The expenditure cascade

It is obvious why poor people would have a problem with rich people, but today we will consider why middle class people should also have a problem with rich people. Because inequality and unfairness. If inequality is a problem, then the fact that you're not actually poor is irrelevant. What's relevant is that there are people out there who can afford things beyond your financial reach, and that feels massively unfair. It feels terrible to be broke, unable to make ends meet, while all around you are rich people dripping with diamonds.

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This means that it doesn’t matter whether you’re very poor or just a little bit poor – we are all in the same boat when it comes to blaming the rich for our troubles. The problem has been described as an ‘expenditure cascade’ meaning that the more rich people spend, the more the rest of us must spend too, just to try and keep up.  

Higher incomes cause those at the top of the distribution to build mansions, which in turn leads the next tier to build larger houses, which in turn means that the middle class must spend more on housing or face the prospect of sending their children to below-average schools.

Andrew Leigh, ‘Top Incomes’, The Oxford Handbook of Economic Inequality
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Being forced to send your children to below-average schools is a huge problem when it comes to inequality. It's tough, living alongside neighbours whose kids go to better schools than your own kids. It's not so much the quality of the education that matters, it's more about whether your neighbours are getting a better quality than you. Having your own children condemned to a below-average lifestyle (compared to what's going on around you) is really painful for those who have no other way to judge the quality of their own life other than by looking at what the neighbours are achieving.

I went to a school deep in the African bush (the school was affectionately known as Bush) and had a great time even though the school was so poor that we all had to do daily manual labour to keep the place running. Were there richer schools available for rich people? Sure. Did we care? No. We had confidence in our own amazing teachers and that's about the sum of it. This was before I learned about the expenditure cascade, which posits that you must first look at what people around you are spending, and then do your best to match them. It's like a spending competition.

The point about the expenditure cascade is that because rich people have so much to spend, they keep shifting the goal posts demarcating how much everybody else has to spend just to live an adequate life. No wonder inequality is rising. The rich are getting richer every day, so of course inequality is going to rise. It will never stop rising. This creates a huge amount of inconvenience for those whose goal in life is to keep up with the Kardashians. If rich people would stop spending so much on their ridiculously lavish lifestyles, then everybody else would be able to calm down and be content with their smallish houses and their averageish local schools.

This is why whenever the press writes about independent schools, the only example they are allowed to cite is Eton, and maybe Harrow if they're feeling a bit desperate for more examples. It is clear that rich people are responsible for whipping up a huge amount of discontent and unhappiness in the middle classes, whose children end up at the lesser independent schools (how embarrassing) or have to go to a state school in a wealthy and exclusive suburb where wealthy people send their kids so they can mix with other ordinary middle class children from ordinary super-privileged homes. This is yet another reason why there are calls for rich people to be banned: the sheer amount of misery they heap on those trying to keep up with them is appalling.

Long ago, before the unfortunate events of the Industrial Revolution, this is exactly how things were: everybody was equally poor and equally happy. Idyllic. Nobody was worried about keeping up with anybody else, obsessed with whether their local school was ranked above average, or any of that. Most people didn't even have a local school, as there was no need for schools. If the neighbour's children didn't know how to read or write, there would be no reason to put your own kids through the torment of literacy. There weren't any books to read anyway unless you were the elitiest elite, except maybe the Bible but reading that was banned unless you were a priest with the right credentials to read and understand things. On some continents, where it was nice and warm all year round, they didn't even bother with houses or clothes. With everybody running around naked and sleeping contentedly under the stars, there would be nothing to compare each other by and no need for anyone to feel left behind by the march of progress.

In that glorious and happy age there may have been a few rich chieftains and monarchs scattered here and there, but they were not very many and could easily be ignored. In the absence of tabloids and reality tv, they were simply not part of daily life. Certainly nobody woke up every morning worried about what the king had bought or what sort of new carriage he was driving (being driven in) and how they would ever manage to compete with that. Closer to home there was zero chance of anyone’s neighbour suddenly constructing a mansion thereby plunging the entire village into misery and torment.

The Industrial Revolution changed all that. Take for example the industrialist Abraham Darby who made the first blast-furnace iron in 1709. He cannot possibly have forseen the revolution he was about to spark: before long there was a massive proliferation progress, and inequality, in the world.
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