Wages of Stagnation

www.townhall.com ^ | Tuesday, September 26, 2006 | By Bruce Bartlett

[doc30]

Long term interest rates have been falling for five months and are still at historically low levels. The cost of housing takes a smaller chunk of our budget today than it did a generation ago.

Compared to incomes, housing prices are outrageous. They are only affordable through exotic, interest only loans. Property appreciation of 30% per year is not an indication of low cost of housing. It has gotten to the point where people can't move. If they move, their wages haven't kept up with rising house prices so they can't afford a new place, even with the equity they have in their current home. Of you are a 1st time buyer, you will have a very hard time.

Is that why our household net worth is at record levels and has almost doubled during the last ten years?

That's net worth on paper only and has home equity as the biggest driver. Increasing home values is not a wealth producing industry. Manufacturing and adding value to products is where wealth is created.

[.cnI redruM]

>>>Manufacturing and adding value to products is where wealth is created.

So a product like software has no intrinsic value? Why is intellectual property valued at all, if only manufacturing adds value?

[Mase]

Compared to incomes, housing prices are outrageous.

I realize that's a popular sentiment but feeling don't help much when trying to understand what's really going on out there.

Expat-Panama has already crunched the numbers and made the comparison. Given that our homes and incomes are larger today, it's clear that homes are more affordable now than they were in 1978.

Originally posted with back up here.

Even the libs at the NY Times had to report the truth on this issue.

Twenty Years Later, Buying a House Is Less of a Bite

From the article:

"Despite a widespread sense that real estate has never been more expensive, families in the vast majority of the country can still buy a house for a smaller share of their income than they could have a generation ago.

Nationwide, a family earning the median income - the exact middle of all incomes - would have to spend 22 percent of its pretax pay this year on mortgage payments to buy the median-priced house, according to an analysis by Moody's Economy.com, a research company.

The share has increased since 1998, when it hit a low of 17 percent before house prices began rising sharply in many places. Although the overall level has reached its highest point since 1989, it remains well below the levels of the early 1980's, when it topped 30 percent."

They are only affordable through exotic, interest only loans.

More feelings. The fact is that 80% of all mortgages are fixed rate mortgages.

Property appreciation of 30% per year is not an indication of low cost of housing.

Where did anyone make that claim?

It has gotten to the point where people can't move.

Nobody's moving?

If they move, their wages haven't kept up with rising house prices so they can't afford a new place, even with the equity they have in their current home

So, if I keep my same job and move from my expensive house in Florida to a small town in South Carolina I won't be able to afford another home and my wages will drop?

Of you are a 1st time buyer, you will have a very hard time.

Is that why home ownership is at an all time high?

That's net worth on paper only and has home equity as the biggest driver.

Oh, really? Have you ever seen the Fed's Flow of Funds report? If you had you'd know that homeowner equity only accounts for about 21% of our total household net worth. We own a lot of liquid assets.

Flow of Funds (page 110)

Increasing home values is not a wealth producing industry.

All that demand for housing hasn't created any wealth? All that money I made owning builder stocks from 2001-2005 was imaginary? The equity I banked when I sold a home in 2003 didn't really help me accumulate wealth?

Manufacturing and adding value to products is where wealth is created.

The service industry creates no wealth? Do you have a source you can link us to that proves this bizarre claim?

[B-Chan]

There is no simple explanation for worker passivity in the face of income stagnation... [a] possibility is that workers have been so beaten down by layoffs and give-backs in recent years that they are just grateful to have jobs at all.

This is the correct answer.

[1rudeboy]

I'm not buying it. If people are truly afraid of losing their jobs, then our unemployment rate would be higher as a reflection. If people are choosing to stay at their jobs for the benefits, then what's the revelation? That people take all forms of compensation into account when making economic choices? Hardly a revolutionary concept.

[1rudeboy]

Now, now, Mase. You should instinctively understand that pushing a broom at the dipstick factory is preferable to, say, writing software.

[oceanview]

except the Indians and Chinese are getting those jobs now. US job growth is in services and government, health care, education, etc.

the christian science monitor just did a story talking about how, given the current environment of jobs being created, the US send TOO MANY people to college these days. and its true, I've been talking about that for years. you don't need college to hold most of the jobs the US economy is creating - we are becoming a nation of college educated retail sales clerks, food service workers, government workers, etc.

so tell me again how "knowledge jobs are our future", if the general consensus is that college isn't worth it for an increasing number of young americans?

of course, the BLS would never compile or release these statistics - but I would love to see the rate of "underemployment" amongst college degreed persons - how many of them actually find employment in the field for which they received a degree? I'd bet you that number is far higher than the "4.7% unemployment" rate.

[1rudeboy]

I don't see how you can speak of statistics when you provide nothing but emotional speculation on your part.

[oceanview]

your trend #2 is changing now - more and more, I see households with more then two wage earners. extended families are making a comeback, because it takes 3,4,5 workers in the service industries to make ends meet. I see the new families moving into long island - forget two working parents, that was already the norm years ago. now its working parents, plus an adult child that works, a sister/aunt or brother/uncle in the household, a grandparent bringing in social security or pension money.

sure, there is a "bubble" out there of americans entering retirement now, who worked when wages and pensions were "fat" in the US, and those well heeled seniors are living it up. but right behind them, we have a demographic time bomb headed towards retirement. a time bomb of corporate workers who are seeing pension and retirement benefits stripped away by US corporations at an alarming rate (I am one of them), and who are not going to have anywhere near the retirement experience of americans who are current 60+ years of age. I'll be lucky to avoid working at McDonalds in my "golden years" at the rate I'm going.

[oceanview]

well first off, I'm living through part of this - so I see it everyday on the job, or when I meet my former tech co-workers who are now at Lowes. so you won't be able to convince me that the reality I see everyday - isn't really happening.

are you saying the christian science monitor article is totally unsourced:

http://www.csmonitor.com/2006/0925/p09s01-coop.html

"In reality, although we may have entered the so-called "knowledge economy," the true backbone of the economy will continue to consist of low- and medium-skilled jobs. Take a look at the Bureau of Labor Statistics's 10 fastest growing occupations between 2004 and 2014, and you'll find that six of the 10 professions do not require a four-year degree, and four of these call for no academic degree at all."

"We currently find many college graduates employed as waiters, cashiers, healthcare aides, and in other jobs that don't require any special background. Expanding college access will just mean more young people with college debts doing low-paid work."

I've been saying this stuff for years.

[1rudeboy]

Your Christian Science opinion piece concerns placing students in college who do not belong there in the first place. As for your personal experience, without you divulging the whole "mess," then there's little anyone can do to help you on this website.

That's the problem with discussions like these: we can talk all day about how to make things easier for everyone, until someone shows up and asks how will we make them easier for you.

[B-Chan]

I never said it was. What I said is that most low-skilled workers are people who live paycheck to paycheck and who do not receive regular wage increases. These workers are extremely reluctant to agitate for more money out of fear of being fired and replaced by a lower-paid foreign worker (legal or illegal). Thus they live in fear of watching their children go without.

The real irony is that nine times out ten it is bad management that leads a company to financial disaster, not bad labor. In most cases, a failed business gets run into the ground by its owners and managers, not its workers; after all, who makes the decisions that lead to success or failure? MANAGEMENT, that's who. And when the business falls down, the same owners and managers who crashed the company float safely to Earth on their golden parachutes; meanwhile, the poor saps who trusted the geniuses with the big salaries to keep the business solvent end up on the street.

I believe it is immoral to cause a human being to live in fear when an alternative exists. The alternative is to treat employees as human BEINGS, not human RESOURCES. Our family business employs many low-skilled people, and, although they grouse a good deal about conditions (as do all workers everywhere), its workers are in general extremely loyal, responsible, and honest. Those who complain are very careful not to let things get out of hand out of fear of easy replacement, but as a matter of fact our folks have never fired anyone who was doing the job they were being paid to do no matter how disrespectful, snippy, loudmouthed, or ungrateful they have been. Our family business pays for good work, not good attitude. Too bad more businessses don't follow that policy!

Of course, unlike most capitalist enterprises, our family business pays its workers the maximum wage which it can afford while remaining solvent, which is why it has such loyal employees. Those of our family who own and/or manage the company make significantly less per year than others in similar positions in the industry, but the simple fact is that our folks don't care. We all do all right and none of us has ever missed a meal bcause the family biz pays its workers a few bucks more than the competition does. The workers at the company see how frugally our folks live and it motivates them to work hard for them and with them; they know our folks don't consider them to be cattle, and they reciprocate by giving the company their best.

(I might also mention that a good many of the employees of our family business are ex-cons, homeless people, elderly poor folk, and others who are considered unemployable "damaged goods" by other so-called Christian businesspeople. Well, our folks do not profess to be good Christians, but to them even ex-cons, biker mamas, and grouchy old farts are human beings who deserve to be treated with respect as workers.)

I'd like to also point out that employee theft and laziness at our folks' business is nearly nonexistent. Bosses and owners who penny-pinch their workers are the ones with the worst employee theft/sabotage/work ethic problems; frankly, I am more sympathetic to employees who steal from miserly bosses than I am to their employers, and I say that as a member of a business-owning family. If rooting for Bob Cratchit over Ebenezer Scrooge makes me a communist, then long live the revolution. If preferring the barely-solvent but human Bailey Building & Loan to the highly-profitable but monstrous Potter's Bank makes me a softy, then that's fine, too.

Market forces must be acknowledged, of course, but when it comes to matters of basic human dignity there are concerns that transcend the market. Human beings are not "human resources" and must never be treated as mere disposable cogs in an owner's money-making machine. The moral businessperson does not allow his or her employyes to suffer in fear of suddenly bekng thrown onto the streets; instead, he pays his or her workers as much as he or she can afford, not as little as the law lets one get away with, and is genuinely concerned about their employees as people. An moral employer is attentive to the needs, problems, and complaints of his or her workers, and is loathe to fire anyone except for in the most grevious of circumstances. I am proud to say our folks are moral employers, and I say that as one who has spent a good deal of time working for them myself (at the lowest wage level, I might add!) Immoral businesspersons who treat their people like robots, pay them as little as they can get away with, and fire them at the drop of a hat deserve every bit of hell they get in return.

I'm not trying to brag here. I have nothing to do with the running of our family business; in fact, my own career is in an entirely different field. But over the years I have worked for our folks in every capacity, from shit-shoveler to management, and I am very proud of them and the way they run their business. They'll never get rich doing it, but getting rich wasn't their goal when they started the company — making a living was. This they have done, and done admirably.

Sorry to rant at you; this topic is a pet peeve of mine.

"Non ligabis os bovis terentis in area fruges tuas" - Deuteronomy 25:4

[lucysmom]

How does a cut in the marginal tax rate expose one to the AMT?

Because the AMT requires that the higher of the two tax amounts is the one owed. Therefore if the tax cuts lower overall tax owed, the taxpayer gets bumped into the higher, AMT rate.

[oceanview]

its still a general comment on the macro phenomena of matching educational abilities to the jobs available. it wasn't long ago, that we heard screams about how we weren't turning out enough college grads to fill what was projected to be our booming "knowledge economy" jobs base. those voices are silent now. this CSM piece was the first I've seen where someone realizes that, and realizes that the equation has flipped 180 degrees in the other direction.

hopefully, the students and their parents who are paying the bills for our inflated higher education system in this country, will also wake up.

[Fan of Fiat]

I don't care what your government pushed statistics say. All I know is that my wife's brother's mother bought a home for $200K using a option ARM at 1%. The loan reset and her payment increased $12,000 per month, and she can't sell becuase her loan balance is now $2 million but her house is now only worth $50K and she's going to lose her job at Macy's because Wal-Mart came to town and hired a bunch of illegal's and undercut prices by only buying chinese products plus gas prices are so high that she can't drive to any job interviews. The Republican's are going to pay this November.

Do I really need to add a sarcasm tag?

Thanks for adding some facts to the emotional drivel spouted too often on FR.

[oceanview]

the general concept of the AMT - is a good one. you can argue that the scale has fallen too low, and that "normal" people have fallen into its grip. But in general, if someone wants to buy a $1 million dollar summer home with a huge mortgage, and reduce their tax payments accordingly, someone else is making up that difference. so there does need to be a cap on deductability. if you earn X dollars, there has to be some minimum amount of tax you pay on it, regardless of whether you can structure your debt and asset base to avoid it through deductions.

no one likes to pay taxes, but someone has to. the idea that a regular W2 wage earner gets shouldered with the full share, while others can structure themselves to avoid that, is what the AMT was designed to balance.

[1rudeboy]

[1rudeboy]

No. Are they itemizing? Are they flooding that "excess" cash into offshore accounts? What?

[oceanview]

those numbers don't mean much unless you also take into account the # of positions available.

Hey, why don't you add NBA stars to that list, I am sure their median salary will be at the top of the list. why doesn't everyone try to be an NBA star then?

a crude analogy perhaps, but it illustates the point that the salary number alone means nothing without considering the availability of jobs. we both know the answer as to why everyone doesn't aspire to be NBA stars - the money may look good, but only 100 jobs are available.

[El Cid]

I think it is also disingenuous to make the comparison to wages from 7 years ago -- at the peak of the dot-com Potemkin Village economy. Many people were overpaid at jobs that didn't really deserve to exist. We went through a very painful several year correction. The last few years have been good, which is why most workers are (or should be) content with the current economy. Trying to talk-down the current economy by comparing current wages to the peak of the dot-com era is just number juggling with the intent to mislead.