An Idiot's Guide to Inequality • Hacker News Board

Re: An Idiot's Guide to Inequality

#41

Post by saticmotion » Sat, Jul 26, 2014, 12:07 PM UTC

Another fact, that recently struck me, also seems to make inequality larger. I'm not quite sure how to put it into words, but I'll try.

If we take an average middle class family and a rich family. Both want to build or buy a house. Let's suppose the houses they want cost the same, e.g. $200.000. The rich family pays $200.000 and is done. The middle class family however, will have to take a loan of, let's say, 20 years at 4%. This family will eventually pay almost $300.000 for that same house.

So because the rich family can buy things without loaning, they actually pay less. This might seem obvious to some, or most of you, but it still strikes me as "unfair" (though it's perfectly fair that you pay interest on a loan).

Re: An Idiot's Guide to Inequality

#42

Post by jeremysmyth » Sat, Jul 26, 2014, 12:57 PM UTC

saticmotion wrote: post #41

Another fact, that recently struck me, also seems to make inequality larger. I'm not quite sure how to put it into words, but I'll try. If we take an average middle class family and a rich family. Both want to build or buy a house. Let's suppose the houses they want cost the same, e.g. $200.000. The rich family pays $200.000 and is done. The middle class family however, will have to take a loan of, let's say, 20 year…

You're ignoring the opportunity cost of not keeping that $200,000 in the "rich family's" deposit account or asset portfolio. If I buy something to use for $200k, I can't invest that same amount to convert it to $300k (assuming the same 20 years @ 4%), so I effectively lose 100k over the same period for the same reason. While they're certainly not equivalent, they're closer than you suggest.

Re: An Idiot's Guide to Inequality

#43

Post by [deleted] » Sat, Jul 26, 2014, 2:53 PM UTC

crdoconnor wrote: post #38

msandford wrote: post #34

Earlier quoted context omitted.

It's not that it's terribly difficult to think long term. The problem is that any kind of plan which has a reasonable chance of building up some savings and giving you some financial stability involves sacrifice now, probably to a very painful degree. In my view it's not the thinking that's the trouble but the execution. It's hard to not spend all your money full stop. Having less money means that any savings involve…

I don't believe you were ever actually in poverty. The mindset I'm describing is one where you are forced to prioritize necessities - rent/food/electric bill, not one where you sacrifice all the small luxuries in order to be able to cover your necessities and save.

[deleted]

Re: An Idiot's Guide to Inequality

#44

Post by d4vlx » Sat, Jul 26, 2014, 3:53 PM UTC

jeremysmyth wrote: post #42

saticmotion wrote: post #41

Another fact, that recently struck me, also seems to make inequality larger. I'm not quite sure how to put it into words, but I'll try. If we take an average middle class family and a rich family. Both want to build or buy a house. Let's suppose the houses they want cost the same, e.g. $200.000. The rich family pays $200.000 and is done. The middle class family however, will have to take a loan of, let's say, 20 year…

You're ignoring the opportunity cost of not keeping that $200,000 in the "rich family's" deposit account or asset portfolio. If I buy something to use for $200k, I can't invest that same amount to convert it to $300k (assuming the same 20 years @ 4%), so I effectively lose 100k over the same period for the same reason. While they're certainly not equivalent, they're closer than you suggest.

Houses typically appreciate at better than 4% a year over 20 year time frames, although this is very location dependent. If they had bought in almost any city in the US with a population over a million they could have done much better.

http://www.census.gov/const/uspriceann.pdf