Monday, February 9, 2009

In the Big Apple, I prefer Honeycrisp.

I've been called out by Short Round over at alt85 again, concerning a recent article in The New York Times:

The article included one piece of information with direct relevance to the little people: "a new study from the Center for an Urban Future, a nonprofit research group in Manhattan, estmates that it takes $123,322 to enjoy the same middle-class life as someone earning $50,000 in Houston." [Tugs nervously at collar.] And since the average median* per-capita income in Houston in 1999 (according to was $20,101, and since the Urban Future people's figures would suggest that $20,101 in Houston is worth less than $49,578 in New York (for reasons that the newly returned Dr. Math could surely explain better than I,** unless he disagrees, in which case I challenge him to a duel)... Well, New York is f**kin' expensive. Not news.
Short Round

Sir, I accept!

So, I'm not generally opposed to the conclusion that New York ¢ity is an expensive place to live. (God knows I could use an extra $500K a year to spend on all those things that I've heard the city is supposedly famous for but that I'm too poor to experience.) The authors of this article seem to be basically assuming that conclusion from the beginning. In a sense, all this "news" piece is even claiming to do is put some quantitative weight behind a stereotype that we've all pretty much agreed on already. But since it involves numbers, I can't resist picking apart their methodology a little. The Devil, as always, is in the details:

First off, I had to do some considerable digging to even get to the original source of this email-forward-ready statement that $50,000 Houston dollars is equivalent to $123,322 Dollars New York ($NY). The Times article cites a report from the oddly-named Center for an Urban Future, which used a cost-of-living calculator from the CNN (yes, CNN) website, which had as its source material a survey done by the Council for Community and Economic Research (C2ER), in which they hired surveyors to sample prices from various cities they wanted to compare (more on that later). The (Center for an Urban Future) report is a 52 page document entitled "Reviving the City of Aspiration" about ongoing trends in the middle class of America, particularly in New York. One problem right off the bat is that the authors never precisely define what they mean by "middle class". They write, "In this study, we use ['middle class'] to indicate those who own homes or who have the prospect of becoming homeowners, earn at least in the middle quintile of wages and enjoy a modicum of economic stability." They then go on to wax poetic for a while about the important contributions middle class Americans make to society (including "providing the customer base for a wide mix of businesses across the city," adding to New York's "street life" and, somewhat circularly, owning homes). But setting aside the logical hiccup for a minute, it's still not clear from the definition who exactly qualifies as middle class. Rather, it's somewhat clear what the minimum standards are for membership--you have to own a home or have "the prospect" of doing so, earn "at least in the middle quintile of wages," which is sloppily phrased but I'm guessing means you have to earn more than at least 40% of people in the area, and have "a modicum" of economic stability, which they explain as being able to consistently pay your bills--but there seems to be no clear maximum standards. For example, would someone earning $250K per year in the 98th percentile be considered middle class, assuming he owned a house and could pay his bills (for monocle cleaning and storage)? Maybe, by the authors' definition, but certainly not by mine.

Now, if we trace this comparison-of-cities data all the way back to its source, the C2ER survey, we find an interesting disparity. The basic idea of the survey was to follow some sample of people around and make a log of the prices of all the things they paid for--clothes, food, entertainment, travel, etc.--to get a measurement of the relative cost of living in different places. However, in the guidelines for the survey participants, it says specifically that the authors are not looking for middle class consumers to follow around (they changed their original survey language because "it was too easily confused with 'middle class,' which isn't the same thing at all"); rather, they focus on a population they call "moderately affluent professional and managerial households", who are characterized as "a household consisting of both spouses and one child (for pricing apartments, it is assumed that the couple is childless or the individual is single)" with the criteria that "both spouses hold college degrees; at least one has an established professional or managerial career," and, most significantly, "household income is in the top quintile for the area" (emphasis mine). For most cities, they say that the household annual income should be "between $70,000 and $100,000;" however, as they say, "the appropriate income range will be higher in traditionally high-cost places like New York..." So our monocle-polishing Uncle Moneybags the hedge fund manager would be included in the survey.

What's the real problem with this? Apart from the fact that we've gotten, explicitly, pretty far away even from the ill-defined "middle class" of the Urban Future report, upon whose homeowning backs the street life of the city rests, we've also gotten into some shaky statistical territory, where I believe we're not even comparing apples to apples anymore, but rather something like apples to different kinds of apples (Fuji to Jonagold), to learn all about oranges. And also the middle class. I don't have any hard data to back me up here, but my sense from having lived in New York for a little while now is that, due to the presence of so many ultra rich celebrities and financiers, the shape of the distribution of incomes here is more heavily slanted towards the top ("fat-tailed," as they say), meaning not only is the average income higher, but the relative difference between the top 20% and those of us way down in the middle is considerably greater than in other U.S. cities. In pictures, the graph of incomes in New York is more like this:

than this:

In the latter case (Houston), it doesn't take much more income to put you in the top 20%, but in New York, it takes considerably more. So, the potential gap in luxury lifestyles is exaggerated, and as a result, more especially luxurious opportunities open up for those who can afford them. There really just isn't a Houston equivalent of buying a $150 truffle and foie gras burger at Bistro Moderne or paying $75K per year for a personal driver or all the other outrageous things the Times article mentions.

Which all brings me all the way around to the point: that measuring what it costs to uphold a "standard of living" is an extremely difficult and subtle problem, one which requires a great deal of precision and care. And it may not really be possible when the markers of that standard vary so greatly from place to place. New York is a pretty special town with no real equivalent anywhere else in the U.S., and in fact, based on the ways we live our lives, renting instead of owning, riding the subway instead of driving, eating fancy burgers made out of goose liver... it may not even make sense to think of it as part of the U.S., despite its importance as a cultural hub.

Like the old song goes, "New York, New York, it's a pretty special town with no real equivalent anywhere else in the U.S., and in fact, based on the ways we live our lives, renting instead of owning, riding the subway instead of driving, eating fancy burgers made out of goose liver... it may not even make sense to think of it as part of the U.S., despite its importance as a cultural hub."


P.S.--To Short Round: oddly enough, it seems that "average median" is correct there. In the report, they averaged together the median incomes of the various ethnic groups in the suburbs of Houston, presumably with some weighting. Hence, average median income. Weird.


Niteowl said...

Fantastic post. Particularly liked the ending, although I think you might need to brush up on your crooner standards just a touch.

drmath said...

Thanks, Niteowl! I'm just a sucker for those old standards...

The_Underdog said...

have you never been to houston? you can overpay for bourgouise food there too. and they have car services! i know its surprising that a metroarea with only 6 million would have that, but it's true.

however, all snarking aside, excellent article, and most of your analysis probably true.