Thousands of New Millionaires Are About to Eat San Francisco Alive
nytimes.com
nytimes.com
Plus, with the limit on SALT deductions, liquidating shares as a CA resident will be especially painful. As a former employee of one of these companies about to IPO, anecdotally I have seen many of the earlier employees already move out of state. That, plus the lower mortgage interest rate deduction cap of $750k (studio status in SF!) and highish property taxes basically can't be deducted anymore (due to SALT cap you'll hit with an average base salary alone) makes it really unattractive to stay here.
Most rank-and-file joining one of these cos in the last 4 years or so will be lucky to net $1-2m pre-tax (and below $1m post), which is a good amount of money but not exactly Wolf of Wall Street status. After taxes, you'll be competing for a run-down 1-2 bedroom in a bad location, if you choose to put a good chunk of that into a down payment.
Honestly I think for most people the game in SF these days is to play the startup lottery for a few years, and then take your winning elsewhere, especially if you are at the age where you plan to or already have started a family.
Yea I'm confused as to where all these splurge-happy millionaires the article mentions will come from. There will definitely be people well off (as you mentioned), but I'm not sure if these folks will have the money (that they want to spend) on boats, and lavish parties. It seems like a good deal of these employees will get early retirement/nest egg money, and a few execs will get a few million, while founders obviously make out the best. Not sure why that would "eat San Francisco alive".
A sensationalist headline if ever there was one {facepalm}
There's also a multiplier as price jumps let people cash out of their current homes with lots of spare equity.
Option 1: buy $1.5M SF condo, continue with the startup rat race even though you effectively won the stock option lottery.
Option 2: move back to the Midwest where many grew up, buy $350k 4bd/4bth home, retire before you hit 40, and raise your kids near family.
What kind of probability density function due people want wealth distribution to look like? A normal curve? A flat one?
I, in fact, live in a country in which almost everyone is dirt poor (Tanzania), and let me tell you, it's not very good at all.
and poor people don't ?
A couple possible examples to help with the discussion: 1. A new millionaire buys a house from someone in SF and lives there. 2. A new millionaire buys a rental property from someone in SF, renovates it, and raises the rent to make back their capital outlay. 3. A new millionaire buys a broken down classic car, invests capital into repairing it, and sells it to a collector for a profit.
However, the increasing divergence between the rich and poor in wealthy nations causes all sorts of indirect harms - https://www.ted.com/talks/richard_wilkinson?language=en
The problem is not that there are rich people. The problem is that the rich are so incredibly more rich than everyone else. I'm talking about wealth that exceeds human comprehension. I'm talking about one person consuming as much as 100,000 others.
And of course, you may not consider that intrinsically bad, but it's not even the whole story. Once they become that wealthy, they go about tilting the entire system in their favor. So not only are they going to contribute a smaller relative portion of their treasure towards the common good, but they are going to actually acquire more wealth from those who are less well off.
Even if you still don't see this as a moral problem, you should surely recognize that it isn't sustainable. Eventually, the guillotines come out. It would be better for everyone if that kind of violence was avoided.
I pose this question because it's often overlooked how we might have wealth inequality in the USA but it's beginning to reflect that of the wealth inequality between the USA and other nations.
https://www.gatesnotes.com/Books/Factfulness
I have not read this book, but Gate's Notes on it are very interesting to me. Of course this is coming from one of the wealthiest men on the planet, but it's interesting in how we break this topic down.
This argument doesn't defer the fact that we have a pronounced problem in the USA, I am strictly pointing out that if we take this as an issue of morality we should probably apply our morality globally not locally. Politics isn't moral in it's nature. It's about a limited scope of morality (us).
We do need much better migration from rich to poor in the USA but I think this article points to a ton of people changing from one class group to another, which is the "American Dream."
The issue I think a lot of people can agree on that we need to break down is wealth hoarding, and generational wealth. That's a problem we need to address in the USA. If I get Bill Gates wealthy, that shouldn't mean my great grand kids are in the upper class. It might mean they have more opportunity to maintain their wealth, but not a guarantee of wealth.
I think we should all focus on issues that attack entrenched wealth like automation, incoherence, etc. So we can establish a playing field that encourages people to go the extra mile for the extra payoff at the end.
Edit: a curve is great but with wealth it's all about migration from one level to another.
Most rich people, even very rich, have mostly normal things, just at the higher end of the scale. A Mercedes instead of a Ford - Restaurants instead of cooking at home. Etc.
How many people really consume 100,000 x more than a regular person? That's impossible. A house that is 100,000 times as big? Cars and food that use 100,000 times as much resources? What! You make it sound common. For this to be real we'd have to live in a fantasy universe where some visible fraction of the populace drives things as big as the Titanic to work and park it in their house that's a skyscraper.
Most people who are mega wealthy do not consume anywhere near 100,000 times more resources as everyone else. The planet doesn't have nearly that many resources. Just look around you - they live mostly normal lives.
The difference between the average first-world person and the mega wealthy is smaller now in terms of life experience than it has ever been in history.
Some may have 100,000 times more money, sure - but that's different. For people with that much wealth, it's not even liquid. It's locked up on paper as things like ownership of a fraction of a company.
The times when massive amounts of money are spent on material goods privately often tend to be on things that are so far on the end of the spectrum that they drive technology for the whole world. The technology in Teslas flows to other developers, helping us fight global warming. The technology in even higher-end sports cars helps us discover new tricks of efficiency and engineering which also flow outward. Moving into spacious new apartments on billionaire's row develops new advancements in architecture, and also removes the super rich from competing for regular housing.
And for the things that seem superfluous, like a $300M yacht, I would say, why do you really care? I don't know about you, but I wasn't brought up to be envious of the rich. (My parents never fed me any political opinions, which in retrospect I am incredibly thankful for.) But as a result, I know that things like yachts can exist, and I've always thought they were marvels of engineering, beautiful for their own sake. Plus to be built requires the employment of thousands. Luxury items that big are basically private wealth redistribution.
The existence of an uneven spectrum of wealth is a good thing _precisely because_ of how it affects resource allocation. Taking that money from the marginal wealthy and giving it to everyone would only be an incremental increase for the rest of us. But its concentration and availability for things like starting Space X, starting Tesla, and, yes, fancy yachts, means that advancement can happen. The mega rich don't use more - proportional to their wealth, they use much less, but smartly designed. And those designs eventually help everyone else.
There's a saying -- "being poor is expensive".
Is it really that hard to see that people having more wealth than they can spend in a lifetime while others can't afford healthcare is an issue?
Yes, because it lies on assumptions that I'm not sure I'd understand or agree on. Let me try. "More wealth than they can spend in a lifetime" could mean that financial independence or life of opulence is the assumed reason for that wealth. If that is your assumption, then I'd say that for taking on some enterprise that (at least for me) would serve insufficiently as a driving force long term. What would serve adequately would be gaining enough leverage to be able to eventually do some meaningful change in the world (for the better according to my values), i.e. to make as much as I can out of my existence. That may mean gaining more than I may require personally in my life and would be hard to understand for people with less potential (which consequently can afford to aspire only to some lesser goals). Do we, in the name of equality, have to limit the fruition of our potential? Do we have to limit the amount of wealth we can create as well? (The last two questions are society-wise.)
EDIT: Regarding the sustainability and the potential social disturbance resulting from inequality, there was a sibling comment (that I've answered to) here: https://news.ycombinator.com/item?id=19330811
1) Guillotines require extreme discomfort. The French Revolution, commonly cited as the example here, was not about income inequality. It was caused by the fact that the French were practically, in some cases literally, starving while the government flailed about ineffectively, accrued tremendous debt seemingly to no end largely driven by fruitless wars, and ultimately turned to taxation to try to sustain a failing state. It was not an otherwise comfortable people suddenly deciding to start lopping off people's heads because wealth inequality rose beyond some acceptable level. The current situation in France emphasizes this. They have an arguably horrible and out of touch government with presidential approval ratings headed towards the teens. And there are active protests on the streets each weekend regularly featuring violence from the police. If France, as a whole, wanted to - they could depose their mostly despised government. But, for the most part, they're comfortable enough to remain apathetic.
2) I don't think even the wealthiest of the wealthy are personally consuming anything like you're referencing. 100,000 times more would be e.g. $5 billion a year compared to somebody earning $50k. I doubt even the richest of the rich would ever get remotely close to that level of consumption spending in their entire life, let alone per year. Stereotypical ultra high end luxury purchases such as artwork are also frequently appreciating assets. That means they're effectively free as they increase a person's wealth, rather than reduce it. In the worst case their 'real' cost is a fraction of their paper cost. In any case those sort of things are also just shifting wealth from one ultra rich family to another. Personally, I can live without an original Monet in my 'study'.
3) Finally, wealth isn't "money." Jeff Bezos is worth $140 billion or some other insane number, but almost none of that is in cash. It's in various assets and especially Amazon stock. The thing is, if he tried to liquidate even a substantial portion of that, the price of the stock would go plummeting. It creates this interesting sort of paradox where it may be true that somebody is 'worth' $140 billion, yet in reality they have nowhere near $140 billion in 'real' money or assets. On a macro-economic scale this is an extremely important point as asset prices are extremely inflated relative to what they could be liquidated at, which in turn provides extremely inflated measurements of wealth.
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All this said I'd agree that huge wealth inequality is not a great thing. However, my one nuance there is that I think every method we have for combating such inequality tends to be even less desirable. So like many social or political issues, it comes down to picking bad or worse.
For example, the world's eight richest people have the same wealth as the poorest 50%.
It feels to me like that's a little unfair.
What exactly is objectively bad about that? (I don't condone nor condemn that level of inequality in any way, just curious.)
Wealth inequality is bad because it leads to worse wealth inequality. Essentially everyone above a certain line gets richer, and everyone below a certain line gets poorer. This is bad for everyone except the rich. Most of us are on the "poor" side of this line. If something benefits a few at the expense of the many, most moral frameworks would call it bad.
Again. Not an economist. Not an ethicist. Just some dude.
Edit: Typo
Tech millionaires will push these lower income workers to the brink. I mentioned only a few types but they extremely vital to any major city.
Most of these tech workers are exchanging their millions for very typical dwellings. Much of the wealth created by technological development is passing through the tech workers to the land owners. It is the land owners and their political allies who insist that we must keep the housing scarce so that the land owners can continue to extract wealth from the labor of upper middle class.
Tech-derived prosperity is not causing deprivation.
What happens to the neighborhood if million dollar housing is built? I know what happens and I can see it around me. I’m priced out of my current area and I’m not in SF or a high cost city. I could afford it but I can buy 3x the house and property 20-30 mins away with better schools. Same commute. The weathly residents in my current area can afford private schools so there’s no incentive to improve the public schools.
This sounds familiar... It's SF's housing market!
1) Wealth inequality is bad for social stability. People in general care less about how much they have as compared to how much they have compared to everyone else. When you are dirt poor but so is your neighbor, you care less. The Internet has magnified this effect as now it's very easy to see when you are dirt poor that lots and lots of other people are not. And they are not great people a lot of the time. So, populations are generally happier when things are more equal.
2) Money can generally translate to power in our world and so it creates absurdly uneven power distributions. The US for instance suffers from politicians generally listening to money over the people that they serve, and those people generally are listening to whatever the people with money are putting in front of them, etc etc. Laws are meaningless if you can afford the fine. This is also bad for society.
3) Generally, accumulating tremendous wealth is done on the backs of people and not on bringing them up as well. There are exceptions of course, but usually tremendous wealth creation at the individual level is not done through a series of actions with an equal social benefit.
As to your other question, what should it look like? This of course is up to debate, but historically, when it starts to look as it does, people begin to get angry and violent. Which is bad for a stable society.
Yes, wealth uplift of the general public must be a rare exception. This is why everyone are still peasants who have dirt floors, no electricity, no plumbing, and no Internet.
You are technically correct that there isn't exactly equal social benefit. However, many poor people in industrialized nations in 2019 are better off in many ways than some rich people from centuries ago. Go back just a little in time, and even rich people had high infant mortality and no access to antibiotics.
That may be true only on a raw/natural level. People also have a lot of other traits that may naturally threaten the social stability. The solution was education, and enforcing social conventions and mechanisms that lead to improved social stability and society's operation capacity. Just as unacceptable is now discriminating against sex or race, can become prohibited also the discrimination (as merely having a different attitude) towards being rich or poor.
2) "Money can generally translate to power in our world and so it creates absurdly uneven power distributions."
"Can" being he operative word here. We're talking about a possibility not a certainty. Each of us can be a potential criminal but we're not treating each others as such. We're innocent until proven otherwise. Money translating to power is just a phenomenon. Inherently it is neither good nor bad, it just is. Just as it may have bad results it can also have good ones.
3) "Generally, accumulating tremendous wealth is done on the backs of people and not on bringing them up as well."
This is the basic assumption of Communist Doctrine and it was proven wrong. Wealth accumulation does not necessarily imply exploitation of others.
Rich people are, after all, by definition rich at the cost of the poorer people. Tanzania and Africa in general is a great example, actually. Colonial powers became and are still getting a lot more rich from it, very much at the cost of the future and health of the local population. The Wealth and excess of the west, even more so of the rich people in the west, would not be possible without child slaves mining for precious metals in Africa and workers driven to suicide in China.
(This stuff does pretty much always end up balancing out over time, though...)
Here's what the psychological research says about wealth inequality. There will be a certain number of young men who will make the calculation, "There's no way I can compete for mates in the current social order. So there's no reason why I should subscribe to it." Then they become law breakers or revolutionaries.
This isn't an absolute comparison. It's a relative one. So even though the poor might all have a home, refrigerators, and TV sets, the relative status calculation still applies. Also, the best guess, is that this has been part of our evolutionary heritage for awhile now, and so is wired into Homo sapiens at an unconscious level.
My conclusion is that any society needs some form of wealth redistribution, even if it's in the form of some sort of noble "everyman" and "everywoman" pastime that's provided by markets for a cheap price.
On the other hand, though, they might finally have enough sway with the local government that they will actually push the homeless problem into someone else's jurisdiction /s
But my real income growth trajectory has looked like a flat line for decades now, while the cost of housing and education (the biggest wealth-builders in the West) have continued to increase.
After 2008, banks borrowed from the Fed at near-zero rates for years, while I get to borrow at "market rates". Corporate profits are higher than ever thanks to the Trump tax cuts. But when the impact on the national debt is felt, it will be I who'll be told to tighten my belts.
wealth worship (underlying certain strains of capitalism, but not all) relies on an economic misdirection that disassociates people's labor from money (and therefore wealth) and instead associates money/wealth with things. this way, we don't feel nearly as bad when a person accumulates wealth, because it's just things they're accumulating. but really, they're accumulating (the value created by people through their) labor.
for example, you could say that gold is intrinsically valuable, but that value derives from our desire to put it to use (via human labor) and its relative scarcity. if a person never unlocks that value with their labor by digging the gold up, then it effectively has no value.
so we should remember that money represents someone's labor (in many cases, it just represents our own labor). accumulating money is accumulating people's labor. (with enough force behind the this, and it becomes slavery.)
that isn't to argue entirely against wealth. some people (but not as many as the wealth disparity might indicate) are truly capable of being more productive with our labor than we ourselves can be. it's reasonable to let them accumulate some of that additional production unlocked by their labor investing in us. it's why we look to, and follow, leaders. (tangentially, this is why legacy wealth through inheritance is generally a net negative because it's almost never as productive as it initially was.)
but underlying a stable social structure is a delicate balance between our own freedom to apply our labor to create value and giving up some freedom by lending our labor to others. wealth disparity increasingly takes away that choice. backing people into a corner is dangerous indeed.
Of course it's not called the "golden state" for nothing: SF was really put on the map by the literal gold rush.
Let SF eat the millionaires then (as a necessity, not punitively). You choose to live somewhere, these are the costs.
Residents don't want affordable housing (NIMBY), politicians can't use eminent domain or go against the NIMBY desires without getting voted out of office, businesses create the demand for local housing through refusing to support remote work, and the lack of government doing anything leaves few options, but to watch things burn from afar. Residents who flee have the chance of a better life elsewhere, albeit not in their first choice.
Doubling the downpayment to $400,000 makes that absolutely unrealistic.
Edit: I am pretty sure Google isn't paying 300k in Houston, or 200k (for jobs where it pays 300k in Cali)
Socially, Texas is a backwater. The culture here is fairly homogeneous. The cities are a little better, but not by much. Austin is touted as a more progressive city, but really it's not. I've attended a number of tech conferences there, done work in the area, and it's largely the same as Houston. Keep Austin Weird is their mantra, but what it really amounts to is we will not arrest the homeless, illegals, and occasional dope smokers. Every other aspect is the same. Austin lives and dies because of UT, 6th Street, and the live music scene. That's it.
Were I to suddenly come into money, I could see myself buying a plot of land and building a house in Vermont near a lake.
It also could be that fewer people with lots of money want to live in SF and bid against each other.
The more we decentralize tech out of California, the better. Having pockets of tech in different cities would be preferable so long as we have more opportunities to use our earned dollars effectively. You can make six figures in California and still end up living like a rat because of how expensive everything is.
Having recently landed a fully-remote job, I want this to be a year of "reconnaissance" where I'm going to take small trips around the country to check out places where I might want to live next, and where I might actually be able to enjoy some of what I earn. I'll have to add Houston to the roadmap.
IT pay in Texas is subpar. I used to live in Northern Virgina and my base pay there was over 100k. Good luck with that in Texas--anywhere. The cost of living here just doesn't support those wages. The average IT salary here is 55-75k. More can be had, but those jobs are just not prevalent here like on either coast. I had a potential job opportunity in NYC, but my wife looked at me like I had grown horns. The money would have been great, but like California, the COL is outrageous. But...the public transport is great. It's walkable. Tons of culture and food, better weather. I like snow. I like rain.
I lived in Houston, (Museum District/Third Ward/Whatever you want to call it), for a good long time. (Three or four hurricanes.) I actually loved it. That said, I would not say, at all, that it beats the valley for QoL. Setting that expectation up in peoples' minds just leads to disappointment. And it's the genesis of a lot of the bad stories we hear about peoples' experiences in Texas on a daily basis.
If you have realistic expectations, and subscribe to the "When in Rome..." philosophy, you will find a lot of fun things and fun people in Houston. You will have a really good time. If you come with the expectation and demand of a great QoL, a QoL that rivals San Fran, or Boston, or Chicago, etc, you're likely to be disagreeably surprised.
We need to start measuring cities on their own merits. Measuring cities against the bar set by what are really becoming early stage city-states is a little unfair. Houston is great. Omaha is AWESOME. Minneapolis is a blast. Don't even get me started on how awesome places like Charlotte or Madison can be.
But you have to be open to what's there, and not go there looking for everything you had in San Fran. You do that in Houston, and you'll just be disappointed, and then the yearly floods will come, and you'll be pissed off on top of being disappointed. But if you look out your window after the storm, you'll probably see everyone on your block out grilling! (May as well get rid of any meat in your fridge by grilling it, because you don't know when the power will come back on!) I mean, it really can be a blast! Seriously, Just do without the wifi for a few days. (Or weeks if it was a hurricane.) You'll be happy you did.
Like I said in another post, if I ever came into serious money, I'd buy some land and build a house outside Burlington, VT. Proper four seasons, proper fishing, proper winter activities.
I hear you man, I live on a lake in Wisconsin. (In my case it's not as impressive though, because in Wisconsin nearly everyone lives on, or near a large lake.)
SF is a bit different as it does have many options that aren't available in second tier cities. That being said, the QoL is the lowest of all in many ways due to cost of living, commute... It also has a very specific political culture that many don't find appealing.
Can I make $300k/year a few years out of college in Texas? If I want to switch companies, can I easily find another similar position near by? Can I golf and ski and hike in the same weekend (really just making an argument for the weather here)?
Those are the questions that matter to me the most. I'm looking to put as much money into my savings as I can per year.
1) Cost of food/other living expenses is a very small percentage.
2) $1500 rent (sharing with gf) = $18k a year, also a small percentage if I ended up paying, what, half in Texas? a third?
3) Sure, I can't buy property here, but I'm fine with that for now.
4) My commute is 20 minutes right now.
* This is all with tech salaries. Obviously with lower salaries, smaller things become larger percentages.
Being in Katy for 25+ years and seeing it blow up in growth, I'm interested to see how northwest Houston grows (new subdivisions, industry parks, infrastructure, etc.)
Does that figure sound right to you all?