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I think this post is fundamentally wrong. I left a comment there explaining, but I'll also paste it here. Note that my critique is an attempt at Feynmaning thi

I think this post is fundamentally wrong. I left a comment there explaining, but I'll also paste it here. Note that my critique is an attempt at Feynmaning this theory. Stylized fact 1: Income has remained flat after adjusting for chained CPI. Stylized fact 2: costs have gone way up adjusting for chained CPI. Conclusion: Consumption must have gone down, since consumption = Income/Cost. The problem is that this simply hasn’t happened. People live in bigger homes. They visit the doctor more, and have all sorts of medical procedures that didn’t exist in the past. More people are attending college and receiving degrees than ever before. People just have more of everything. If you want to argue with this point, I challenge you: find a major category of consumption that has gone down in material terms over a long period of time. The most I can think of is obsolete goods like land lines, or inferior goods like homed cooked meals (relative to restaurant meals). That’s exactly the opposite of what this theory predicts! Therefore, although I can’t identify exactly where things go wrong, they must go wrong somewhere.

SilasX 10y ago
Did you see the part where he addressed that? If your only option is a bigger house you don't want but have to pay for anyway, that's an excess cost. If these operations don't actually extend life or quality but you have to buy insurance with them, that's an excess cost. And likewise, if your compensation has "increased" but it's only to cover health care that's pointlessly more expensive, that's not really an increase in compensation. Alexander very specifically addresses the tradeoff in "would you rather have 70s health care plus $8000/years cash" etc.
- yummyfajitas 10y ago
  I agree that there is excess cost relative to a counterfactual where smaller/cheaper houses are legal. That's not what I'm disputing. What I'm disputing is whether, overall, we are actually worse off. Fundamentally here's where I claim SA is wrong: Imagine if tomorrow, the price of water dectupled. Suddenly people have to choose between drinking and washing dishes. Activists argue that taking a shower is a basic human right, and grumpy talk show hosts point out that in their day, parents taught their children not to waste water. A coalition promotes laws ensuring government-subsidized free water for poor families; a Fox News investigative report shows that some people receiving water on the government dime are taking long luxurious showers. Everyone gets really angry and there’s lots of talk about basic compassion and personal responsibility and whatever but all of this is secondary to why does water costs ten times what it used to? But in reality, this is not an accurate analogy to the modern world. I'm claiming a better analogy would be this: Imagine if tomorrow, the price of water dectupled. Furthermore, people's income and ability to purchase water remained flat. Yet somehow people started taking longer showers, drinking 10 glasses/day rather than 8, having greener lawns, and just generally staying very well hydrated. In this latter scenario, I'd tell you that somewhere along the way you messed up. Water consumption = money spent on water / price per gallon - if water consumption went up, either the numerator increased or the denominator decreased. If you think I'm wrong, tell me what we have less of.
  - SilasX 10y ago
    Then I don't think original comment was productive: you think the cost increase can be explained by quality improvements; Alexander expressed skepticism on that point, by suggesting how the products offered cannot be explained through a reasonable model of consumer preferences. As much as people value bigger homes, do they value them so much as to pay 10x more for 2x the size even when technology should be improving that? As much as people value better health care, are they actually making a conscious, understandable tradeoff between money and actually-better health care on the metrics they really want? You then mocked that as "fundamentally wrong", "stylized facts" without quoting the specific part where he reduced it to a thought experiment (take 70s health care + $8000) or addressing the logic there.
    - yummyfajitas 10y ago
      I'm not saying it can be explained (completely) by quality improvements. I'm saying consumption = (income - investment) / price. That's just an arithmetic identity. Investment has been between 5 and 10% since basically forever. http://www.tradingeconomics.com/united-states/personal-savings http://www.tradingeconomics.com/united-states/personal-savin... So if consumption went up, income must have risen faster than price. That's my only point: you can't simultaneously have stagnating income, rising prices, and rising consumption. Now, if you're saying separately that it would be great if we could legalize lower priced options, I agree with you. That would be great. But all that would do is make (preference-adjusted) consumption go up more, or perhaps make investment go up even more. That doesn't change the fact that this price increase + stagnating income story is false.
      - SilasX 10y ago
        >So if consumption went up, income must have risen faster than price. You're assuming the consumption itself went up rather than paying more for the same stuff. And people are paying a bigger fraction of their incomes for these things. I don't know what this is adding to the discussion besides assuming away the problem, as if nothing ever becomes pointlessly expensive. >Now, if you're saying separately that it would be great if we could legalize lower priced options, I agree with you. That would be great. But all that would do is make (preference-adjusted) consumption go up more, or perhaps make investment go up even more. No, that's an assertion that assumes away one possible resolution: that pointless regulations mandate that only the expensive options be offered. It's unlikely, but your model seems to disallow the very existence of that dynamic.
wmf 10y ago
consumption = Income/Cost What about savings and/or debt? Aren't people saving less?
- yummyfajitas 10y ago
  Yes, in retrospect I should have corrected for this. Savings has decreased, but only by 5%-7% of income since the 1970's. That hardly seems like it could explain the phenomenon alexander is discussing. http://www.tradingeconomics.com/united-states/personal-savings http://www.tradingeconomics.com/united-states/personal-savin...
anonymoushn 10y ago
More people consuming the same amount of college education doesn't predict a 10x cost increase in the same way that people buying (10x?) larger homes would.
nialo 10y ago
I am pretty sure I'm living in an apartment that's smaller than my parent's house was when I was born in 1988, despite having three incomes instead of two to spend on it. I also think that a pretty big fraction of all the extra people attending college and receiving degrees aren't doing any thing with them. My girlfriend would I think be strictly better off in a world were she didn't have student loans and didn't need a college degree in Psychology for her mostly unrelated office job manipulating artwork and processing orders. I don't think she's consuming less education exactly, but I also think it's tricky to say she's consuming more. I'm not sure where this fits into your model, and I suspect some of it is "it would be great if we could legalize lower priced options". But it does feel like a place where things go wrong.

SilasX 10y ago

Did you see the part where he addressed that? If your only option is a bigger house you don't want but have to pay for anyway, that's an excess cost. If these operations don't actually extend life or quality but you have to buy insurance with them, that's an excess cost. And likewise, if your compensation has "increased" but it's only to cover health care that's pointlessly more expensive, that's not really an increase in compensation. Alexander very specifically addresses the tradeoff in "would you rather have 70s health care plus $8000/years cash" etc.

yummyfajitas 10y ago
I agree that there is excess cost relative to a counterfactual where smaller/cheaper houses are legal. That's not what I'm disputing. What I'm disputing is whether, overall, we are actually worse off. Fundamentally here's where I claim SA is wrong: Imagine if tomorrow, the price of water dectupled. Suddenly people have to choose between drinking and washing dishes. Activists argue that taking a shower is a basic human right, and grumpy talk show hosts point out that in their day, parents taught their children not to waste water. A coalition promotes laws ensuring government-subsidized free water for poor families; a Fox News investigative report shows that some people receiving water on the government dime are taking long luxurious showers. Everyone gets really angry and there’s lots of talk about basic compassion and personal responsibility and whatever but all of this is secondary to why does water costs ten times what it used to? But in reality, this is not an accurate analogy to the modern world. I'm claiming a better analogy would be this: Imagine if tomorrow, the price of water dectupled. Furthermore, people's income and ability to purchase water remained flat. Yet somehow people started taking longer showers, drinking 10 glasses/day rather than 8, having greener lawns, and just generally staying very well hydrated. In this latter scenario, I'd tell you that somewhere along the way you messed up. Water consumption = money spent on water / price per gallon - if water consumption went up, either the numerator increased or the denominator decreased. If you think I'm wrong, tell me what we have less of.
- SilasX 10y ago
  Then I don't think original comment was productive: you think the cost increase can be explained by quality improvements; Alexander expressed skepticism on that point, by suggesting how the products offered cannot be explained through a reasonable model of consumer preferences. As much as people value bigger homes, do they value them so much as to pay 10x more for 2x the size even when technology should be improving that? As much as people value better health care, are they actually making a conscious, understandable tradeoff between money and actually-better health care on the metrics they really want? You then mocked that as "fundamentally wrong", "stylized facts" without quoting the specific part where he reduced it to a thought experiment (take 70s health care + $8000) or addressing the logic there.
  - yummyfajitas 10y ago
    I'm not saying it can be explained (completely) by quality improvements. I'm saying consumption = (income - investment) / price. That's just an arithmetic identity. Investment has been between 5 and 10% since basically forever. http://www.tradingeconomics.com/united-states/personal-savings http://www.tradingeconomics.com/united-states/personal-savin... So if consumption went up, income must have risen faster than price. That's my only point: you can't simultaneously have stagnating income, rising prices, and rising consumption. Now, if you're saying separately that it would be great if we could legalize lower priced options, I agree with you. That would be great. But all that would do is make (preference-adjusted) consumption go up more, or perhaps make investment go up even more. That doesn't change the fact that this price increase + stagnating income story is false.
    - SilasX 10y ago
      >So if consumption went up, income must have risen faster than price. You're assuming the consumption itself went up rather than paying more for the same stuff. And people are paying a bigger fraction of their incomes for these things. I don't know what this is adding to the discussion besides assuming away the problem, as if nothing ever becomes pointlessly expensive. >Now, if you're saying separately that it would be great if we could legalize lower priced options, I agree with you. That would be great. But all that would do is make (preference-adjusted) consumption go up more, or perhaps make investment go up even more. No, that's an assertion that assumes away one possible resolution: that pointless regulations mandate that only the expensive options be offered. It's unlikely, but your model seems to disallow the very existence of that dynamic.

wmf 10y ago

consumption = Income/Cost What about savings and/or debt? Aren't people saving less?

yummyfajitas 10y ago
Yes, in retrospect I should have corrected for this. Savings has decreased, but only by 5%-7% of income since the 1970's. That hardly seems like it could explain the phenomenon alexander is discussing. http://www.tradingeconomics.com/united-states/personal-savings http://www.tradingeconomics.com/united-states/personal-savin...

anonymoushn 10y ago

More people consuming the same amount of college education doesn't predict a 10x cost increase in the same way that people buying (10x?) larger homes would.

nialo 10y ago

I am pretty sure I'm living in an apartment that's smaller than my parent's house was when I was born in 1988, despite having three incomes instead of two to spend on it. I also think that a pretty big fraction of all the extra people attending college and receiving degrees aren't doing any thing with them. My girlfriend would I think be strictly better off in a world were she didn't have student loans and didn't need a college degree in Psychology for her mostly unrelated office job manipulating artwork and processing orders. I don't think she's consuming less education exactly, but I also think it's tricky to say she's consuming more. I'm not sure where this fits into your model, and I suspect some of it is "it would be great if we could legalize lower priced options". But it does feel like a place where things go wrong.