Anyone Can Save

Megan McArdle is doing the lord's work in debunking (part 1, part 2) Elizabeth Warren's speech about the impending death of the middle class. While McArdle's response to the first myth--that ordinary people can't afford to save anymore--is worth reading, I'd like to point out a reason why this is utterly implausible: Incomes vary widely, yet just about every household manages to pay its current expenses. If a family of four can get by on $40,000 per year, then a similar family of four making $50,000 per year can save $7,000-8,000 per year after taxes.

There doesn't appear to be any mechanism keeping people's incomes at parity with the cost of the basic necessities for their situations*, and that this would happen purely by chance is astronomically improbable. The parsimonious explanation is that people are using their discretionary income to increase consumption rather than saving it.

*Well, in areas with relatively high cost of living, labor mobility can create a wage floor at the subsistence level as people with incomes below that move to lower cost-of-living areas, but this is the exception rather than the rule--even in high cost-of-living areas most people have incomes well above subsistence level.

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