Feature

Thy Neighbor's Budget

Wall Street Executive
$10,000,000

Not long ago, Eric, a thirtysomething executive at a Wall Street firm who made more than $10 million last year, ate dinner with a former mentor, an investor whose net worth is well over $1 billion. The meal was nice, although the food wasn't memorable, and they drank wine. The tab came to more than $300. "It's absurd. It's offensive," Eric says. "Even we get sticker shock."

Strange but true: In New York these days, even multi-millionaires complain to one another about how expensive their lives have become. "When I first moved to New York, I paid $500 a month for an apartment," Eric says. "Now I pay $500 a month to leave the car in a spot in a parking garage!"

The problem, Eric explains in an analysis oddly reminiscent of Karl Marx, is that an obsession with money is replacing people's sense of its real value. Dizzy from the stock market's exuberance, people see the world upside down: They want things simply because they are expensive, and they lose sight of intrinsic worth. Recently, Eric says, he flew to Europe for a business trip and brought along his wife. He paid $300 a seat to fly coach, but his wife wanted to pay $6,000 apiece for first class, arguing that after all, it was a business trip. "I told her she had to be kidding. The plane was practically empty. Why pay for first class when you can stretch out back here? But let me tell you: First class was packed.

"The problem is that there are now so many people who have made so much money they don't give a rat's ass. I just got off the phone with a friend of mine who is sitting on $400 million worth of an Internet stock. You can't spend $400 million. I mean, what do you want? How many houses do you want? Dream big. Four? You still can't spend all that money. So somebody like that doesn't even care. Some people's accumulation of wealth has accelerated so much more than the supply of everything else that the rest of us are getting left on the dock!"

Eric, too, just renovated his kitchen. "No big deal. New floors. New cabinets. New countertops," he says. "It cost $70,000. It could have been double that -- we economized! But nobody cares anymore. That is what is driving up the prices." Restaurants are another example, he says. Eric and his wife eat out three times a week, paying at least $50 a person, often much more. "You do the math on what that costs. Eating out kills you."

Even for people like Eric -- Manhattan's millionaire middle class -- it is the stunning leap in Hamptons real-estate prices that tests their financial wherewithal. Among his friends, the going price to build a house in East Hampton has risen from about $150 a square foot a few years ago to $400 a square foot today. "The contractor says, I got six houses to build and there are only so many Mexicans in Southampton to hammer the nails, so he jacks up the price."

The Wall Street boom has raised the stakes considerably in the annual hunt for a decent summer rental. "You can spend half a million for the summer. It's easy. It's not hard at all. At the very least, a good summer house -- four or five bedrooms, in a nice area a few minutes from the beach -- runs about $200,000!" he says. In a house like that, there is enough room for four couples. "But how are you going to have something fun to do with all those same couples every weekend? Could you stand them?" he says. So he splits his house with a friend -- $100,000 apiece for the summer -- and they invite a lot of guests. "You're spending so much that you have to take your vacations out there, too! It's getting to the point that ordinary shmendricks like you and me, working people who might be worth maybe $50 million, can't afford summer houses anymore!"

After all, making $10 million in a good year doesn't mean Eric is really all that rich, at least not by the standards of his world. It's not like he flies around in his own private plane the way some of his friends do. "A jet-share program -- that is the way to spend some money," he says. Indeed. First, it takes a deposit of a million, borrowed and paid off at 7 percent, like a mortgage -- $70,000 a year. After that, a share of the jet costs about $6,000 a month, plus $2,500 an hour while you use it. "You get a jet with an eight-seat cabin. Eight people at $2,500 an hour -- $300 a head, if you fill it up. That's cheaper than flying first-class. If you're running a company, every company needs a jet! And it's very convenient. If you want to leave Nantucket at 2 a.m. to get back to the Downtown Athletic Club for your last hit of ecstasy at 3 a.m., it will take you!"

From such lofty heights, it can be hard to figure out just what all the ants are doing down below. Eric, for example, can't figure out why anyone would open another bodega in New York -- the return has got to be lousy, so why not just put that money in the market? He agrees with Jacob, the former lawyer: While New York's cost of living is propelled by the rising prices of stocks, real estate, and other financial assets, trying to make money by selling your labor feels like a losing proposition. "I don't think there is a middle class in New York anymore," he says. "There is no Joe Six-pack here. You are either really rich and getting richer and you don't care, or you are really poor and getting poorer and you should move someplace else as fast as you can."

In recent years, economists have tried to shed some light on the question of why even rich New Yorkers living in the best of times often feel that they are falling behind. "As economists, we assume that as people get richer they get happier, but it doesn't happen," says David Blanchflower, chairman of Dartmouth's economics department. The Japanese, for example, enjoyed a spectacular increase in their standard of living from the end of World War II, when their country was in ruins, until the eighties, when Japan was among the world's wealthiest nations. But surveys of their satisfaction showed little improvement. "It is a puzzle," Blanchflower says.

Blanchflower and Andrew Oswald of the University of Warwick, England, are studying data from surveys conducted across the United States each year since 1972 asking about people's level of satisfaction. Although prosperity doesn't do much, relative income buys quite a bit of satisfaction. "If we all go from one BMW to three, it doesn't make much of a difference," explains Oswald. "But if I get three while you have only one, then I am laughing. In that case, I will unquestionably get happier."

A decline in relative position, on the other hand, is extremely painful -- a phenomenon economists call loss aversion. In one common experiment, Blanchflower says, students are asked: Would you rather get eight while everyone else gets four or get six while everyone else gets zero? Almost all answer six.

Blanchflower and Oswald say they are concluding that a lopsided boom may actually lower a community's overall satisfaction. "We are finding that inequality itself has an effect on people's happiness," Blanchflower says. "It appears that people care quite a bit about how they stack up relative to the rich, and they don't like to see the poor suffer, either."

New York is the perfect test case. Some sociologists argue that Americans feel inadequate in comparison with the luxurious lives they see on television, and that goads them to frenzied consumption. But you can turn off the television. Here in New York, we don't need to read a book about the millionaire next door. We see him at the deli, picking up a Duraflame log for his fireplace.

But if economic inequality is a recipe for unhappiness, why aren't Manhattan apartments cheaper? Why do we all still want to live in New York? Perhaps in part because there is a certain glamour in all that inequality. Rubbing shoulders with the wealthy and powerful may demoralize us when we balance our checkbooks, but it is exhilarating too. It feeds our fantasies that we so often seem to be just a step or two away from greatness, in whatever form we choose. Isn't that Tom Wolfe at the next table? He wrote for this magazine, too, you know. I wonder where he bought that seersucker suit . . .

What makes life here so hard to afford, even for the affluent, isn't just real estate and local taxes -- it is also New York's effect on our habits as consumers, the sense of entitlement, the feeling that, as New Yorkers, we deserve taxi rides, weekends out of town, and fancy hybrid mountain bikes. After all, isn't going to restaurants and the theater part of life in New York? We are a whole city of underearners.

Maybe I could find work as a journalist elsewhere -- Texas Monthly, the Chicago Tribune. I could probably afford a bike and a garage for it, too. But in truth, I can already afford a bike in New York if I start trying to impress dates with my well-intentioned cooking instead of my well-thumbed Zagat. Besides, leaving New York would impoverish me in myriad, incalculable ways. I would be giving up the museums, the concerts, Central Park. Not that I see much of them, since I spend all of my time in my office. But they don't know that back in Buffalo.