Against boots theory

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 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.

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.

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.