While Fortune acknowledges that HENRY (families that are High Earners Not Rich Yet) are the bread and butter of its subscription list and so you can't expect them to be too hard on them, this article is not exactly hard hitting journalism,. They do agree that it's hard to weep for families that earn more than 98% of American households.

The thrust of the article is that HENRYs are already pretty stretched financially and can't afford the tax increases necessary to pay for the bailout (or Obama's proposed tax increases on people making more than $250K).

There's an interesting table in the print version of the article that's not in the on-line version. The numbers are below. I've added the rows 'Average Net Income (ie Average income minus average taxes) and ratio (the ratio of that brackets net income to the lowest bracket's).

The analysis that seems missing from the article is “how come they are so stretched?”. Apparently 66% of American families have figured out how to survive on $19.7K (after tax). 97% have figured out how to survive on $115K or less, after tax. OK so HENRY's pay more in tax. One HENRY quoted in the article has a crushing tax burden of $100,000 per year on the family income of $500,000 ... and they “feel stretched”. In the last 10 days of the month she and her husband invariably remind each other to watch expenses. “It baffles us that we have to say that to each other.”

“It baffles us ...”? Is it possible to make $500K a year and be stupid? (Perhaps there's hope for us all!)

Let's take a simple budget. Suppose HENRYs do whatever it is that a family making $115,400 a year after taxes does. Clearly they survive. Clearly they have enough money to pay for the necessities for survival, although they probably feel themselves stretched. $500K-HENRY then has extra $284,000 a year - after paying that crushing tax burden. That's $23,000 a month to spend on things that aren't necessities. That's $2 to buy “luxuries” for every $1 spent on “necessities”. How hard can that be?

They spend $2,200 a month on child care. “That's a real killer”. It's 9% of their “luxury” money ... except that the family making $115K pays for childcare too. What about the family making $19,700. I bet $26,400 a year makes a real dent in their budget.

I have nothing against people earning money – as much money as they can – and spending it however they want. But I wonder what is dysfunctional about a family that “are baffled” and don't know why they “feel stretched”. What's the problem?

Is it a problem? It sounds like it is. It sounds like the HENRYs aren't satisfied with their lives. They are Not Rich Yet, and they want to be. They are work hard to get rich.

How much is “Rich”? John McCain said “rich” means making $5M or more a year. His wife makes $6M a year. Obama seems to define rich as more than $250K. The HENRYs interviewed in the article don't see themselves as rich. It seems that “rich” means “makes more than I do now”.

It seems the way we getting into “feeling stretched” - no matter how much money we make – is that we redefine “luxuries” into “necessities”. One HENRY thinks it a necessity (not a luxury) to spend more on their children's college education than 66% of Americans make in their lifetime.

I'm sure that what 66% of families accept as childcare or education for their children would not be acceptable to HENRY. Nor would their car or their house. HENRY sets the standard for acceptability much higher – so much higher that he can barely afford it. The problem appears to be, not that they can't get by on $500K, it's that, with $500K, they can barely achieve the standard of living that they think someone with $500K should have. They need $600K to do that. But with $600K they will think they should be achieving a $600K standard of living and they will barely be able to do that on $600K.

It's a treadmill. It's climbing a ladder that goes higher and higher for ever. Did Bill Gates stop when he made a billion dollars? His second billion? His tenth billion? His fiftieth billion?

This endless treadmill is clearly very useful for driving the economy. No matter how much HENRY or Bill have, they will strive to have more. They will never be satisfied because their target moves as fast as their progress towards it. They work endlessly – their 50 or 60 hours - to be equally dissatisfied but at a higher level.

Suppose that your “goal” - the level of achievement that you feel will make you satisfied - can be expressed as a number. It may be a number of dollars or the square feet of house or just a “number”. Suppose your goal is 10, and you measure your achievement against that goal on the same scale as 9. Obviously you are dissatisfied. You will work harder to get to 10. But supposed something changes your goal. Perhaps your neighbor or a colleague or the fictitious guy in the slick commercial gets to 20 and so you aspire to 20 also. You work hard towards your new goal. You make progress; you get to 11. This is great for the economy, but is it good for you? You are now achieving a level that is beyond what you dreamed of, but you are less satisfied. You are farther from your goal than you were before.

Economics is a great tool. Maximizing the efficiency of production is a necessity for a species that is striving to maintain its existence. But economics is no longer a tool that humanity uses to achieve its goals. Humans are tools that economics uses to achieve its goal. Economics is a mindless meme that humans, who proudly call themselves “Homo Sapiens”, have enslaved themselves to.

If HENRYs want to feel better about their lives, perhaps they should exercise a little more of that “Sapiens”?

Is there a message for HENRY here?

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Posted by Dave Pullin on November 3, 2008 11:17:00 AM EST #