Comparison of the China-US "Red Line": The Economic Pressure and Survival Reality of the Middle Class

01

By the end of November, I read three articles by Mike Green on Substack:

These are three very lengthy articles, making you feel like you’ve been reading forever; combined, they amount to a small book’s worth of words.

I will try to summarize in plain language as follows:

The main message of the articles is: If you think the current economic data is good but your life is still tight, earning $100,000 a year is still considered poor, that’s not your fault—it’s because the measuring stick for wealth and poverty is Doraemon’s self-deception ruler.

The articles present three viewpoints:

1. “Poverty line” is actually a case of measuring with a broken ruler

The official poverty line in the US is an annual income of $31,200( for a family of four); as long as your income exceeds $30,000, you’re not considered poor.

But this ruler was created in 1963. The logic back then was simple: a family spends about one-third of their money on food, so by calculating the minimum food cost and multiplying by three, you get the poverty line.

But now, the situation is vastly different. Most people have seen that famous chart—the “Baumol’s Cost Disease”(:

Food has become cheaper, but housing, healthcare, and childcare costs are skyrocketing. If you recalculate based on the standard of living in 1963—meaning participating normally in society) having a house, a car, children, and medical care(—the real poverty line today isn’t just over $30,000, but about $140,000), roughly RMB 1 million(, just to live decently in society.

2. The harder you work, the poorer you become

The US welfare system has a huge flaw: when your annual salary is $40,000, you are officially considered poor, and the government provides food stamps, Medicaid), and childcare subsidies. Life is tight but there’s a safety net.

But when you work hard and your salary rises to $60,000, $80,000, or even $100,000, disaster strikes: your income increases, but your benefits disappear. Now you have to pay full price for expensive health insurance and rent.

The result is: a family earning $100,000 a year might have less disposable cash each month than a family earning $40,000( receiving benefits).

This is the origin of the narrative on Chinese social networks about the “killing line” and “killing line targeting the middle class”: just like in a game, when your health drops below a certain threshold, you get instantly killed by a skill—one strike and you’re gone; middle-class people caught between benefit withdrawal, rising taxes, and rigid expenses( like healthcare, rent, childcare, student loans)—are precisely at that threshold, losing subsidies and bearing high costs. Once unemployment, illness, or rent hikes occur, they are “killed.”

3. The assets you own are actually very waterlogged

Because:

Your house isn’t an asset; it’s prepaid rent: if your house price rises from 200,000 to 800,000, are you richer? No. Because if you sell it, you’ll still need to spend 800,000 to buy a similar house. You haven’t gained extra purchasing power; your living costs just increased.

The inheritance you wait for isn’t wealth transfer: the inheritance from the Baby Boomer generation won’t be passed to you; it will go to nursing homes and healthcare systems. Now, in the US, elder care( dementia care, nursing homes) cost between $6,000 and over $10,000 per month. If your parents’ house is worth $800,000, it will most likely end up as medical bills paid to healthcare providers and insurance companies.

Your class has already turned into a caste: in the past, you could cross class boundaries through hard work. Now, it’s about “tickets”—Ivy League degrees, recommendations from core circles—these “assets” have inflation rates higher than houses. So, earning $150,000 a year can keep you alive, but can’t buy your children a ticket into the upper class.

02

What exactly has caused the “inflation of the US poverty line”( or, in our context—“the shifting of the killing line”)?

Mike Green believes there are three turning points in US history:

Turning point 1: The deterioration of union monopoly in the 1960s, leading to decreased efficiency and rising costs.

Turning point 2: The anti-monopoly shift in the 1970s, with large corporations engaging in rampant mergers, controlling markets, and suppressing wages.

Turning point 3(: As everyone can guess): China’s impact. But the article’s view isn’t that China forcibly took jobs away; it’s about American capitalists’ arbitrage—moving nearly all factories out of the US to earn profit margins.

However, Green doesn’t just criticize without offering solutions; he proposes a very hardcore plan called the “Rule of 65”(:

The core idea is familiar to us Chinese: “Tax the rich and share the land”):

(1) Increase taxes on corporations( but exempt investments from taxes);

(2) Big companies borrowing money can’t deduct it anymore, cracking down on financial hollowing-out;

(3) Reduce burdens on workers: significantly lower payroll taxes( like FICA, increasing people’s cash on hand. Where does the money come from? Make the wealthy pay more, raising the social security tax cap for the rich.

The Chinese experience is definitely practical.

03

Mike Green’s views have been widely circulated among the American middle class. But they have also triggered collective resistance from elites and economists.

His article indeed has many data flaws. For example, using data from Essex County), one of the top 6% wealthiest areas in the US, as representative of the national average; assuming all children attend expensive daycare( costing over $30,000 annually), but in reality, most American families still raise children themselves; some concepts are also confused, such as treating “average expenditure” as “minimum survival needs.”

Later, Green appeared on many podcasts, clarifying himself: the $140,000 isn’t the traditional “starving” poverty line, but the “decent living threshold” for an ordinary family that doesn’t rely on government subsidies and can save some money.

Although Green’s math seems to be wrong, critics haven’t won, because regardless of what the poverty line is, people’s sense of poverty is very real. And the “killing feeling” is becoming more tangible—whether in the US or China.

Why? I think the real reason is still “Baumol’s Cost Disease.”

“Baumol’s Cost Disease,” proposed by economist William Baumol in 1965, describes an economic phenomenon:

Some industries( like manufacturing) rely on machines and technology, becoming more efficient, with lower unit costs; but others( like education, healthcare) mainly depend on people, making it hard to significantly improve efficiency—one class still takes an hour, a doctor still needs time to see a patient, and it can’t be sped up like a factory.

So the question is: wages in the entire society will rise along with those high-efficiency industries. To prevent teachers and doctors from jumping to higher-paying sectors, schools and hospitals also have to raise wages. But their efficiency hasn’t improved much, yet wages have increased, leading to rising costs and prices.

In other words: industries that can be sped up with machines raise overall wages; industries that can’t be sped up have to raise wages to keep workers, but efficiency remains unchanged, making them more expensive. This is “Baumol’s Cost Disease.”

That’s why, in the chart at the beginning of the article, the lines representing industrial products like TVs, smartphones, and toys are trending downward, with prices getting cheaper; while the lines for education, healthcare, and childcare costs are soaring.

The underlying logic is very realistic:

Anything that can be replaced by machines and automation will become more efficient over time. For example, smartphones—although their prices haven’t dropped much, their performance and capacity are vastly better than a few years ago, with computing power and storage multiplied several times. This is essentially a form of “invisible price reduction” brought by technology. Not to mention Chinese manufacturing: photovoltaics, EVs, lithium batteries—automation levels are increasing, costs dropping to rock-bottom.

But the problem lies in areas where “machines can’t replace humans.” When I was young, a nanny could watch four children alone; today, she still can watch four, but because parents’ expectations are higher, she might even watch fewer children. This means service industry productivity hasn’t improved in decades, and may have even regressed.

However, in the service sector( especially in the US), to prevent nannies and nurses from leaving for delivery jobs or factories, wages must be increased to match the overall income level. The coffee beans in cafes are cheap, but most of the high prices you pay go toward wages, rent, and utilities. If efficiency doesn’t improve but wages go up, costs are passed on to consumers.(Note: this specifically refers to the US)

Therefore, the middle-class families “killed” by the “killing line” aren’t starving—they have cars, iPhones, and various streaming memberships. But when facing housing, medical care, and childcare expenses—these “service costs”—their wallets are emptied instantly. So, it’s not that Americans are truly getting poorer; it’s that their money is increasingly drained by those “low-efficiency but extremely expensive” services.

Writing this, I know everyone has been asking: does China have a killing line? Does China’s middle class also face a shifting killing line? Has China’s poverty line also risen?

The answer is most likely no.

So, we probably won’t see a “killing line” in China. I discussed this with Director Liu in the podcast episode “When China Turns into an Industrial Cthulhu, What Remains of Trade? Higher Productivity, Lower Wages?” on the “Wall Crack Forum.”

The situation in China, as we Chinese all know: Chinese society is more sensitive to service prices; for “non-productive tools” and services, people generally are reluctant to pay. In the expenditure structure of labor reproduction, some service costs have been kept artificially low for a long time, even to the point of “not paying wages for this part.” When services are undervalued and welfare stages differ, the wage system naturally takes a different form from the West.

This creates a strange phenomenon: people can still “live” because living costs can be suppressed to very low levels.

So, perhaps China doesn’t have a “killing line,” but there might be an invisible threshold—like, how low can the dignity of service providers be pushed? How high can the intensity go?

So, as always, everything comes at a price. ()$AIA