From Michael Green, Chief Strategist and portfolio manager at Simplify Asset Management at his personal substack, Yes I give a Fig, November 23, skipping past the introductory (worthwhile and interesting) comments on markets:
Part 1: My Life Is a Lie
How a Broken Benchmark Quietly Broke America
....And so now, let’s tug on that loose thread… I’m sure many of my left-leaning readers will say, “This is obvious, we have been talking about it for YEARS!” Yes, many of you have; but you were using language of emotion (“Pay a living wage!”) rather than showing the math. My bad for not paying closer attention; your bad for not showing your work or coming up with workable solutions. Let’s rectify it rather than cast blame.
How a Broken Benchmark Quietly Broke America
I have spent my career distrusting the obvious.
Markets, liquidity, factor models—none of these ever felt self-evident to me. Markets are mechanisms of price clearing. Mechanisms have parameters. Parameters distort outcomes. This is the lens through which I learned to see everything: find the parameter, find the distortion, find the opportunity.
But there was one number I had somehow never interrogated. One number that I simply accepted, the way a child accepts gravity.
The poverty line.
I don’t know why. It seemed apolitical, an actuarial fact calculated by serious people in government offices. A line someone else drew decades ago that we use to define who is “poor,” who is “middle class,” and who deserves help. It was infrastructure—invisible, unquestioned, foundational.
This week, while trying to understand why the American middle class feels poorer each year despite healthy GDP growth and low unemployment, I came across a sentence buried in a research paper:
“The U.S. poverty line is calculated as three times the cost of a minimum food diet in 1963, adjusted for inflation.”
I read it again. Three times the minimum food budget.
I felt sick.
The Measurement Failure
The formula was developed by Mollie Orshansky, an economist at the Social Security Administration. In 1963, she observed that families spent roughly one-third of their income on groceries. Since pricing data was hard to come by for many items, e.g. housing, if you could calculate a minimum adequate food budget at the grocery store, you could multiply by three and establish a poverty line.
Orshansky was careful about what she was measuring. In her January 1965 article, she presented the poverty thresholds as a measure of income inadequacy, not income adequacy—”if it is not possible to state unequivocally ‘how much is enough,’ it should be possible to assert with confidence how much, on average, is too little.”
She was drawing a floor. A line below which families were clearly in crisis.
For 1963, that floor made sense. Housing was relatively cheap. A family could rent a decent apartment or buy a home on a single income, as we’ve discussed. Healthcare was provided by employers and cost relatively little (Blue Cross coverage averaged $10/month). Childcare didn’t really exist as a market—mothers stayed home, family helped, or neighbors (who likely had someone home) watched each other’s kids. Cars were affordable, if prone to breakdowns. With few luxury frills, the neighborhood kids in vo-tech could fix most problems when they did. College tuition could be covered with a summer job. Retirement meant a pension income, not a pile of 401(k) assets you had to fund yourself.
Orshansky’s food-times-three formula was crude, but as a crisis threshold—a measure of “too little”—it roughly corresponded to reality. A family spending one-third of its income on food would spend the other two-thirds on everything else, and those proportions more or less worked. Below that line, you were in genuine crisis. Above it, you had a fighting chance.
But everything changed between 1963 and 2024.
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.
The labor model shifted. A second income became mandatory to maintain the standard of living that one income formerly provided. But a second income meant childcare became mandatory, which meant two cars became mandatory. Or maybe you’d simply be “asking for a lot generationally speaking” because living near your parents helps to defray those childcare costs.
The composition of household spending transformed completely. In 2024, food-at-home is no longer 33% of household spending. For most families, it’s 5 to 7 percent.
Housing now consumes 35 to 45 percent. Healthcare takes 15 to 25 percent. Childcare, for families with young children, can eat 20 to 40 percent.
If you keep Orshansky’s logic—if you maintain her principle that poverty could be defined by the inverse of food’s budget share—but update the food share to reflect today’s reality, the multiplier is no longer three.
It becomes sixteen.
Which means if you measured income inadequacy today the way Orshansky measured it in 1963, the threshold for a family of four wouldn’t be $31,200.
It would be somewhere between $130,000 and $150,000.
And remember: Orshansky was only trying to define “too little.” She was identifying crisis, not sufficiency. If the crisis threshold—the floor below which families cannot function—is honestly updated to current spending patterns, it lands at $140,000.
What does that tell you about the $31,200 line we still use?
It tells you we are measuring starvation....
....MUCH MORE, why housing costs are so important.
November 30 - Part 2: The Door Has Opened
December 7 - Part 3: The Pursuit of Happiness
You may also know Mr. Green as ProfessorPlum99 on X
Haves and Have Nots: The Real Real Estate State and Artificial Scarcity, Technology and Planning
In September 2013's "Ben Franklin on Labor Economics (or how to create an underclass)" I intro'd with:
The easiest way to create a dependent class is to price them out of the real estate markets.
"In countries fully settled…those who cannot get land must labor for others that have it; when laborers are plenty, their wages will be low; by low wages a family is supported with difficulty; this difficulty deters many from marriage, who therefore long continue servants and single....""Huge Human Inequality Study Hints Revolution is in Store for U.S."
As we, and before us (way before us) Ben Franklin* have pointed out, the surest way to create a permanent underclass is to keep a population from getting on even the first rung of the wealth accumulation ladder.
In most cases this means real estate, access to which is limited by zoning laws and construction regulations constricting supply. Politicians working for their political masters/funders.
Another way to keep the populace from accumulating wealth is to keep the cost of daily expenses, food, rent, transportation, equal to or a bit above income so there is no accumulation of capital and preferably a slide into debt.
A third way to make the rich richer and the poor poorer is to pump enough money into the system to inflate asset prices, benefiting those who already own the assets and combined with the other factors, keep folks in a hand-to-mouth existence.
There's more but that's just what comes to mind without thinking too hard....
"The Asset Economy" (or how to create an underclass)
June 2022 - "Redefining the Working Class Beyond white men in hard hats":
There seems to be something akin to an actual plan to charge the plebs everything they earn to cover food, shelter, and basic necessities and further, to drive them into debt servitude to the tune of 5% - 10% of annual income per year...
November 2022 - Corrected—"Goldman, TS Lombard Confirm Fed Inflation Target Hike Now Inevitable"
We are living in a fantasy land, which itself is dangerous should reality intrude.
But what is even more dangerous is when you agree to live in someone else's fantasy land.
From the social to the scientific to the economic, playing along to get along, joining the Let's Pretend fashion of the day, can not only get you killed but can riun whatever little time you have on earth....
August 2023 - Unless You Deeply Understand How Inflation Hits Different Groups, You Don't Understand Inflation
When I say 'deeply' I mean having the empathy and imagination to actually 'feel' the emotions that result from having to comparison-shop food prices and then food prices vs other necessities.
It all comes down to financial assets and whether a person benefits from rising asset prices.
September 2023 -That Threat Out On The Horizon You Thought Might Be A Black Swan....
Is probably the even-more-dangerous Gray Rhino....
August 2024 - "The Haves and Have-Nots at the Center of America’s Inflation Fight"
Mssr. Cantillon nods in recognition....
August 2024 - "Did wages rise 10-fold to match the 10-fold rise in the cost of a modest house? No"
September 2025 - "How the Government Built the American Dream House"...
I am deadly serious when I say "The best way to build a permanent underclass is to prevent people from getting on the first rung of home ownership." This result is apparent to anyone who chooses to look.*
December 2025 - "Mortgage Rates Are Not Too High. What’s too High Are Home Prices that Exploded by 40-70% in 2 Years, Creating the 'Affordability Crisis'”
And dozens more between those few. If interested use the 'search blog' box, upper left.
Also:
"Evidence – And an Explanation – For the Recent Surge in Inflation Inequality"
The Purpose Of A System Is What It Does, Not What It Claims To Do
