20 ms·

The rich world needs higher real wage growth

271 points by known 8y ago

GatorD42 8y ago
I think there are many reasons to be skeptical of inflation and productivity statistics because they don’t seem to capture the rate of innovation in consumer goods such as smartphones and related areas like wireless plans. I wrote a piece on inflation statistics showing how U.S. inflation statistics fail to account for the quality improvement in iPhones: https://medium.com/@vince.pavlish/using-iphone-prices-to-check-the-accuracy-of-inflation-statistics-4140d65ac252?source=linkShare-acc967f91527-1530458838 https://medium.com/@vince.pavlish/using-iphone-prices-to-che...
- mdorazio 8y ago
  While that might be true, it seems like incorrectly accounting for quality improvements in a subset of goods is a rather small nitpick in comparison to things like poor accounting for rapid changes in housing, healthcare, education, and child care costs in many locations. PCE is a better measure of inflation than CPI in my opinion, and even that is lacking.
  - GatorD42 8y ago
    The CPI shows higher inflation than the PCE, which would seem to contradict your claim that PCE is better measure for capturing those categories. Given the large errors I have observed in measurement of electronics and wireless plans (biased towards overstating inflation) it wouldn’t necessarily surprise me if the CPI or PCE erred in measuring the prices of housing, healthcare etc in the opposite direction (biased towards understating inflation). That said, the whole point of such measures is to record the prices of these services over time, and the measurement seems much more straightforward than for personal electronic devices(no need to account for large quality changes or changing product categories except in medicine). So if the CPI were mismeasuring such areas, it would be a fairly embarrassing mistake.
    - mdorazio 8y ago
      I made no claim that PCE is better at capturing those categories; only that it is a better method overall than CPI. Both indexes take into account tuition, for example, but not student loan obligations, which are absolutely massive in comparison to things like electronics and wireless plan obligations. The same is true for medical expenditures, but not medical debt. And of course a huge issue is that any national measure of inflation is not accurate for people who live in places outside the median, such as cities in California where rising costs of living routinely push local CPI increases far beyond national levels (BLS does provide more local numbers, but they're rarely discussed). I don't doubt that your data is correct, I just don't think it's very important in the scope of the overall contributing factors to real-world inflation for most people.
- bitbckt 8y ago
  This issue is one of the subtexts in Gordon’s “The Rise and Fall of American Growth”.
- nabla9 8y ago
  There are independent measures besides official CPI numbers. For example MIT's Billion Prices Project. These alternatives measures show that CPI is doing pretty good job. http://www.thebillionpricesproject.com http://www.thebillionpricesproject.com
  - GatorD42 8y ago
    My argument isn't that the CPI is misleading mismeasuring prices, but falling to amount for quality improvements in products. I'm not sure the MIT data disproves that claim.
    - nabla9 8y ago
      When economists want to track quality changes they typically use hedonic models like hedonic regression or sales adjustment grids. In the U.S CPI calculation uses hedonic adjustment in many item categories, including smartphones. Bringing up quality when talking about wages does not seem relevant. Wages are important relative to the size fo the economy because they turn into consumption. CPI tracks that just fine. When trying to estimate economic growth quality may be more important.
- xapata 8y ago
  I don't believe your assumptions: fashion and marketing matter. Contrarians often claim "the old version was better!" It's not clear that more features is a substantial quality improvement.
- extralego 8y ago
  They should at least factor in how thin the MacBook Pro has gotten.
- tfehring 8y ago
  Interesting take, but I'm not sure I buy it. I certainly don't feel like I get ~2.5x more utility from my current iPhone than I did from the smartphone I purchased in 2012, which was just as fast (on the software of the time) and had most of the same functionality. I'd also be curious as to how you were able to conclude that the so-called "fashion effect" is not supported by evidence.
  - madengr 8y ago
    Things have gotten worse in some respects. Computers get more and more locked down with corporate security bullshit, it becomes harder to get any work done. Remember when you could quickly FTP a file, toss up a web page, email someone a zipped file. Can’t do any of that now without jumping through hoops. Computers have become very slow for tasks that used to be fast. Everyone always seems to “waiting on the computer”; that’s screwed up. It should be the other way around.
    - noonespecial 8y ago
      >Remember when you could quickly FTP a file, toss up a web page, email someone a zipped file. Can’t do any of that now without jumping through hoops. Oh I remember all right. I've spent weeks of my life yelling into a phone "no PASV. You have to find where it says PASV and check it" Toss up a web page? On what, Geocities? (back to the ftp thing are we?) Email a file? Great. I hope its less than 2mb or it might just vanish somewhere along the way... Dropbox. Wordpress. Slack. This stuff is 100x better for the average user than a decade ago. 1000x better than 2 decades ago. The real trouble is all of this means just about nothing when you're afraid to go to the doctor because your deductible is more than a decent used car.
  - GatorD42 8y ago
    How much would you pay for a brand new iPhone 5 (the iPhone new in 2012) that looked exactly like an iPhone X and was indistinguishable by anyone else? If it's less than the price you would pay for a real iPhone X that price difference is because of quality improvement and not fashion. There are more rigorous ways to account for the fashion effect, but this thought experiment shouldshow that a significant part of the price difference is because of quality improvements.
- phkahler 8y ago
  My phone has the capability of a billion dollars worth of super computers back in the 1980s. Its not sensible to assign any economic value to that. I'm not richer because I have better technology today than before. Trasistors have just suffered massive commoditization and their prices reflect that.
  - dominotw 8y ago
    > I'm not richer because I have better technology today than before. Why not though?
    - gedy 8y ago
      Probably because it does not translate into food, health, and shelter security for the vast majority of people.
      - dominotw 8y ago
        sure if you don't have those already, I am sure gp does have food, healthcare. I was curious if better tech makes your richer if you already have food, healthcare, security covered. Richer doesn't necessarily mean we have more food than before.
        CamTin 8y ago
        It should mean that we have better security in all of those things. Any increase in "wealth" that doesn't actually make us better off in the sense that we are less likely to lack necessary things like food, healthcare, and shelter is not really a kind of wealth worth having. All but the most very very rich people in the US are just a couple bad breaks away from homelessness, poverty, and lack of reasonable health insurance. It's better elsewhere but the safety net is not immutable and many many people want to dismantle it for shallow political reasons.
    - deleted 8y ago
      [deleted]
  - 8y ago
- criddell 8y ago
  I think we're past peak phone. I don't care about improvements in my phone anymore, I just want security patches. The fact that the phone is getting better is uninteresting to me. You might as well tell my new lawnmowers are better.
patientplatypus 8y ago
The rent is too damn high.
deleted 8y ago
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mozumder 8y ago
Or better yet, reduce prices all around. Think of all your expenses and look at ways to systematically reduce them for everyone. Start with food, get a meal down to less than a dollar. Rent is high because everyone wants to move to certain dense areas, while moving away from more spacious/rural areas. This is unsustainable. Offer incentives for people to move elsewhere, including jobs programs and subsidizing mass transit to less dense/rural areas. Offer mass transit everywhere to reduce transport costs.
- rorykoehler 8y ago
  >This is unsustainable On what basis do you make this claim? I would have thought the opposite to be true.
  - mozumder 8y ago
    Because people need to be located where they are most efficiently utilized in the economy. Everyone wants to live in New York or San Francisco, but the jobs are going to be distributed around the country. How are people going to construct a bridge in Ohio if everyone is in New York City? Jobs are still a local thing.
    - ben_w 8y ago
      If everyone lived in New York or San Francisco, there wouldn’t be any need to construct a bridge in Ohio in exactly the same way there’s no need to build one over the Onyx River in Antarctica.
      - mozumder 8y ago
        Doesn't work that way, since jobs are independent of labor pool location. A good example would be tourism, where companies draw people to places with no population. Also, companies that decide to build a factory in the middle of nowhere to take advantage of something else, like cheaper land or electricity. And suddenly you need to build a bridge in Ohio to get to that factory.
pknopf 8y ago
What exactly (as if anyone can know) caused the wage growth and productivity to split in the 1970s? Was Nixon's complete split from the gold standard a factor at all?
- hfeyhvdtbcdtv 8y ago
  credit card debt. corporations gave money to banks to loan to the employees instead of giving them raises.
- freddie_mercury 8y ago
  > Was Nixon's complete split from the gold standard a factor at all? No, it wasn't.
  - vivafrance 8y ago
    Yes, it was.
    - treis 8y ago
      Now this is the high quality debate I come for
- adpirz 8y ago
  See: https://www.epi.org/publication/understanding-the-historic-divergence-between-productivity-and-a-typical-workers-pay-why-it-matters-and-why-its-real/ https://www.epi.org/publication/understanding-the-historic-d... TL;DR 3 Things, in increasing order of magnitude: - The increasing share of GDP going from labor to capital - The "terms of trade", ie, how labor's share is measured, FTA: "the same growth in nominal, or current dollar, wages and output yields faster growth in real (inflation-adjusted) output (which is adjusted for changes in the prices of investment goods, exports, and consumer purchases) than in real wages (which is adjusted for changes in consumer purchases only)." - a much bigger slice of the pie: inequality in compensation, ie, average compensation has risen dramatically, but median compensation has stayed flat. Basically executives have gobbled up a healthy portion of the income.
- 8y ago
Proven 8y ago
No it doesn't, it needs lower taxes and less government.
deleted 8y ago
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adpirz 8y ago
Linked elsewhere in the comments, but this is an interesting read regarding the increasing gap between productivity and labor: https://www.epi.org/publication/understanding-the-historic-divergence-between-productivity-and-a-typical-workers-pay-why-it-matters-and-why-its-real/ https://www.epi.org/publication/understanding-the-historic-d.... The interesting fact is that the loss of labor's share of GDP to capital is less than you'd imagine, and a much bigger reason for stagnant real wage growth has to do with inequality regarding compensation. Automation is real and is taking jobs, but it's executives that have been soaking up the financial gains from productivity.
- Nokinside 8y ago
  When you are really rich, consumption becomes tedious. If someone has $100M income after taxes, they might invest $50M reducing the ROI of the capital in economy during the economic boom when there is enough capital and cheap credit already. What to do with the remaining $50 million? It's hard to eat, travel or use services to spend $50 million per year. It's possible, but it takes some real effort. Helicopter ride every day barely registers. You can always buy a bigger house. $50 gets you a nice one. If you put $150 million you get even better. Property prices increase.
  - walshemj 8y ago
    They are tanking about the rich middle class west (ie you and me) not euro trash millionaires and trustafarians on made in Chelsea :-) Also if you did suddenly get 50mil say you invest for the long term 50% the balance gives you an income < 1,000,000 a year And that's not assuming you don't spend 10-15 mill or so on a really nice house or two one in London and one in the country.
    - jessaustin 8y ago
      Those houses wouldn't be your worst investments...
      - walshemj 8y ago
temp-dude-87844 8y ago
I don't disagree with this article. I think they lay out some concerning trends, and possible reasons why they might be occurring. The New York Times published a similar analysis in February [1], and I've played armchair economist with these points for a while. But it's remarkable how different two pieces of reporting can be around the same basic metrics. For most of the past year, the story as read on mainstream outlets has been that unemployment in the US (the U-3 metric) is historically low, and outlets contextualized this as "the economy is strong", which people are left to interpret to their own devices. And the complicated interdependence of factors, like how tight labor markets drive wage growth, how we're simultaneously showing signs of a tight and slack labor market, and how wage growth drives price-inflation or the other way around, makes the impact of a "strong economy" difficult for the average person to conceptualize. The reductionist view is that for large segments of the society in the US and Europe, rising cost of living are interacting adversely with their low gains in real wages. There's broad overlap between the people whose budgets are most crunched, and the people whose anxieties caused them to bring into power anti-globalization, domestically-focused administrations. It's ironic, then, when metrics whose correspondence to real workers' observed conditions are being touted as measures of success. [1] https://www.nytimes.com/interactive/2018/02/01/business/economy/wages-salaries-job-market.html https://www.nytimes.com/interactive/2018/02/01/business/econ...
calimac 8y ago
The author framed the argument over the last 5 years without reference to the devastation in wages over the previous 5 years from 2008-2013. Their error is egregious. See the last ten years for the accurate depiction of our recent wage growth. Second point. The demand in the labor force is predecessor to wage growth. In may we saw the demand increase to levels unprecedented since Nixon/pre Carter. Looking forward toward 2019-2021 we are going to see wage growth unlike anything in recent history! Wage growth is the only thing that will save the housing market to stave off economic downturn and support the massive iniatives rolled out across industry over 2017-2018.
dalbasal 8y ago
This article really demonstrates how meaningless most economics reporting is, it's nearly as bad as markets/finance reporting. Oil is $75, about average over the last decade. It has almost nothing to do with employment, wage growth or GDP except inasmuch as all major economic measures affect eachother. A year ago oil prices were low, did that mean the opposite of this article (whatever that is) was true? This kind of writing leans very heavily on its metrics, euphemisms and cliches. I have a feeling the journalists would not be able to unpack any of its abstractions. "If slack were eliminated everywhere, pay might rise faster." _.._"hawks think there is little room to boost real wages by running labour markets hotter." _.._"structural changes in the economy, rather than weak demand alone, have stacked the deck against workers." ...If asked, would the writer be able to give a specific examples or instances for any of these? Are "labour market running hot" or "central bank tightening" references to actual things that are happening or are these just boilerplate sentences that get added to any article? I really don't see how anyone is more informed of anything, even about the authors' opinions, from reading this.
- dalbasal 8y ago
  ..extra point. This is the most ridiculous part: Continued tightening in labour markets might yet boost workers’ bargaining power enough for that to happen, as was the case during the late 1990s and late 2000s, two unusual periods in which labour’s share of GDP rose across the rich world. Labour’s share of GDP is a fraction. labour/gdp. you can make it bigger by having higher wages or lower gdp. Anyone remember 1999 or 2008? Anything "unusual" about those years?
  - harryh 8y ago
    GDP was still increasing in the late 90s in the US. The recession didn't start until March 2001.
    - ethbro 8y ago
      The interesting corollary would be that in the run-up to a recession, all other assets and opportunities are so over-valued that capital has nowhere else to go. And that increasing wages for labor is in fact capital's least-preferred option. Which would be sad, but more or less jive with how the modern global, publicly traded economy works.
lumberjack 8y ago
Wage growth is not everything. Low financial risk is another important consideration. The average Joe is some countries is ridiculously exposed, despite the supposed wealth of the nation.
TangoTrotFox 8y ago
Here are a couple of interesting and crucially related graphs: - Nonfarm Business Sector: Real Compensation Per Hour [1] - Nonfarm Business Sector: Real Output Per Hour of All Persons [2] - Real Median Personal Income [3] Nonfarm business sector is defined as "a subset of the domestic economy and excludes the economic activities of the following: general government, private households, nonprofit organizations serving individuals, and farms. The nonfarm business sector accounted for about 77 percent of the value of gross domestic product (GDP) in 2000." I think many of these articles were influenced by an earlier Pew study which showed a sharp disconnect between income and productivity. But their study excluded supervisor positions and only counted wages - not overall compensation. The data I'm presenting here seem to show relatively strong wage growth over time. Interestingly enough median personal income, by contrast, has not grown nearly as rapidly. I present these data as a question more than an answer. But we do live at a time when developers, engineers, and many other 'normal' white collar jobs are going into 6 figures early in their career. And on the other end I know there are also plenty of people making healthy 6 figure salaries doing things like working on offshore rigs (not to mention getting schedules like 2 weeks on, 2 weeks off). And for general low skill work you have fast food/coffee managers making $40-$50k. It could be that all of these sharp increases in wages are somehow being offset by other jobs having seen substantial decline in wages, or it could be that somehow the market dynamics have changed in ways that certain measurements might not accurately reflect. I'm not really sure, though I'm increasingly leaning towards the latter. [1] - https://fred.stlouisfed.org/series/COMPRNFB https://fred.stlouisfed.org/series/COMPRNFB [2] - https://fred.stlouisfed.org/series/OPHNFB https://fred.stlouisfed.org/series/OPHNFB [3] - https://alfred.stlouisfed.org/series?seid=MEPAINUSA672N https://alfred.stlouisfed.org/series?seid=MEPAINUSA672N
- jaggederest 8y ago
  These are more interesting graphs. https://fred.stlouisfed.org/graph/fredgraph.png?g=ki8y https://fred.stlouisfed.org/graph/fredgraph.png?g=ki8y https://fred.stlouisfed.org/graph/fredgraph.png?g=ki8A https://fred.stlouisfed.org/graph/fredgraph.png?g=ki8A https://fred.stlouisfed.org/graph/fredgraph.png?g=kipg https://fred.stlouisfed.org/graph/fredgraph.png?g=kipg Healthcare, education, and housing have all doubled since the turn of the century compared to median incomes. There are a few sectors of the economy that are absolutely crushing people who make a median wage.
patientplatypus 8y ago
I think the root cause of most of these problems, is that most people don't add economic value. That isn't to say they are bad people (of course not!), but that we have reached a stage in technology driven capitalism where only a small percentage of people can gain large pieces of the pie (software engineers and CEOs), while middle income jobs are too inefficient to survive (lawyers displaced by discovery software, accountants with TurboTax, truck drivers etc.). The jobs that are left available are all low skill and pay accordingly (it is hard to automate burger flippers, but people are trying). All of this is being greatly exacerbated by climate change. As people consume more things and the worlds' resources are reduced there is a greater incentive to automate as once previous costs in production become too much. As fewer people are hired because of automation, there is less money to buy quality long lasting goods, so manufacturers aim to make cheap disposable products at scale to sell to the poor, thus exacerbating climate change. All of this I think is pretty obvious. What I've just shown is only one of any number of negative feedback loops that are growing worse and will probably cause huge social conflicts and war. The interaction between poverty, populist governments, tariffs which increase in trade wars and more poverty is another good example. Most people in the first world (>50%) by my estimation, will be net economic drains on society within 20-30 years because of technological advancement and globalization. We will also start to see mass starvation in the third world as climate change makes potable water rare and changes to regional climates disrupts food supply chains. We could very well see mass migration and conflict that will appear similar to what happened around the time of the Mongol invasion of Rome (again, migrants searching for food are obviously not bad people). The issue is that in order to solve these problems we need to address root causes that are impossible to stop. Knowing the solution does not make enacting that solution any easier. The only steps that I can see that would solve these problems would be the following: - People voluntarily stop having (as many or any) children worldwide. - People stop eating meat. It is the number one greenhouse contributor, and it shameful that people eat meat (which requires farm animals to consume food in order to be made), while any other people go hungry. - There is a basic needs allowance. We have enough resources to feed, cloth, and shelter everyone in the world and the lack of these resources is what causes the poor to take up arms. Show me a conflict and I'll find the people going hungry. - The benefits of capital and technological automation have to be widely distributed. That means the profits as well. But these are hard problems to solve, because it means convincing people to share. I don't think most people ever really learn how. The alternative to doing the hard work of sharing is to keep going down the path we're on now. Eventually there will be enough reports that all the increases to productivity only go to the rich for people to stop believing that hard work matters. I don't know man. When I was younger I thought knowing the solution was enough, but as I get older I'm more and more convinced the world is a bad place because some people just suck.
tfehring 8y ago
One thing to keep in mind: It's easy to think of stagnant wage levels as implying that everyone is working the same jobs and getting 2% nominal raises per year. Another possibility is that a subset of the population is seeing real wage growth while a different subset is being pushed into lower-wage jobs by automation and/or outsourcing. The hivemind of Trump supporters would have you believe the latter, and while I'm decidedly not one of them, that explanation definitely strikes me as more plausible. Though I'd contend that there are probably 3 buckets, not 2: - Those who work in highly-paid fields that aren't vulnerable to automation or outsourcing, including those who are driving the automation and outsourcing of other fields. These people see real wage growth. - Those who work in relatively low-wage jobs (e.g., in the service sector) that are prone to automation and/or outsourcing, but for whom automation has been gradual because their low wages mitigate the benefits of automation and outsourcing. For these people, I suspect that real wages are more or less stagnant - they have no leverage since their jobs could be at least partially automated if it were worthwhile to do so, but it hasn't been worthwhile yet. - Those who work in highly-paid fields that are susceptible to automation and/or outsourcing. Many of these jobs have been automated and/or outsourced due to the significant cost savings from doing so, pushing these people into lower-wage jobs. These are the coal miners and skilled tradespeople who form the core of Trump's voting base. Of course, there are jobs that don't fall cleanly into any of these buckets - lawyers are a good example - but my impression is that this is still a good model for understanding wage levels for many jobs. Obviously I'm speculating quite a bit here (though BLS projections seem to support my argument [0]), so please let me know if you know of any evidence that contradicts this. [0] https://www.bls.gov/emp/tables/industries-large-grow-decline-employment.htm https://www.bls.gov/emp/tables/industries-large-grow-decline...
- marcoperaza 8y ago
  The numbers are pretty clear. The top 20%, which roughly correlates to the college-educated professionally-employed class, has seen their real income and social welfare steadily go up for the last half century. The bottom 80% has seen stagnation and decline, as well as increased social ills like drug addiction, broken homes, and so forth. Notably, this pattern exists even if you look at just white people, so a racial explanation won’t do.
Animats 8y ago
The emphasis on oil may reflect a European perspective. Only 19% of US oil is imported now, and the US generates very little electricity from oil. The US is a natural gas exporter. If the US wants energy independence, it's within reach. At the other extreme, Japan imports essentially all its oil, as does the UK. Both import most of their natural gas.
- dalbasal 8y ago
  In some senses, "The US" is not really involved in oil production. It is a more privatised industry in the US than most (oil producing) places. If oil prices go up in the Persian Gulf, petrol prices go up in Texas regardless of import/export balances. In theory, the surplus profit is enjoyed by Texan oil producers, as opposed to Gulfy producers. This is increasingly dubious as the economy globalises. Gulfies own an interest in Texan oil wells. Texans own an interest in Gulf oil wells. The Texan putting petrol in his ute... I'm not sure it matters to him that the US is a net exporter. Petrol costs him more. Oil derived products cost him more. His income does not increase. This is not true in the reverse. In most oil producing nations, people do not pay the export price for oil. The local market price is usually lower.
- oriol16 8y ago
  US burns 20mbd and produces less than 10mbd. Are you sure imports are only 19%?
  - Animats 8y ago
    That's from [1], which seems bogus. I sent a query into EIA. [1] https://www.eia.gov/tools/faqs/faq.php?id=32&t=6 https://www.eia.gov/tools/faqs/faq.php?id=32&t=6
  - maxerickson 8y ago
    Numbers seem to come from https://www.eia.gov/dnav/pet/pet_sum_snd_d_nus_mbblpd_a_cur.htm https://www.eia.gov/dnav/pet/pet_sum_snd_d_nus_mbblpd_a_cur.... which includes natural gas, ethanol and exports.
  - TheCoelacanth 8y ago
notananthem 8y ago
Real wage growth is stagnant because of shit like brexit and trump's trade wars. Companies can afford to provide real wage growth but are being conservative because idiots who don't understand simple macroeconomics keep shooting their economies in the foot. Brexit particularly is a good example of keeping a monty python esque giant foot down on real wage growth.
nivexous 8y ago
The proximate cause is the oil price. As the price of Brent crude oil, a benchmark, fell from over $110 a barrel in mid-2014 to under $30 a barrel by January 2016, inflation tumbled, even turning negative in Europe. It makes sense that oil prices would affect the price of everything else, but I didn't realize it was so volatile. 75% down seems like a huge drop, and then it increased 150% shortly afterward. Is this normal? Was this due to the discovery of fracking?
rdlecler1 8y ago
The rich world needs cheaper housing. Fix that and the average family can allocate more resources to other things like health and education instead of diverting more resources to rent seekers.
- Synaesthesia 8y ago
  Economist Michael Hudson often writes about this. The housing bubble is mostly beneficial to banks, as they get more interest. They know that house prices will go as high as they are willing to lend out.
  - qaq 8y ago
    Right if only there ever was an event when this strategy backfired ...
  - paxys 8y ago
    And to existing homeowners, who also conveniently get to drive housing policy in their neighborhoods.
- IkmoIkmo 8y ago
  How though? I mean, houses themselves haven't really gotten much more expensive. Two things have happened. One, we're all living much larger than before. i.e., our average home sizes have doubled in about 50 years, while the number of people per household dropped. [0] That's a sign of wealth more than anything else. And two, we've all decided to live next to each other. That's a choice. It's a choice coerced by reality, e.g. jobs being in population centres like cities, but it's a tradeoff between affordability and proximity to an economic, cultural, political and social centre. Housing in and of itself is not unaffordable, only in certain conditions. Affordable housing today would become unaffordable if we decided we wanted homes twice as big with fewer people living there. Or it'd be unaffordable if we all decided to want to live on the same tiny piece of land. For a little context, if you look at population density in the US, it's 33 per km2 on average. That's about 5.5 football fields per person, or in other words, about 22 football fields of space for parents with two kids. Compare that to a city block in in Washington which holds 38.000 people per km2, more than 1000x the population density of the US. It looks like this [1]. This shows how concentrated we really live in some places we call unaffordable. Most of the cost of housing actually isn't the home itself. Homes are pretty cheap to build. A 1200 square feet home for two people costs on average about $150k to build, or $75k per person. That's about 2 years of the median personal income in the US. The big expense is in the land, but only in some places. It's unaffordable because we choose to live at 1000x the population density of the average in the country. If you've got 1000 plots of land, and we all decide to live on one of them, and across 50 years double our home size and reduce number of people we share our homes with, no wonder it's unaffordable. The solution in part has to do with building more homes, zoning laws, construction red tape. But mostly, it has to do with the fundamental fact that we live larger and more concentrated. We need an economic and cultural shift against that. Urbanisation is great, I live in a city, but we have to do away with the model of a few hotspots and decentralise more, invest more in smaller cities, remote working, and infrastructure that connects cities. There's no zoning law that keep ultra-concentration affordable. [0] https://2static1.fjcdn.com/comments/House+size+and+family+size+_2361315d6c40da1177fee62a7aae80bb.jpg https://2static1.fjcdn.com/comments/House+size+and+family+si... Plenty of similar sources. This occurs in many countries outside the US, too. It occurs in many countries outside the US, too. [1] https://ggwash.org/images/posts/201608-031125-3.png https://ggwash.org/images/posts/201608-031125-3.png

271 points by known 8y ago

I think there are many reasons to be skeptical of inflation and productivity statistics because they don’t seem to capture the rate of innovation in consumer goods such as smartphones and related areas like wireless plans. I wrote a piece on inflation statistics showing how U.S. inflation statistics fail to account for the quality improvement in iPhones: https://medium.com/@vince.pavlish/using-iphone-prices-to-check-the-accuracy-of-inflation-statistics-4140d65ac252?source=linkShare-acc967f91527-1530458838 https://medium.com/@vince.pavlish/using-iphone-prices-to-che...

mdorazio 8y ago
While that might be true, it seems like incorrectly accounting for quality improvements in a subset of goods is a rather small nitpick in comparison to things like poor accounting for rapid changes in housing, healthcare, education, and child care costs in many locations. PCE is a better measure of inflation than CPI in my opinion, and even that is lacking.
- GatorD42 8y ago
  The CPI shows higher inflation than the PCE, which would seem to contradict your claim that PCE is better measure for capturing those categories. Given the large errors I have observed in measurement of electronics and wireless plans (biased towards overstating inflation) it wouldn’t necessarily surprise me if the CPI or PCE erred in measuring the prices of housing, healthcare etc in the opposite direction (biased towards understating inflation). That said, the whole point of such measures is to record the prices of these services over time, and the measurement seems much more straightforward than for personal electronic devices(no need to account for large quality changes or changing product categories except in medicine). So if the CPI were mismeasuring such areas, it would be a fairly embarrassing mistake.
  - mdorazio 8y ago
    I made no claim that PCE is better at capturing those categories; only that it is a better method overall than CPI. Both indexes take into account tuition, for example, but not student loan obligations, which are absolutely massive in comparison to things like electronics and wireless plan obligations. The same is true for medical expenditures, but not medical debt. And of course a huge issue is that any national measure of inflation is not accurate for people who live in places outside the median, such as cities in California where rising costs of living routinely push local CPI increases far beyond national levels (BLS does provide more local numbers, but they're rarely discussed). I don't doubt that your data is correct, I just don't think it's very important in the scope of the overall contributing factors to real-world inflation for most people.
bitbckt 8y ago
This issue is one of the subtexts in Gordon’s “The Rise and Fall of American Growth”.
nabla9 8y ago
There are independent measures besides official CPI numbers. For example MIT's Billion Prices Project. These alternatives measures show that CPI is doing pretty good job. http://www.thebillionpricesproject.com http://www.thebillionpricesproject.com
- GatorD42 8y ago
  My argument isn't that the CPI is misleading mismeasuring prices, but falling to amount for quality improvements in products. I'm not sure the MIT data disproves that claim.
  - nabla9 8y ago
    When economists want to track quality changes they typically use hedonic models like hedonic regression or sales adjustment grids. In the U.S CPI calculation uses hedonic adjustment in many item categories, including smartphones. Bringing up quality when talking about wages does not seem relevant. Wages are important relative to the size fo the economy because they turn into consumption. CPI tracks that just fine. When trying to estimate economic growth quality may be more important.
xapata 8y ago
I don't believe your assumptions: fashion and marketing matter. Contrarians often claim "the old version was better!" It's not clear that more features is a substantial quality improvement.
extralego 8y ago
They should at least factor in how thin the MacBook Pro has gotten.
tfehring 8y ago
Interesting take, but I'm not sure I buy it. I certainly don't feel like I get ~2.5x more utility from my current iPhone than I did from the smartphone I purchased in 2012, which was just as fast (on the software of the time) and had most of the same functionality. I'd also be curious as to how you were able to conclude that the so-called "fashion effect" is not supported by evidence.
- madengr 8y ago
  Things have gotten worse in some respects. Computers get more and more locked down with corporate security bullshit, it becomes harder to get any work done. Remember when you could quickly FTP a file, toss up a web page, email someone a zipped file. Can’t do any of that now without jumping through hoops. Computers have become very slow for tasks that used to be fast. Everyone always seems to “waiting on the computer”; that’s screwed up. It should be the other way around.
  - noonespecial 8y ago
    >Remember when you could quickly FTP a file, toss up a web page, email someone a zipped file. Can’t do any of that now without jumping through hoops. Oh I remember all right. I've spent weeks of my life yelling into a phone "no PASV. You have to find where it says PASV and check it" Toss up a web page? On what, Geocities? (back to the ftp thing are we?) Email a file? Great. I hope its less than 2mb or it might just vanish somewhere along the way... Dropbox. Wordpress. Slack. This stuff is 100x better for the average user than a decade ago. 1000x better than 2 decades ago. The real trouble is all of this means just about nothing when you're afraid to go to the doctor because your deductible is more than a decent used car.
- GatorD42 8y ago
  How much would you pay for a brand new iPhone 5 (the iPhone new in 2012) that looked exactly like an iPhone X and was indistinguishable by anyone else? If it's less than the price you would pay for a real iPhone X that price difference is because of quality improvement and not fashion. There are more rigorous ways to account for the fashion effect, but this thought experiment shouldshow that a significant part of the price difference is because of quality improvements.
phkahler 8y ago
My phone has the capability of a billion dollars worth of super computers back in the 1980s. Its not sensible to assign any economic value to that. I'm not richer because I have better technology today than before. Trasistors have just suffered massive commoditization and their prices reflect that.
- dominotw 8y ago
  > I'm not richer because I have better technology today than before. Why not though?
  - gedy 8y ago
    Probably because it does not translate into food, health, and shelter security for the vast majority of people.
    - dominotw 8y ago
      sure if you don't have those already, I am sure gp does have food, healthcare. I was curious if better tech makes your richer if you already have food, healthcare, security covered. Richer doesn't necessarily mean we have more food than before.
      - CamTin 8y ago
        It should mean that we have better security in all of those things. Any increase in "wealth" that doesn't actually make us better off in the sense that we are less likely to lack necessary things like food, healthcare, and shelter is not really a kind of wealth worth having. All but the most very very rich people in the US are just a couple bad breaks away from homelessness, poverty, and lack of reasonable health insurance. It's better elsewhere but the safety net is not immutable and many many people want to dismantle it for shallow political reasons.
  - deleted 8y ago
    [deleted]
- 8y ago
criddell 8y ago
I think we're past peak phone. I don't care about improvements in my phone anymore, I just want security patches. The fact that the phone is getting better is uninteresting to me. You might as well tell my new lawnmowers are better.

patientplatypus 8y ago

The rent is too damn high.

deleted 8y ago

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mozumder 8y ago

Or better yet, reduce prices all around. Think of all your expenses and look at ways to systematically reduce them for everyone. Start with food, get a meal down to less than a dollar. Rent is high because everyone wants to move to certain dense areas, while moving away from more spacious/rural areas. This is unsustainable. Offer incentives for people to move elsewhere, including jobs programs and subsidizing mass transit to less dense/rural areas. Offer mass transit everywhere to reduce transport costs.

rorykoehler 8y ago
>This is unsustainable On what basis do you make this claim? I would have thought the opposite to be true.
- mozumder 8y ago
  Because people need to be located where they are most efficiently utilized in the economy. Everyone wants to live in New York or San Francisco, but the jobs are going to be distributed around the country. How are people going to construct a bridge in Ohio if everyone is in New York City? Jobs are still a local thing.
  - ben_w 8y ago
    If everyone lived in New York or San Francisco, there wouldn’t be any need to construct a bridge in Ohio in exactly the same way there’s no need to build one over the Onyx River in Antarctica.
    - mozumder 8y ago
      Doesn't work that way, since jobs are independent of labor pool location. A good example would be tourism, where companies draw people to places with no population. Also, companies that decide to build a factory in the middle of nowhere to take advantage of something else, like cheaper land or electricity. And suddenly you need to build a bridge in Ohio to get to that factory.

pknopf 8y ago

What exactly (as if anyone can know) caused the wage growth and productivity to split in the 1970s? Was Nixon's complete split from the gold standard a factor at all?

hfeyhvdtbcdtv 8y ago
credit card debt. corporations gave money to banks to loan to the employees instead of giving them raises.
freddie_mercury 8y ago
> Was Nixon's complete split from the gold standard a factor at all? No, it wasn't.
- vivafrance 8y ago
  Yes, it was.
  - treis 8y ago
    Now this is the high quality debate I come for
adpirz 8y ago
See: https://www.epi.org/publication/understanding-the-historic-divergence-between-productivity-and-a-typical-workers-pay-why-it-matters-and-why-its-real/ https://www.epi.org/publication/understanding-the-historic-d... TL;DR 3 Things, in increasing order of magnitude: - The increasing share of GDP going from labor to capital - The "terms of trade", ie, how labor's share is measured, FTA: "the same growth in nominal, or current dollar, wages and output yields faster growth in real (inflation-adjusted) output (which is adjusted for changes in the prices of investment goods, exports, and consumer purchases) than in real wages (which is adjusted for changes in consumer purchases only)." - a much bigger slice of the pie: inequality in compensation, ie, average compensation has risen dramatically, but median compensation has stayed flat. Basically executives have gobbled up a healthy portion of the income.
8y ago

Proven 8y ago

No it doesn't, it needs lower taxes and less government.

deleted 8y ago

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adpirz 8y ago

Linked elsewhere in the comments, but this is an interesting read regarding the increasing gap between productivity and labor: https://www.epi.org/publication/understanding-the-historic-divergence-between-productivity-and-a-typical-workers-pay-why-it-matters-and-why-its-real/ https://www.epi.org/publication/understanding-the-historic-d.... The interesting fact is that the loss of labor's share of GDP to capital is less than you'd imagine, and a much bigger reason for stagnant real wage growth has to do with inequality regarding compensation. Automation is real and is taking jobs, but it's executives that have been soaking up the financial gains from productivity.

Nokinside 8y ago
When you are really rich, consumption becomes tedious. If someone has $100M income after taxes, they might invest $50M reducing the ROI of the capital in economy during the economic boom when there is enough capital and cheap credit already. What to do with the remaining $50 million? It's hard to eat, travel or use services to spend $50 million per year. It's possible, but it takes some real effort. Helicopter ride every day barely registers. You can always buy a bigger house. $50 gets you a nice one. If you put $150 million you get even better. Property prices increase.
- walshemj 8y ago
  They are tanking about the rich middle class west (ie you and me) not euro trash millionaires and trustafarians on made in Chelsea :-) Also if you did suddenly get 50mil say you invest for the long term 50% the balance gives you an income < 1,000,000 a year And that's not assuming you don't spend 10-15 mill or so on a really nice house or two one in London and one in the country.
  - jessaustin 8y ago
    Those houses wouldn't be your worst investments...
    - walshemj 8y ago

temp-dude-87844 8y ago

I don't disagree with this article. I think they lay out some concerning trends, and possible reasons why they might be occurring. The New York Times published a similar analysis in February [1], and I've played armchair economist with these points for a while. But it's remarkable how different two pieces of reporting can be around the same basic metrics. For most of the past year, the story as read on mainstream outlets has been that unemployment in the US (the U-3 metric) is historically low, and outlets contextualized this as "the economy is strong", which people are left to interpret to their own devices. And the complicated interdependence of factors, like how tight labor markets drive wage growth, how we're simultaneously showing signs of a tight and slack labor market, and how wage growth drives price-inflation or the other way around, makes the impact of a "strong economy" difficult for the average person to conceptualize. The reductionist view is that for large segments of the society in the US and Europe, rising cost of living are interacting adversely with their low gains in real wages. There's broad overlap between the people whose budgets are most crunched, and the people whose anxieties caused them to bring into power anti-globalization, domestically-focused administrations. It's ironic, then, when metrics whose correspondence to real workers' observed conditions are being touted as measures of success. [1] https://www.nytimes.com/interactive/2018/02/01/business/economy/wages-salaries-job-market.html https://www.nytimes.com/interactive/2018/02/01/business/econ...

calimac 8y ago

The author framed the argument over the last 5 years without reference to the devastation in wages over the previous 5 years from 2008-2013. Their error is egregious. See the last ten years for the accurate depiction of our recent wage growth. Second point. The demand in the labor force is predecessor to wage growth. In may we saw the demand increase to levels unprecedented since Nixon/pre Carter. Looking forward toward 2019-2021 we are going to see wage growth unlike anything in recent history! Wage growth is the only thing that will save the housing market to stave off economic downturn and support the massive iniatives rolled out across industry over 2017-2018.

dalbasal 8y ago

This article really demonstrates how meaningless most economics reporting is, it's nearly as bad as markets/finance reporting. Oil is $75, about average over the last decade. It has almost nothing to do with employment, wage growth or GDP except inasmuch as all major economic measures affect eachother. A year ago oil prices were low, did that mean the opposite of this article (whatever that is) was true? This kind of writing leans very heavily on its metrics, euphemisms and cliches. I have a feeling the journalists would not be able to unpack any of its abstractions. "If slack were eliminated everywhere, pay might rise faster." _.._"hawks think there is little room to boost real wages by running labour markets hotter." _.._"structural changes in the economy, rather than weak demand alone, have stacked the deck against workers." ...If asked, would the writer be able to give a specific examples or instances for any of these? Are "labour market running hot" or "central bank tightening" references to actual things that are happening or are these just boilerplate sentences that get added to any article? I really don't see how anyone is more informed of anything, even about the authors' opinions, from reading this.

dalbasal 8y ago
..extra point. This is the most ridiculous part: Continued tightening in labour markets might yet boost workers’ bargaining power enough for that to happen, as was the case during the late 1990s and late 2000s, two unusual periods in which labour’s share of GDP rose across the rich world. Labour’s share of GDP is a fraction. labour/gdp. you can make it bigger by having higher wages or lower gdp. Anyone remember 1999 or 2008? Anything "unusual" about those years?
- harryh 8y ago
  GDP was still increasing in the late 90s in the US. The recession didn't start until March 2001.
  - ethbro 8y ago
    The interesting corollary would be that in the run-up to a recession, all other assets and opportunities are so over-valued that capital has nowhere else to go. And that increasing wages for labor is in fact capital's least-preferred option. Which would be sad, but more or less jive with how the modern global, publicly traded economy works.

lumberjack 8y ago

Wage growth is not everything. Low financial risk is another important consideration. The average Joe is some countries is ridiculously exposed, despite the supposed wealth of the nation.

TangoTrotFox 8y ago

Here are a couple of interesting and crucially related graphs: - Nonfarm Business Sector: Real Compensation Per Hour [1] - Nonfarm Business Sector: Real Output Per Hour of All Persons [2] - Real Median Personal Income [3] Nonfarm business sector is defined as "a subset of the domestic economy and excludes the economic activities of the following: general government, private households, nonprofit organizations serving individuals, and farms. The nonfarm business sector accounted for about 77 percent of the value of gross domestic product (GDP) in 2000." I think many of these articles were influenced by an earlier Pew study which showed a sharp disconnect between income and productivity. But their study excluded supervisor positions and only counted wages - not overall compensation. The data I'm presenting here seem to show relatively strong wage growth over time. Interestingly enough median personal income, by contrast, has not grown nearly as rapidly. I present these data as a question more than an answer. But we do live at a time when developers, engineers, and many other 'normal' white collar jobs are going into 6 figures early in their career. And on the other end I know there are also plenty of people making healthy 6 figure salaries doing things like working on offshore rigs (not to mention getting schedules like 2 weeks on, 2 weeks off). And for general low skill work you have fast food/coffee managers making $40-$50k. It could be that all of these sharp increases in wages are somehow being offset by other jobs having seen substantial decline in wages, or it could be that somehow the market dynamics have changed in ways that certain measurements might not accurately reflect. I'm not really sure, though I'm increasingly leaning towards the latter. [1] - https://fred.stlouisfed.org/series/COMPRNFB https://fred.stlouisfed.org/series/COMPRNFB [2] - https://fred.stlouisfed.org/series/OPHNFB https://fred.stlouisfed.org/series/OPHNFB [3] - https://alfred.stlouisfed.org/series?seid=MEPAINUSA672N https://alfred.stlouisfed.org/series?seid=MEPAINUSA672N

jaggederest 8y ago
These are more interesting graphs. https://fred.stlouisfed.org/graph/fredgraph.png?g=ki8y https://fred.stlouisfed.org/graph/fredgraph.png?g=ki8y https://fred.stlouisfed.org/graph/fredgraph.png?g=ki8A https://fred.stlouisfed.org/graph/fredgraph.png?g=ki8A https://fred.stlouisfed.org/graph/fredgraph.png?g=kipg https://fred.stlouisfed.org/graph/fredgraph.png?g=kipg Healthcare, education, and housing have all doubled since the turn of the century compared to median incomes. There are a few sectors of the economy that are absolutely crushing people who make a median wage.

patientplatypus 8y ago

I think the root cause of most of these problems, is that most people don't add economic value. That isn't to say they are bad people (of course not!), but that we have reached a stage in technology driven capitalism where only a small percentage of people can gain large pieces of the pie (software engineers and CEOs), while middle income jobs are too inefficient to survive (lawyers displaced by discovery software, accountants with TurboTax, truck drivers etc.). The jobs that are left available are all low skill and pay accordingly (it is hard to automate burger flippers, but people are trying). All of this is being greatly exacerbated by climate change. As people consume more things and the worlds' resources are reduced there is a greater incentive to automate as once previous costs in production become too much. As fewer people are hired because of automation, there is less money to buy quality long lasting goods, so manufacturers aim to make cheap disposable products at scale to sell to the poor, thus exacerbating climate change. All of this I think is pretty obvious. What I've just shown is only one of any number of negative feedback loops that are growing worse and will probably cause huge social conflicts and war. The interaction between poverty, populist governments, tariffs which increase in trade wars and more poverty is another good example. Most people in the first world (>50%) by my estimation, will be net economic drains on society within 20-30 years because of technological advancement and globalization. We will also start to see mass starvation in the third world as climate change makes potable water rare and changes to regional climates disrupts food supply chains. We could very well see mass migration and conflict that will appear similar to what happened around the time of the Mongol invasion of Rome (again, migrants searching for food are obviously not bad people). The issue is that in order to solve these problems we need to address root causes that are impossible to stop. Knowing the solution does not make enacting that solution any easier. The only steps that I can see that would solve these problems would be the following: - People voluntarily stop having (as many or any) children worldwide. - People stop eating meat. It is the number one greenhouse contributor, and it shameful that people eat meat (which requires farm animals to consume food in order to be made), while any other people go hungry. - There is a basic needs allowance. We have enough resources to feed, cloth, and shelter everyone in the world and the lack of these resources is what causes the poor to take up arms. Show me a conflict and I'll find the people going hungry. - The benefits of capital and technological automation have to be widely distributed. That means the profits as well. But these are hard problems to solve, because it means convincing people to share. I don't think most people ever really learn how. The alternative to doing the hard work of sharing is to keep going down the path we're on now. Eventually there will be enough reports that all the increases to productivity only go to the rich for people to stop believing that hard work matters. I don't know man. When I was younger I thought knowing the solution was enough, but as I get older I'm more and more convinced the world is a bad place because some people just suck.

tfehring 8y ago

One thing to keep in mind: It's easy to think of stagnant wage levels as implying that everyone is working the same jobs and getting 2% nominal raises per year. Another possibility is that a subset of the population is seeing real wage growth while a different subset is being pushed into lower-wage jobs by automation and/or outsourcing. The hivemind of Trump supporters would have you believe the latter, and while I'm decidedly not one of them, that explanation definitely strikes me as more plausible. Though I'd contend that there are probably 3 buckets, not 2: - Those who work in highly-paid fields that aren't vulnerable to automation or outsourcing, including those who are driving the automation and outsourcing of other fields. These people see real wage growth. - Those who work in relatively low-wage jobs (e.g., in the service sector) that are prone to automation and/or outsourcing, but for whom automation has been gradual because their low wages mitigate the benefits of automation and outsourcing. For these people, I suspect that real wages are more or less stagnant - they have no leverage since their jobs could be at least partially automated if it were worthwhile to do so, but it hasn't been worthwhile yet. - Those who work in highly-paid fields that are susceptible to automation and/or outsourcing. Many of these jobs have been automated and/or outsourced due to the significant cost savings from doing so, pushing these people into lower-wage jobs. These are the coal miners and skilled tradespeople who form the core of Trump's voting base. Of course, there are jobs that don't fall cleanly into any of these buckets - lawyers are a good example - but my impression is that this is still a good model for understanding wage levels for many jobs. Obviously I'm speculating quite a bit here (though BLS projections seem to support my argument [0]), so please let me know if you know of any evidence that contradicts this. [0] https://www.bls.gov/emp/tables/industries-large-grow-decline-employment.htm https://www.bls.gov/emp/tables/industries-large-grow-decline...

marcoperaza 8y ago
The numbers are pretty clear. The top 20%, which roughly correlates to the college-educated professionally-employed class, has seen their real income and social welfare steadily go up for the last half century. The bottom 80% has seen stagnation and decline, as well as increased social ills like drug addiction, broken homes, and so forth. Notably, this pattern exists even if you look at just white people, so a racial explanation won’t do.

Animats 8y ago

The emphasis on oil may reflect a European perspective. Only 19% of US oil is imported now, and the US generates very little electricity from oil. The US is a natural gas exporter. If the US wants energy independence, it's within reach. At the other extreme, Japan imports essentially all its oil, as does the UK. Both import most of their natural gas.

dalbasal 8y ago
In some senses, "The US" is not really involved in oil production. It is a more privatised industry in the US than most (oil producing) places. If oil prices go up in the Persian Gulf, petrol prices go up in Texas regardless of import/export balances. In theory, the surplus profit is enjoyed by Texan oil producers, as opposed to Gulfy producers. This is increasingly dubious as the economy globalises. Gulfies own an interest in Texan oil wells. Texans own an interest in Gulf oil wells. The Texan putting petrol in his ute... I'm not sure it matters to him that the US is a net exporter. Petrol costs him more. Oil derived products cost him more. His income does not increase. This is not true in the reverse. In most oil producing nations, people do not pay the export price for oil. The local market price is usually lower.
oriol16 8y ago
US burns 20mbd and produces less than 10mbd. Are you sure imports are only 19%?
- Animats 8y ago
  That's from [1], which seems bogus. I sent a query into EIA. [1] https://www.eia.gov/tools/faqs/faq.php?id=32&t=6 https://www.eia.gov/tools/faqs/faq.php?id=32&t=6
- maxerickson 8y ago
  Numbers seem to come from https://www.eia.gov/dnav/pet/pet_sum_snd_d_nus_mbblpd_a_cur.htm https://www.eia.gov/dnav/pet/pet_sum_snd_d_nus_mbblpd_a_cur.... which includes natural gas, ethanol and exports.
- TheCoelacanth 8y ago

notananthem 8y ago

Real wage growth is stagnant because of shit like brexit and trump's trade wars. Companies can afford to provide real wage growth but are being conservative because idiots who don't understand simple macroeconomics keep shooting their economies in the foot. Brexit particularly is a good example of keeping a monty python esque giant foot down on real wage growth.

nivexous 8y ago

The proximate cause is the oil price. As the price of Brent crude oil, a benchmark, fell from over $110 a barrel in mid-2014 to under $30 a barrel by January 2016, inflation tumbled, even turning negative in Europe. It makes sense that oil prices would affect the price of everything else, but I didn't realize it was so volatile. 75% down seems like a huge drop, and then it increased 150% shortly afterward. Is this normal? Was this due to the discovery of fracking?

rdlecler1 8y ago

The rich world needs cheaper housing. Fix that and the average family can allocate more resources to other things like health and education instead of diverting more resources to rent seekers.

Synaesthesia 8y ago
Economist Michael Hudson often writes about this. The housing bubble is mostly beneficial to banks, as they get more interest. They know that house prices will go as high as they are willing to lend out.
- qaq 8y ago
  Right if only there ever was an event when this strategy backfired ...
- paxys 8y ago
  And to existing homeowners, who also conveniently get to drive housing policy in their neighborhoods.
IkmoIkmo 8y ago
How though? I mean, houses themselves haven't really gotten much more expensive. Two things have happened. One, we're all living much larger than before. i.e., our average home sizes have doubled in about 50 years, while the number of people per household dropped. [0] That's a sign of wealth more than anything else. And two, we've all decided to live next to each other. That's a choice. It's a choice coerced by reality, e.g. jobs being in population centres like cities, but it's a tradeoff between affordability and proximity to an economic, cultural, political and social centre. Housing in and of itself is not unaffordable, only in certain conditions. Affordable housing today would become unaffordable if we decided we wanted homes twice as big with fewer people living there. Or it'd be unaffordable if we all decided to want to live on the same tiny piece of land. For a little context, if you look at population density in the US, it's 33 per km2 on average. That's about 5.5 football fields per person, or in other words, about 22 football fields of space for parents with two kids. Compare that to a city block in in Washington which holds 38.000 people per km2, more than 1000x the population density of the US. It looks like this [1]. This shows how concentrated we really live in some places we call unaffordable. Most of the cost of housing actually isn't the home itself. Homes are pretty cheap to build. A 1200 square feet home for two people costs on average about $150k to build, or $75k per person. That's about 2 years of the median personal income in the US. The big expense is in the land, but only in some places. It's unaffordable because we choose to live at 1000x the population density of the average in the country. If you've got 1000 plots of land, and we all decide to live on one of them, and across 50 years double our home size and reduce number of people we share our homes with, no wonder it's unaffordable. The solution in part has to do with building more homes, zoning laws, construction red tape. But mostly, it has to do with the fundamental fact that we live larger and more concentrated. We need an economic and cultural shift against that. Urbanisation is great, I live in a city, but we have to do away with the model of a few hotspots and decentralise more, invest more in smaller cities, remote working, and infrastructure that connects cities. There's no zoning law that keep ultra-concentration affordable. [0] https://2static1.fjcdn.com/comments/House+size+and+family+size+_2361315d6c40da1177fee62a7aae80bb.jpg https://2static1.fjcdn.com/comments/House+size+and+family+si... Plenty of similar sources. This occurs in many countries outside the US, too. It occurs in many countries outside the US, too. [1] https://ggwash.org/images/posts/201608-031125-3.png https://ggwash.org/images/posts/201608-031125-3.png