The Business Of Poverty

Do you know what would be great? If those lazy poor people would stop being poor. When I was a younger man, I briefly flirted with the idea of Libertarianism. By “briefly flirted,” I mean I became a card-carrying member. I began reading up on Objectivism, the philosophy of Ayn Rand that is the foundation of Neo-liberalism and is influential in Libertarian thinking. Oh, it’s seductive. In Objectivism, everything is transactional. Every good deed requires a mutually beneficial exchange. In Objectivism, you are free to hate poor people because they don’t work hard enough in a society where everything is possible.

What changed the mind of my younger Software Engineering self? I knew poor people around me who worked harder than most of my tech colleagues. My mother worked two or three jobs at a time when I was growing up to help make ends meet in Texas. Even with this history, it took me a while to parse it all. And when I finally did, I realized what a hateful and deceptive philosophy of Objectivism is. Any system which blames the poor for being poor and rewards the rich for being rich is flawed on the face of it. Here’s why.

The Fixed Costs

Okay, let’s do some boring math. I’m going to flex my MBA muscles for a minute and try to explain some things. Now, in business, you have Fixed and Variable costs concepts. If I make chairs, for example, my salary would be relatively the same year after year. I can make twenty or a hundred chairs, but there’s a going mark rate for chair-makers, and that’s what I’d make (probably). That would be a fixed cost because it doesn’t change with the number of chairs I make. The variable cost is the wood that goes into a single chair because I have to buy more wood for each chair. With me?

The same goes for living. If I want to live (breathe, eat, drink, have a roof over my head, and medical care), there’s a cost associated with that. There’s a minimum cost to keep me alive that, beyond which, I die. This is my fixed cost. Think of keeping me alive as an investment, though. If I can stay alive, I can sell myself for a certain amount of dollars for that year. It sounds gross to say it that way, but ultimately that’s what it comes down to, right? With no improvements (i.e., no education), I can be a pick-up worker, maybe a sex worker if I’m so inclined in Arizona or places it’s legal…blue-color sorts of things.

Be careful here. Not all blue-collar jobs are the same, and many require a lot of training, apprenticeships, and the like. Don’t make the mistake of thinking I mean all blue-collar jobs or even all sex work.

So for the math. Assume I have no training, and I’m trying to live….oh… in Coos Bay, Oregon. As of this writing, the cost of living in Coos Bay is about $2,646 a month (83% of the national average). That’s my baseline. If I want to live, then that’s what I’m paying. That’s my fixed expense. I’m assuming I have a job. So let’s see, in Coos Bay, Oregon, the median income is $40,000 a year, take out ten percent for taxes, so about $36000 a year, or roughly, let’s do the math… $3,000 a month. So that gives me about $354 for other expenses. So far, I haven’t bought a car yet. So let’s take half of that money for a vehicle and the other half for the requisite car insurance.

All right. Now I’m ready to pull myself up by my bootstraps. With the fixed costs, I now realize I have a total of $0. So let’s back that up and try again.

Now instead of that expensive car (actually, the cheapest new car in America is $30000), let’s get a beater. I’ll borrow money for that one, about $8000. So now I’m paying $55.93 a month. Great! Insurance hasn’t changed (~$125 or so). So that gives me…let’s round to $175 or so. Now I’m ready to start my life!

Except for gas. My. $8000 is not a hybrid, and it’s an average 10-gallon tank, so $4.70 per gallon means when I fill it up every two weeks, it costs me almost $100. Okay, cool. Now down to $75. Let’s see; I can splurge every couple of weeks on a dinner out as long as absolutely nothing terrible happens. I’ll take that risk.

Pause.

So all of the above is only addressing my fixed expenses. Things like personal improvement or luxuries like dining out are variable expenses. Even renting a movie on weekends or getting the occasional cup of coffee. So far, I’m not doing any of that. I’m just surviving and maybe occasionally buying a steak at the grocery store. My new house is completely devoid of furniture except for what I brought with me from my parent’s basement. But I’m ambitious, and I want to improve my life! That means I have to get into the variable costs.

The Variable Costs

I have a few choices to make here. If I live in Coos Bay, Oregon, I can commute to Southwestern Community College. If I want to go full-time, I’ll be paying about $18,000 regardless of where I live. That breaks down to $1,500 per month.

<Looks in wallet>

I have $75 if I don’t get the flu and have to get medicine or anything.

Okay, so college is out — at least full-time. Let’s see. I already said I’m getting that $40,000 annually, and I don’t have a college degree yet, so I’m probably a truck driver, medical equipment preparer, or something like that. Let’s assume I got my CDL ($6,000+) when I was still living with my parents or something, to keep it simple. So I’m on the road most days, and there’s no way I’m going to college unless it’s 100% online. So let’s assume I piecemeal it — take a class at a time. So it’s about $35 per credit hour, meaning for $75, I can’t even take a single online course. That won’t work. College is out.

Moving on, let’s say I stay in trucking and level up that way. Options are pretty limited here. I can make about $1000 more a month if I become a tutor or mentor, plus travel for ride-along. Regardless, I’m topping out at around $50,000 per year. That is not too bad, considering the median income. Taxes go up, so my actual take-home is about $38,000 — still an improvement. My cost of living is still $36,000 a year, so I take home about $2,000.

As you can probably see, I’m stuck. The variable costs will chisel that $2000 away. It’s not even close enough to my college costs to change careers if I want to. I might be able to invest half of that, and if I get fortunate, I get a return of 6.5%. If I do nothing but save that money, in about 20 years, I can retire with $250,000 in the bank. Unless I get sick along the way, want a family, or want to do anything besides work, eat, and sleep.

But I digress. We’re talking about variable costs, and the point here is that self-improvement, be it trade school or college, is entirely out of the question. It’s not a fixed cost but a variable one.

This story isn’t so uncommon. The average annual wage across the United States is $51,916 as of 2022. The average cost of living is about $3,189 per month, or $38,268 per year, making a difference of $13,650. This isn’t enough, as you can tell to pay for a college education, even at a community college. It likely doesn’t consider the cost of transportation, fuel, mobile phones, internet access, and such. It can quickly run upwards of $800 per month, leaving a fundamental difference of about $4,000 to invest in better learning.

That’s average, though. The median income for an individual, a better salary indicator, is about $34,248 per year, which explains why 65% of Americans are living paycheck-to-paycheck. Most of their salary is eaten up before we even begin the conversation about self-improvement, building generations of people who can’t accumulate wealth!

Failing Business

In a business context, you can think of it this way. I open a store down on 1st Avenue selling books (no reason, I just like books). I make just enough money selling books that I break even or go a little in the red. I don’t have money to re-invest in the store or maintain my bookshop. Over time, my bookshop will go into disrepair. Worst than that, over time, I won’t be able to make investments in my bookshop that can keep me competitive. Say a new and way more efficient point-of-sale system is created. Those with the money can buy it and use it to save more money in the long term. I can’t because I can barely pay my bills. So as they make these wise investments and grow their profit margins. I, on the other hand, am stuck.

And I stay like this. My son has even less chance than I do because I won’t have anything to help him start his life. Eventually, I get sick. Maybe it’s a lousy flu turned into pneumonia, or perhaps I get COVID-19 and have to go on a ventilator. Maybe it’s H1N1, or perhaps I fall and break my leg. Or, maybe it’s something simple like my refrigerator goes out. All of that money I’ve been trying to save? Gone. In an instant. And then some. I can’t open my bookstore when I’m out sick, so I lose all that income. I have to pay hospital bills, so my variable costs skyrocket. I try unsuccessfully to run a GoFundMe campaign to offset some of the costs.

My business is falling apart through circumstances I couldn’t control. Before too long, I’m destitute.

Sixty-five percent of Americans are like my bookstore. We’re making just enough money to hit that next payday, and that’s it. The stress never lets up. Net result?

Conclusion

The point of looking at being poor from the perspective of a business is necessary to tear away our preconceptions. Just as a business can’t prosper when its revenue barely covers its expenses, the American can’t either. It’s not laziness that locks someone into a cycle of poverty. Most Americans are one emergency away from going bankrupt. Such a philosophy like Objectivism is a simplistic lens through which to allow us to judge others. To be considered an actual philosophy, it would have to account for the imbalance and improbability of success.

However, it’s easy to get lured into it. When we work hard and are rewarded, it’s straightforward to think that we somehow earned what we got. To an extent, perhaps there is some logic there. Without hard work, we definitely would not be in a position to take advantage of opportunities as they present themselves. However, it’s all too easy to forget that we’re not the only ones working hard. Like my mother, who worked three jobs to help raise us five children, hard work doesn’t by itself guarantee anything. Hard work is barely enough to keep you afloat.

I don’t judge anymore. Once I realized how far from reality I would have to be to consider Objectivism, and its offshoot, Libertarianism, legitimate viewpoints, I gave up on them. I no longer am a card-carrying Libertarian because, frankly, in a capitalist society, there’s no such thing as “fiscally conservative and socially liberal.” Our money proves our priorities. I’m for hard work, but I’m also for overcoming obstacles keeping individual Americans from achieving success. Loans aren’t always good enough for a person living paycheck to paycheck. Sometimes, people need a real lifeline.