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

Author: Xiao Xiaopao

Original Title: From the “140k Poverty Line” to the “Middle-Class Killing Line”: To Stay Alive or To Maintain Dignity?

The narrative of the “killing line” I first noticed in November within the X and Substack circles. Its origin is Mike Green’s “140k Poverty Line” theory that went viral in the US. Unexpectedly, over a month later, this narrative spread domestically and evolved into the “killing line,” which is quite interesting.

Unfortunately, my AI narrative radar (see here) wasn’t ready at that time, or I would have loved to see whether AI caught this narrative spread and transformation.

01

At 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 read forever; combined, they amount to the size of a small book.

Here’s my attempt to summarize in Mandarin:

The main message of the articles is: if you think the current economic data looks good but your life feels tight, and an annual salary of $100,000 is still considered poor, it’s not your fault—it’s because the yardstick for measuring wealth is the self-deceiving ruler of Doraemon.

The articles present three viewpoints:

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

The official US poverty line 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: about one-third of a family’s income was spent on food, so by calculating the minimum food cost and multiplying by three, you get the poverty line.

But the situation has changed dramatically since then. Most have seen the famous chart—the “Baumol’s Cost Disease”:

Food has become cheaper, but housing, healthcare, and childcare costs have skyrocketed. If you calculate based on a 1963 standard—meaning being able to participate normally in society (owning a house, driving a car, having someone to care for children, access to medical care when sick)—the real current poverty line isn’t just over $30,000 but around $140,000 (about RMB 1 million), which is just enough to live decently in society.

2. The more effort you put in, the poorer you become

The US welfare system has a major 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 is 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 is higher, 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 welfare).

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

3. The assets you own are actually very water-like

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 still need to spend 800,000 to buy a similar house. You haven’t gained extra purchasing power; you’ve just faced higher living costs.

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 the healthcare system. Currently, in the US, nursing care (dementia care, nursing homes) costs between $6,000 and over $10,000 per month. An $800,000 house will most likely end up as medical bills paid to healthcare providers and insurance companies.

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

02

What exactly causes the “big inflation” of the US “poverty line” (or in our context—“killing line shift”)?

Mike Green believes there are three pivotal moments in US history:

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

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

Turning Point 3 (everyone can probably guess): China’s impact. But the article’s view isn’t that China forcibly took jobs, but that American capitalists engaged in capital arbitrage—moving nearly all factories out of the US to earn differential profits.

However, Green doesn’t just advocate destruction without solutions; he proposes a very hardcore set of measures called the “Rule of 65,” which is very familiar to us Chinese—“divide the land and share the wealth”: (1) Tax corporations more (but exempt investments from taxes); (2) Big companies can’t offset taxes with borrowing, cracking down on financial hollowing-out; (3) Reduce burdens on workers and horses: significantly lower payroll taxes (FICA), increasing people’s cash in hand. Where does the missing money come from? Make the rich pay more, lifting the social security tax cap for the wealthy.

The Chinese experience is definitely practical.

03

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

His articles indeed have many data flaws. For example, using data from Essex County (top 6% of US housing prices) as representative of national averages; assuming all children attend expensive daycare (over $30,000 annually), while most American families still care for their kids 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 “dignified living threshold” for a typical family that doesn’t rely on government subsidies and can save some money.

Although Green’s math seems to have made some errors, critics didn’t win because, regardless of what the poverty line actually is, people’s “poverty perception” 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 machinery and technology, becoming more efficient, with unit costs decreasing; but others (like education, healthcare) mainly depend on human effort, making efficiency gains difficult—one class still takes an hour, a doctor still needs time to see a patient, and speed can’t be multiplied like in a factory.

The problem is: wages in the entire society tend to 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, so costs and prices keep rising.

In essence: industries that can speed up with machines raise overall wages; industries that can’t speed up must also raise wages to retain workers, but with no efficiency gains, they become 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, phones, and toys trend downward, with prices falling; while lines representing education, healthcare, and childcare costs soar.

The underlying logic is very realistic:

Any field that can be replaced by machines and automation will see increasing efficiency. For example, smartphones—though their prices haven’t dropped much, their performance and capabilities have improved by several times over the years, representing a kind of “invisible price reduction” brought by technology. Not to mention Chinese manufacturing—photovoltaics, EVs, lithium batteries—automation levels are rising, costs are plummeting.

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

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

Therefore, the American middle class caught in the “killing line” isn’t starving; they own cars, iPhones, various subscriptions, but when facing housing, healthcare, and childcare expenses—these “service costs”—their wallets are emptied instantly. So, it’s not that Americans are truly becoming poor; it’s that their money is increasingly drained by “low-efficiency but extremely expensive” services.

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

Most likely, the answer is no.

So, we probably won’t see a “killing line” in China. Liu Director and I discussed this 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” type things, people generally are reluctant to pay, especially for services. In the expenditure structure of labor reproduction, some service expenses have been kept artificially low for a long time, even to the point of “this part of wages can be unpaid.” When services are undervalued and welfare stages differ, the wage system naturally takes on a very different structure from the West.

This creates a strange phenomenon: no matter what, you can still “live.” Because living costs can be pushed down to extremely low levels.

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

So, as always, everything comes at a price.