The ratchet effect is important

I think NYU economics department was trying to teach me (a liberal interpretation here) about the ratchet effect in consumption when they lowered my fellowship amount from $12,000 a year in my first year to $7,500 for a graduate assistantship.  I didn’t have to work in my first year, but had to work in my second year.  Sure enough, I got into debt with NYU housing, because I couldn’t pay the rent on my reduced income in my second year.

I could have moved to cheaper digs but these were not available in Manhattan.  I would have had to share.  Sharing means finding people who are willing to share with you.  What a bloody pain!  I mean, getting approval from complete strangers!  What a bloody pain, even if I repeat myself.

“Look out kid, they keep it all hid”.

Which makes me think of the ratchet effect at higher levels.  If a CXO wants to maintain his lifestyle after retirement, he better have huge savings to earn income on.  What does a CXO do, who loses his job?



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