Absolute Wealth
From Zanecorpwiki
TODO: incorporate $75,000 study.
Here's the idea: there's a hard limit to what it's possible to buy and consume. That limit defines "absolute wealth". This is a pure free market theory of wealth that seeks to maximize both personal and global utility through the efficient use of resources.
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Limits on Functional Availability
The first aspect of absolute wealth is limits on "functional availability". We say "functional" to denote the capability to do something in opposition to aesthetics. In other words, the ability of a car to drive a passenger from point a to point b is functional, how the car looks as it does so is non-functional. Whether or not AC is available is functional. How the car sounds is not.
This is not to say that sight and sound, and aesthetics in general, are immaterial or unimportant, but that they are non-functional aspects of the thing. The purpose is so that we can understand that in most domains, functional differences cease very early on in the price scale. Cars are one of the best examples: there are few functional differences between a million dollar Bugatti Veyron can accelerate quicker than a $1,000 used Geo Metro, but considering speed limits and stop signs would not actually get you anywhere faster, be harder to park, and use a hell of a lot more fuel. If anything, the Metro is functionally superior under most circumstances.
This is not to say that ignoring cost, most people would not prefer to drive a Veyron. But if we focus on the functional aspects of the two vehicles, then the dollar to functionality ratio of the Veyron is clearly inferior... by 3 orders of magnitude.
The same is true of other things. Houses are more complicated, but as far as sheltering one from the elements and managing one's local environment, a modest bungaloe does as good or better than an ostentatious mansion. Setting taste aside, you could eat the healthiest, most nutritional food available for every meal every day of the year for 1/10 to 1/5 the cost of the most expensive meal in the world. Here, the difference in price is even more egregious at 5-6 orders of magnitude.
Even health care, as expensive as it is, tops out fairly early on. Even billionaires are only able to add 3.5 years to their life expectancy, and even that small bump would probably drop dramatically if you compared billionaires with middle class white males rather than the entire US male population. No amount of money in the world can cure an incurable disease.
Limits on Consumption
Whereas functional availability is a supply side question, limits on consumption looks at the question of wealth from the demand side. It really boils down to this: what, as a human, are you able to do? The two primary factors are "appreciation capacity" and time limitations.
A good example of appreciation capacity can be found with AV equipment. Both the limits of physiology and double blind tests agree: human being cannot tell the difference between $10,000 Monster brand cables and a wire coat hangar. The specifications of even "mediocre" equipment, by AV standards, far exceed the ability of the human ear. For home listening, anything over $10,000 (and perhaps as little as $1,000 depending on the space and usage) is simply wasted money. No ifs, ands, or buts. You gain nothing but bragging rights by spending more money.
In other realms, the distinction can be softer, but the general question is, "Can I actually appreciate these extra dollars?" Sometimes the answer is yes. An art historian and antique lover certainly gets a lot out of a period Louis XIV chest of drawers. But if you don't have the training to see the difference between the period piece and imitation, you might as well buy the imitation. In other words, your education and background in a subject limits your ability to appreciate the subject.
Wine's a great example. Take a $90 bottle of wine, tell people it costs $10, and they don't like it as much. No doubt a wine aficionado could tell the difference. They have the ability to appreciate that $80 so it may make sense for them to spend that extra money. But if you don't have the training, background, or simply the genes to taste the difference, then you've exceeded your the limitation on consumption and you're just wasting your money.
The other major limiting factor is time. If it takes you an average of 8 hours to read a book, then between sleeping and eating, you could never read more than a dozen books a week, or about 600 books a year. At an average cover price of $10, your consumption capacity limits you to $6,000 spent on books.
Pinning Absolute Wealth
Absolute wealth is dependent on an individuals circumstances, but getting a feel for the ball park is pretty easy.
- $200,000 for a well appointed, quality dwelling; certainly well above the national average for the limit imposed by functional cost and below that of certain markets (like New York); assume a 30 year lifespan: $6,666 / year
- $500 month for health care[notes 1]; $6000
- $25,000 for a vehicle or transportation costs; people with very large family or special circumstances may require more, but those in an urban area have much less; 7 year lifespan: $3,571 / year
- basic food: $100/month or $1,200 / year
Subsistence costs, ignoring taxes therefore run about $17,437 in a frictionless environment. Add financing and taxes and maintenance, and it's certainly more. Let's put it at about $25,000 ($7,000 above the poverty line, and well above a living wage for my area).
The next question is then what is one's capacity to appreciate "the finer things in life?" Depends of course whether you love spending time in the park or driving Italian super cars, but let's say you really love cars. With $100,000 a year income, you could afford a Ferrari if that's what you loved. Love Ferrari's and yachts? Fine, $200K a year. Love Ferrari, yachts, fine food, expensive cigars, and giant houses? Thats just superficial spending, not appreciation.
I (well, my wife and I actually) currently make about $60K/year, pre-tax after business expenses and I buy pretty everything I want. It'd be nice to vacation more, and I think I could appreciate that. Vacationing is expensive, but let's say $120K. That's the number for my wife and I. Can some people justify more? Sure. Why not. But once you get to the $200K range (and this is before US taxes, BTW), I have serious doubts that you're actually able to appreciate that money you're spending.
Children, et. al
Children are a huge variable. Two adults living together are efficient. The extra adult increases costs by about 50%. A child is more like 80%. But that money isn't being spent on you, it's spent on the child and counts against their own absolute wealth, not your own.
Notes
- ↑ $500/month for health care is the US average and quite generous at twice that of the average of all other developed nations.
