’s more, raising your lifestyle just resets your baseline. When I was a kid we didn’t have much money. On rare occasions we would go to Ponderosa for steak. I thought it was the best restaurant in the world. As an adult, I ate more top shelf steak dinners than I could ever count. But did I enjoy them anymore than I did Ponderosa as a kid, particularly after the first couple of times? I doubt it. In economics this is called the “law of diminishing marginal utility.” It’s the same process that operates in building up a tolerance to drugs; you need more and more to get the same effect.
This ten-year process of adapting to a much lower income and reducing my lifestyle was painful. But if I hadn’t done it, I would not be in a position today to launch the expanded Masculinist mission. I wouldn’t even be able to think about it. I’d never be able to afford the pay cut. An expensive lifestyle constrains your options. A leaner lifestyle makes more room for Christian mission. (I should be sure to say too, that despite the process of deflating my lifestyle, I’m actually far happier today than I was at the peak of my income, something I would not have expected).
You can learn from my experience and avoid putting yourself in the position to have to impose lifestyle reductions. Especially if you are young, you’ve got an opportunity to create a significant gap between your rising income and your spending. Banking this gap pays dividends, and so does not get addicted to an unsustainable lifestyle.
If that’s not enough incentive, Littlefield also points out that our lifestyle decisions permanently affect our kids. He writes:
When we first moved out on our own our goal was to live on as little as possible and still be safe and comfortable. And while we are more comfortable now that goal remains a consideration today, in part because we don’t want our children to become conditioned to a lifestyle that they might be unable to duplicate easily on their own – and thus trap them in the one-way ratchet.
I was in poverty for several years of my childhood. So I had nowhere to go but up in lifestyle. Naturally people like me want to give our kids the advantages we didn’t have. But in terms of lifestyle that “advantage” can be a disadvantage. Kids growing up with a lifestyle befitting the upper end of the income spectrum have nowhere to go but down. This is something I want to think very carefully about with my son. I don’t want him to experience the problems I did by growing up without so many baseline experiences. I’d never eaten sushi until I was an adult. I didn’t even know how to use chopsticks. My boss at the time had to teach me. Pretty embarrassing. You don’t want to create social disadvantages like that if you can avoid it. But I also don’t want my son to be addicted to a high consumption lifestyle either. I’m not sure what the right answer is, but thinking about these issues is something we should all do.
So how can you avoid lifestyle ratchet? One way is to be careful about your media consumption. Littlefield notes:
There is a whole industry, the advertising/public relations industry, dedicated to conditioning people to believe that more and more luxuries are necessities, perhaps not necessary to live but necessary to live a decent American life as most people understand it. Year by year they try to upsize the definition of what is required to be in the middle class, even as pay levels fall, in a constant drone of propaganda with little or nothing on the other side.
One thing I did a few years was to stop reading lifestyle magazines that I used to enjoy. These exist for only one purpose: to make you want to purchase more expensive products and experiences. I already still have too much desire to buy the kinds of things I used to. I don’t need to pay for something that will only add to the temptation.
Littlefield’s second recommendation is to make sure married couples can always live on one income:
The second lesson we learned in the 1970s is that a couple should strive to be “semi-independently wealthy” when two people are working. That is, a couple should live on one after-tax income, banking the other. This is necessary to provide economic security, given the possibility of unemployment or illness, and to provide the option to work less when raising young children, without debts being run up or the household budget going down.
And it is also necessary because there is always a large future expense that one should be saving for – a housing down payment, followed by education for the children if you have them, followed by retirement. And if one doesn’t have children, they should be saving far more for old age rather than spending more in the short term, because there may be no family member to provide care when it is needed. If a two-worker household is spending more than one income, they have ratcheted up their lifestyle to an unsustainable level, and made themselves vulnerable.
This is a good rule of thumb, and especially true for Christians who want their wife to stay home with the children, or even to home school. It’s one I’m following today as noted above. The dual income, no kids is a great recipe for creating the kind of massively inflated lifestyle Littlefield warned against if you aren’t careful.
Littlefield’s third rule is a simple one your grandparents might have considered a truism: avoid debt. “It is better to pay for things with savings rather than with debt. Doing so means you can’t have the things right away. But over time the difference between the interest earned on savings and the interest paid on borrowing becomes enormous.”
Student loan debt alone is a millstone around the neck of far too many young people. A fat mortgage locks you into the high-flying lifestyle unless you sell your house. Credit card debt carries very high-interest rates.
I don’t think it’s wrong to get a mortgage or have a car loan or even to have student loans. Some people do get squeezed and forced into disadvantageous borrowing as the least bad option. People in poverty or who fall into the United Way ALICE category (Asset Limited, Income Constrained, Employed) struggle to avoid turning to credit in circumstances most people reading this have never faced.
But as a rule, avoiding debt is much to be encouraged. Dave Ramsey built a big business helping people get out of debt. The popularity of his programs shows that a lot of people who did take on debt are very eager to get rid of it. I am very fortunate to have no debt. Less debt again means less vulnerability in the negative world and more options for engaging in Christian mission.
I recently talked to a young man who has an aggressive public ministry. He grew up in a lower-income family and took an extended period of time to get through college so that he could work to avoid student loan debt. Had he not done that, he would not be able to take the kind of stands he is today.
To sum up, in the negative world we reduce our vulnerability by creating a significant gap between our income and expenses to enable us to build a large reserve of savings or otherwise take more risk. A system like FIRE is an extreme version of this. But we can accomplish similar things in a more moderate form by limiting the expansion of our lifestyle, living on only one income where possible (if married), and avoiding debt.
All this is obviously much easier to do when you are young. Like a lot of things, I stupidly didn’t make such great decisions early and now am having to course-correct as best I can, with a lot of pain involved. But in line with the skin in the game principle, I have been doing some of these things myself. I’m not just telling you to do them. I significantly deflated my lifestyle (some of it involuntarily to be sure), relocated to a lower-cost city a year ago, am living on one income, and don’t have any debt. This isn’t generating big savings at the moment, because I’m using the margin created by these moves, for now, to allow my wife to stay home with our son. I’m also using it to invest in the Masculinist. But without those moves, neither of these would have been possible.
This issue focused mostly on structuring the expense side of the equation. In future issues, I may talk more about that, but will also be talking about ways to structure the revenue side of your household income statement. Stay tuned.