patrick.net

I enjoy living a simple and less expensive lifestyle. My younger co-workers kid me about driving a 10-year-old Honda Civic.

Hey, it's paid for and gets great gas economy.

They of course of driving sports cars.

My goal is to drive the last Sesquicentennial-plated car on the road, LOL. I'm cheating by getting in at the tail end of the sequence, plus I put a whole new motor in back in 2009 and only have 20,000 miles on it now.

"Why don't academics, thinktanks, politicians, economists, focus on CUTTING down the cost of living? "

The problem is the main costs of living are:

1) Federal Government
2) State Government
3) Local Government
4) Real Estate
5) Medical Costs
6) Educational Costs
7) Energy Costs

Not necessarily in that order, but our annual DOD bill alone is $3,200+ per adult.

http://research.stlouisfed.org/fred2/graph/?g=98F

And it's impossible to cut real estate prices since we all compete against each other for it. Absent oversupply of housing (like in Las Vegas) the only way to cut your housing expense without living like a caveman is move to an underpopulated area -- but for obvious reasons we all can't do that, LOL.

Medical costs are going to be what The Man says unless you can move to a saner country that has that devil government-run system that we can't talk about here.

The average household burns 1000 gallons of gas -- that's quite a lot, LOL, maybe with $4 gas people are starting to learn how to economize.

College is a scam now so there's zero reason to incur that expense unless you need to get degreed up for a professional program like medicine or whatnot.

Delurking says

The problem is the main costs of living are:

1) Federal Government
2) State Government
3) Local Government
4) Real Estate
5) Medical Costs
6) Educational Costs
7) Energy Costs

Not necessarily in that order, but our annual DOD bill alone is $3,200+ per adult.

Well, no one is paying for these expenses. The so-called debate about deficits is bunk. It is called monetization of debt. On one hand, fractional reserve bank creates 'fictitious' wealth (of course, it is not fictitious to those who loot money that way). On the other hand, montetization of debts (government expenses - tax receipts) increases the GDP, which 'creates' wealth for private corporations, majority of which are owned by trust funds (top 500 families in the states plus 0.1 percent).

Why no economist does not try to connect these dots? Oh they are busy prepping for their golden parachutes (consulting gigs from Federal reserve; banks; thinktanks; endowed chairs, etc)

The answer to your question: http://patrick.net/?p=1213971

What you are describing is free market capitalism. The U.S. is far from it. The list of above high cost, low performing industries are all government protected from competition. Health care is probably the worst example of socialization in the US and the government wants to add to it. Industry inflation is synonymous with socialism and communism. The deflation you are describing is synonymous with free market capitalism. Yes, the goal is to try to restrict well connected industries and individuals from benefiting from our tax base.... Good luck, the people who make government decisions are the people who get to spend our tax money. Does anyone think they will ever decide to reduce the power and control their positions have? I didn’t think so.

Until then, the 99% will just have to keep accepting a declining share of GDP all while assuming more of the hardships.

jvolstad says

My younger co-workers kid me about driving a 10-year-old Honda Civic.

A special ladyfriend once confessed to me that the best most endowed lovers she'd ever been with invariably drove old beaters or shit-boxes.

As I was driving a brand new red Cadillac Eldorado at the time, you can imagine hwo I felt.

EconPete says

The U.S. is far from it. The list of above high cost, low performing industries are all government protected from competition. Health care is probably the worst example of socialization in the US and the government wants to add to it.

What do you expect? In America we take the worst ideas from the far-left AND far-right and create Crony Capitalism.

"Why not reduce the cost of living?"

That is the whole idea behind a government that gives three good shits about the economy, citizenry, and prosperity.

Which all three of those are in the mental ward bleeding out, and the only person that checks in on them are the soda jerks, that want to fatten them up, followed by the fat police that chastise them for receiving our nightly fructose enemas. We can hear the bankers down stairs, purring at the fat cat ball.
But we can't play, we're not on the ball team.

You can't reduce the cost of living without reducing the cost of everything else, at least in relative terms.

And since the top X% have so much money, reducing the cost of living, would essentially make them richer. (isn't real wealth finite ?). Although, it isn't quite that simple (their non-cash assets would decrease in price).

Also, given the amount of debt out there, held by the government, business and individuals, "reducing the cost of living" would mean that those debts would have to be repaid with dollars that are essentially worth more than the ones that were borrowed. This is more than a little problematic.

It's a good question though.

How are we supposed to be a thriving growing and improving country without a strong middle class, and without the ability to build businesses and infrastructure with laborers who can have a decent living in exchange for their hard work ?

Then again, if we had that we would be using natural resources faster and reproducing more, and with global population at 7 billion, that may be problematic too.

Ahh, maybe I should become a right winger, and just whine a lot and act like there are easy solutions, that I can grasp and that are intellectually out of reach of those smarty pants moderate commie liberals.

JodyChunder says

jvolstad says

My younger co-workers kid me about driving a 10-year-old Honda Civic.

A special ladyfriend once confessed to me that the best most endowed lovers she'd ever been with invariably drove old beaters or shit-boxes.

As I was driving a brand new red Cadillac Eldorado at the time, you can imagine hwo I felt.

Historically Cadillac's don't exactly have the best reputation for long term quality...I'll bet if you still have that old Eldorado you're feeling "swollen with confidence" as the old enzyte commercials used to say.

Liquidity Trap.

Simply put, if everyone expects the "cost of living" to decrease, then they will hoarde cash.

A strong dollar policy discourages investment and consumption. Without investment and consumption, the economy screeches to a halt.

Its about a 9.75/10 on the bad idea scale. Huntington Moneyworth III, sitting on his pile of cash thinks its a great idea though.

In theory that is how the Federal reserve was pushed on us. Their sole mandate was to keep inflation in check. History shows they have failed as our dollar has lost 95% of its value since the Fed was enacted.

If the government didn't lie about inflation, and didn't destroy our dollar with Fed terrorism, then costs would be steady. But then government couldn't keep borrowing and have a deficit this big. They play games. They defund social security by lying about inflation. The little old lady still gets the $1500 she did five years ago, but because of money printing it buys her 30% less. By lying, they don't have to give her a raise. At the same time, they can inflate away the money owed to China.

Chesus,

Time to turn off the Peter Schiff, I think.

Yeah, there's a huge moral hazard of Big Banks having access to Sugar Daddy Ben every time they screw up. But I don't buy into the conspiracy theory stuff. The Fed's shenanigans are right out in the open.

david1 says

Liquidity Trap.

Simply put, if everyone expects the "cost of living" to decrease, then they will hoarde cash.

A strong dollar policy discourages investment and consumption. Without investment and consumption, the economy screeches to a halt.

Its about a 9.75/10 on the bad idea scale. Huntington Moneyworth III, sitting on his pile of cash thinks its a great idea though.

Honestly, savings play a role in tables, statistics, etc. In reality, savings don't play any role in lending. Lending to private citizens is done by fractional reserve banking; lending to the gubmint is done by monetization of debt. 40 percent of GDP in the states is due to the gubmint spending.

Taxes (federal and state income; FICA; sales; etc) and servicing debt (mortgage/rent/insurance/credit card debt) take the majority chunk of people wages. They are left with like 18 percent of wages to consume. I don't have the exact stats (Michael Hudson has it somewhere). For sake of discussion, lets increase wages by 40 percent, does it increase the purchasing power by 40 percent (that is, 18 percent * 1.4 = 25 percent of wages)? I don't think so. Instead, rentiers and taxes gonna take more of these increased wages.

If there is no fractional reserve banking or if there is 100 % reserve banking, yes, hoarding causes problems

Again, I have opened the thread to *understand* what's going on at the macro level.

Why?, because people are expendable. Food became cheap from automation, or modern agricultural methods, compliments of the steam age. Rents and mortgages are expensive because of banks and building costs. Health insurance became expensive because it's a monopoly. The governments role is to slowly inflate. The 1% pull a few strings as well, they more or less own the government.

Academics do work on this, those that do are humanitarians, but they are somewhat anti-corporate, believing people could again one day be more dependent on themselves, so they don't get paid much attention, although they completely understand the human condition of not having enough.

Still, since most people are religious they believe god provides, and so look the other way, usually to the sky gods for answers, when in reality, the answer lies in you.

It seems like relatively speaking, the food in the united states is cheaper than almost anywhere else (taking price of food vs wages into account). However, it does not seem to be the case with rents and mortgages which take a huge bite out of people's take home pay, like astronomical amounts especially in desirable areas.

everything says

Still, since most people are religious they believe god provides, and so look the other way, usually to the sky gods for answers, when in reality, the answer lies in you.

But if "you" are dying, an assertion like "the answer lies in you" is cold comfort.

Deep down we all know that any kind of "salvation" has to come from outside of ourselves.

But I guess that's a topic for the Religion section.

I invest in commodity futures like grains, corns, oil and, income properties and stocks. If the price of oil, cost of monthly rent and price for goods and services go down, my profit take from these invest becomes less. As an investor, I insist on keeping the cost higher for more profit. Reducing the cost of living forces me to take less profit. Are you joking me? Yeah, I need to eat caviar, lobster and foie gras some times.

More profit I get enables me to invest on influencing politician to keep the cost of living higher. So I can hoard more money. That's nothing new, of course.

Did I do a good job explaining why we will never reduce the cost of living?

Cause chicks dig money. Krugman would have no girlfriends if he were paid for actual work/goods delivered.

Delurking says

And in the inflationary environment of 1970-2012, buying has generally made sense 10 years after the purchase, as rents have risen:

Do not have debt. Debt is a millstone. Everyone says that inflation "makes debt easier." No, it doesn't for you. It does for the lender, but not for you. The reason is that your cost of living will rise faster than your wages and income will, and that will make paying the debt harder, not easier. Don't fall for that line of crap, it is a lie and you will lose. Under no circumstances should you borrow against any existing asset you hold; if you wish to use one or more assets as part of your capital base (see below) liquidate it right up front.

Taken from: http://market-ticker.org/akcs-www?post=209605

mell says

Everyone says that inflation "makes debt easier." No, it doesn't for you. It does for the lender, but not for you.

Maybe one day this will become a sensible outlook, as it was after the great depression. But your reasoning makes little sense.

I agree with you partially. The people who take on debt to live beyond their means, are not being prudent and may regret it one day. Although even here - I don't judge others for their choices. If someone wants to drive luxury cars and do other conspicuous consumption and then be dirt poor in retirement, that's their choice.

As for debt to buy real estate ? That's where I would have to disagree. As delurking (Troy) just said, in recent history buying has usually worked out VERY well for people holding for long periods of time. This can not be disputed. If money is borrowed to invest in assets that appreciate with inflation and it's for utility purposes or as investment, it makes sense.

And as in the past, they might be like someone now, 25 years into a mortgage with a payment of $800 (on their debt), for a place that currently would rent for $2700.

I agree it depends on your personal situation, AKA if you can handle the debt with stable income etc. All cash and no debt is always best and the least risk. But I disagree with those statistics (never trust one that you haven't made up yourself), what about all the people that falter under the debt, not just because they were not prudent, but also because of unforeseen events (it's part of being prudent to plan for those but you cannot control everything), I doubt that these statistics take those poor souls into account. That being said, I am not saying that owning homes or making a business out of it cannot be profitable - it's just very risky - unless you know you can count on a bailout.

http://www.washingtontimes.com/news/2012/aug/1/obama-favored-stronger-layoff-warnings-07/

But now he's "changed his mind"...just like he did on gay marriage.

raindoctor says

Why don't academics, thinktanks, politicians, economists, focus on CUTTING down the cost of living? Why waste time on generating highly paid jobs, only to have these wages taken away by rentiers?

Why don't YOU focus on CUTTING DOWN your cost of living, and see how that pans out.

You want a desirable piece of RE, you're going to have to pay for that, in this system, who benefits from that?

You want a shiny car?
You want a cell phone?
You want air conditioning in your house?
You want a television?
Cable/Satellite?
You want to go on vacation?

YOu want a lower cost of living, move to one of the dakotas and build a mud hut, collect rain water to drink and shower in, and B.M. out in your outhouse. Living is virtually cost free,,,,,

errc says

Why don't YOU focus on CUTTING DOWN your cost of living, and see how that pans out.

You want a desirable piece of RE, you're going to have to pay for that, in this system, who benefits from that?

You want a shiny car?
You want a cell phone?
You want air conditioning in your house?
You want a television?
Cable/Satellite?
You want to go on vacation?

YOu want a lower cost of living, move to one of the dakotas and build a mud hut, collect rain water to drink and shower in, and B.M. out in your outhouse. Living is virtually cost free,,,,,

1. Forget about me, because I am not the one who is demanding for high wage jobs so that I can pay for all those things you listed. Almost all policy makers, thinktanks, and politicians want to create jobs in whatever fashion.

2. Sure, I haven't heard from any policy maker that "we all should move to Dakotas, etc".

3. You could be right: the way things are going, subsistence living would fix the whole mess the developed nations are in.

4. Desirable piece of RE? Why is it desirable? It is due to two reasons: less commute and good school districts

Less commute: maybe, telecommuting can fix this.
Good school districts: Steve Jobs suggested to dismantle teachers unions and pave the way for entrepreneurial types to start private schools, thereby severing the link between RE location and good school district. Or if things go in different direction, where education doesn't bring stable careers, "good school district" doesn't help.

raindoctor says

Manufacturing jobs are not coming bac

Yes, MFG jobs can come back to US shores.. its a question if US Govt will allow it.

raindoctor says

Why don't academics, thinktanks, politicians, economists, focus on CUTTING down the cost of living? Why waste time on generating highly paid jobs, only to have these wages taken away by rentiers?

What do you say?

Skip the above and just go straight to the business leaders! None of the above know "How to do" run a business anyway. Its the business leaders who can provide guidance to get jobs back and reduce costs in order to get higher employment.

marcus says

How are we supposed to be a thriving growing and improving country without a strong middle class, and without the ability to build businesses and infrastructure with laborers who can have a decent living in exchange for their hard work ?

Sadly, this is a myth. The American middle class is no longer needed, as the 1% that squeeze everything penny of rent possible out of our society can now sell to a global middle class. Still, we have some wealth left and the parasites won't leave until we're destitute and living eight to a two bedroom, while paying them rent on that two bedroom.

You have just asked the question that will eventually provide the solution to our economic problems. Wages don't necessarily matter, what matters is wages relative to the cost of housing, healthcare, and education. Many countries have a smaller per capita income than the U.S., but have a higher quality of life because they can afford the things that affect their life the most. (Housing, healthcare, education.)

The solution to our economic problems is to deflate our wages (or increase productivity) to a level that is competitive with the rest of the world WHILE lowering our cost of living at a greater rate. Housing, healthcare, and education can ALL be affordable once again if we focus on increasing the supply of each, rather than increasing the demand.

Good luck to us all.

It depends what the cost of living means ultimately.
With taxation you generally have two systems. A regressive tax which is like a sales tax or a progressive that increases with income. But the issue with that is it tends to reward speculation *cough facebook cough* rather than invention.

When the government subsidizes any good or service prices (supply) prices go down. When it subsidizes demand prices go up.

Look how screwed up cash for clunkers was. From an environmental perspective only 0.4mpg was gained. But it sold more cars....but it was to people that didn't really need them....and it also destroyed fine working used cars which drove up prices for everyone else.

Price supports are nothing new. The school lunch program was made up in the 1930's to support the drop in crop prices. A clear argument can be made that students do not perform well when hungry. But this also creates a system of dependency decades later and this food wasn't exactly the best in the world.

Also from another website I can quote this. Debts are fixed but assets are variable. This goes also into the social as well. The pleasure gains of various vices are often paid by those that did not always use them. How much does alcoholism cost medicare or smoking or obesity?

A universal cannot be created without understand that not everyone is the same. In Massachusetts we have a mandate to shelter everyone. But the trouble with that is that there are non profits (not funded by the state) that do this for their job. Well the trouble is there are some groups of people that for security are not allowed to stay in shelters and few would give money to any group that does (arsonists and level 3 sex offenders). Equity can be expensive.

epinpb is right. If we increase the supply (at least in education and healthcare) then we drive prices down. But there are plenty of groups that can get scared if you tell them their incomes will go down a tad or that they want to compete. There are countless industries with little competition. Look at products for elderly care. Try shopping for a specially designed walker for grandpa/grandma and the price is sky high even though the material cost is low. There's simply little competition.

Because that would go against the Keynesian ponzi scheme theories of spending oneself into prosperity.

obligatory

G'Day, It is my firm hope that there is a 'Third-Way' out of all this. Goverment HAS to be for the people. Polices can be constructed that make things fair. Land for instance, cannot be considered a mere commodity, unless you live in Holland (they make it there) A government should be 'fair' about it. Realizing that in a city there will be Banksters and Janitors & Plumbers. They might not live in the same neighborhood, but they need each other (10mi

G'Day, Just go to:
http://www.karratharealestate.com.au/index.cfm?pagecall=property&propertyID=1528865

This is one of the most isolated, inhospitable places on Earth with land everywhere. Might as well live in NYC.

Regards, Omerde

thomaswong.1986 says

raindoctor says

Manufacturing jobs are not coming bac

Yes, MFG jobs can come back to US shores.. its a question if US Govt will allow it.

My understanding is it's already coming back, but only in Right To Work states. The new VW plant in Chattanooga is running wide open. BMW sells all the SUVs it can produce here. The Daimler Benz plant in Alabama is also running at capacity.

Even Ford is doing well again. They say the Fusion is one hell of a car.

General Motors, however, is still having many of the same problems it has had over the past 10-15 years. The stupid politics, brutal corporate culture, etc...it won't last, will end up like British Leyland.

epinpb says

WHILE lowering our cost of living at a greater rate. Housing, healthcare, and education can ALL be affordable once again if we focus on increasing the supply of each, rather than increasing the demand.

So you want producers to supply the market at levels where marginal cost > marginal revenue? Talk about de-incentivizing hard work and risk taking...

Seriously, price controls were implemented by Nixon in the 1970s and they absolutely destroyed the economy.

Again, if you raise the expectations of the future value of the dollar, then you encourage hoarding of the dollar. Being that it is the medium of exchange for goods and services, this hoarding chokes consumption and investment.

The fractional reserve argument is bogus, raindoctor. Investment is not lending. This liquidity trap is exactly waht is happening RIGHT NOW in our current fractional reserve banking system. The M2 & M3 multipliers have fallen greater than M0 has increased through quantitative easing. Hence QE hasn't spurred economic growth. Monetarists all over the world are scratching their heads while Keynesians know exectly what the problem is...

Delurking says

Rents are set by how much we have to outbid the next guy to win tenancy to the place.

No. I can decrease the rent, if I wanted to. Why do I want to do that? Tell me why I shouldn't hoard all the money... Then I will lower the rent. While I am at it, I will renounce my citizenship and become a citizen of Monaco. So I can dodge more tax to hoard mo money. It is a true democracy, isn't it? Those damn commies!

epinpb - your post has a lot of merit. What if prices and wages returned to the same level they were in the 70's or 80's, (without price controls or wage controls).

If home prices were in the $20,000 to $60,000 range for the average person, a good three year old car could be had for $1,800 and the cost of living was comparatively low - life would be better for millions of Americans.

BUT the establishment and slimy politicians doesn't want that to happen. In fact they've thrown trillions of dollars around to make sure home prices don't come down.

Lets pray for a flushing out of the establishment come this November.

david1 says

A strong dollar policy discourages investment and consumption. Without investment and consumption, the economy screeches to a halt.

That's pretty much it, with only one correction. It's not the economy, but our financial system. The problem is that practically all money in use has been created as debt with interest. It means you need new money to get into financial system to pay the old interest. Note: just creating (printing) this new money is not enough, someone has to actually borrow it to move it into the economy. Again, because of interest in this financial system there is much more debt than the total money supply. The system needs constant creation of new debt to service the old debt. Very roughly you need to increase the total amount of money in use at the rate of average interest on existing debt.

So, by reducing the cost of living you would cause a collapse of our monetary system. Of course, in theory governments may monetize the debt free of interest. The problem with this is that new debt is all net profit of the banking system. Our banking system would do anything to prevent this (literally anything). Some say some American presidents tried this, notably Lincoln and Kennedy (with well known consequences).