Chapter 3: Every Exit Charges the Same Entry Fee, and It Is Called a Floor

Part One: What Shape Is the Structure? ｜ 📖 Who's Collecting at the Door ｜ 📖 Full Edition

---

Chapter 3: Every Exit Charges the Same Entry Fee, and It Is Called a Floor

Prologue: The Small Shops of Bentenjima

In 2019, I visited Bentenjima, in Hamamatsu, Shizuoka Prefecture. It has plenty of small family-run Japanese restaurants, each kept by one family, serving tourists and locals alike. The food was cheap, the portions generous and the flavor good; in Hong Kong terms, ping, leng, jing: cheap, good-looking, authentic.

Most of these shops were run out of the family's own house. With no rent being drawn off, costs stayed low; they had no need to expand or chase growth to keep going. They didn't make much money, but making a living was no problem. To me it looked like a kind of contentment, everything in its proper place.

But there were hardly any young people. I was told they had all left to find work.

This chapter starts from those three things. The cheap, honest shops remind us what "normal" used to look like; the houses they owned explain how they could step out of the game; and the young people who left show where this exit ends.

Here is the conclusion up front: every road that seems to lead out of the game charges the same entry fee, a floor you can afford to fall onto, something that lets you lose without going under. Education, housing, credit and low desire: this chapter tests that claim against each one.

1. Two Lines Already Drawn

The first two chapters have already drawn two lines. Here I only join them.

The first line is work. Technological progress is real, but every round comes with a financial story; what takes away jobs is often not technology itself but distribution carried out in technology's name (see Chapter 1). What economics calls the compensation mechanism is the costs saved by automation turning into lower prices, new investment and new wages, which then absorb the people displaced; its premise is that the money saved flows back into the real economy. Financialization cuts that channel: the savings flow into buybacks and dividends, and most of the people squeezed out move down into low-paid service work, not up.

The second line is consumption. Whole-cut steak becomes reconstituted meat, chicken loses its taste, and the decline in quality never appears in inflation statistics; things that can be copied at scale get cheaper, while things that need labor, time and land get more expensive (see Chapter 2).

Here the two lines merge. The costs companies save go back neither to employees nor to consumers; they go into the profit margin. People pushed downward can afford only the downgraded version; the market for the downgraded version is large enough to give companies even more reason to keep downgrading. Involution on the production side and downgrading on the consumption side feed each other.

In such a world, some people can still step out and some can't. This chapter asks what makes the difference.

2. Education: A Race Burned by the Middle Class

Education has one deeply absurd feature: it is crammed with useless content, its fees have gone sky-high, and everyone still has to compete harder and harder to keep up. In practice, it punishes the poor for being born to the wrong parents.

The education people actually need is not complicated: a foundation in their own language, English and mathematics, plus the eye to teach themselves and the habit of thinking critically. Collective, standardized rote education not only fails to provide these but wastes students' time and leaves them no chance to encounter them.

Several strands of scholarship support this judgment. The economist Bryan Caplan argues that most of the return on education comes from "signaling" rather than skills: a diploma proves you are obedient, persistent and clever enough to get through the whole system, while much of what you learned is never used once you leave.¹ The sociologist Randall Collins called this, much earlier, "the credential society."²

Why does education keep getting more competitive and more expensive? Fred Hirsch's image fits well: in a stadium, the people in front stand up to see better, so the whole crowd stands up; in the end nobody sees any better, but everyone is tired.³ A degree is a positional good; its value lies only in being higher than someone else's, so there is no ceiling on what people put in. That is where the arms race of tutoring, elite schools and extracurricular activities comes from.

The Ones Fighting Hardest Are Not the Poor

The rich don't need to win this exam; they have another way in. The poor often know early that they can't catch up, or lack the resources to try, and are pushed half out of the race. The most anxious, hardest-fighting layer is the one in the middle, because it has something to lose.

Barbara Ehrenreich called this mentality the "fear of falling": middle-class status cannot be passed on directly; each generation has to earn it again, so education becomes the only insurance against falling, and the premium has no cap.⁴

Where does the money end up? In The Two-Income Trap, Elizabeth Warren and Amelia Tyagi examined why American middle-class families with two incomes were more stretched than the previous generation with one. A major cause was parents competing to buy homes in good school districts, so that the extra income turned entirely into house prices.⁵ The price premium on homes in Hong Kong's "elite school nets" and the size of its tutoring industry are the same story: the middle class's sacrifices did not become the next generation's actual ability; they flowed to property owners and the education industry.

The hardest part is that participating is rational for every single family. If you alone don't compete, your child loses; if everyone competes, no one gains. This is a classic prisoner's dilemma, which is why advice like "just don't compete yourself" is useless: no one can lay down their weapons unilaterally.

The Top Has Its Own Track

The truly wealthy are not in this stadium at all. In a 2023 study of admissions to elite US private universities, Raj Chetty and his colleagues found that among applicants with the same test scores, children from the richest 1% of families were more than twice as likely to be admitted as middle-class children.⁶ The gap came not from the tests but from legacy preferences for alumni children, donations, and recruitment for sports that only the rich can afford to play. The exam is only the middle class's track; the top has its own entrance.

This track is hard to notice for two reasons. The people on it are few, and their lives are completely separate; and people usually compare themselves only with the layer nearby. Looking up, the middle class sees professional families a little better off than themselves and takes that for the top. All the competition is sideways; the real top is out of sight.

The irony is that what that track provides is precisely "the education people actually need" described above: exposure, connections, direct contact with decision-makers, and most important of all, a safety net that lets you fail. Rich children can experiment, change course, fail at a start-up and try again, because losing won't make them fall. For them, education is experience and networks; for everyone else, it is an exam they cannot afford to fail.

And this invisibility is what keeps the whole game running. If everyone could see clearly that the top gets in without sitting the exam, the story of "study hard and change your fate" could no longer be told, and the middle class would not pay its premiums so willingly.

Standardization Is Not the Culprit

There is a trap to avoid, though. Standardized tests have historically been one of the few upward routes for the poor. When admissions switch to "holistic review," with interviews and portfolios, families with resources play the game better, because they can afford consultants to package their children. Several elite American universities dropped standardized testing and then brought it back, and one of their reasons was that test scores actually helped them find talented applicants from disadvantaged backgrounds.⁷

The cognitive scientist Daniel Willingham also points out that critical thinking cannot be trained apart from knowledge: you have to understand something before you can criticize it.⁸ Self-directed learning works best for children with family support; for those without it, the structure of school may be their only scaffolding.

So the problem is not standardization itself, but that standardized content is stuffed with filler that serves only as a signal, while positional competition forces everyone to pour in unlimited time and money. Aim at tearing down the standards, and the first to suffer may be the poor.

3. Housing: Life's Most Leveraged Bet, Packaged as the Most Conservative Move

People in their forties and fifties, even their fifties and sixties, who bought homes with heavy leverage when they were young are, in theory, quite carefree today. The ones in real trouble are those still paying off mortgages now, especially those who took out a second mortgage on top.

The same heavily leveraged purchase, completely opposite outcomes. The difference is not who was smarter or worked harder, but when they got in. Those who bought after the 2008 financial crisis, in the long era of low interest rates, were the ones who really caught the wave; those who bought at the peak before the 1997 Asian financial crisis got trapped just the same.

Many people who bought at Hong Kong's 1997 peak spent ten years in "negative equity," owing more on the mortgage than the home was worth; those who bought at the top of Japan's bubble fared even worse, and some never got their money back in their lifetimes. Leverage itself is neither good nor bad; it only amplifies the headwind or tailwind of the times. The "carefree elders" we see today are the ones who made it through, and that is survivorship bias in itself.

The Riskiest Decision, the Most Conservative Packaging

The cleverest thing about this story is that it packages life's riskiest decision as the steadiest, most proper step. Hong Kong people talk about "buying a home to settle down" and "getting on the bus early," meaning buying a first home, and it sounds like conservative financial planning. Mathematically, it is the largest, most leveraged bet an ordinary person will make in a lifetime.

A 90% mortgage means a 10% fall in house prices wipes out your entire down payment. Wages grow a few percent a year, in a straight line; one cycle of a leveraged asset's rise or fall can cancel out ten years of savings. The two scales are not remotely comparable. That timing decides the outcome is a matter of arithmetic, not attitude.

Why does the story always report the good news and never the bad? Because too many people benefit from it. Those who succeed tend to credit their own hard work and foresight; few say, "I was just lucky, I happened to get the timing right." Those who fail are described as not trying hard enough, or as too greedy.

The story that "hard work brings success" sustains two things at once: a workforce willing to endure hardship, unwilling to question the structure and easy to manage; and an endless supply of buyers to take over, holding up the banks, the developers and governments that depend on land-sale revenue.

What Effort Can't Buy

So does individual effort count for nothing? I used to think effort at least decided whether you could ride out bad timing: many of those who lost everything in 1997 were people who lost their jobs or couldn't keep up their mortgage payments and were forced to sell at a loss.

But that doesn't hold up either. When interest rates rise, monthly payments jump at once, which has nothing to do with how hard you work; when the economy turns, layoffs often arrive together with falling house prices, and whether you keep your job is mostly not up to you. Around 2024, negative equity cases in Hong Kong rose to roughly a twenty-year high.⁹

Whether you make it through depends in the end not on effort but on how thick your floor is: whether you have savings to cover a few years of mortgage payments, whether family can help, how big a down payment you made so the leverage isn't too high.

And the previous generation's floor was in large part a dividend of the times, yet it is described as a virtue earned through endurance. So the next generation chases it with the same method, work hard, borrow, buy, under completely different conditions, and bears all the risk alone.

More jarring still, the value of the previous generation's assets is partly propped up by the next generation's mortgages and rents. As with education, the game rewards those who entered early, and the cost borne by those who entered late is packaged as "you didn't try hard enough."

4. Credit's Invisible Hand

If leverage in expensive areas is so dangerous, why not buy somewhere cheaper?

By 2026 I had lived in Taiwan for five years, and I never quite understood this. Many people would rather borrow more to buy in Taipei City; plenty of Taiwanese don't even want to live in Tamsui. People whose family home is in Chiayi won't buy there either. If moving to Taoyuan meant borrowing much less, wouldn't that solve a lot of problems? Hong Kong is small; however inconvenient a place is, it is never that far. Taiwan is different.

Locals give several reasons. Jobs are heavily concentrated in Taipei, and outside Greater Taipei the metro network thins out; many places depend on cars or scooters, and the time and cost of commuting shoot up. Taipei City home prices usually hold up better in a downturn and are easier to resell, so many people choose by the logic of an "asset" rather than a "home." Taipei City is in better fiscal shape, with richer education resources and subsidies, and comes with a status label.

As for people whose family home is in Chiayi, the family often already has an old house or land, so there is no need to buy; and young people can't stay because there are few jobs there, much as on Bentenjima.

Some people are in fact pursuing another choice. Since the 2010s, the populations of Taoyuan and Linkou have grown fast, many of them families who couldn't afford Taipei and chose lower leverage in exchange for a longer commute. In theory, "rent where you work, buy somewhere cheap to retire" is perfectly reasonable too.

The Cheaper the Place, the Harder to Borrow

But there is a deeper structure here: you can't borrow in the countryside.

When banks lend, they look at whether the collateral can be sold. For remote areas, old houses, farmland or small units, bank valuations are usually low and so are loan-to-value ratios; sometimes you need a down payment of 50 or 60 percent. In other words, the cheaper the place, the more cash you need; the more expensive the place, the easier it is to borrow.

As a result, credit flows only to places that are already expensive, making them more expensive still; cheap places, where you can't borrow, have few buyers, so they stay cheap and stay hard to resell. On the surface, where to live is a personal choice; in reality, the financial system has already made half the choice for you.

On top of that, you still have to pay rent where you work. Trying to avoid heavy leverage by splitting the two means carrying rent and a large down payment at the same time, and in the end only people with a thick floor can manage it.

People usually assume the distribution of house prices is set by supply, demand and personal choice. Few realize that where you can borrow is the invisible hand pushing people into expensive areas.

5. Low Desire: Liberation, or Resignation?

Japan is often described as having become a "low-desire society," a term coined by Kenichi Ohmae.¹⁰ Some see it as a collective choice to escape a distorted model: not pursuing expansion, not chasing growth, holding on to an asset already paid off, and living a contented life.

The small shops on Bentenjima are the physical version of this "low-demand safety net." The premises are their own, no rent is drawn off, and costs are low enough to stand without expanding. They did not win the game; they used an asset already paid off so that they wouldn't have to play.

But the line "there were hardly any young people" shows this model's limit: it can last one generation but can't be copied to the next. The owners' premises were accumulated between the postwar years and the bubble era. Young people who can't inherit have to rent if they want to open a shop in the countryside, which means falling straight back into a structure where rent is drawn off. (The beef noodle shop in Gongxi, Taoyuan, in Chapter 9 is the Taiwanese version of the same thing.)

Add to that the concentration of jobs, income, social life and potential partners in the cities, and leaving is the rational choice for the young. In 2014, Japan's "Masuda Report" estimated that more than 800 municipalities across the country were at risk of disappearing.¹¹ Many small shops that still made money eventually closed because no one took over, not because they were losing money.

"Low desire" itself also has an ambiguity worth probing. Ohmae used the term with concern; in Japan, some also call the younger generation the "satori generation," people who don't chase cars, brands or romance. Have they found contentment, or have they fallen into the shifting baseline described in Chapter 2, adapting to stagnation and then telling themselves they never wanted more?

The same behavior can be liberation or resignation. I think the dividing line is whether there was a choice. People with assets and a way out who choose low desire have found contentment; people without assets or a way out who are forced into low desire have only given resignation a nicer name.

Summary

Looking back over this chapter, education, housing, credit and the small shops of Bentenjima all come down to the same thing: a floor. People with a floor can afford low desire, can experiment, can ride out a downturn; people without one have to win at everything, and one loss leaves no chance to recover. Every road that seems to lead out of the game charges the same entry fee, and it is called a floor; and that floor is usually left by the previous generation.

So the real question is not how to win, but how people without a floor can build one for themselves. That question is answered in the conclusion.

Before that, another question has to be asked: in the same world, why can some people see these structures while others can't?

---

← Chapter 2: Maxim's	📖 Back to Contents	Chapter 4: Ten Lunch Boxes, a Hundred Students →

Footnotes

1. Bryan Caplan, The Case against Education: Why the Education System Is a Waste of Time and Money, Princeton University Press, 2018. ↩

2. Randall Collins, The Credential Society: An Historical Sociology of Education and Stratification, Academic Press, 1979. ↩

3. Fred Hirsch, Social Limits to Growth, Harvard University Press, 1976. ↩

4. Barbara Ehrenreich, Fear of Falling: The Inner Life of the Middle Class, Pantheon, 1989. ↩

5. Elizabeth Warren & Amelia Warren Tyagi, The Two-Income Trap: Why Middle-Class Parents Are Going Broke, Basic Books, 2003. ↩

6. Raj Chetty, David J. Deming & John N. Friedman, "Diversifying Society's Leaders? The Determinants and Causal Effects of Admission to Highly Selective Private Colleges," NBER Working Paper 31492, 2023. ↩

7. For example, MIT reinstated its standardized test requirement in 2022 and Dartmouth College in 2024. See MIT News, "Q&A: Stuart Schmill on MIT's decision to reinstate the SAT/ACT requirement", March 28, 2022; Dartmouth College, "Reactivating the SAT/ACT requirement for Dartmouth undergraduate admissions", February 2024. ↩

8. Daniel T. Willingham, "Critical Thinking: Why Is It So Hard to Teach?" American Educator, Summer 2007. ↩

9. Hong Kong Monetary Authority, statistics on residential mortgage loans in negative equity, quarterly, 2024. At the end of September 2024 there were 40,713 residential mortgage loans in negative equity, worth about HK$207.5 billion, up roughly 35 percent from 30,288 at the end of June and the highest in about twenty-one years. See HKMA press release [in Chinese], October 31, 2024. ↩

10. Kenichi Ohmae (大前研一), Low-Desire Society (『低欲望社会』), Japanese original 2016. [Publication details to be checked] ↩

11. Japan Policy Council, Subcommittee on Population Decline (chaired by Hiroya Masuda), "Stop the Declining Birthrate: A Strategy for Revitalizing the Regions" (「ストップ少子化・地方元気戦略」), May 2014. ↩