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It would be significantly less of a problem if it weren't for massive inflation in real estate, tuition, and health care. There are other gravity-defying areas

by api 9y ago

It would be significantly less of a problem if it weren't for massive inflation in real estate, tuition, and health care. There are other gravity-defying areas but these three are the real killers. Wages are stagnant but the cost of housing, education, and health care can only go up and up and up. There's a cause and effect connection too. All that wealth at the top increasingly has nowhere to go. Stagnant wages result in what economists call a "demand constrained economy," which basically means nobody has any money to buy anything. This makes it harder to build businesses (no customers!) and therefore makes investments perform worse. Worse performing investments leads money to seek safe havens like... real estate. This causes asset inflation which soaks up yet more middle class wealth and worsens the problem. Repeat cycle. It also inflates bubbles. This is why we've had a serial bubble economy since the late 1990s. Historically demand constrained economies result in depressions. We've avoided a technical depression through monetary policy (QE, etc.) but at the cost of monstrous asset inflation and bubbles. (My personal opinion is that we have been in a weird kind of stealth depression since roughly 2008, or maybe even since 2001. It's a depression masked by force-pumped asset inflation and bubbles.) This is in part why you hear some venture capitalists advocating for redistribution methods like universal basic income. VC depends on the ability to build businesses which depends on customers. If there are no customers VC backed companies fail and VC funds under-perform. Edit: just since this is interesting: The opposite of a demand constrained economy is a supply constrained economy. This is where you have lots of money in consumers' hands but no capital available for business. This is what we had in the 1970s and it resulted in "stagflation," which is inflation due to consumer demand bidding up constrained supply. Supply side economics such as what the Reagan administration introduced in the 1980s may have been the right answer then. Today we have the opposite problem and probably need something more like FDR's New Deal. Unfortunately we have a generation that grew up in the 70s that is now in power and is fighting the last war. This is the same problem we had in the 70s-- the 30s-40s generation was in power and was fighting the last war.

damon_c 9y ago
Yes. 90% of money being held by a few people whose material needs are already satisfied does not create demand for products and services but mostly inflates stock prices and real estate and other "wealth storage" types of assets. Money in the hands of the bottom 90% gets spent on things like new cars and shoes and going out to restaurants or getting haircuts. Providing these goods and services is what jobs are made out of.
sokoloff 9y ago
> Wages are stagnant but the cost of housing, education, and health care can only go up and up and up. Wages are not stagnant. From the article: The news regarding the American middle class is not all bad. Although the middle class has not kept pace with upper-income households, its median income, adjusted for household size, has risen over the long haul, increasing 34% since 1970. That is not as strong as the 47% increase in income for upper-income households, though it is greater than the 28% increase among lower-income households. Nominal wages are clearly increasing. The "wages are stagnant" argument is more valid only if you discuss real wages (backing out inflation), but then you can't reasonably (IMO) say "real wages are stagnant, but inflation is happening".
- sharemywin 9y ago
  median home values: 1970: $17,000. 1980: $47,200. 1990: $79,100. 2000: $119,600. a lot more than 34%.
  - api 9y ago
    Of the factors I mentioned housing is the worst. I recently heard someone call real estate the "great Satan" of the economy.
    - sokoloff 9y ago
      Someone made an insightful comment on HN a couple weeks ago: "housing cannot be both affordable and a good investment." ( https://news.ycombinator.com/item?id=14857591 https://news.ycombinator.com/item?id=14857591 ;) ) With interest rates as low as they are currently, housing prices are correspondingly inflated (via increased purchasing power for a given/fixed monthly payment). That's pushing us towards the "good historical investment" side of the pendulum, but if interest rates were to return to the 1980s' double-digit figures, it would swing back towards affordable.
  - sokoloff 9y ago
    CAGR of median house prices: 1970-1980 - 11%, 1980-1990 - 5.3%, 1990-2000 - 4.2%, 1970-2000 - 6.7%, 1980-2000 - 4.8% Median household incomes (US census source I found only goes back to 1975): https://www2.census.gov/programs-surveys/cps/tables/time-series/historical-income-households/h06ar.xls https://www2.census.gov/programs-surveys/cps/tables/time-ser... 1975 - 11800, 1980 - 17710, 1990 - 29943, 2000 - 41990 CAGRs: 1975-1980 - 8.4%, 1980-1990 - 5.4%, 1990-2000 - 3.4%, 1975-2000 - 5.2%, 1980-2000 - 4.4% For like period to like period (1980-2000), the tracking error is a cumulative 16% over a 20-year period, or about 0.4% per year.

by api 9y ago

damon_c 9y ago

Yes. 90% of money being held by a few people whose material needs are already satisfied does not create demand for products and services but mostly inflates stock prices and real estate and other "wealth storage" types of assets. Money in the hands of the bottom 90% gets spent on things like new cars and shoes and going out to restaurants or getting haircuts. Providing these goods and services is what jobs are made out of.

sokoloff 9y ago

> Wages are stagnant but the cost of housing, education, and health care can only go up and up and up. Wages are not stagnant. From the article: The news regarding the American middle class is not all bad. Although the middle class has not kept pace with upper-income households, its median income, adjusted for household size, has risen over the long haul, increasing 34% since 1970. That is not as strong as the 47% increase in income for upper-income households, though it is greater than the 28% increase among lower-income households. Nominal wages are clearly increasing. The "wages are stagnant" argument is more valid only if you discuss real wages (backing out inflation), but then you can't reasonably (IMO) say "real wages are stagnant, but inflation is happening".

sharemywin 9y ago
median home values: 1970: $17,000. 1980: $47,200. 1990: $79,100. 2000: $119,600. a lot more than 34%.
- api 9y ago
  Of the factors I mentioned housing is the worst. I recently heard someone call real estate the "great Satan" of the economy.
  - sokoloff 9y ago
    Someone made an insightful comment on HN a couple weeks ago: "housing cannot be both affordable and a good investment." ( https://news.ycombinator.com/item?id=14857591 https://news.ycombinator.com/item?id=14857591 ;) ) With interest rates as low as they are currently, housing prices are correspondingly inflated (via increased purchasing power for a given/fixed monthly payment). That's pushing us towards the "good historical investment" side of the pendulum, but if interest rates were to return to the 1980s' double-digit figures, it would swing back towards affordable.
- sokoloff 9y ago
  CAGR of median house prices: 1970-1980 - 11%, 1980-1990 - 5.3%, 1990-2000 - 4.2%, 1970-2000 - 6.7%, 1980-2000 - 4.8% Median household incomes (US census source I found only goes back to 1975): https://www2.census.gov/programs-surveys/cps/tables/time-series/historical-income-households/h06ar.xls https://www2.census.gov/programs-surveys/cps/tables/time-ser... 1975 - 11800, 1980 - 17710, 1990 - 29943, 2000 - 41990 CAGRs: 1975-1980 - 8.4%, 1980-1990 - 5.4%, 1990-2000 - 3.4%, 1975-2000 - 5.2%, 1980-2000 - 4.4% For like period to like period (1980-2000), the tracking error is a cumulative 16% over a 20-year period, or about 0.4% per year.