I've generally viewed this discussion as an explanation not of why the rich are rich, but why the poor stay poor, i.e. the poverty trap. Dickens expressed a similar idea in another way:
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
The point is that below some threshold, it's not possible to acquire capital (to save) and you're constantly underwater financially.
I think much of the appeal of this theory is that it fits with what it feels like to be on the wrong side of the threshold. I was working-poor in America for several years, constantly falling behind in debt, having to choose which bills to pay and which to abandon, constantly choosing worse options that would cost me more in the long term because I couldn't afford something that would be cheaper longterm but required capital outlays I didn't have.
My guess is that the people who resonate with this theory most are on the outside looking in at what it must be like to be rich (or just not poor), it's a reasonable (if, as you prove, not accurate) guess to assume that being rich must mean a reversal of the thing that seems to be keeping them poor.
According to your classification, I think I almost completely believe in level 1, a little bit in level 2, and not at all in level 3 unless we take an extremely motte interpretation.
Level 1: A person with more money can use all strategies available to a person with less money, plus a few extra strategies. Some of those extra strategies will be better (and the rest can be ignored). You can buy the more expensive boots if that actually saves money in long term (and you can ignore them if it doesn't).
If you have a place you can lock, fewer of your things will get stolen. If you have electricity and fridge in your home, you can cook your own meals and store them in the fridge, which is cheaper and healthier than eating fast food. You can save money by buying things in bulk. (If the delivery is cheaper than the savings, you can save money and time by buying things in bulk and having them delivered to your home.) You can save money and time by researching things online, assuming you have internet connection and a computer. You can save traveling time and money by living in a better location. If you have financial slack, you can self-insure. If you have an option to get X% profit on your investment for a constant amount of work, the more money you can invest, the greater your net profit. (With little money, the X% may be less than the transaction costs even for quite generous values of X.) If you can afford to take a year of vacation from your work, you can learn a new skill or start your own business. If taking care of your finances for less than 8 hours a day generates enough income to cover your expenses, you never need to have a full-time job again. And if the generated income covers all your expenses plus the salary of a person who will take care of your finances, then you never need to have any job, ever.
Exceptions: Sometimes you have extra expenses that come along with your position on the social ladder. For example, a middle-class employee probably needs to buy nicer clothes to keep their job than a working-class employee. A multi-millionaire needs to spend money to protect themselves and their family from kidnapping.
Level 2: I believe that rich people spend less money on some things, but more money on most things. For every $1 saved on buying 10-years boots instead of a series of 1-year boots, there is probably $100 spent in restaurants. (But it feels good to give poor people lectures on buying boots rationally, before enjoying your dinner and wine.)
Level 3: No, a homeless guy definitelly cannot become a millionaire by choosing his boots strategically. No matter how much money you save, you will never catch up with someone who saves more than you simply by having 10× greater income and spending less than 90% of it.
The motte version applies when you compare yourself to someone who is almost exactly at your level. Like, by being strategic, you can live on a higher economical level than someone who has 1.5× your income. (Also, if a person is a complete idiot, it is possible to ruin yourself regardless of your initial wealth. So yes, you can also live on a higher level than the few complete idiots who started from much better positions.)
Note: Vimes is thinking of the landed gentry when he is considering the "rich" - that would be the top 1%, not the tippy-top super-rich. Also, in a pseudo-medivial environment, the lifestyle inequality isn't as extreme as today's 50th % vs 1%.
What boots theory is saying is that the rich have assets that provide ongoing value, in addition to their income producing assets, and so even someone with only (modern numbers) $500,000 in assets (house, car, stuff, some investments) and a part time non-profit job that pays $25,000 a year is going to live a more comfortable life than someone in Vimes position of ~$1,000 in assets and $75,000 a year from his full-time watch commander job.
I simply disagree that that's what boots theory is saying. It seems like a reasonable thing to say, but not using the words that were used.
I just barely skimmed this. I think it's a good explanation for why poor people are poor, not why rich people are rich (in the modern world, in rich countries). I think this is supported by research, although I wasn't able to track down the sources I heard about... some researchers looked at how poor people manage their finances and found that they were often behaving "rationally" (as much as richer people are) when taking loans with pretty extreme interest rates, for instance.
From a literary point of view, I think Sam Vimes' inner monologue is a nice example of the kind of half-baked logic that people often construct in their minds when they're trying to form an intuitive understanding of their own lives. After all, in reality, even a pair of good work boots is only going to last 6-12 months. Vimes has never had the money to buy a pair of $50 boots, so he has wildly exaggerated notions of how long they last.
Given that he thinks that it's his boots holding him back and that $40 can't be impossible for him to come by, Vimes is also probably not great at budgeting and doesn't really know the extent of his expenses. So he has exaggerated notions of how many other expense categories he has for this strategy of buying high-quality for the long term would even apply to.
It's a terrible economic theory because poor people like Vimes sometimes hold terrible economic theories, which is part (and only part) of the reason why they stay poor. And that's what makes it great writing.
When the author labels it a "theory of socioeconomic unfairness," he's being deeply ironic. You'd expect that analyzing one's own economic problems would help them to solve them. Instead, Vimes' theories seem to be keeping him poor. The more he broods on it, the less attention he has to give to tractable ways to improve his financial situation.
Boots theory is the economics equivalent to getting run over by an ambulance.
After all, in reality, even a pair of good work boots is only going to last 6-12 months.
From siderea's post that was linked in the OP:
For most of my adult life, I had bought my winter boots by going to Filene's Basement – the original one, in downtown Boston – in August. This pretty reliably turned up something tolerable I could wear for about $20 (in 1990s dollars).
Then, one year, I failed to acquire boots in August. I don't recall the reason. I don't remember if I foolishly thought, "Well, last year's boots are still sound" and didn't bother to go, or whether I went and didn't find anything suitable. So I entered the autumn with only the previous year's boots.
Unsurprisingly, after winter had already started, my worn, cheap boots failed me. Alas, like trying to harvest apples in spring, I could not find suitable boots at Filene's Basement in that season.
tn3270 gallantly offered to take me boot shopping. He drove me to the Burlington Mall, and walked me into the first place that seemed to have the sort of product I described wanting. [...]
"These boots," I said gesturing at what I was trying on, on my feet, "cost $200. Given that I typically buy a pair for $20 every year, that means these boots have to last 10 years to recoup the initial investment."
That was on January 17, 2005. They died earlier this month – that is in the first week of December, 2018. So: almost but not quite 14 years.
So, purely as an investment, they returned a bit under $80, which is a 40% ROI.
I was thinking about work boots - something you'd wear daily all year long, like I imagine Vimes' boots would be. When I read about construction worker boots, they typically say the boots last 6 months to a few years tops. But it does still sound like upgrading from $20 to $200 boots turned out to save money. The point still stands though that Vimes' belief that he both can't afford the more expensive boots, and that it's this that's the main cause of socioeconomic unfairness, is probably wrong.
It depends on how tightly you draw the analogy. If your takeaway from the boots-story is that buying better versions of commodity, manufactured goods like shoes, is a key part of the story, then this is pretty clearly false, if only because those goods, even in aggregate, don't make up a large enough part of anyone's budget.
If you broaden it to include expenditure and accumulation of all resources, not just money, then it's mostly true. In a given year, a person might work a minimum wage job (have more money now, less money later--cheap boots) or attend a programming bootcamp (have less money now, more money later--expensive boots). They might eat cheap unhealthy food (have more money now, face problems later), or high-quality more expensive food (have less money now, fewer problems later). And so on, repeated across many kinds of decisions, and many kinds of resources.
I think that Siderea's section 2 is actually very important. While it is possible that the monetary costs of the boots are structured such that buying good boots once is a better use of money than buying cheap ones every year, it is certainly the case that the time-costs of avoiding that big upfront expenditure are huge. The same is true for many of your examples. Being money-poor forces you to work up to your constraints on other dimensions (time, stress, etc) to survive without money -- which in turn prevents you from using slack in those dimensions to stop being poor.
I will commend your notice of financial products being cheaper for the rich. This is, I think underrated as a source of inequality. It takes $3k to invest in the top tier of vanguard funds. It takes $1mil to become an accredited investor (possibly changing?). This incentivizes more savings behavior by the wealthy, it is literally cheaper/better. Those incentives can create a self reinforcing system. This is probably why we see lots of people giving advice along the lines of "fight every inch for the first $100k of net worth" (see e.g. charlie munger rule).
This disconnect between what a thing actually says, and what people seem to think it says, just bothers me. I feel the desire to point it out.
Heh, welcome to public discussion. There are enough idiots who can't or won't think deeply, and hucksters who prefer good-sounding stories to rigorous analysis, that you're pretty well doomed to be bothered most of the time on most topics.
Being rich enables you to spend less money on things.
I think even at the base object level, the reason good boots appear to last so much longer is that owners spend on maintenance and have spares so they're not daily wear. You'd be hard-put to actually show the math that they're less expensive per-day of use. More comfortable, healthier, more convenient, better-looking, and generally nicer, sure. The Ghetto Tax is real, but it's not purely monetary.
Note that there's a curve at play - the cheapest of the cheap probably _is_ more expensive in the long term than mid-tier boots. But fancy, expensive ones are _also_ more expensive (in long- and short-term) than the plain, solid ones. It's not as compelling a metaphor to say that it's the reason the very poor spend more than the lower-middle-class, but it's perhaps more true.
I always interpreted "The reason that the rich were so rich, Vimes reasoned, was because they managed to spend less money." as saying that this is one way that the rich become richer. I don't think anyone doubts that rich people either have higher income or start with a lot of money. But then they also have these structural advantages that help them be "so rich." The "ghetto tax" is one place, but then there's everything else - less stress, for instance, or being able to pay for education. Boots theory isn't just spending less money, although that's what he describes, but every place where rich people are able to become richer because they have more money to start out with.
I always interpreted “The reason that the rich were so rich, Vimes reasoned, was because they managed to spend less money.” as saying that this is one way that the rich become richer.
Sure, and lots of people seem to do similar to you, and this is one of the things I'm complaining about. I think this is a weird interpretation of a straightforward sentence.
But also, what do you mean by "this"? If it's "spending less money" then part of my point is that I think you're just wrong; I think rich people spend more money. If it's something broader, then part of my point is that it's not clear what you do mean.
The “ghetto tax” is one place, but then there’s everything else—less stress, for instance, or being able to pay for education.
"Stress" seems like a reasonable thing to consider part of a ghetto tax, to me. "Rich people can pay for education" seems like it fits neither as part of the ghetto tax, or boots theory as originally written. Similarly, it seems like you want to count "earning interest on your bank balance" as part of boots theory, but I think that's a massive extension from the original text.
It should be noted that Vimes was specifically thinking of real generational wealth in that area. He'd spent some time in the home of a Lady from oldest and wealthiest family in the city, and saw that everything was old there, solid, built to last forever. Generations of clothing tailored to the fit of the family members, and saved if it was still in good condition, and if it was not, the fabric would be reused to make something else. Even the garden tools were old. The family owned multiple homes in various cities and in the country, and they owned sizable portions of the real estate in the city.
When you're part of a family like that, one who can simply give a building in a prime location away, without a thought (as she did, when new police station was needed, completely unasked), the only things you'd ever need to replenish would be perishable things like food and fuel. So you simply don't have to spend money on "stuff".
But the same holds true, though to a lesser and lesser extent the further down the ladder you go. Even a kid from a working class family who gets his first apartment with a parent cosigning, and grandma's old furniture and dishes and pots and pans is a big step ahead of another kid who can't get approved for that first apartment and had to pick housing that charged less up front but cost more over time.
Personally, I'd revise Vimes' level 3 a bit: "The reason the wealthy stay wealthy." Wealthy families tend to stay wealthy. Rich people tend to blow their money rather than plan to provide for their grandchildren's grandchildren.
I agree with the post as far as it goes. Frankly, I think later-Vimes would too, once he finds out how much the *actually* rich people actually make as income from inherited assets without ever lifting a finger.
I think there is some truth to the theory even for the rich, in the context of inherited wealth in an agrarian society (medieval or earlier), for people within a few rungs of each other in the income distribution. Back then all but the very richest still had to be frugal in many ways. Today, not so much, and the rungs are farther apart, and the products the poor and rich buy are much more different. Most people have no idea how rich "the rich" actually are, and even less idea what that actually means in terms of living their lives.
Also: have you read Scott Alexander's Staying Classy post on some descriptions and discussions of economic and social class in the modern world (including Siderea)? I think the boots theory is basically Vimes applying his Labor thinking in an inappropriate context.
Also also: durability and price in the modern world are very poorly correlated for most things I buy. $500 fashion boots are frequently going to be less durable than ordinary workboots, even if they pretend to be workboots themselves. Discerning durability is quite hard, and if you're rich enough, not worth the effort. Similarly, yes some laptops are better built than others, but I've never had one last longer than 4 years before it was not worth it to maintain or fix it. For desktops, the cycle is slightly longer but not by that much. I do have sneakers I have kept for >5 years, and they are a major brand name, but I bought them (new) at Marshalls for less than 1/4 the MSRP. Boots theory in Ankh-Morpork didn't have to contend with just how complicated modern capitalism can get in terms of setting prices.
The reason that the rich were so rich, Vimes reasoned, was because they managed to spend less money.
Take boots, for example. He earned thirty-eight dollars a month plus allowances. A really good pair of leather boots cost fifty dollars. But an affordable pair of boots, which were sort of OK for a season or two and then leaked like hell when the cardboard gave out, cost about ten dollars. Those were the kind of boots Vimes always bought, and wore until the soles were so thin that he could tell where he was in Ankh-Morpork on a foggy night by the feel of the cobbles.
But the thing was that good boots lasted for years and years. A man who could afford fifty dollars had a pair of boots that'd still be keeping his feet dry in ten years' time, while the poor man who could only afford cheap boots would have spent a hundred dollars on boots in the same time and would still have wet feet.
This was the Captain Samuel Vimes 'Boots' theory of socioeconomic unfairness.
– Terry Pratchett, Men at Arms
This is a compelling narrative. And I do believe there's some truth to it. I could believe that if you always buy the cheapest boots you can find, you'll spend more money than if you bought something more expensive and reliable. Similar for laptops, smartphones, cars. Especially (as Siderea notes, among other things) if you know how to buy expensive things that are more reliable.
But it's presented as "the reason that the rich [are] so rich". Is that true? I mean, no, obviously not. If your pre-tax income is less than the amount I put into my savings account, then no amount of "spending less money on things" is going to bring you to my level.
Is it even a contributing factor? Is part of the reason why the rich are so rich, that they manage to spend less money? Do the rich in fact spend less money than the poor?
That's less obvious, but I predict not. I predict that the rich spend more than the poor in total, but also on boots, laptops, smartphones, cars, and most other things. There might be exceptions where rich people consume less of the thing than poor people - bus tickets, for example - but I think if you group spending in fairly natural ways, the rich will spend more than the poor in almost every group.
Maybe they spend less money on their daily wear boots, but own more pairs of shoes for different occasions. Or maybe they decide that they care about other things than lifetime cost for their daily wear boots, and spend more on those, too. (Being rich means they can afford to care about other things than lifetime cost.)
Apparently famous people often get comped meals, but I bet most of them still spend more money on food than I do.
I spent £500 on a laptop in 2013, and before that, £300 in 2008. If I'd gone for £200 laptops each time, maybe they would only have lasted two years each. But if I weren't a techno-masochist, maybe I'd realize that using old laptops actually kind of sucks, and I'd upgrade far more often. My work laptop, bought by people who want me to be maximally effective at my job, cost over £1000 and isn't going to last ten years.
Financial services are a case where I'd guess the rich and the poor spend money on very different things. I assume the rich don't have to pay to cash a cheque, and very rarely visit loan sharks. But the poor rarely have Amex Platinum cards ($550/year), or personal accountants. (Maybe it's unfair to count those because they save you money in other areas?)
Buying a house may be cheaper in the long run than renting a similar house nearby. But rich people tend to live in nicer houses and/or nicer areas.
Those are all guesses. I don't have good data on this, and I'd love to see it if you do.
For what data I do have, the first google result was this page from the UK's Office of National Statistics. Specifically, look at figure 4, "Indexed household income, total spending and spending by component by income decile, UK, FYE 2019".
They split households into ten income levels, and look at four categories of spending plus total spending. Each of those is a near-strictly increasing line from "poor people spend less" to "rich people spend more". (I see two blips: the 90th percentile of income spends slightly less on housing than the 80th, and the 70th spends slightly less on food and non-alcoholid drinks than the 60th. The other categories are transport, and recreation and culture. These four are the largest spending categories on average across all income levels. The graph also has disposable income, which I think is irrelevant for current purposes.)
(I repeat that this specific data is not strong evidence. The source for it is the living costs and food survey, which might have more detail. (Link goes to the previous year's version because that's what I could find.) Unfortunately it's not open access. It might be freely available if I register, but I don't care enough to try right now. In any case, we'd also want data from outside the UK.)
There will obviously be some exceptions. There will be some rich people who spend less money than some poor people. There will probably even be some rich people who spend less money than some poor people, and would not be rich otherwise. But as a general theory for why the rich are rich? I just don't buy it.
I believe boots theory points towards one component of socioeconomic unfairness. But boots theory itself is supposed to be a theory of why the rich are so rich. It's very clear about that. It's clearly wrong, and I predict that even a weakened version of it is wrong.
To be a little more precise, I think boots theory as written makes three increasingly strong claims, that we could think of as "levels of boots theory":
All of these levels have stronger and weaker forms. But I think a quick look at the world tells us that the first level is obviously true under any reasonable interpretation, and the third level is obviously false under any reasonable interpretation. The second I predict is "basically just false under most reasonable interpretations", but it's less obvious and more dependent on details. There may well be weak forms of it that are true.
It may be that most people, when they think of boots theory, think only of levels one or two, not level three. I don't know if you can read this quora thread that I found on Google. It asks "How applicable to real life is the Sam Vimes "Boots" Theory of Economic Injustice?" The answers mostly agree it's very applicable, but I think most of them are on level one or two. (The one talking about leverage seems like level three, if it's talking about boots theory at all. I'm not convinced it is.)
But it seems to me that boots theory is usually presented in whole in its original form. Its original form is succinct and well written. When people want to comment on it, they very often include the very same quote as I did. And the original form starts by very clearly telling us "this is a theory of why the rich are so rich". It is very obviously level three, which is very obviously wrong.
So I have a few complaints here.
One is, I get the impression that most people don't even notice this. They link or quote something that starts out by saying very clearly "this is a theory of why the rich are so rich", and they don't notice that it's a theory of why the rich are so rich.
(I wouldn't be too surprised (though this is not a prediction) if even the author didn't notice this. Maybe if you had asked him, Terry Pratchett would have said that no, obviously Sam Vimes does not think this is why the rich are so rich, Sam Vimes just thinks this is a good illustration of why it's nice to be rich.)
This disconnect between what a thing actually says, and what people seem to think it says, just bothers me. I feel the desire to point it out.
Another is, I think there's a motte-and-bailey going on between levels one and two. A quora commenter says it's "far more expensive to be poor than it is to be rich, both in a percentage of income respect and a direct effect". He gives examples of things that rich people can spend less money on, if they choose. He doesn't provide data that rich people do spend less money on these things. Another describes how being rich lets you save money on food staples by stocking up when there's a sale. He doesn't provide data that rich people do spend less money on food or even staples. You could certainly make the case that neither of these people is explicitly claiming level two. But I do think they're hinting in that direction, even if it's not deliberate.
And relatedly: if we want to help people escape poverty, we need to know on what levels boots theory is true or false.1 If we want to know that, we need to be able to distinguish the levels. If "boots theory" can refer to any of these levels, then simply calling boots theory "true" (or even "false") is uninformative. We need to be more precise than that. To be fair, the quora commenters make specific falsifiable claims, which is commendable. But the claims are meant to be specific examples of a general phenomenon, and the general phenomenon is simply "boots theory", and it's not clear what they think that means.
I advise that if you talk about boots theory, you make it clear which level you're talking about. But maybe don't use that name at all. If you're talking about level one, the name "ghetto tax" seems fine. If you do want to talk about levels two or three, I don't have a good altiernative name to suggest. But since I don't think those levels are true, I'm not sure that's a big problem.
I'm not too confident about this, and I don't want to get too distracted with object-level claims about how to actually fight poverty. But my sense is that: to the extent that level two is true, giving someone money fairly reliably sets up positive feedback loops that help them save more money in future. To the extent that it's not true, these feedback loops don't come for free. Maybe we can seek out spending categories where it is true, or groups of people for whom it is true. Maybe we can teach people how to find and take advantage of these feedback loops. If even level one isn't true, we don't get these loops at all. Of course, maybe it's worth giving people money even if we don't get the feedback loops. ↩