This article doesn't answer the question and seems primary based on nostalgia.
My theory: the Fed's zero interest rate policy is very good at inflating asset values: S&P500, housing, you name it.
Rising income is a second-order effect: we hope that rising asset values will lead to increased wages. That used to be the case, but no longer is. Why? Because of automation and globalization probably.
So, the Fed has the pedal to the metal for seven whole years and we get mediocre job growth, no real wage growth, but screaming high housing costs and stock market. And who owns the most real-estate and stocks? The wealthy do, which is why inequality is growing.
Even though I'm critiquing the Fed's policy, I don't have the answers and would probably pursue the same policy. It's a real conundrum. Perhaps basic income, or some other "throw money from helicopters" idea is the solution.
Respect the wisdom of markets. Allow corrections to take place and don't bury malinvestment under the rug only for it rear it's ugly head worse later on by acting as if you have a better intuition on what the price of money should be.
Most people accept the virtue of free markets. Yet many don't see that the actions the Fed has been taking destroys the concept of a market by artificially supplementing supply or demand in an unbounded way based on a perceived sense of greater understanding.
The problem is it's really hard for most of these policy makers to build a platform based on "Let's do nothing and let the markets correct themselves". In such complex domains like an economy the action bias is very real, problematic, and the best thing to eliminate if you want to renormalize markets.
The value of money is completely determined by fed actions and allowing it to drift in detrimental value paths would be the farthest thing from respecting the markets. Economy wide "malinvestment" is not a thing. It entails that a person living off of others is more productive than a person working. It's nonsense.
Although money should be just an intermediary tool for trade and negotiation, an artificial asset that is neutral, in the short run this intrinsically valueless paper can distort the markets, even if it has predictable value, but only if it is manipulated into being a store of value that has a better risk adjusted return than private market stores of value.
Paper money has no intrinsic value in itself. If the fed keeps it predictably devaluing fast enough, always moving it towards its intrinsic value, it acts as a very useful enabler of trade by creating a unit of measurement for value and medium of exchange.
But unfortunately, for fiat to enable trade, it also has to artificially be made into a store of value. If this paper is made into a store of value that retains value better than private stores of value (such as stocks, bonds, or just stockpiles of stuff), it jams the markets for private stores of value. It turns savers into accumulators of pieces of paper or numbers in accounts instead of being holders of things that are backed by economic activity and wealth creation. It becomes a subsidy from investors, entrepreneur, job creators and workers to holders of pieces of paper. It is the worst kind of subsidy
because it blocks wealth and welfare creation.
The only way for central banks to allow private markets to function properly, is to get money out of the way by making sure it always devalues fast enough that it doesn't overly displace private stores of value that are backed by real economic activity.
> Economy wide "malinvestment" is not a thing. It entails that a person living off of others is more productive than a person working. It's nonsense.
At microeconomics malinvestiment happens all the time, and you do want it to fail. Otherwise we'd be still sending typewriter created letters though horsemail.
Now, you are proposing that at the macro-level it does not exist? How is it so? Is malinvestiment one of those things that cancel-out at the macro level? If so, that would be huge, it would be the first real (not nominal) value ever to cancel-out at the macro-level. So, I'll have to ask for your references.
It's because at the micro level, investments can be sub-optimal when they could be replaced by better more productive investments.
At the aggregate level, the alternative to investment is just economic inactivity. At this level, turning investment into fiat means stopping economic value creation and preventing economy value retention.
Unless you really believe that the unemployed would be destroying more than 100% of the value of the investment they need to work, it's an incorrect assumption.
I think the erroneous assumption that Austrians make is that they think investments are not worth it in the private markets if they have negative returns.
That is incorrect, stores of value can be useful as long as they retain part of their value, that is unless their returns are above -100%. You don't throw out a bag of apple because one of them may rot early. Idle fiat has a return of -100% to the aggregate economy over the time that it is made idle. On the aggregate, it's just paper it doesn't actually carry value forward. It is a claim on value created by others who have not promised to create anything. If you had instead invested the money into stock or a bond, something that enables production, even if you would only have generated -50% returns, you would have added much more value to the aggregate than if the savings would have been kept as idle fiat reserves.
It is crucial that fiat does not price good short term investments out of the market every time the risk adjusted market rates go below -2%. -2% can be an artificially high rate that puts the private market in a gridlock.
Negative returns may well be the natural state for stores of value. Before financial systems existed, almost all investments, had negative returns if you didn’t put work and energy into them. The only way you had to store value was to accumulate stuff, buildings or land. All options either had high maintenance costs, were subject to risk of damage from natural causes and theft, were very volatile or required hard labor to get production out of.
Even in societies with good financial systems, getting risk free, hassle free, positive real returns has been difficult for most of history. This probably reflects the laws of thermodynamics that tell us that things tend to decay without work and energy put into them.
The 20th century was probably the most notable exception. Because of unprecedented demographic and technological growth, positive risk free returns were easy to find. This however, may not continue forever, particularly amidst a aging and retiring population.
Money should not be made an artificial government backstop for stores of value as this destroys the total amount of real wealth in the economy and replaces it with pieces of paper or numbers in accounts. The saving vehicle of last resort should be for people to stockpile stuff they will need in the future (which incidentally creates job because this stuff needs to be produced) not accumulation of fiat.
Sorry, but you stated the inexistence of bad investments on aggregate, and you support that extraordinary claim with a rant about stores of value?
Anyway, that rant makes no sense. You can't just informally move from real and nominal values at will, as you can't claim that in a population, if everybody lose any amount less than 100% of their wealth, everybody would get richer. Or better, well, you can claim it, you just can not make it real.
Bad investment compared to what? Idle excess fiat is worth about -100% to the aggregate economy over the time it is kept idle. Manipulating it so that it stores value for an individual at a real rate of -2% when private market stores of value's risk adjusted real returns are lower than that is a market distortion that transforms people's savings into a huge loss to the economy.
I am the one being meticulous about the implications of real vs nominal. In particular I am saying that people's saving should be tied to something real by making sure they end up in something backed by real economic activity like stocks, bonds, actual stuff or credible promises of production of actual stuff.
You on the other hand don't seem to see the different implications between fiat stores of value and real value tied to production and production capacity. You have no problem if people's savings end up as purely nominal idle fiat without any real intrinsic value tied to them, if people's savings accumulate as pure government created claims on production from other people who have not promised to fulfill those claims.
I like to make simplified agrarian economy metaphors:
Say you had an isolated farming village where people wanted to save to be able to eat in the winter. It is important that farmers invest their profits into additional production to have something to eat in the winter, even if, because of perdition, the stored crops are only worth 90% of the initial investment required to produce them.
Otherwise, if they instead mandate their government to create a currency that keeps 98% if its real value when other forms of savings available don't, most farmers are going to work, trade part of the crop they don't want to eat to diversify their diet and keep their cash profits to be able to buy something to eat in the winter. They will not produce a crop to store for the winter since it would only return -10% and their central banks promised to keep money at -2% real value.
However, now comes winter and all farmers have cash but few have anything to sell because they didn't reinvest their cash in the production of a stored crop for the winter!
It's going to be difficult for the government to control inflation in such conditions because there will be too few goods for the amount of money people will want to spend. If the government manages to control inflation it will be by depressing the nominal value of the crops of the few farmers who did invest and save a crop for the winter. The central bank might do this by giving high enough interests payment on cash to prevent people from wanting to spend it immediately. In any case, people won't eat much during the winter.
This could all have been prevented if the central bank had kept money devaluating sufficiently and farmers would not have kept their savings as cash but would have reinvested them into an extra crop for the winter and have continued to trade during the winter.
What you call allowing "malinvestment", I call allowing sufficient production or production capacity to fill the needs of the future even if the returns are quite negative on this production.
Note that there are parallels with farmers saving for the winter and a baby boom saving in preparation for retiring and stopping to work.
Isn't the value of bonds, which are essentially debt denominated in the fiat currency, intrinsically linked to the value of that currency? Debt isn't an independent store of value in the same way that equity or real property is.
This is a gray area. If we allowed a large automaker to go bankrupt, we probably would have lost the supply chain and many supporting industries which would be gone (from the US) forever. Same with banks. As much as we detest bailing out bankers, allowing the US to economy to be cut off from credit would create lasting collateral damage.
The only reason Ireland's unemployment fell is because of emigration.
The economy is a disaster, especially for young people, home repossessions are just getting started by the banks (who were the actual ones bailed out, wrecking the economy by driving government debt through the roof.) The actual situation on the ground is grim, despite what the official figures might tell you.
The 2009 "bailouts" of GM and Chrysler involved each company entering bankruptcy, and having the desirable assets of those firms purchased in bankruptcy by new entities in which the US and Canadian governments were (together) major (in GM's case) or minor (in Chrysler's case) investors. So, any sentence that starts with "if we allowed a large automaker to go bankrupt..." that concludes with describing a result that didn't actually occur is demonstrably incorrect.
In my previous comment, I was referring to liquidation. This would have happened without government intervention, because it takes money to keep a company operating under bankruptcy restructuring. The money required for this was not forthcoming from the private market, which was paralyzed with fear. Counter-party risk alone was a huge concern.
> If we allowed a large automaker to go bankrupt, we probably would have lost the supply chain and many supporting industries which would be gone (from the US) forever.
That's what people thought about textiles and apparel. Neither turned out to be true. Textile mills are coming back to the East Coast (http://www.nytimes.com/2015/08/03/business/chinese-textile-m...) and the number of apparel manufacturing jobs in the Los Angeles County has stabilized in the past several years.
> If we allowed a large automaker to go bankrupt, we probably would have lost the supply chain and many supporting industries
And you'd free a loot of resources (people, money, etc) to create something that people really want, instead of forcing them to work on stuff the government has to pay people to buy.
Anyway, what is sending companies out of the US is your government fiscal policies. Start paying the stuff you take from there (instead of buying on loans), and those companies will be back.
Creating too bigger to fail out of already too big to fail industries does nothing except throw good money after bad, and increase systemic risk for an even worse repetition of a failure.
Not to mention the fact that continuously proceeding with such bailouts is simply unsustainable. The problem lies in our modern inability to stomach losses and handle austerity. It's something no one rightfully wants, but when market failures or financial crises occur, it's for a reason. You're witnessing a natural repricing mechanism at work and no one is disagreeing a lot of destruction can be a by product. But I don't buy your narrative that unless we saved those industries in the US they would have permanently moved elsewhere.
The economy is like an organism, not a washing-machine. The most optimal repairing mechanism is itself.
Morality aside, the US government acted in its own self-interest by protecting industries within its borders. It is likely had any major US automakers been liquidated, more wealth would have been destroyed than created.
Extending the organism metaphor, forest fires can be a naturally occurring healthy event that promotes renewal. Sometimes, a fire will burn with enough intensity that the forest itself is destroyed. Should we try to prevent all forest fires, the most destructive fires, or let nature take its course?
Markets are not wise by any stretch. No one agrees what a "free" market would look like, but in general they tend to favor incumbents and the powerful.
I think that zero interest rate policy should have ended 2-3 years ago when economy got back in shape. The zero interest rates are benefiting housing market thereby increasing housing prices. I don't understand why Feds inflation gauge doesn't take into account the housing prices/rents that well? Every month Feds see unemployment rate and review the rates accordingly. I think they should also take into consideration the housing prices equally. I feel zero-interest rates have benefited wealthy 10 times more than an average person.
Super low rates are bad all the time. They allow many things to exist that shouldn't, while the viable businesses have to pay higher prices for all their inputs.
When you have cheap money, more people think marginal investments now make a lot of sense. But if you create too many online dog food companies, eventually most of them have to be shut down.
It would have been better to allow an organic recovery.
And remove the impediments to hiring. We seem to ignore the law of supply and demand in the labor markets and then scratch our heads when there is a lot of unemployment.
Anything that makes labor more expensive than the price the market is willing to pay.
Government adds a lot of costs and even fixes the price of unskilled labor in the belief that these workers are benefiting.
But if the total cost of labor is higher than employers are able to pay for labor, they won't hire. This is especially true in a downturn.
If we want to assist these workers, it would be far better to help them directly instead of forcing employers to do it. We'd avoid distorting the market place and shutting a certain percentage out of it altogether.
Low Fed interest means you can't make good money safely by loaning it to the central bank. So it makes the alternative loans more attractive, mortgages are a relatively safe and profitable investment. When the cost of mortgages goes down the amount borrowable goes up so the people can buy more expensive houses. The immediate result is that their prices go up.
People tend to judge affordability based on repayments, not prices, so lower interest rates mean you can service a much larger debt for the same monthly repayment.
Where housing is scarce prices are determined by availability of credit more than anything else, so "you can" rapidly becomes "you'll have to, otherwise you'll be outbid by somebody who will".
Over the long term it's a shitty, negative-sum game for everyone except the banks.
Lower interest rates mean it's cheaper to borrow, which makes borrowing more affordable to more people, which increases demand, which increases prices when supply is limited (artificially or otherwise, see San Francisco).
The data you point to shows government spending as a share of GDP peaking in FY 2009, dropping through FY 2014, rising slighting to FY 2016, and with a projected sharp bend upward beginning in FY 2018.
The only recent period of a significant runup in government spending (federal or overall) as a percent of GDP was approximately the second term of the most recent Bush Administration, and the only periods with any sustained growth in that measure since the 1970s are about from the middle of the Carter Administration through Reagan's first term and then again both terms of the second Bush Administration (as noted, with a particularly rapid rise in the second term.) Even with the projected increase in the out years, the projected 2020 spending level as a percent GDP isn't that much ahead of 1970.
The growth from 30 to 35% 1970 to present is enormous. People often point to the 1950's as the good old economic days, and the percentage was much lower then, as well.
More important than that, though, is that the USA was one of the few highly industrialized nations in the world which did not have its factories bombed out less than a decade before.
I think the government's interference in the markets for housing, capital and labor are a much bigger problem than how much government consumes.
Bubbles happen because borrowing money is subsidized. Unemployment is caused when interference with prices prevent supply and demand from equalizing.
Government may waste capital, but I can point to many things that do.
I think you can increase taxes if you free markets enough and the economy could still grow.
You could GIVE everybody the downpayment for their first house and have a healthy housing market as long as you got rid of all the other subsidies and inducements and tax write-offs. Not proposing that, but you get the idea.
> I like how the charts run to 2020 to hide the massive ramp up in the last few years.
From the data there, spending as a share of GDP peaked in FY 2009, bottomed in FY 2014, and rose slightly from that trough through FY 2016. Extending it to the projected FY 2020 levels provides a bigger ramp up than recent years, since the 2018-2020 ramp up is the fastest one since the FY 2009 peak.
The only massive ramp up in recent years was the one leading up to the 2009 peak.
How about allowing markets to operate as markets instead of a government handout to the wealthy and powerful? fed policy only encourages malinvestment and inefficiency.
How about tax and regulatory reform instead of the current corrupt regime of barriers to keep out the innovative and new for the old and established.
There's so much which would help, but completely corrupt status quo serves the powerful at everyone else's loss, things are this way because the powerful want it this way.
> How about allowing markets to operate as markets instead of a government handout to the wealthy and powerful?
How about neither. How about addressing inequality by pumping money where it belongs, down to the poor, lowering taxes on the 99%, raising them on the 1%, and fixing the source of all the actual problems rather than simply treating symptoms? Markets aren't naturally good and crony capitalism isn't either, they both need tamed.
The answer was mentioned briefly in the beginning of the article, and then the implications discussed through the rest - it was not entirely obvious. Population rises and falls on long time scales. It acts like a commodity in that the supply and demand for people affects prices. When population is high wages are low and living space is expensive. The converse is also true. After WWII the population was very low (because the workforce slice of the demographic was more heavily affected than the other slices), now the population is relatively high (and the workforce slice of the demographic has expanded).
More people with money chase a fixed(-ish) number of homes through rent and purchase. Debt is cheap. The result is high prices. Most people in a job can be replaced with a large available pool of others, the result is low wages though lack of negotiating power.
The unanswered question in the article is whether Reagan/Thatcher caused these changes through their policies or simply rode into power on their effects. History is nothing but a long-term record of the effect of demographic change on political will.
The reason asset prices rise first in a fed led recovery is because new money enters the system through bank loans. Naturally, banks want to lend against hard assets, so the first thing that new money buys is property, stocks and other income producing assets.
This time is different. The new money enters the system via central bank asset purchases, which lower the returns on those assets. These purchases push investors into asset classes with higher returns, raising the prices of all assets as a result.
The Fed never touched the pedal. See also "Interest on reserves".
Land rents ( which are not the same as "rack rent", what you pay the landlord, but can be related by land prices going up speculatively ) drive out wage rises.
Scott Sumner says we should have Nominal GDP Targeting; if Real GDP is < say, 4%, the rest is made up with inflation.
This is incorrect. Fed only increases asset value because it increases the value of an asset relative to its revenue generation capacity. Interest rates are a revenue to asset ratio. This means residences are worth more relative to their rents but not that rents are higher.
Rising income may be a second-order effect but the low rate at witch it is happening is because the fed is not stimulating enough and constantly missing its inflation target. If it were, employers would be fighting for employees and wages would grow.
It's true that the wealthy own most of the assets that gain value with fed stimulation. However, they can only capture that value if they sell them and spend the money while the feds are stimulating. The total future revenue generation of assets is not greater, only the relative value of selling and spending the money now (which incidentally creates jobs and raises wages). The other thing that becomes highly valued when central banks stimulate is the creation of new assets, another thing that increases employment.
The Fed does not have "the pedal to the medal" for that it would need to promise to allow inflation go higher which it seems mortally afraid of.
The rich are a lot smarter today than when they were the descendants of feudal landlords - 100 years of meritocracy combined with assortative mating makes for a very clever ruling class.
My social networks include a fair number of wealthy people. Some of their kids are dumb as rocks, and they don't have to improve themselves, ever. Those are the real welfare queens. Sometimes a fool can be made a leader by other people in power. Believe me, I'm American.
You might have noticed that I said the rich are smarter than in the past, but the ruling class are very clever. As you rightly point out there are plenty of dumb rich, but relatively few of these dumb rich are ruling.
As for leaders who the figurehead is does not matter - ask yourself what do the rulers care more about; who is the POTUS or who is the head of the federal reserve.
The ruling class is both much clever than the past and technology and globalization has allowed their cleverness to result in more control.
In regards the level of control I am most impressed at how subtly it is used. To be able to shift the the share of production from 75% masses / 25% rich to 50% masses / 50% rich in 40 years with barely a peep is truly breathtaking. They have even been able to convince a large section of the population that this is all the fault of people with brown skin.
This split is why I am not sold on why the rich or ruling classes are more clever than any other point in time, and not simply enabled by technology. I would like to see evidence of increased cleverness over time divorced from technological enabling.
Actually all professions are much more stratified by intelligence than in the past (this is side effect of meritocracy). There is lots of research on this - this is just the first paper I found on google [1].
In regards the rulers have a look at their educational background. In the roles that really matter they are all very clever.
In order to have an effective meritocracy you have to have universal education. You then pick the top 0.1% and invite them to join you and marry your son or daughter. The whole economic system is designed to identify the very clever no matter their background and bring them into the ruling class.
If we build upon your assertion ("to have an effective meritocracy you have to have universal education"), if some of those in power define universal education differently (which would seem to make any concept of universality in education void of such in practice), then it wouldn't be surprising to see a decline in the effectiveness of an economic system, which is what I would suggest is what we are seeing today.
Universal education is not the same as universality in education. If the aim is to identify the 0.1% it does not matter if the universal education is rather spotty in quality since the highly intelligent will manage to succeed no matter how poor the educational environment.
If you want to be really clever you just give those smart kids who had a bad school environment bonus marks at the university entrance stage and give full scholarships - say just like the elite universities do right now.
I should mention the aim of the rich is not to maximise production, but their share and status. It does not matter if the pie is smaller as long as the size of your slice is larger.
What would stop any of such highly intelligent from eventually co opting the structures of today and doing something short term orthogonal (maybe even beneficial to the "share and status"), long term oppositional to some of those in power, if say, they reject to continue attending an ivy/elite league university after they attend for a couple of years after getting a scholarship, and realize that they can pursue "other interests" with such forces of coercion in mind?
This is actually a very good question. There are really a few possible answer to this. The main one is that those clever people that can make it into the ruling class, but choose to reject it, are not a worry to the ruling class since these people are not going to organise a revolution from outside. If you are not interested in ruling then you are not a worry to those in power.
More fundamentally most very smart people realise that they are outliers and that their children are likely to regress to the mean. While the elite welcome the very clever into their club, they also use their power and status to benefit their not so clever children (e.g. legacy students).
I'm curious about the ideas that people have when they speak of such subjects, can you possibly enumerate on the other answers that you had in mind besides the main one you listed?
I am of course speaking as an outside observer to the ruling class, but I have some personal interaction with this class (Australia is not that big). The vast majority I have met are intelligent and decent people. Their one major flaw is they believed that they made it there on merit, when in fact they all came from very privileged backgrounds (both genetically and environmentally). If you believe that you are rich and powerful because of your own hard work then you are prone to dismiss people who aren't rich as just the people who have just not worked hard enough.
Exactly right. The rich found this out early last century with the rise of communism. What they did was very clever; they basically introduced socialism in the 1930s by shifting the majority share of production to the masses to keep them quiet, introduced mass higher education with an emphasis on identifying the very smart (troublemakers if excluded) and brought them into the ruling class. Once this "decapitation of the masses” was in place (1970) they slowly took back their share of production. We are now back to the level the rich had in the 19th C. Impressive if somewhat depressing.
What does a family line which has had uninterrupted, exclusive access to a personal library know?
I mean think about it--what is that family like? That family which has held on to the same chunk of physical space, with books and notebooks, for several generations.
"Equal footing in terms of ability to gain information", my ass!
My own toddler gets confused when he tries to describe his home--probably because he's moved three times in as many years.
I remember the encyclopedias I read as a child. But, I don't have them. I can't review them. I can't consult my notes, nor smell them and get connected to the concrete memory of the day I learned about phases of matter or dry cell batteries.
Those things are important. They change the slope of the playing field.
i don't understand the argument you are trying to make.
you cut off the the "more" to make it sound like my statement meant we are equal instead of relatively better than we once were in comparison to the upper class.
then proceeded to provide examples of your toddler being able to retain information and yourself retaining information. both are about memory and ability to recall those memories with accuracy.
I had to go looking for that 'more'. I guess I cut it off (didn't notice it to begin with) because it's a meaningless modifier when attached to an absolute-sounding phrase like "equal footing". I don't know the name of this writing style pitfall, but here is another example: "The boot hardly annihilated the flower." ...That's a terrible example?
Oh, in the first post, my examples are about "ability to gain information [learn]" but you were talking about "ability to gain information [access]". Okay, yes the internet and the public library system are truly wonderful. I do presume that the ruling class (and/or the rich) have some information that is not publicly available, and it's probably very important information, but yes, a poor man can walk into a library today and find treasure laying around. That has improved our footing. :)
There haven't been hundreds of years of meritocracy. For one, women have only even been allowed to attend university since the mid 1800s, and only got the right to degrees much later. You can't have a so-called meritocracy when half te population isn't even allowed to particpate. At best, we've maybe had 35 years of meritocracy.
Secondly, where's your evidence? Your statement seems to be total conjecture.
You must be new here. There's a sizable cadre of IQ score worshipping neo-eugenicists around here. More people need to actually study evolutionary biology. Like I mean the real kind with math and combinatorics and stuff. Or maybe I'm just a stupid head.
I think you might mean population genetics, not evolutionary biology. If you study population genetics you might discover what results from assortative mating.
I read the rest of your replies and I think I misunderstood your point a bit (as did the rest of the crowd).
I don't agree that assortive mating could do what you suggest as quickly as you're suggesting -- evolution is slower than that. But I agree with the general idea that meritocracy has caused a brain drain from the lower classes, and also that the ruling class is quite clever.
As far as transferring 50% of the middle class's wealth upward without a peep -- this has primarily been accomplished through the "culture war." People will vote against their economic interests if it means voting in favor of their cultural biases.
Evolutionary biology is a real big field. Typically population genetics is its own separate subject at the university level.
I was not suggesting to not study evolutionary biology (we should just call it biology as there is no such thing as non-evolutionary biology), just explaining what is the area you need to study if you want to understand the question being discussed.
Subject as in unit, not subject as in degree. When I taught population genetics I taught population genetics as one half of a unit on human genetics. I would have loved to devote an entire unit to population genetics, but the timetable did not allow it.
As a unit it often is called something else to appeal more to students and is more often mixed in with other biology fields. This is a general trend across biology where areas that were once separate fields have come back together with the rise of molecular biology.
It is both - it is a a separate subject (course unit), but one that is often hidden inside another subject (unit) to make it palatable to students. To do this you give it another name and mix in some other stuff - I guess a bit like the way nasty tasting medicine is handled :)
The problem with teaching population genetics is not that it is not important or interesting, but that it involves maths. Biology students and maths are a bit like oil and water.
I think it just proves she is underestimated by some people here. I saw a documentary on her which was a behind-the-scenes look and while she is no ultra genius, she is also no dummy.
Actually Paris is quite smart, she just plays an idiot for the masses. Even if she was an idiot, it proves nothing. There are plenty of dumb rich as even with assortative mating your children will be normally distributed, just from a higher mean.
>People said the same thing about George W. Bush. We have yet to see any evidence for that assertion, both for him and Hilton.
GWB got a SAT mark that implies a IQ over 130. While he certainly liked to play the fool for his audience, I saw no evidence that he was stupid, just totally corrupt.
>Quite a bold claim. I'd like to see a citation.
Any trait that has more than a few hundred genes influencing it will be normally distributed with the mean of the offspring the mean of the parents. The genetic component of intelligence is influenced by a few thousand genes so it is not surprising to find that intelligence is normally distributed with the offspring mean the mean of the parents. This is population genetics 101.
One of the more interesting observations about human intelligence is the variation in high intelligence is almost all genetics while low intelligence has a quite large environmental component [1].
Huh? He scored 566 on verbal and 640 on math for a total of 1206 points -- around 140 points below his Yale classmates. I'm not sure how this implies an IQ of over 130, unless you believe that Yale is attended by pure geniuses (hint: it isn't).
Furthermore, both SAT and IQ scores are highly correlated with the quality of education one receives. They don't measure innate intelligence.
But if we still care about IQ, then a 2006 study of presidential IQs estimated Bush's IQ to be around 125, the lowest in any president over the past 50 years, and higher than only three other presidents (Grant, Monroe and Harding). You can read about it if you want [1].
The better the quality of your education, the greater the influence of genetics on your IQ score. At least, that was my understanding of the WP article, which says poor environment means poor heritability.
Yes that is the general consensus, but there is quite a bit of argument about if it is true. The problem as in almost all these studies in the selection of the participants.
Per the intro to that article, presumably high intelligence also has a large environmental component, in that you need a good environment not to squash the heritability.
btw, I think you didn't finish editing:
> normally distributed with the mean of the offspring the mean of the parents
> normally distributed with the offspring mean the mean of the parents
Yes even if you have the genetic potential for high intelligence environment can destroy it. What counts as a good environment is pretty basic though - the vast majority of people grow up in an environment which won't kill their genetic potential.
What I wrote about the means is correct. Over the population the mean intelligence of the offspring is equal to the mean intelligence of the parents. Of course with individual parents and offspring you can have sets of children where the means are not the same, but averaged over a large group the means are the same.
What I wrote was a bit dense and extracting what I was try to say was not easy (this is bad writing on my part). What I was trying to say is the average intelligence of the children is the same as the average intelligence, but the actual values of the children will be scattered and this scattering will show a normal (bell curve) distribution. Putting this into numbers if the father has an IQ (g these days) of 110 and the mother an IQ of 150 then their children will be expected to have an average IQ of 130, but their actual IQs might be 115, 140, 160, and 100.
Like another poster said, GWB scored 1206 in his SAT - that is below the 80th percentile. An 80th percentile IQ score is 113 - it will not get you into Yale or Harvard unless you are both a legacy admit as well as a son of a millionaire.
Edit. This article is rather interesting [3]. I am not sure how much we can draw from SAT marks from along time ago other than GWB was not an idiot nor the smartest person at Yale. No dumb person is going to graduate from Yale even if they are a legacy student.
> If you asked the person in the street, “Why are interest rates so low?”, he or she would likely answer that the Fed is keeping them low. That’s true only in a very narrow sense...
We vote and so politicians listen to our desires. Falling house prices would be a boon for renters and first-time buyers (and probably for society at large), but their political clout is less than that of middle-aged, middle-class property owners.
Link baity article with no real "answer". Rents and house prices follow simple supply and demand over long term. Cities are either already saturated or don't allow new constructions limiting the supply however people never stop flocking to them year over year. Even the medium size cities see net inflow of 50K-100K people every year - which means you need that many more new housing units each year. So ultimately only a few % of people gets to live in city and everyone else are forced to suffer commute. This % keeps declining because population total keeps growing and so the rent keeps rising.
Rent control etc can distort the economics for a while but not over long run. They are just "pain killers" when what you need is real medicine. The real medicine is simply policies that diversifies the areas. For example, encourage businesses to move in surrounding towns by offering tax benefits, build solid transportation network, open new public schools, encourage more constructions outside popular area, build communities with attractive facilities, build venues for cultural and sports events outside of cities and so on.
Cities are only "saturated" if you consider existing zoning. American cities in general are distinguished by having a very large proportion of single family homes, right in the city, generally on relatively large lots. And of course, the homeowners are relatively influential in local politics so they vote for policies that prop up the value of their assets by creating artificial scarcity. Some cities have been building more than others and they have lower rents: this has more to do with local land use policies than with how "saturated" the city is.
Even if you removed all these single family homes inside city and built skyscrappers instead, the additional units will get filled up pretty soon and at some point not too distant, you will be in the same situation again where you are now. The key fact here is that cities are seeing huge migrations from other areas since last couple of decades. There 100s of thousands of people piling up each year. Eventually they will get saturated. In large scheme of things, cities are artifact of ancient times when transportation was hard and natural landscape for habitat was scarce. Now both problems can be solved even for extreme places such as Dubai and there is no reason for huge swaths for human population to be concentrated in cities.
Not to mention that declining home values weren't good for the economy as a whole.
Transportation is a huge factor in available land that is currently dedicated to parking that could be used for housing. Uber and Lyft could change some land use policies but it is going to take a change in policy overall because I believe that it is largely tied to job growth which is essentially desirability. Seattle is expensive to rent or own in and yet Tacoma and Everett seem very affordable by comparison.
The author looks to be drawing a lot of conclusions from a very limited set of data. His examples about prices are only from Manhattan and London. He also compares median wages in New York to rents in Manhattan, which is just lazy. I don't doubt that the rent/income ratio has gotten worse in New York over time, but an apples to apples comparison would have been nice to see.
I don't even disagree with the sentiment expressed in this article. I just think it was woefully under-researched.
This is a great point. The author's last graph tries to make the point that that the fraction of income taken from tenants has outpaced tenant wage growth over a period of decades.
In present day SV (especially SF), most landlords will require tenants spend no more than 30% of their income on rent as part of the application process-- it's a somewhat fixed rule-of-thumb. As rents have risen, a lot of tenants in non-rent-controlled housing have been effectively priced out and displaced elsewhere.
So it's actually not so easy to demonstrate that landlords have been taking a larger fraction of tenant income; one must adjust for the fact that greedy landlords will also drive away poorer tenants. Simpson's Paradox at work.
"If house prices fall, the middle aged and middle class will be in an uproar. [...] Perhaps even more critically, banks need house prices to rise, or at least not collapse."
"More quality housing would increase its stock, and with supply rising to meet demand, prices would fall. This would be great for young renters, bad for middle-aged property owners, bad for banks. Thus it is not likely to happen. Property prices, at an all time high, are not likely to fall, and if they do, expect the government to put a floor under them."
I couldn't agree more. I'm young and capital-poor, so this fact is a huge problem for me. I don't see a solution.
> I couldn't agree more. I'm young and capital-poor, so this fact is a huge problem for me. I don't see a solution.
Vote for politicians not obsessed with propping up the business and real-estate portfolios of wealthy middle-aged people? (assuming you can find such politicians)
It's not far removed from the public's mind. People know they're currently getting shafted. They have just been convinced that anything in the best interest of wealthy middle-aged people must also be in their best interest, because everyone thinks they will one day be wealthy middle-aged people.
I've been thinking recently that a political party that specificaly threatens to tax the old rich people in the future for all the stupid stuff they're doing right now might help to make this topic more relevant (thinking especially of climate change denial and propping up property bubbles that transfer rather than generate wealth).
It seems kind of far-fetched, but in the Netherlands people sued the government for not doing enough about climate change and won, and I think there's a youth group suing the government in the states about climate change too.
Not sure if the demographics work out politically though.
Of course, that's only nominal house prices that shouldn't fall. If inflation-adjusted real house prices fall, not really a problem. Perhaps a little more inflation than we currently have would be a good idea (4-5%).
Amen... in my country (Uruguay) they have a carefully managed inflation index... but it is meaninglesss.. housing went up 70%, what do I care if lottery tickets or vegetables go up or down 1%
It's a great question. I wish the article had answered it.
> If they wanted to drive down rents, government could fund the construction of public housing, as they did during the Golden Age.
In housing, government is very clearly the problem, not the solution. It's government zoning regulations which keep demand far below supply: if we'd just lift the ridiculous restrictions, supply would rapidly rise to meet demand. Similarly with the rent control: all it does is impose higher rents on newcomers and the young while providing a great entitlement to the middle-aged and aging.
> you and I could quite easily have gone to the ATM, slipped in our card, and been told the money we thought was safe in our accounts was gone.
When money flows through many hands quickly, prosperity is the result.
When money stagnates and accumulates in deep pools, the economy suffers.
Reducing the number of people being employed reduces the speed of money. That's been happening.
Increasing wealth disparity reduces the speed of money. That's been happening.
Government spending increases the speed of money, but money spent on projects that end up with high concentrations of wealth (stadiums, military) are not as useful as projects that enable further speed increases (transportation, infrastructure, sanitation, urban renewal).
The concept that you can "own" property and charge "rent" for it has been an economic drain on the world.
When a cash exchange or transfer is made, it is usually for a product, aka GDP. There is no GDP involved with paying rent. A landlord is someone who can sit on his ass and live off of the GDP the tenant generates in the form of "rent" while offering no GDP back to the economy. The landlord is essentially a parasite, offering nothing beneficial to the economy, he simply can suck the life blood out of you through this strange concept of "owning" the habitat in which you live. Life is a bitch, but it is what it is.
I can see why. This argument goes beyond simply just landlords and rent into a critique about the dark sides of capitalism itself.
In capitalism you can not only own land as an landlord but you can also own labor. Someone who owns the corporation, can sit on the profits, dividends, and growth without producing actual GDP himself. It's very similar to the landlord situation. The owner of the corporation essentially sucks the lifeblood of the work output generated by employees while doing no work himself. Y-Combinator at its very core is a product of this system, hence the possible downvotes.
Capitalism is great, but landlords and freeloaders who get richer and richer without producing any GDP themselves is a huge negative attribute that is intrinsic to capitalism. Ironically, it is the hopeful opportunity of becoming a freeloader that drives the risk-taking entrepreneurial qualities which in turn make capitalism so effective.
I would say that investing looking for growth and creation(Y-Combinator), is much different than buying an unchanging asset, doing nothing to it and simply collecting a non-trivial portion of the renter's value created. It's the difference between creating new value and simply gaining control of a static asset to extract rent.
EDIT: I should add I appreciate that you took the time to shed some light on what the downvote may have been about.
Worth noting the decline in how much is spent on food: in 1950 it was a third of household income, now it's 13%. So part of the cost of living has drastically decreased.
Almost all sectors of the economy have delivered much improved value since 1950. In many cases at reduced cost.
Real estate, education and medical care are subsidized. When you subsidize something, they cost more and you get more of it. So we constrain residential real estate development by regulation - zoning, permitting.
Can anyone recommend further reading that gives an in-depth analysis of housing costs?
There's no end to articles exploring the various political angles, but what good are those without understanding the underlying economic constraints?
I'd be most interested in sources that use raw data, introduce mathematical models, and take into account measurable factors such as land availability, construction costs, incentives to invest, transportation, and so forth.
I read a book on local investment and slow money but I can't remember the name of it. It talked about how the stock market has become divorced from putting money back into business creation. How it is just the sum of the money people have laying around. I want to extrapolate that to housing and blame the high values on investment divorced from construction but now I'm just repeating your question.
Not a complete answer, but Bill McBride's Calculated Risk blog is an excellent resource for housing analysis (among other things). Follow for awhile, and you'll pick up much of what is needed.
Funny, if you look at news and popular media from the 1970s you get the impression is was an awful time economically and pretty much everyone agreed we were doomed. Rents were cheap in NYC in the 1970s? I don't doubt it; ever seen "Taxi Driver"? Yes rent control is great for people in rent controled apartments. The flip side is that as demand rises everyone who hasn't been in NYC for 40 years is SOL...which seems analogous to the complaint the author makes at the end about middle aged home owners vs new renters. As a renter, I agree the current situation is ridiculous but the author doesn't explain it. He just notes who has incentive to favor the current situation and winks
Up until loopholes were introduced in the 90s almost every apartment in NYC was rent stabilized, which is a very modest version of rent control. Over half of all non-public apartments for rent are still in this program. Almost no apartments are traditionally rent controlled anymore.
Rent laws are often blamed for the city's problems in the 1970s, but there were plenty of other issues (underinvestment, depopulation, municipal bankruptcy).
The author is either ignorant of economics or intentionally misrepresenting the facts to advance his pro-union agenda. I can't take his piece seriously.
He ignores the fact that rent control causes housing not to be built and so raises prices for everyone who doesn't already have a rent controlled apartment.
Reagan was elected in no small part because of the high unemployment + inflation under Carter. If the 70's were so great would Carter have lost to Reagan by 10 points? If Reagan was so terrible would he have been reelected in a landslide in 1984?
Can someone explain why worker productivity increases would ever enrich the worker? This sounds like a Golden Age fallacy. What forces in a capitalist system lead to paying workers more? Workers are not entitled to the value they create, they are just compensated for their labor. It would have to be competition from other employers who are paying more (because they too are making more money for what they are paying workers, but have strategically decided to apply it to raising salaries). However, if you have an oversupply of workers and a shortage of jobs, this dynamic does not really exist.
So, I think to say that it was bad only for rich people is a very unusual... I think it was probably worse for poor people since they don't have safety nets. It was also the beginning of the end for real wages which have never reached their 1972 peak.
Those are some pretty large assumptions to be wrong on, for the rest of the article, so I'm not really sure how to take it...? Maybe the author can clarify for me?
Edit: better source for real wage data, and clarity.
The economic systems are over-simplified, poorly automated, and disconnected from real physical and social science and measurements.
Money is a very useful technology but the 'economy' really encompasses everything, and expecting some interest rate changes to save a sick economy is like a doctor who is only aware of the existence of the cardiovascular system and has one move -- rapid chest thrusts to get more blood pumping.
By harnessing technology we can make our systems much more sophisticated than that.
I spent a few minutes posting a comment on this article only to find in the morning that the comments had been disabled. Not a great way to encourage discussion! Anyways, here's my comment that was deleted:
I really enjoyed this article, however, I think you have glossed over what really led to the 2008 banking crisis. The banks bundled subprime home loans into securities that were then sold off to investors. As I understand it, what actually put the banks at risk was that banks were selling "Credit Default Swaps" (CDSes) on those bundled mortgage assets. These CDSes were essentially unregulated insurance policies that banks sold to insure the bundled mortgages against losses. Since the CDSes were not technically insurance policies (even though they really were) the banks did not have to keep money put away to cover those insurance policy payouts if the mortgage-backed assets went bad. This resulted in the banks selling many more CDSes than they could actually cover. I'm not an economist or banker, but as I understand it, the unregulated CDS market is what really put the banks at risk in 2008. I highly recommend the book The Big Short by Michael Lewis for anyone interested in the 2008 crash.
I think the author is kind of mixing some different effects
1) The switch of bargaining power from workers to capital with Thatcher and Regan. I basically agree with him at least in the UK and US. Less so in places like France.
2) High asset prices - largely due to very low interest rates.
3) Rents to wages. Outside of popular cities like London, NY, SF I'm skeptical it's got much worse. I don't have that much data but here's a graph for NZ for the time period and it kind of goes up a bit and down a bit without much of a trend.
http://transportblog.co.nz/wp-content/uploads/2014/07/Rodney...
4) Rent to income in NY, SF, London
In the old days where people worked in mostly industry and agriculture it made sense to be where that was happening. Now when a lot of people are information workers it makes sense to go where the smart people are at so everyone piles into the top cities even if it means packing twice as many into an apartment as used to be the case.
So if your rents so high relative to your wages it's probably because you are in a popular location with a restricted supply of property.
The reason is monetary. Private debt increased and has reached it's peak. Previous generations have borrowed their prosperity, and next generations are living in an economy that is already full of debt obligations.
This makes me sad. The title sounds promising, as if the article contained interesting analysis. But it doesn't. The author doesn't understand economics... Or anything. He peppered in a few facts and statistics to sound credible, which he probably looked up after he wrote the article. I would accuse him of click bait, but I don't think he understands what that even means.
Reagan ended the Golden years and turned the US around from worker friendly to money-friendly. The result are low taxes for income generated from pure money, high speculation, bailouts for the big corporations and the decline of the US middle class.
Many of the other "western countries" just copy this trend and get the same, just with a few years between.
The oil crisis and recession of the 70s has nothing to do with the situation today, at least not directly. More important where the political decisions that where made in this time. Of course they where not all made by Reagan alone, but he was one of the major breaches.
If the viewport is small enough it seems scrolling is disabled. I usually browse the web on the right side of my 15" screen and was confused when I wasn't able to scroll.
I find it weird that most people don't plan for people with 900px or so wide browsers.
It's trying to display a lightbox advertisement that is too big for the viewport. So, scrolling gets disabled but the lightbox doesn't render until/unless you enlarge the window.
How many people died during WW2? It all seems like supply and demand to me. If we want lower housing prices in major cities we need more supply. Anecdotal, L.A. is built to the max horizontally. If L.A. would allow more vertical space to be used prices would drop.
When something that's in limited supply gets popular, it also gets expensive. If someone wants to argue that the limited supply is artificial, be my guest, but I have to point out that it's a lot easier and cheaper to build more humans (or move more humans in) than it is to build more housing for them -- after some inflection point demand will always outstrip supply.
So we build Manhattan straight up, to the limits of engineering, and can now fit 8 million people (~5x more than today). Great, what happens to the next million people? They get priced out! It will always happen!
Eh, supply and demand? While the good places are ever harder to find for cheap, we the humans are ever easier to replace. The solution will come from the sharing economy, a sort of airbnb for long-term renting mixed with a facebook-dating-like social net that [almost] guarantees one does not move-in with a Freddy Kruger. I even think we will start seeing two or more families sharing a big house. There is also an incentive to property owners to go this way b/c risk is minimized by the multiple sources of income to pay for the hefty rent.
In general terms, the world of one of everything for each one is ending, all the uber-like business models that are popping around prove it feasible and profitable.
I would point the finger at NIMBYism and the fact that new developments in places like San Francisco, London, and New York have to hop through many many hoops to get built (and pass muster with a surprising number of "stakeholders").
The TL;DR of this article is that a large new apartment block in SF is being held up by a construction union because the developer is refusing to hire union labor for every contractor role in the project.
Maybe we should reduce the red tape around building new structures and see how far that gets us before plowing more money into public housing and other government interventions.
Nah, that's what I'm talking about. Makes things too complicated and expensive. How about this...
If you have the capital, you can build whatever you want as long as you don't physically endanger other people (building meets earthquake and fire codes, etc.)
Why is it "too complicated" to hire union labor? That seems like an easy thing to do, especially since the developer would have ready access to a large labor pool, of which union labor would be one component.
Personally, I don't want to spend more than 20% of my net income on rent + utilities. That way, I can save 50% and use the remaining 30% for food and entertainment.
I am currently at 16% in Seattle and I leave in a very good apartment, but I got lucky.
I rented a 3 room apartment. Sublet out 2.5 rooms. (I'm sharing one room.) Reduced my rental expense to 0%. Paying bills only. Only 15 minutes train to the second most expensive city by property prices relative to income in the world. (Sydney)
Unfortunately you have to find a landlord that lets you rent a 3-bedroom AND sublet parts of it, which where I live is completely unheard of (unless you're high net worth and pay premium rent, but then why have flatmates ?). Plus, you'd pay income taxes on the subletting rents and that builds up really quickly.
Yes, I used some salesmanship I gleaned from working in a startup and paid 5% premium rent. The landlord isn't worried about subletting. They want the place taken care of and to be assured you can make rent payments regularly and on time and don't trouble them too much. Convince them you're a better option than a family of 5 who also applied for the property and you too can sublet the place. The rent I pay is tax deductible from rent I receive. I chose to have flatmates and pay premium rent (paid for by flatmates) to live free in a renovated apartment close to the city. My office doesn't come with a space I can park a camper van.
May I ask where you are roughly? I'm planning to buy a house in a cheap rural location (in NZ), but will still need to spend time in the city for work. I'd love to pick your brains - my email is in my profile, and I'm happy to buy dinner in return.
I've been thinking about this a lot lately. I live in NYC so I see some of what's happening in the property market here. I've also lived in London, Zurich and Australia.
The problem, ultimately, I think is trade agreements.
I came across this comic [1] recently that resonated with me. Trade agreements aren't about trade anymore. Tariffs and protection are at all time lows. Really they're about the free movement of capital.
The English-speaking world and much of the rest of the developed world has embraced the idea that real estate is a speculative investment. This includes allowing foreign capital to flow in and buy up property.
A lot of Manhattan condos are bought by the wealthy, many of them foreign, who don't live here at all (ie it's just a means of parking money) or they visit a few times a year.
The NYT has done a piece on this [2]. Luckily, much of Manhattan is still co-ops. For those of you unfamiliar with the history of this, NYC imposed rent control on property owners in the post-war era (up until 1973). Coops were a reform to allow building owners to divest themselves of apartments being rented below cost after the massive inflation of the 1970s.
Rent control tenants were offered their apartment at a discounted rate. They became owners and the owners divested themselves of the loss-making asset. Win-win.
Co-op residents technically own shares in a corporation. That corporation owns the building. Your shares give you the right to inhabit a certain apartment. You must however abide by the co-op rules. Some are lenient, some very strict. Co-ops can dictate a lot of things like:
- Whether or not you can use the apartment as a pied-a-terre;
- Whether or not and how much you can sublet your apartment (some note at all, some very lenient, lots in between);
- How much financing is allowed. Many require a 20-25% downpayments and significant post-close liquidity. The more aristocratic buildings don't allow financing at all.
And so on.
The net effect though is that most co-ops tend to be fully or near-fully occupied, at least until you get to the very high end. This is actually good for the building and (IMHO) the city.
Without this NYC would be doomed to become a desert of unoccupied condos.
There are problems. Property tax is grossly unfair as the system is decided by the state government in Albany and they have heavily skewed it in favour of SFHs (single family homes). Plus for incumbent owners there are Prop 13 like caps on rate increases.
Also within apartment buildings there are problems. A $100m condo pays $18k/month in property tax. A $3m condo pays $3k. How does that make sense? It probably dates back to Bloomberg's idea that attracting billionaires who never live here is somehow good for the city.
At the same time as all this you need property investment to some degree as that's what provides the rental market. So you can't eliminate it entirely. But this is what I think you need:
1. A higher bracket of capital gains tax paid by non-residents of wherever the property is. This should include any residential property held through corporations or trusts.
Now you have to be careful with this because there's also the flipper market. These are people who buy distressed properties, fix them up and sell them. I actually believe these people are providing a useful service in rehabing neighbourhoods.
2. Property taxes that are in line with market values that don't discriminate on property type;
3. Higher property taxes for non-residents (and trusts and corporations);
4. No property transfer taxes like NYC's "mansion" tax.
Lastly, I don't have a huge amount of sympathy for the argument that people in entry-level jobs should be able to, say, afford to live in Manhattan. Why? Why is living anywhere a right? You hear the same thing about San Francisco.
At least in NYC there are options if you're on a lower income (Queens, NJ, NY, many of which have good transport options). Whatever problems there are in NYC the Bay Area is a mess an order of magnitude worse.
Vouncouver is another place that's had property driven up to sky-high levels. In that case it's because of rich Chinese seeking a safe harbour for their money and/or (ab)using the invest-to-immigrate program in Canada (how is buying an expensive house investing in Canada exactly?).
Freedom of capital is a problem. It allows companies to avoid paying taxes with transfer pricing. It allows voters to vote themselves huge benefits from the government treasury and then abandon the city, state or country when that debt collapses on itself.
Tell me more. High by southern standards? I'm hearing more and more about high paid tech jobs in the north but haven't seen any figures. I'm sick of the south and seriously considering moving north.
I don't know, I haven't worked in the south. But I earn £45k, my rent is £650 for a house with a big garden and a garage, a loaf of bread is 75p and a beer is in the range of £1.30-3, usually around £2.20
When I was in London, I couldn't get a beer for less than a fiver
If the rich keep getting richer and the poor poorer, eventually either the poor will die of starvation or disease or the rich will die in the guillotine - History.
The author does not cite the true reason for the high cost of housing in NYC (I live in Manhattan), SF, (and I'm told Bombay) which is 1) using politics to create artificial scarcity of housing through zoning density restrictions ("rent seeking"in microeconomics or "green belting") and 2) overuse of historic landmark status. This is well-recognized by economists, but I suggest reading this Op-Ed by Harvard economist Edward Glaeser
http://www.nydailynews.com/opinion/build-big-bill-article-1....
Nobelist and NY Times Columnist Paul Krugman cites Glaeser as well.
What I find frustrating is that people write and publish articles without consulting the experts like Glaeser or consulting any economist for that matter.
Prices rise because of scarcity. The high cost of housing is from inflated land costs through politically induced scarcity which is done through zoning density restrictions and overuse of historic landmark status. It is really that simple, yet many writers don't seem to understand that concept.
You can see based on that the average is around $45~50k CAD (if the salary field is blank assume $50k or less as these are less well known, smaller companies with tighter budgets)
rent for studio or 1 bedroom apartment in downtown area where lot of jobs are located is around $1300/month (nvm, it appears to have gone up in the past 3 years, $1700/month according to another users comment).
Portland, OR is getting pretty bad as well. Average cost to own a home in 2015 is $313,000[1]. I can't find a current house hold income figure but I know it's pretty low. Definitely below the national average IIRC.
The thing to note is that many of those houses selling for ~$300k are very small (< 1000sqft). So the average housing cost for a family of 3 is probably much higher.
$313k? That's a pittance compared to Vancouver where the average home is over $1M. Even in the shitty east side with drug-dealers and prostitutes hanging out on your street you still pay over $1M for a detached home.
Fair enough. Perhaps rental was a better comparison. They are very close, and Portland pays way less than Vancouver (in addition to the US not having healthcare) - I'd say it's more expensive to buy in Vancouver, more expensive to rent in Portland.
Why would you do that to yourself? If you think the prices are ridiculous, then don't move here. If you think they're worth paying, then you can't really complain, can you?
I'm saying this not to troll (I wouldn't move here today!), but to point out that until people come to their senses and say enough is enough, this insanity won't end.
Rent in the downtown core is about $1700 for a 1-bedroom.
Developers can do decently well in Vancouver, especially if you are employed by a foreign company. I am not sure about typical salary for developers, but I'm doing okay.
So, compared to San Francisco, for a good developer, Vancouver is slightly better. However, for everyone else in Vancouver, it's a disaster, since the median income is much lower. This is why Vancouver is actually less affordable than San Francisco, for the general population.
The article provides historical context and a framework to think about the question. I think it does a better job answering the question than your last 2 paragraphs.
After finishing it, I'm almost certain the author just produced a shorter more accessible version of the argument from "A Brief History of Neoliberalism" by David Harvey. It's basically a Marxian interpretation of the issue.
The article tries to backdoor an emotionally resonant populist political view in the guise of concern. If you think it does a good job answering the question, that probably just means that you have a converging viewpoint.
Yeah, nothing is persuasive. Everything simply confirms or disconfirms what you already know. There is no learning. I will die knowing what I knew yesterday.
Utter leftist nonsense. Reagan was responsible for the biggest and longest economic boom since World War 2, he freed millions of people from the miserable tyranny of communism. His tax cuts and deregulation revitalized the American economy. By winning the cold war through strength, he allowed Clinton (forced by strong Republican leaders in Congress) to demilitarize and reap the cost savings which balanced the budget.
The decline in wages has nothing to do with him, it has everything with productivity gains through technology and by loss of bargaining power through illegal immigration and by "free" trade agreements like NAFTA - passed by Clinton - which were pure crony capitalism purposely designed to chop the legs out from underneath the American worker. This, combined with out of control government spending - which funnels money printed out of thin air through Wall Street is what caused the conditions described.
Labor has been on the decline for years. The union corruption and bashing seems never ending. The ignorance in the general populace allows this to happen, as people will vote against their own best interests.
I would assume that the populace movement that is gaining steam with sanders and warren will start to expand if the inequality continues.
> Labor has been on the decline for years. The union corruption and bashing seems never ending. The ignorance in the general populace allows this to happen, as people will vote against their own best interests.
"The union corruption seems never ending." I agree. Unions are corrupt too much of the time. (Any is too much...)
"Labor has been on the decline for years... The ignorance in the general populace allows this to happen, as people will vote against their own best interests." I presume that this is supposed to mean that labor is in the best interest of people.
So it looks like you said that unions are corrupt, and that labor unions are in the best interest of people. Hence my question.
My theory: the Fed's zero interest rate policy is very good at inflating asset values: S&P500, housing, you name it.
Rising income is a second-order effect: we hope that rising asset values will lead to increased wages. That used to be the case, but no longer is. Why? Because of automation and globalization probably.
So, the Fed has the pedal to the metal for seven whole years and we get mediocre job growth, no real wage growth, but screaming high housing costs and stock market. And who owns the most real-estate and stocks? The wealthy do, which is why inequality is growing.
Even though I'm critiquing the Fed's policy, I don't have the answers and would probably pursue the same policy. It's a real conundrum. Perhaps basic income, or some other "throw money from helicopters" idea is the solution.