Slate Money – The Consumption Smoothing Edition

Date: December 2, 2017
Host: Felix Salmon with Anna Shymanski, Jordan Weissman, and guest Rachel Schneider

Episode Overview

In this “Consumption Smoothing Edition,” the Slate Money crew is joined by Rachel Schneider, co-author of The Financial Diaries: How American Families Cope in a World of Uncertainty, to discuss the shifting realities of American middle-class finance. The episode explores why even working families experience wild swings in income and expenses, the challenge of budgeting under such volatility, and the rise of fintech solutions designed to help (or exploit) consumers. The team also dives into the implications of cities’ aggressive courtship of Amazon’s next headquarters, and the problematic race-to-the-bottom these deals represent for local democracy.

Main Discussion: The Financial Diaries & Income Volatility

Setting the Stage: Who Gets Studied, and Why?

• Rachel Schneider shares her research, where she followed 235 working families for one year, tracking every penny spent:

  "It's really the stories that arise out of research... we talked to 235 families and gathered information about their financial lives over the course of a full year." (00:45 - Rachel)

• The focus is not the very poor, but families at or just above the poverty line (“the band we were working with was from the poverty line up till about two times the poverty line, which is around the area median”). (02:39 - Rachel)

Key Findings: Income Swings Are the Norm, Not the Exception

• The prevailing assumption—that a steady, predictable paycheck comes with a full-time job—is outdated:

  “Even if you're solidly in the middle class and even if you have a full time job, you can still wind up with unintuitively enormous fluctuations in monthly income and cash flow.” (02:09 - Felix)

• Families experienced massive spikes or dips (≥25%) in monthly income at least five months per year:

  “In five out of 12 months... families had huge spikes and dips in their earnings over at least 25% more, 25% less than the average.” (03:58 - Rachel)

• Traditional budgeting advice is “nonsensical” for these families because of such volatility.

The Human Reality of Budgeting

• People adapt by hoarding goods (stockpiling food and toiletries after a good month) rather than saving cash:

  "When her husband has spikes in his earnings... she stocks the freezer... pantry full of toothpaste... She says, 'It's just really hard to save in cash, and I can't go to the movies and pay with a pork chop.'" (05:06 - Rachel)

The Great Job Shift & Corporate Risk

• The 20th-century norm of steady wages was an exception, not the rule:

  “We hold out the Post World War II decades as the benchmark, but they may have been an aberration in terms of economic security.” (10:50 - Rachel)

• Just-in-time labor practice means risk is shifted from corporations to individuals:

  "What's happened really is a shift in the risk in demand for services from the institution... to individuals." (07:23 - Rachel)

The Role of Technology and Corporate Power

• Companies’ use of technology and scheduling software increases workers' income instability.
• A 30% increase in annual income volatility has occurred over the past 40 years, per national data. (08:12 - Rachel)

Implications: Social Mobility & Regressive Effects

• Volatility is more damaging for the poor, who have smaller financial cushions and less access to low-cost credit:

  “If you're rich, ... you can totally afford to take a volatile income... If you're poor, you can't afford to do that.” (13:15 - Felix) "The poorer you are, the smaller change it takes in your income for it to be really volatile." (13:42 - Anna)

Solutions & Fintech: Affirm and the Evolution of Credit

Affirm: Credit Innovation or Consumption Trap?

• Affirm (founded by Max Levchin, PayPal co-founder) offers point-of-sale installment loans, providing an alternative to credit cards, especially for purchasing big-ticket items:

  “Everything is done on a purchase by purchase basis. So you really know how much you're spending each month or each paycheck to pay off... the item that you used the affirm credit for." (16:43 - Felix)

The Good:

• Transparent installment terms; clearer for budgeting than revolving credit cards.
• Offers credit access to those who might not qualify for credit cards.
• Installment structure is a "dramatic improvement over payday loans and over credit cards in lots of ways." (23:22 - Rachel)

The Bad:

• Risk of hidden costs: Merchants pay Affirm, and prices are often higher in poorer neighborhoods—an "additional poverty tax." (21:52 and 23:44 - Felix and Rachel)
• Interest rates (around 19%) are between typical credit cards and predatory payday loans.
• May encourage “needless and possibly ill considered consumption,” as purchases spike after Affirm is introduced. (18:16 - Anna)

  "You could still get into some financial trouble, certainly." (18:41 - Jordan)

Notable Quote:

“With credit, the constant problem is, is better good enough?” (24:23 - Rachel)

Algorithmic Underwriting:

• Affirm’s algorithms constantly change and sometimes deny credit unpredictably, which adds another layer of instability for users who might rely on such loans. (24:51 - Anna)
• Concerns raised about the transparency (“black boxiness”) and discriminatory potential of such algorithms:

  “Underwriting is designed to tell the lender whether... you're going to pay it back. It's not designed to tell whether or not this loan is a good choice in your life at all.” (27:41 - Rachel)

Cities Competing for Amazon: The New Company Towns

Municipal Giveaways & Democracy at Stake

• Cities (notably Chicago and Fresno) are bending over backwards to lure Amazon’s HQ2, with offers ranging from redirecting tax revenue back to Amazon (Chicago) to outright letting Amazon decide how its tax dollars are spent (Fresno).

  "We will let you build your own city and we will throw money at you... but you will be in charge of your city and you get to make the rules." (31:34 - Felix)

Concerns

• Undermining democratic control in favor of corporate interests—echoes of old company towns:

  “...A bunch of cities have effectively gone up to Amazon and... we will actually give you the keys to city hall to a large degree as well.” (35:21 - Felix)

• The possibility of long-term, contractually binding deals that make it difficult for local citizens to reclaim control:

  “You can vote out the mayor, but you can't vote out Amazon once it's there and it has its deal.” (36:34 - Anna)

Is It Overstated?

• Some argue the economic benefits (jobs, secondary growth) may offset concerns, and municipal democracy can persist. Others are skeptical, fearing a template for future corporate demands:

  “I don't think this is going to be the last time a major company tries to pull this. I think Jeff Bezos might be setting a template here.” (38:55 - Anna)

Numbers Round (Key Stats & Notable Moments)

• $400 — Half of Americans cannot easily come up with $400 in an emergency without borrowing or selling something. (46:17 - Rachel)

  “The idea that you wouldn't have $400 to your name if something came up is striking.” (47:10 - Rachel)

• 252,000 — Transactions per second on Alibaba during Singles’ Day. (44:07 - Anna)
• $100 million — Amount Chase invested in “Chase Pay,” a payment tech with low user adoption. (44:48 - Felix)
• $59,000 — Median household income in the US for a family of four. (03:09 - Rachel)
• 30% — The rise in income volatility over the past 40 years. (08:12 - Rachel)

Notable Quotes

• On budgeting and volatility:

  "Everything you think about how somebody would budget goes out the window... in five months of the year, that would have been nonsensical." (03:58 - Rachel)

• On consumption:

  "To splurge on something is a human need and desire... the idea that you would be perfectly disciplined about your spending all the time... it's not fun." (19:42 - Rachel)

• On technology and workers:

  "Companies have gotten too good at programming their workforces for like down to the second savings?" (06:34 - Jordan)

• On Amazon HQ2:

  "It's not even the employees... which get to determine their own fate. It's their employer. And I feel like we haven't had one of those company towns in what, like almost 100 years now..." (31:34 - Felix)

Memorable Moments

• Becky’s Toothpaste Pantry: A vivid story of coping—when cash is tight, stockpiling household goods after a good month. (05:06 - Rachel)
• Anna’s criteria for financial products: Is "better" always good enough, especially for those with limited options? (24:23 - Rachel)
• Comparing Affirm’s interest & fees in poorer neighborhoods: A discussion on the “hidden” notes of poverty tax and the dangers/benefits of credit innovation. (21:52 - Felix)
• Amazon as ‘Emperor’ of towns, and the Hunger Games for HQ2: The comedic yet disquieting depiction of municipal desperation. (29:33–35:21)
• Host exasperation at fintech proliferation: Felix’s quip about "a gazillion competing payments protocols out there." (45:16 - Felix)

Timestamps for Key Segments

• 00:45 — Rachel describes The Financial Diaries project
• 02:09–05:56 — Overview of key findings: income volatility, coping mechanisms
• 06:04–10:50 — The Great Job Shift: historical vs. current economic stability
• 11:21–14:21 — Solutions: fintech innovations, regulatory concerns
• 16:06–29:19 — Deep dive: Affirm’s business model, pros and cons, the role of 'black box' algorithms
• 29:33–36:47 — Amazon HQ2: city offers, implications for democracy
• 44:07–47:28 — Numbers round: Alibaba stats, Chase Pay, $400 emergency stat

Final Thoughts

The episode highlights the growing disconnect between traditional economic advice and the lived reality of working Americans contending with volatile incomes, as well as the ambiguous promises and perils of fintech “solutions” like Affirm. It also points to the shifting power dynamic between major corporations and the cities eager (or desperate) to host them—raising tough questions about governance, democracy, and who really benefits as economic tides change.

[End of summary – perfect for a listener looking to grasp the episode’s depth, arguments, and wit without tuning in.]