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Ask HN: What is really wrong with the US economy, really?

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Re: Ask HN: What is really wrong with the US economy, really?

#21
My question is, what is the problem, really

Take a look at Matt Yglesias's The Rent Is Too Damn High (http://www.amazon.com/dp/B0078XGJXO); many "fun" municipalities like Seattle have restricted development to the point that housing is extremely expensive. If you move from Seattle to, say, Houston or Dallas, you'll probably see your effective rent shrink by 35 – 50%.

Secondly: see Tyler Cowen's books The Great Stagnation and Average is Over. Those books are too sophisticated and deep (though they're quite readable) to summarize here, but the shortish version is that Western economies are undergoing a lot of profound shifts driven by a combination of technology and Baumol's cost disease.

in the last couple years have been rent, medical, and dental in that order

Alex Tabarrok's Launching the Innovation Renaissance is also good: regarding medicine and dentistry, part of the issue is Baumol's Cost Disease and part of it is the powerful lobbies that restrict entry into those fields through licensing regimes and other means.

Finally, a general note: be wary of any answers in this thread that don't cite any sources and ideally those sources should be books. The issue is too complex for simple answers, and the simple answers that one tends to hear also tend to be wrong or missing a lot of important information.

Re: Ask HN: What is really wrong with the US economy, really?

#22
Three major issues I see

(1) People aren't saving enough [1].

For the past 50 years, Americans have come to expect their employers and/or government will finance their retirement, healthcare, unemployment, and other major dislocations, so personal savings became something one did with windfalls, but not on a regular, life-or-death basis. (My grandparents are fond of tellling me that in their childhood, people were "poor as church mice" before Social Security)

But these commitments are being tested as people are living longer, massive healthcare inflation is occurring, and the birth rate is falling, causing the ratio of wage-generating members of the US economy to constitute a shrinking portion of the population relative to retirees.

This also creates a problem because financial gains drive pensions, and absent capital accumulation, "normal" people (pensioners) can't participate in the upside of higher corporate profits and/or interest rates.

(2) Wages are stagnating. I don't know why this is happening, but suspect it's due in large part to globalization, in particular, better communication technologies being used to substitute cheaper labor for what was previously only available locally.

The decline of labor unions might be a good thing for owners, but it's unquestionably bad for wage-earners.

Also, more and more jobs are getting automated as technology gets better and better, which reduces the demand for unskilled labor.

(3) Major across-the-board inflation. Healthcare, fuel prices (which directly affect the cost of driving, flying, shipping, food production, pretty much everything), education costs, higher tax rates (Cook county, IL, where I grew up, has over 10% sales tax, a 5% state income tax, plus federal taxes -- not inflation as such, but it does have a big effect on depleting purchasing power), food -- EVERYTHING is costing more. "Six figure" incomes just aren't what they used to be.

I think the combination of no pensions + higher healthcare costs + more taxes (largely to fund government-sponsored retirement funds, not provide broad-based services like education/public works) + inflation is making 120k feel like 80k or less, it's just not that visible because in nominal terms, wages aren't going down.

[1] http://research.stlouisfed.org/publications/review/07/11/Gui...

Re: Ask HN: What is really wrong with the US economy, really?

#24
post #19

If you don't mind my asking, how far would you say that $110,000 has gotten you in Seattle?

I'd say effectively nowhere. My lifestyle is literally identical to what it was 15 years ago when I was just starting out. It honestly feels like the goalposts keep moving. I am doing better than my parents, who were poor. I am doing worse than my grandparents, who had 8th grade educations.

How is that?

Again, I don't really mean to press you too far with the questions, I'm just a young guy who hears $110,000 and thinks "gee, that's a lot of money".

Re: Ask HN: What is really wrong with the US economy, really?

#25
post #23

Where is all your money going? Living in a studio apartment making $110k, you should be able to save thousands of dollars a month. Sounds like a budgeting problem.

He says: "I live in a studio apartment near Seattle. ... My biggest expenses in the last couple years have been rent, medical, and dental in that order."

Medical and dental can be really pricy. So can big city rents. Last I checked, an SRO in San Francisco was $1000/mo or more. Most areas, higher average income correlates quite closely to higher local living expenses.

So I wouldn't be so quick to judge.

Re: Ask HN: What is really wrong with the US economy, really?

#26

Well, things have changed since our grandparent's generation. A college degree used to be a guaranteed ticket to a decent job, and even many blue collar jobs were much better paying and less abusive. Now being 30 years old and living with your parents is not that odd. Now, debt, unemployment and inflation are soaring (if you want to see how bad it really is, visit cities like Detroit or the non-wealthy areas of Chica…

Defense is a decent-sized portion of government spending, but entitlement spending (especially when you consider state budgets) is much larger.

If you would like to see the government spend money more wisely, focusing on making entitlement costs tractable should be the top priority.

That's not to say that government contracting isn't grossly dysfunctional.

Re: Ask HN: What is really wrong with the US economy, really?

#27
post #18

As Beached says [1], this is all about your attitude, and how you're choosing to live in the world. Remember, you live in the consumption capital of the world. More than ever, you're being bombarded from all sides at all times with ingenious advertising designed for the sole purpose of separating you from your money. Even your friends, family and colleagues are constantly encouraging you to spend more and more, even…

@grecy, do you follow Mr. Money Mustache? He is all about cutting costs in ways I'd have never thought of. His goal was to retire early, but it could be anything. This requires quite a bit of "badassitude" as he would say.

http://www.mrmoneymustache.com/

I'd also agree that taking some time off is very helpful. I took 1 year off to do some volunteering. It taught me to live a simpler life and respect for the dollar (when your income is 0 you make it work the way you can).

Re: Ask HN: What is really wrong with the US economy, really?

#28
post #18

As Beached says [1], this is all about your attitude, and how you're choosing to live in the world. Remember, you live in the consumption capital of the world. More than ever, you're being bombarded from all sides at all times with ingenious advertising designed for the sole purpose of separating you from your money. Even your friends, family and colleagues are constantly encouraging you to spend more and more, even…

I love your message here, though it's amusing that you recommend buying something as the cure to buying too much.

Another interesting data point to support taking some time off is the increased security of students who have taken "gap years" before starting college. In my experience they're almost all much happier, more thoughtful people pursuing what they'd really like to do in life rather than your average college student who's there because his parents told him to be (like me and most of my peers in college).

Re: Ask HN: What is really wrong with the US economy, really?

#29
post #18

As Beached says [1], this is all about your attitude, and how you're choosing to live in the world. Remember, you live in the consumption capital of the world. More than ever, you're being bombarded from all sides at all times with ingenious advertising designed for the sole purpose of separating you from your money. Even your friends, family and colleagues are constantly encouraging you to spend more and more, even…

OP said he's not looking for advice and thinks his situation isn't utterly terrible. His description sounds fairly frugal. Are you suggesting that he stop spending a single cent on discretionary things and just live on rice and beans?

Saying his problem is living in Seattle misses the point. Many people can't afford to move someplace cheaper even if they wanted to, which is a real problem - he can afford to move, probably, but other people cannot, and he's asking about problems like that.

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