When The Poor Can’t Eat Your Cake: An American Tragedy In Two Acts
A crash course in price points: why is a slice of cake $5?
Perhaps you could understand the price point (literally the amount you pay) as the cost of flour, sugar, strawberries and cream, plus a profit margin and cost of labor. Or maybe you could look at the cost of cakes in all the bakeries in town, and work out what the median cost of a slice of cake is, and what your customers are prepared to pay. Or maybe you look at the demographic of people who have access to a cash fee of $5, and come up with a strategy to make them all buy cake. All of this is meaningless and everything, in economic terms, but it comes down to one very simple point: the market is always a matter of cost. There is not a single product being sold anywhere in the world that can ignore the nature of cost in relation to consumer.
Who can buy your cake for $5 is not the same as who would. Who would buy your cake for $90 is not the same as who could. What many Americans don’t understand is that the cost of any product is not a fair figure dutifully based on cost of production and the amount of profit someone would like.
Some of the costs of production are several hundred times smaller than the cost to consumer, entirely invisible to the casual buyer. Some products even operate at a loss as they ramp up users and market share. People base consumer judgements on what they perceive as a fair trade off: would you pay an extra 20c for a cherry on top? What about an extra $200? What are you expecting from a cake that costs $5? Or $10,000? Who would be put off by a cake that only cost $10,000? Do they want a cake more than they want $10,000?
Ordinarily, this wouldn’t be a problem at all. A choice of price points for the consumer results in free market competition, where the most insane and ridiculous costs can die out fairly quickly. If you don’t want a cake that costs $10,000, you don’t have to buy it. But there is an emerging problem: the more monopolies squeeze out viable alternatives, the more money they can demand from their market. They don’t care if your rent costs $3,500 a month: they know you need wifi, car insurance, or healthcare. They don’t care if it’s unfair. Anything beyond their immediate market is someone else’s problem.
You, the consumer, no longer can pay: you will pay.
In 2021, Marie Antoinette doesn’t know or care what $10,000 means to an ordinary peasant. Marie Antoinette has never had to ask for leftovers from a takeaway, buy clothes from a thrift shop, or ask her mother to look after the kids for a week because she can’t afford to feed them. She has no comprehension of whether an extra $20 a month in water bills would send a family into destitution, or what it would mean to have to pay $100 to travel home from Ohio State if dad got sick. And Marie Antoinette is rapidly taking over every boardroom in America.
The lost art of realism: understanding the cakeless plebs
Go on your phone, open any social media app, and check the last 5 contacts you’ve spoken with. Who are they? How much do they earn? Are they renting, or homeowners? Are they lawyers, receptionists, cashiers, or trust fund babies?
Who you know and who you surround yourself with rapidly changes your perception of normal. If you’ve grown up in rural Cleveland in a three room house and eight siblings, what $20 means to you might be a week’s groceries. In an upper class suburb in New Hampshire, $20 might mean lunch. In a luxury penthouse in LA, $20 might be what you tip your driver if you’re feeling frugal. The way you understand money, and have had to understand money, rapidly changes your perceptions of living, poverty, and normal.
As a Brit, and a privileged one, I was shocked by the two USAs I encountered, even more so than anything I’ve seen in the UK. I vividly remember the first time I encountered poverty- if I can dare to call it that now- when, at 16, I went to a new friend’s house on the first day of state school, and ended up washing her hair over a sink full of cigarette ash because she couldn’t afford to run a bath. She lived in luxury compared to how many Americans have to live: free healthcare for life, free education up to 18, and a three bedroom house in a nice area. She was one of the lucky ones.
It’s easy to lose track of just how poor many Americans are when you’re a member of the ultra privileged elite, or even just the upper middle. 49% of Americans don’t have healthcare. The median income is just $31,000 (£22,348) and rent, insurance and good prices are soaring. The unrest and longing for a world where they didn’t feel poor for not having access to fashion, luxury goods or experiences is tangible. The idea of making big expenditures, such as a couch, TV or a condo, aren’t dreams anymore: they are frightening. Debt is frightening, losing a high percentage of their income on an expense is frightening. The world is suddenly unstable, and everything is going up in cost. Inflation leaves a bad taste in millions of mouths. If you want that precious $1,800 superfluous expenditure from every American on an average salary, you’re now dealing with a market where every other necessity and service is asking for $1,800pa because they are just as aware as you that there is money to be spent, and they also want every dime.
It’s easy to see the world as the undeserving poor, the aspirant poor and the hard working when you’ve always been at the top: but a failure to just understand the real, visceral cost of capital to ordinary people is the biggest threat to America. Making money only ever works as long as there are people to buy your goods and services. It is entirely possible that people will follow the trend we are currently seeing: becoming more conscious of costs, more careful around spending, and more ready to refuse prestige or ‘mainstream’ fashion and media. Because the reality is this:
Ordinary people cannot face ever increasing costs on all sides of the market.