I would bet that the reason housing prices have outpaced inflation is due almost entirely to the popularization of rent-seeking activities and real estate speculation (not including the relatively recent distortions due to late 1990s deregulations that led to CDS and other financial "innovations" created to derisk the asset class beyond what was rational).
Someone should do a comparison of the number of landlords per capita today versus back in 1984 and a comparison of the number of people who own a second home or own real estate investments.
I would speculate that society has by and large re-organized in a way that permits older generation to extract greater rents from younger generations beyond just social security.
It's probably possible to write an entire Phd thesis on the myriad ways in which the baby boomers and to some degree older Gen Xers extract rent from younger Gen Xers, GenY and millenials.
The world would be a much better placed if the most highly taxed form of income was rent profits in all its forms. Non-productive income is responsible for perpetuating a lot of income disparity.
If any government really wants to promote sustainable home ownership for all their citizens, they'd make homes a financial deadweight for people that aren't fully utilizing the home themselves. This would do more to make homes affordable for those that will actually live in them. Homes need to stop being seen as an investment and need to be seen as a utility. Whenever a utility is perceived as an investment you often seen market manipulation phenomena like the ones that contributed to the California Electricity Crisis of 2001.
> The world would be a much better placed if the most highly taxed form of income was rent profits in all its forms. Non-productive income is responsible for perpetuating a lot of income disparity.
In other words, you want to totally change the system.
One of the most important rent profits is plain old loans. Just because you have money, you can have even more, later. They justify interest rates with the risks they take, but that's most probably a lie. They want a cut. But the actual costs only lies in bookkeeping, which should not be charged with interest rates, but flat rates. (Interest rates are still justified up to actual risks, but no more.)
Now for the real fun: in Europe (and probably most of the world), for about 40 years, our central banks are "independents". The states cannot directly borrow from them any more. Now, we have to borrow from private banks, who themselves borrow from the central banks at a lower interest rate, or produce money out of thin air, like a state, or a forger. (The main actual mechanisms are Fractional Reserve Banking, tax havens, and derivatives).
A world-wide conspiracy wouldn't have done better.
This is by far the best comment I've seen in a while.
Loans to individuals today are account to little more than taxes paid to private individuals, who will obviously spend the money on themselves instead of the commons.
It would be awesome if a system were established that allows individuals to borrow from the central bank the same way private banks do. If JP Morgan can borrow from the Fed, then I as an individual should be able to borrow from the Fed, with an adjustment for actual risk and no more. In aggregate, I bet you that 300 million Americans pose a far lesser risk than do a couple of major banks.
Like you said, a world-wide conspiracy would not have succeeded in creating a system that allows private banks access to a nationalized bank but only allow individuals to borrow from those banks.
The technology is there or almost there to automate lending the entire lending process enough to make direct government-to-citizen lending possible. All that is needed is a way to implement this such that it results less systemic risk than our current system by fostering greater diversity in lending strategies and risk assessment than a few large banks. All you do is plug in lending strategies that are sufficiently vague and considered in aggregate at each level that gaming the system in a way that unfairly favors certain individuals.
The cost of taking the money from a government loan institution and putting in the hand of an individual should cost almost zero and the lending decisions should be made as close to the community level (as in the state or county level) as possible on a per capita basis with any incidental returns accruing to the level at which it was lent at. e.g. a county would lend money to its constituents in a way where they balance returns to the city coffers with the growth from lending at lower rates.
i.e. the federal government automates the writing of loan checks and collecting them, amount lent is proportional to local population, excess returns go to taxes, counties can levy taxes to make up a deficit (failure to properly assess risk and rates), but who gets loans and the rates are determined locally.
We'd essentially end up with 2992 entities that resemble the small local banks we used to have before the banking market consolidated, but that are essentially charged with ensuring the goodwill of their own community and not shareholders living elsewhere.
Private banks would still exist, but would have to compete with such a system and would probably compete in areas where such a system could not, such as corporate loans.
"If any government really wants to promote sustainable home ownership for all their citizens, they'd make homes a financial deadweight for people that aren't fully utilizing the home themselves."
This! In Portugal it is common for rich people to buy apartments near universities just to rent to students. The thing is, people who are rich enough buy several at once and get nice discounts on them (investor discounts they call them) and they will use the houses to make money with the rents. If you are just a regular person looking for a place to live you might negotiate a bit on the price but you always start at full price, not discounted.
I wouldn't go to the extreme of making every home you possess, except the one you live in, a financial deadweight but make it increase steeply after maybe 2 or 3 places.
I just don't know if this can happen... buying real estate is one of those American ideals that everyone seems to aspire to. Hell, I even do basically because its a favored form of relatively safe investment here and you get tax incentives for it. I think we are at a bit of a crossroads where a lot of things need to be re-thought, however, as investing, as a whole, needs to be re-examined to figure out what truly is sustainable and good for the future. Maybe new opportunities like investing in asteroid mining, etc are what we need to start putting capital into something more productive and good for humanity than just inflating real estate prices.
My opinion is that rent seeking has probably been fairly constant (relative to the size of the economy). I think the bigger issue at play is the effect of the baby boomers. As they reached their peak earning potential in the late 90's and early 00's, their spending power had an impact on the broader economy, raising demand and prices across a wide range of services and goods. While the recession has had an impact, I don't think it is a coincidence that as the Baby Boomers retire, the economy feels like it is entering a long period of stagnation.
Possible, but anecdotally I know tons of boomers with multiple properties, but I cannot say the same for previous generations and generations that came after the boomers. This is why I suspect that novel research in the area would show that rent seeking, especially from housing has risen.
Another issue that may be contributory to rising house prices are divorce rates, which skyrocketed since the early 80s. A divorce almost always results in the occupancy of two residencies per family.
"I don't think it is a coincidence that as the Baby Boomers retire, the economy feels like it is entering a long period of stagnation."
Coupled specifically with everything else that happened over those 20 years.
An ever increasing workforce, with an ever increasing productivity rate, employing an ever increasing amount of financial leverage, purchased at an ever decreasing cost.
It's certainly a recipe for a peppy feeling decade or two, and a well deserved hangover later on.
A lot of the problem is local government. Rising property values benefit ~everyone who lives in a town even if they're bad for people who want to move there, but the later don't get a vote in town ordinances. Well off people who already live there also don't want poorer people moving in and "using up town resources" without "paying their fair share". So you have all sorts of zoning rules in place trying to prevent affordable housing, though there are exceptions and I'm not sure how much things look like this in places that aren't US Northeaster cities.
This is highly dependent on the region. I have lived in both the Bay Area in California and in Arizona. They are like studies in fairly extreme opposites. What you talk about is very much how the situation is in California, even in areas where more houses could be built, its always a huge political battle of attrition.
In Arizona, anything goes, they build shit literally anywhere, its flat (for the most part in Phoenix at least) and land is almost literally endless. Property is dirt cheap, houses are too and they have a huge overabundance of houses, I would say probably at least 1/5 of houses in the metro area there are currently unoccupied.
Areas that are desirable and have geographical characteristics that make usable land scarcer (which includes being near a body of water as that limits the land in one direction) are probably always going to have the characteristics of what you describe, IMO. One thing it does lead to is more valuing of older buildings, etc as these areas don't have the "tear it down and build something new" mentality of a place like Arizona.
You're right, a greater quantity of housing benefits renters, though low income people entering the community might not. Its sort of complex there, which is why the aren't effective opposition.
>>I would bet that the reason housing prices have outpaced inflation is due almost entirely to the popularization of rent-seeking activities and real estate speculation (not including the relatively recent distortions due to late 1990s deregulations that led to CDS and other financial "innovations" created to derisk the asset class beyond what was rational).
We've got a heck of a housing bubble in Canada, and we don't have those fancy financial instruments. We have the CMHC, which shifts the risk of mortgage default from banks to the public, and an interest rate policy not unlike the US' ZIRP. Also, 2008's 0% down 40-year mortgages kind of propelled this thing into a frenzy.
> I would bet that the reason housing prices have outpaced inflation is due almost entirely to the popularization of rent-seeking activities and real estate speculation (not including the relatively recent distortions due to late 1990s deregulations that led to CDS and other financial "innovations" created to derisk the asset class beyond what was rational).
LOL. No. The reason real estate prices are so high is because when the central bank forces down interest rates money pours into investment class assets, driving prices up.
Our shadowy banking overlords wisely started tightening up years ago to avoid a US style disaster. CMHC (our equivalent to Fannie Mae) tightened credit to qualify requirements for mortgage insurance. As soon as these changes took effect volume of real estate transactions plummeted and price increases halted. But then they started creeping up again... and the reason has nothing to do with Canadian policy...
There is a sizable Chinese community here, particularly in Vancouver. Monetary policy in China is constantly devaluing the RMB, and Chinese citizens are scrambling to unload them. Tons of them are coming over here and buying up tons of real estate. So anyone in Vancouver thinking of using a real estate agent to sell their property: Make damn sure you choose a Chinese one who has mainland Chinese buyers. If you hire a native there's almost zero chance he will directly find a buyer and so they'll be no way to reduce the commission you will pay. I sold my condo a couple of years ago and NONE of the non-Chinese buyers whose offers I accepted were able to clear the conditions because their lenders had cut back on their borrowing limits. I ended up selling to a Chinese family moving here who paid for the $700,000 place with cash.
True, but this is the reason I said that homes need to cease to function as an investment asset if you aren't living in it.
Homes should not function as an investment asset when interest rates drop. It effectively negates the benefit of more affordable loans. "The good news is that the home loan is for your first home is 5% with no money down. The bad news is that now everyone is buying homes whether or not they are going to live in it themselves, so the home you want to buy now costs you double what it did when loans were 13% and you had to 20% down". Only banks win in this scenario.
I would guess that a large share of all those homes purchased as an investment asset when rates dropped were put to use in rent-seeking activities. Add to that the vicious cycle impact rising home prices has on rental rates and you have an environment that hurts everyone that can't or shouldn't be buying a home.
It's possible that housing prices are much higher for good, because real estate was historically undervalued.
I know, I know, hear me out ;)
I remember reading an article during the housing boom that made a very interesting argument in defense of the high prices. It was wrong, of course, but it was different from the usual "there's never been a better time to buy... or sell!" crap you heard from the real estate PR machine. It was a pretty sober look at the numbers.
The argument boiled down to this - if you're going to compare current prices to the historical trend, you need to exclude the possibility that real estate was undervalued before you can conclude that current values are overvalued purely based on divergence from historical trends.
The paper argued that housing was historically undervalued because creditworthy people didn't have good access to credit. A house required a 20% down payment, and banks (back when banks held a loan for the entire life of the loan) wouldn't allow income to debt ratios to exceed a certain threshold. They argued that new methods to spread risk across larger pools allowed the extension of larger amounts of credit without a huge jump in risk.
An example was a loan made to two nurses with excellent credit earning a combined income of well over $200k, but who only had about 20K in down payment. In the past, this 10K would have limited their purchase price to 100K. Now, they could bid much higher - without, as the article described, a massive increase in risk to the lender, especially if that risk could be spread.
It was a well-reasoned argument, and I think what it missed was the profound level of corruption and dishonesty going on in the industry at the time. As we all know now, and as our wise leaders like Greenspan should and could have learned while they were reassuring everyone things were just peachy, is that the "two nurses" example was not at all typical of these "higher risk" loans, and the "spreading of risk" was in fact a way of dividing up and obscuring risk to make horrendous loans look better (and package them up and sell them, and then bet against them).
But this phenomenon will probably continue. Yes, housing prices are higher, but I suspect that once the dust settles, some of these "innovations" (my disgust with the industry makes it hard to use that word) may actually come into play.
In short, we may pay more for houses than our elders did, but we may actually have better, more efficient access to credit in the long run (I want to make sure nobody thinks I'm defending the antics of the banking sector during the bubble with this argument).
Oh lastly - I do apologize for no cite. Can't really remember where I read this...
The fact that the majority of people buy their homes though loans leads to a wide range of price distortions.
I would argue housing increased in price faster than inflation in large part because the FED was so effective at reducing inflation which reduced interest rates. A 30 year loan could see the borrower paying 2x the houses initial value as interest, so if you drop that down to 1x suddenly people can afford to pay significantly more for a house.
This, lead to people being easily able to afford the house, but unable to make the 20% down payment. Which lead to 'risky' loans being safe for a while. Thus, a lot of automated risk systems only had good data for during a historically long period of increasing housing prices and decreasing interest rates.
The theory wouldn't hold to justify the run up in prices during the housing boom, or the rent/purchase disparity now. But in the long run, I do think that pooling could be used to allow larger amounts of credit to be extended to people without a huge increase in risk. I could see this leading to a one time, permanent increase in the value of leveraged assets like real estate.
Keep in mind - it might have been a plausible explanation for why real estate jumped 25% when historical trends would only have forecast a 10% rise. It wouldn't explain a massive run up (2-3 fold increases in housing prices over the course of 5 years). The housing boom was eventually driven by irrationality and corruption, which may have completely obscured a smaller but more rational increase in prices resulting from a legitimate technique to pool risk.
If the costs of renting, inclusive of any possible foregone appreciation gains from real estate, are lower than of buying, then the economically rational choice is to rent, not buy.
In urban economics, the value of housing is largely dictated by the potential income one can acquire by virtue of holding it. That is: housing reflects the local prevailing wage.
It makes zero sense to rent a property (as a wage earner) for more than one can make in income living in the area. Hence, rents tend to be much more responsive to wage inflation/deflation than housing prices (student and retirement housing would be exceptions, but they're constrained by similar functions ultimately).
With real estate, there is the potential for appreciation gains. This presumes, however, that there's someone willing to buy at the appreciated property later. Housing prices cannot inflate indefinitely over other assets. And the long-term historical return on housing (since the 1880s or so in the US -- period for which data are available) are in fact lower than most forms of investment. Housing carries heavy costs: taxes, maintenance, improvements, etc. And it's largely an illiquid asset, particularly for the small investor (I may have many of a smaller investment to sell, I generally only transact in a single house at a time).
There are other tweaks on this: rental/owner-occupied housing aren't perfectly substitutable (covenants, HOA restrictions, etc.), there are non-financial returns to housing (or at least longer-term returns), notably school district access and crime/safety rates. In markets with low vacancy rates, rental values may fluctuate more broadly. Bank lending practices may make buying easier (2000s) or harder (2010s) at any given time.
But the upshot is still: rental prices in a given market tend to be a better guide to local economic conditions than real estate prices.
I bought my first house in 1984. Banks were begging you to take out a mortgage and prices were in the tank. I bought the house with 5% down, PMI and a 14 percent, 1 year adjustable mortgage (interest rates were so high they had to go down). When rates went down property values soared and I was able to use the gain to finance most of the purchase of my next house.
My advice is take advantage of the low interest rates if you can. You have to live somewhere and the mortgage payments are a form of forced savings and partially subsidized by the US government.
Your example is the opposite of the current situation. If we assume that home prices are determined by monthly payment then that would explain why the price increased as rates dropped.
Then you had a low price to rent compared to payment to rent ratios. Today you have the opposite: low payment to rent and high price to rent ratios. If rates rise with prices drop?
Yes college was more affordable and for many it is unaffordable today. Young people and parents need to seriously consider forgoing college entirely, that will be the only thing that will force the price down. These parents and students freely choose to pay these absurd tuition fees. Until you stop paying them, they will keep raising them.
Cars in 1984 are not comparable to cars in 2012. There are many emissions and safety requirements on modern cars that have forced the price up. Also the reliability and quality of most modern cars far exceeds 1984 models. Most young people would not want anything like a 1984 car. Ford Pintos were cheap, problem is they exploded when they were rear ended.
Housing is expensive, but it depends where you choose to live. Hip areas have always been expensive. Toronto wasn't hip in 1984 and nor was silicon valley. In Mpls I rented a decent 2 bedroom apartment in 1986 for $550 per month, the same apartment today rents for $850. if you want to live near the "cool" people it will cost you.
> Young people and parents need to seriously consider forgoing college entirely, that will be the only thing that will force the price down.
That's definitely a problem I've seen with my peers. They go just because their parents expect it of them. I can't find the article (it was on HN maybe 6 months ago) that compared college majors in the mid 80's to 2011. While useful stuff like CS stayed relatively flat, the majors that skyrocketed were things like Liberal Arts. Those are the people making college expensive for all of us.
One real way to bring prices down would be to attend community college for 1-2 years. It's extremely cost effective, easily transferable, and designed for working adults so the schedules are often more flexible than traditional college.
While useful stuff like CS stayed relatively flat, the majors that skyrocketed were things like Liberal Arts.
Liberal arts degrees are also relatively flat, depending on how you want to count them: the major rise was in business, which accounts for about a quarter of U.S. undergrad degrees. Communications has also risen enormously.
(See Academically Adrift and Louis Menand's The Marketplace of Ideas for more details. Note that the former also finds that liberal arts majors actually make large, measurable improvements in learning over their first two years of college, while business majors, as a group, don't.)
Liberal arts education is both useful and costs relatively little compared to technical education. My history degree isn't making anyone's CS tuition rise.
Tuitions have been rising primarily because state governments have been reducing subsidies to higher education -- thanks to pressures elsewhere in the budget, like pension obligations. Generous federal loan policies and capital expenditures on non-essentials like swanky 'luxury dorms' haven't helped.
Maybe but the thing is that people you mention also go to expensive schools because of the prestige, not the learning part, so you wont be able to convince them of going to a community college.
The problem is that cars and housing are to a large degree unsubstitutable goods. When lobster became a delicacy instead of prison food, wardens weren't wondering how they could afford the newly expensive goods, they were substituting them for cheaper replacements.
> Young people and parents need to seriously consider forgoing college entirely
What a political football: As this gets worse, can you imagine everything politicians will have to argue about as regards "Getting our children back into college so they can remain competitive in the New Global Economy"? And would you want to be the only person at a podium questioning whether college is necessary after all?
It's not something you can legislate away, unfortunately. It requires a sea change in societal perceptions- apprenticeship programs need to come back and be viewed as just as worthy an alternative to going to university. (Germany is an example of a country that still values apprenticeships) Companies to need to offer more paid, meaningful internships need to be offered instead of unpaid menial makework. And whatever happening to IBM's traditional idea of training someone to become a programmer?
When I hear about the "New Global Economy," especially as it relates to discussions on schooling, I wonder: are we saying that the economy from now on is going to be more cutthroat, more demanding? When people say that I wonder why some seem to take as a given that life is going to be even harder than ever and we need education to help young people survive. The very assumption that one will need to be ever more skilled to get the same level of job is scary.
It's funny how most comments here are dancing around the issue trying to point out factual errors and counterexamples.
Bottom line: Young adults today have it way worse than their parents.
In most developed countries in the world. How should this issue be dealt with?
In my opinion you can't just call it bad luck, and tell people to deal with it and adapt.
Personally I think the biggest motivation of all is the sense of change for the better, and a future to look forward to. I simply can't accept that my generation got the bad future, and all the good future was used up by our parents.
Looking at my parents generation I think they lived pretty subservient lives, which were also quite stressful, with lots of stress related disease, heart attacks, blood pressure issues etc..
And if I work really hard and study, best case scenario is that I get the same jobs as my parents, only twice the workload and half the pay.
> best case scenario is that I get the same jobs as my parents, only twice the workload and half the pay
Unless you're way out of the target demographic for HN, this is preposterous. Even semi-competent programmers are way under-supplied; you can name your price, location, and working conditions.
Ok I'll name my working conditions: A work environment with peace and quiet to be able to concentrate. Have enough time to be able to deliver though-out quality work. Having reasonably specified tasks, and if not, have the decision power to fill in the blanks as I see fit. Not being constantly interrupted.
Not being under constant stress and pressure to the point where I feel that my health might be suffering.
From my experience these (common sense?) demands on working conditions would rule out pretty much most programming jobs.
Work conditions in tech have more to do with what those jobs are than economic conditions. Companies are desperate to fill positions and you see many going out of their way to create as low stress office environments as possible but after a certain point you just have to come to grips with that's just what the job is.
That said, low stress programming jobs do exist, but in my experience they tend to exist in companies you would not normally look at for programming jobs. Damn near every sizeable company has programmers but we tend to only look for jobs "in industry" at the Googles, Microsofts, Facebooks, etc. Think east coast, foundations of the company not in tech, non-glamorous. Basically the equivalent of your heart surgeon working in some sort of research instead of in a hospital on live patients.
Most surgeons spend the great majority of their time in a regular doctor's office or making the rounds in a hospital. I've worked for surgeons and have spent hundreds of hours in the operating room. Tense moments happen but on the whole keeping a busy webserver up and running is probably more stressful for the staff.
Fair enough, I was under the impression that surgeons had particularly stressful jobs. I'm sure there are plenty of other examples of inherently stressful jobs though. Maybe table waiting, depending on levels of business.
Stress in the workplace seems to be to be a function of responsibility and activity. Speaking from experiance, lifeguard jobs have very high responsibility but (you hope) very very low activity; meanwhile jobs like being a farmhand are high activity but usually very low responsibility. Both of these were the lowest stress jobs I've ever had. Stress seems to go up when both of those factors are up, jobs with neither activity nor responsibility probably don't really exist (or at least pay well).
Ok I'll go with that, let's say we're similar to or better off.
But just to be prepared, if it should turn out to be the other way around, or if this would happen in the future, what would you do if conditions suddenly are comparably a lot worse for non-established younger people?
How would you keep them motivated? Would you divide the economic hit equally? Start tearing up old rent controlled apartment leases? Lower pensions?
I think it's an interesting political and moral issue which seems not to have been considered.
If we are having economic problems and decide to raise the retirement age from 65 to 70 (as discussed in europe), should people who are 66 and just retired go back to work? Or should it only affect the younger people, and if so, why?
Actually, a lot of parents I know talk about how ridiculously expensive it is to put their kid through college/university and to help pay for housing when compared to when they were young.
Truthfully, a young adult shouldn't be buying a house anyway. Owning a home in a depressed market will increase the length of unemployment for a young adult. Since you cannot unload the home, you need to find a job within commute range of your home. This limits the job prospects.
We need to make renting or other alternatives more attractive.
I agree with you whole-heartedly. In your 20s, the best investment you can make is in your career. These days, that often means moving. Staying light on your feet and going for the best job for your career is more important than optimizing cashflow. A couple good experiences in the first 2-10 years of your career really can set you apart, especially when other people are floundering in this economy.
I generally agree with you, but I just want to point out that Toronto's housing market is anything but depressed right now. Houses are regularly selling for a few 100K above list price. See for instance http://fmlistings.tumblr.com/.
It has a chart of INFLATION-ADJUSTED median after-tax income in 2009 dollars, from 1976 to 2009. He then takes a figure for 1984 from this chart, around $48500, and proceeds to compare it to prices in 1984 dollars, without converting them to 2009 dollars.
So from a house price of 100k in 1984, he infers it was only 2x times median income then. While in fact, he needs to convert 100k in 2009 dollars and get around 200k and 4x times median income.
Not only that but his other example (cars) is ludicrous. Cars are by far, without a doubt, cheaper, safer, better made, more reliable, and more feature-laden than at any point, ever. For $12k (roughly 1/4 the median income), you can get a brand new, pretty decent car.
Also, just about everything else (save maybe gas) is much cheaper and more plentiful today than 30 years ago. The Russian athletes and dancers who came here to compete/perform in the 70's and 80's told many tales of being awed by common supermarkets. I think if you took Americans from the 80's and brought them to a Costco, they might not be awed, but they'd be pretty surprised.
Although he opens mentioning buying a car in 1986 what he actually says is that cars have pretty much matched the rate of inflation. Seems to me he is saying cars are about as good a deal today as they were back then. I do not find that ludicrous. The other point to be made about cars is that all those improvements do not really matter that much in terms of the value you are getting out of them, cars in the '80s got you from point A to point B just like a brand new one does today.
(To be completely off topic I would add that computerization in the modern cars has always been a concern for me, when a 2012 car's computer starts acting up in 2032 what are we going to do with them? I have a late-ninties highway tractor and every time I have a wiring problem with it I am pretty worried it will become more expensive to fix than it is worth despite being mechanically sound.)
>The other point to be made about cars is that all those improvements do not really matter that much in terms of the value you are getting out of them.
Cars today on average run much longer than cars did 30 years ago, the get better gas mileage on average, and go longer between scheduled maintenance. How is that not added value?
For one thing the better gas mileage is not much of an improvement from the mid-eighties, gas was much cheaper then ('78-'84 prices were high, inflation-adjusted still not as high as right now though except maybe in 1981). If you buy a new car and your issue is capital or cash-flow how long the car lasts will not be a significant factor in your purchase. Don't get me started on car maintenance! You can hardly touch a modern car anymore yourself, you pretty much have to pay someone to do anything. But I will concede that a modern car needs a lot less work.
> ... when a 2012 car's computer starts acting up in 2032 what are we going to do with them?
The same place you get a computer for a 1982 car: a salvage company. Whenever a car rusts out, gets totally wrecked, and so forth, the specialty parts are stripped and warehoused.
This is what is sad about it, are we now building cars that could last forever but their electronics will end up making them disposable? I hope not. Sending an otherwise good car to a wrecker because the little (and not very powerful) computer can not be replaced seems very inefficient. Is someone figuring out how to make commodity platforms for cars yet?
The electronics are generally very reliable. I have only had difficulty replacing electronics once, on a 1972 Mercedes, and that could have been worked around if the car had been worth saving.
Which is the real point. When a once-popular model becomes hard to repair, it is much more economical to buy a 10 year old used car than to keep the "antique" running. Driving a car older than you are is only for broke teenagers and rich hobbyists.
While that's definitely a blunder, if you look at the right figures (in the article: inflation-adjusted median income of $48,500 then and $60,000 now, and inflation-adjusted average house price of $154,587 then and $369,677 now), the average house price went from 3.2 times the median income to 6.2.
That's a lot, his point still stands, and there's no need to call him an idiot.
I think even if you ignore the question of whether the economy is fair, it should at least be quite clear that the younger generation will be poorer than the previous one.
I think part of this is that young adults have a harder time doing what our parents did at the same age.
When I was trying to rent my first post-college place with my girlfriend, my parents didn't think we would need a co-signer. They had gotten all their apartments, years ago, with a handshake and an understanding they had word. After they realized things had changed, they were happy to help, but it took a while.
I think there are many people, who are divorced from the experience of being a young adult, who think "kids today" aren't achieving like their parents did. They're right - we aren't living in the post-war prosperity - but I think young people are also achieving differently. Even if the things our parents did were the same price, how many of us would do them?
We should be burning the financial system to the ground... well maybe not literally but pretty damned close.
The despicable thing is that the insanely rising cost of education is just plain class warfare under a veil of financial hocus pocus and it takes aim at what I see as developed society's achilles heel. Education is the root of everything that underpins our current and future society. You kill that and you are tinkering with killing just about everything of social value in X years. Look at any country that has a weak education system and the correlation is extremely clear.
Our current education system is/was a very very good one that now is largely unaffordable and increasingly inaccessible. Complaints about the impractical value of certain degrees has merit but on the whole the US education system has provided an environment that has fostered a class that by enlarge has been one of the most creative, productive, and compassionate of this past century.
I really fear that our current trajectory in the opportunities for one to receive rich educational experiences is going to inevitably lead to our society being stagnant at best.
The financial system has tons of problems, but it's a hell of a lot better and more democratic than a world where there is no avenue for the wealthy and the middle-class to share in ventures. You and I and our neighbors can buy stocks in big companies and earn returns to save for retirement; we can (at our discretion) have rich jerks fund our little startup and launch businesses we couldn't otherwise. We can borrow money to buy a house, and enjoy the stability and independence that such a purchase provides for the next couple of decades while we pay it off, instead of saving up while we're renting and enjoying none of that.
But of course no one who's been through an introductory economics course should be surprised that subsidizing the purchasers of a good or service (like education) makes the price rise. :)
What you describe is also my definition of a healthy financial system but IMHO we are increasingly moving away from that description and I think the fact that socio-economic mobility has been decreasing in the US somewhat verifies this.
Just about everyone can "share" in economic growth in the US. That is positive. But the problem is that the financial vehicles accessible to most are increasingly weighted to capture less of the percentage of capital gains.
But other comments reflected a view that today’s young adults should just grow up.
Hmmmm. Bullshit alert going off.
Every generation needs to come of age, get their education, look around in the world, and fit in. Many times this involves a lot of protesting and asking for change, complaining about the way things currently are, and experimenting with various alternative lifestyles. This is good for everybody.
What some observers see -- probably because of the way the press reports it -- is a lot of kids who are ass-deep in debt, lack the education (even though they've graduated from a nice college) to be employable, and instead of adapting to the world as they see it, are stuck in a mode of complaining and waiting around until something comes their way. This is by no means all of them, but kids like that make for a good newspaper story: "Still living in his parent's basement at 35, Joe Smith emails out 100 resumes per day before going to the Starbucks and playing MMORPGs all day. 'I'm just not sure where the management jobs are,' the Art History major says...."
To a story like that, sure, people will say something like "perhaps instead of insisting the world conform to your ideas, you should learn to like the world as it is and adapt. Many have found that this leads to a happier life." or the shorter form, "grow the hell up, kid!"
People who offer this advice are not trying to be callous, cruel, or insensitive to the plight of the young. Nobody is saying to give up on your dreams. It's just that big goals like being an astronaut often begin with flipping burgers down at the Mickey D's, even for people with 4-year degrees.
Like I said, I blame the press for setting up this "fight". If you ask me, most college grads already have this figured out.
You seem to be railing against a straw man - the article is not your typical sob story about people who have degrees and can't find jobs.
In fact, the author at no point in the article brings up anyone who fits that mold: degreed but can't find a job.
Can we, like, talk about the topic of the article instead of making up straw men (like your fictional Art History major) to attack? It does no good except to stroke the already massive egos of everyone here.
What the article does actually talk about is that, for a range of things such as housing and education, the cost has far, far outpaced inflation (or income growth), and is considerably harder to afford for this generation than the last, and presents numeric evidence of this.
This is about the fact that, as a relation to income, college has become much more expensive, to the point where loans are unavoidable, where they could be realistically worked off before with part-time jobs. To be fair, Canadians still have vastly more affordable tuition than most Americans.
This is about the fact that, beyond college, home ownership is a pipe dream - housing prices as a multiple of income has jumped from 1.6 up through to a national average of 6. For major Canadian cities, the multiple drifts up to 8-9.
This is about stagnant wages in the face of rapidly rising everything.
So even for our fictional Hacker News hero - the one who got a "useful" degree, the one who has figured out the job market, the one that freely scoffs in the face of pathetic liberal arts Untermensch, even he faces slim to nil odds of ever owning a home, massive debt out of college, etc etc. Growing the hell up doesn't seem to help his case.
Flipping burgers at McDonalds is a good way to get your foot in the door if you work at it. Shift managers can make $50-75k, and location managers frequently top $100k. Given the high rates of turnover, such positions can be earned in 2-3 years (for college graduates).
Moreover, McDonalds has an extremely generous education assistance program, including full-ride scholarships to business schools for employees who qualify for its executive training program. A high percentage of McDonald's executives are promoted from within. And like Dominos, a vast majority of McDonald's franchises (which clear >$1 million/year, on average) are owned by former employees. (Don't remember what the % is for McDs, but for Dominos, their pizza box claims >95% of their franchises are owned by former employees.)
When I worked at Hardees (mid-90s, but inflation hasn't been so high since then), I happened to see my shift manager's paycheck. She was making like $20k/year.
Perhaps shift managers can make $50-75k, but I'd be surprised if it's common. If you have a reference that shows otherwise, I would be very curious to see it.
I did specify "McDonalds" for a reason. McDonalds has always had great employee relations. In-n-out is even better than McD's in this regard, but the total opportunity for growth is limited because of the smaller footprint.
Hardees (Carl's Junior in the west) is almost the polar opposite of McDonalds. Its founder was a vocal opponent of labor laws, and for a while in the 1990s was one of the principal financial backers of the effort to repeal the minimum wage and overtime laws.
I know/knew shift managers in the Los Angeles area (Downtown, South Central, Beverly Hills/Century City/Westwood, and West LA), Oakland/Berkely, Cleveland/East Cleveland, and Atlanta.
They make good money, especially considering that many of them never went to college and some did not finish high school. A lot of them have been promoted into restaurant or regional manager positions.
Salaries at the managerial level start of lockstep but quickly become merit-based, that is, in order to earn substantially more than a standard employee, they must prove that they are substantially higher performing than a standard employee (in the managerial sense, not on an hours basis). A good manager is like a multiplier on his/her employees' work output, so the salaries for managers generally reflect the multiplier they generate.
It's just that big goals like being an astronaut often begin with flipping burgers down at the Mickey D's, even for people with 4-year degrees.
Interesting sentence. Flipping burgers will not lead a person toward becoming an astronaut. Studying science and engineering will. The career problem is that a lot of people don't have good information regarding which entry level jobs are like flipping burgers and which are like learning science.
The ones who live with their parents because they can't get management jobs are probably having far too many false negatives (or just attempting to excuse laziness) and thereby overlooking jobs that will lead to where they want to be. But there are people who got caught by false positives and end up in dead end jobs.
People want to talk about investment bubbles or the national debt, but here's a topic I don't see enough of: by subsidizing investment in college education for everyone without some feedback loop to make sure grads have employable skills, we've created a huge debt burden of people owing college loans for skills the marketplace isn't valuing. And it's just getting worse. And to "fix it", just like the way we fix all these other bad policies like taxes, we'll just tighten the screws on some minority of the population that people will accept.
Quite frankly I'm disgusted at the whole thing, and I blame both political parties for it. The young are getting screwed over royally by previous generations who knew economics but failed to apply it in their policy decisions. You can't pay for something for somebody else without a very detailed and tight feedback loop. You'll only end up driving up prices and getting less value.
But to your direct point: I can't play the hypothetical game here. It has no end. I'll propose a counter-argument and you'll shoot that down, and on we go ad infinitum. My point was that it is critical to view yourself as adapting to the market, wherever that is, not the other way around. If you sit in your figurative parent's basement waiting for that management job, it's not only bad for you it's also bad for the rest of us. You have to accept your role is adaptation, and the even more bitter truth that you might have spent four years gaining nothing but a bad attitude and a boat load of debt. Blech. Not a good place to start. But for some, that's the reality of where they are.
You have to make decisions and baby steps toward adaptation. What those decisions are and what those steps are is going to vary from person to person.
ADD: Note that this is the very definition of a startup. Go find something people want and give it to them. Adapt and pivot based on what the market wants, not what you want (or have been trained) to do.
Although I agree with most of what you are saying, I disagree that most grads are capable of using a startup mentality to adapt themselves to the market.
In fact I would go as far as saying our public schools and universities actively discourage independent thinking and creativity. When we graduate, we are thrown into a world that we aren't prepared for. We have been prepared to memorize facts and follow routine, now everything is the complete opposite of that?
Even assuming I'm wrong and most graduates can adapt to life after graduation, it still takes a while to mentally pivot. Six months is not long in the scheme of things, but when it happens to lots of graduates, articles like this start to pop up; occupy movements start to pop up; etc.
They are providing low interest loans for people who wouldn't otherwise qualify. The extra risk that the government takes on (that private banks otherwise wouldn't) is the subsidy.
Basically they are making money available that wouldn't be there without government intervention.
Not to mention that they are directly subsidizing the interest in many cases.
Except the government doesn't guarantee that they'll pay it off; they're just forcing it onto the student.
To put it differently, if the government announced that failed startups could not discharge their debt through bankruptcy and that the founders would be held responsible for paying off the debts, would you call this government subsidization of small business?
Yes, it would encourage banks to start lending because they have you for the rest of your life to force you to pay. Those kids get loans they couldn't otherwise get because banks know they have them by the balls.
Maybe you wouldn't, but many people would. The government is encouraging behavior with law and giving the banks something that drastically lowers the risk of lending; that something is guaranteed access to a persons future earnings. I call that a subsidy, even if it's not a direct cash payment.
Yes, they do. Just as Fannie Mae and Freddie Mac guaranteed "qualifying" loans the government guarantees some portion of student loans, e.g. Stafford loans, through Sallie Mae.
Ok, I got downvotes instead of clarifications to my question about the market share of the govt. in student loans. :(
It appears that the direct and indirect (i.e., backed by the govt.) loans by the federal govt. account for 80% of the market.
So yes, the relaxed standards for govt. backed loans is keeping college costs high. And the word 'subsidy' can be reasonably applied to the current situation.
The most obvious answer would be to talk about Federal Subsidized Student Loans (like the Stafford). Additionally though, while not a subsidy, per se, there's also the fact that when you take out a student loan, you typically don't make any payments until six months after you stop being a full time student. This feels a lot like a subsidy.
If you actually want to be an astronaut and to pay off your student debt, your best bet is to join the US Navy or the US Air Force, and become a fighter pilot who is also a technical and scientific genius.
They will, however, start you off on doing things which are far more demeaning, gruelling and uncomfortable than merely flipping burgers, before you ever get to fly a goddamn fighter jet or a spaceship.
Flipping burgers isn't a particularly good pathway to anything, but all the good pathways to anywhere start off just as shite.
You're missing the point by focusing too closely on a specific, unrealistic example.
The point is that flipping burgers can't be a path to anywhere because once you graduate college, your debt load is so high that a minimum-wage job can't possibly help you pay it down. Especially if you need to live on that wage, too.
Getting a government job (including something in the Navy or Air Force) is a different matter entirely, due to massive amounts of tax money being poured into the military (which implies massive amounts of tax money not being poured into anything else). It is a world unto itself.
Flipping burgers can be a damn good pathway to an executive position in the fast food industry, as long as you actually put the effort into it. Turnover is high in the fast food industry, so promotions are rapid. College graduates who stick it out are frequently offered full-ride scholarships to business school on the company's dime, with managerial and executive-level positions (in either cases paying >$100,000) afterwards.
From a career perspective, starting your career by flipping burgers at McDonalds can yield greater dividends (in the long-term) than being a programmer.
Good to know folks aren't afraid to be contrarians around here.
There are a few programmers who have become managers and executives too of course. But yes there are executives who would sooner bring in a graduate of Hamburger U than promote talented technical people.
Cars are a bargain relatively. An example low end of the Mercedes line in 85 was a 190E about 30k. That's $58k in today's dollars. Current low end is MB C-Class MSRP about 34,800 (so you are probably talking a few thousand more with options but less a discount brings you back to that amount approx.).
Similar tone to an excellent article about last year's hockey riots in Vancouver from an angle most of the media did not take. It's by no means an excuse, but I agree most of the troublemakers were youth from the suburbs disenchanted by many of the same economic reasons:
"What does the future look like for the average 20 year old? It's a depressing, empty place where they can't get decent-paying (let alone secure) jobs or ever have a hope of owning property."
http://www.straight.com/article-399635/vancouver/vancouver-h...
He's picking on a couple of numbers: cost of education and cost of housing.
Both have outpaced inflation. Canada's had the same commodities boom as Australia, Chile and Russia. Housing bubble obviously hadn't hit. yet. ( I hear they balance their budget and don't give away tax deductions for going into debt so maybe they won't have as bad a one).
Other obvious question is : have houses improved over almost 30 years making the question of average priced house then vs average prices house now a bit cloudy.
$6000 for tuition??? Not a bad deal. Canadian government must be subsidizing it. Maybe it was higher subsidies back then.
Bottom line cherry picking your comparisons are hard.
I hear the argument about how products have improved over time and how that justifies their increased price and I don't buy it. It makes sense if people still have the option of buying the 1980s house in which case purchasing a 2012 house would be an expensive luxury. But people can't get the 1980s house for the 1980s price so we must conclude that housing prices have inflated.
But... but... today's young adults have the Internet!
I'm being slightly facetious, but technological advance has gotta count for something, right? (ex. new cars may be expensive, but is it easier to find used cars these days with Craigslist, etc?)
If you look at the numbers as percentage of income instead of dollars then we can see the percentage of income that an item costs go up if the item has advanced (ie better cars, better refrigerators, better houses). If the percentage of income for one item goes up it must go down for another. Since no technologies get worse over time which expenditure is suppose to become less of a percentage of income over time?
the author highlights the higher interest rate, but neglects to give a mortgage payment as a percentage of monthly income. current rates are as sometimes a third of what they were in the 80s.
Article rather specific to the Canadian big cities, in which prices are currently rather high. Some of this house price growth is transient, some is permanent.
How much does land cost? In a place like Toronto or Vancouver, it costs as much as it possibly can. That is to say, since desirable land in these cities is so much more desirable than undesirable land, people will pay as much as they can possibly afford in order to get a good piece of land rather than a lousy one.
What this means in practice for most people is: take all the money you're ever likely to earn, deduct the money you need to spend on other stuff, and what's left over is the amount of money you're going to wind up spending on a house. Sure, you can spend less if you want, but you're going to wind up living in a much worse place, and since (as I just said) the desirable places are much more desirable than the undesirable places, people are willing to give up, say, a fancier car, for the benefit of living in The Beaches rather than Outer Missisauga.
The good news is that things don't actually get worse for people just because they have to engage in this cut-throat competition for desirable land. Like I said, house prices merely soak up all the money that's left over once the necessities are paid for, and if house prices go up considerably in real terms it just means that the prices of necessities have, in real terms, dropped.
There is an obvious solution to the housing problem, which is to fix transportation and take pressure off the market. There's one reason urban housing is so expensive, and it's this: commuting sucks, and finding parking is horrible, and people will pay immense amounts of money not to deal with that shit. Obvious simple and right solution: tax the hell out of the landlords and the very rich, and build the best public transit system the world has seen.
Someone should do a comparison of the number of landlords per capita today versus back in 1984 and a comparison of the number of people who own a second home or own real estate investments.
I would speculate that society has by and large re-organized in a way that permits older generation to extract greater rents from younger generations beyond just social security.
It's probably possible to write an entire Phd thesis on the myriad ways in which the baby boomers and to some degree older Gen Xers extract rent from younger Gen Xers, GenY and millenials.
The world would be a much better placed if the most highly taxed form of income was rent profits in all its forms. Non-productive income is responsible for perpetuating a lot of income disparity.
If any government really wants to promote sustainable home ownership for all their citizens, they'd make homes a financial deadweight for people that aren't fully utilizing the home themselves. This would do more to make homes affordable for those that will actually live in them. Homes need to stop being seen as an investment and need to be seen as a utility. Whenever a utility is perceived as an investment you often seen market manipulation phenomena like the ones that contributed to the California Electricity Crisis of 2001.