Scott Winship argued recently that the ‘cost of thriving’ has fallen, pushing back once again against Oren Cass and his rather arbitrarily calculated ‘Cost of Thriving Index (COTI).’
Your last paragraph is dispositive. Measures of well-being are always going to be part absolute and part relative. And the relative part is not only vs. others but vs. our memories, accurate or flawed, of previous times. A huge factor in :"thriving" is whether today's two parent families perceive they can thrive on a single income with childcare provided by the non employed spouse. That's the nostalgic "gold standard."
This all seems like an exercise in confirmation bias. Should we start claiming the average American is much poorer than the average African because they demand more? The Venezuelan may be happy they are able to get a loaf in the breadlines. The American isn't happy with SUVs and Sushi buffets so the Venezuelan is thriving and the American isn't.
The media loves to excite outrage by telling people they are poor. It gets them the clicks.
I also disagree about not being able to get 1985 quality goods. You can buy a used car that will probably last longer at cheaper prices than new cars in 1985. For education, you can do 2 years of community college then transfer to university for likely the same or better learning than 1985. For healthcare we have heavy ACA subsidies or if you're low enough income you can get Medicaid for nearly free care, all probably better than healthcare in 1985. Housing in major metros may be more expensive today because we have so many more people today but prices haven't changed that much in less populated areas.
I should also note crime rates were much higher in major cities in the 1980s. At least near me, crime-ridden neighborhoods are still quite cheap. Google tells me the average cost of a home in 1985 adjusted to today was around $230k. There's lots of homes available in the major metro near me at that price. It won't be one of the richest neighborhoods, but you could get something in a decent lower-middle class area for that price pretty easily.
Also, keep in mind interest rates in 1985 were sky high, like double digits high. Twice as much as they are today. Some more Google Fu tells me that the average mortgage payment in 1985 was around $700, which adjusts to over $2000 today. Today even with our highish interest rates, that will buy you a $300-$350k house, more than enough to buy a single family home in a middle class neighborhood in the major metro near me.
Rent is a better metric than mortgage payments because credit is not uniformly available, and is in large part allocated on the basis of participation in correlated behavior complexes that also include escalating consumption patterns, so those have to be considered part of the cost of credit, and not necessarily valued at the nominal purchase price.
No they don't require such participation. They simply require proof of income and income history and a basic credit history you can get for free by using a credit card and paying it off every month. Maybe take out an auto loan on your used Toyota Corolla as well for good measure.
No one said “require” except you. The method you’ve so breezily summarized but not actually proceduralized is not equally well known across all classes. And it can take years to get access to significant amounts of credit & establish a payment history, so if someone who wasn’t brought up to behave that way needs to make a housing purchase or secure a lease now, it’s not at all available.
Also, as someone who has worked in the mortgage industry for years, went through the process of getting a mortgage myself, and has witnessed people being capriciously denied access to financial services for political reasons, I know for a fact that that is not the full set of relevant criteria. Sometimes if your vibe is wrong, they’ll just “lose” the paperwork over and over.
1. You said "not uniformly available" - EL said "require". Dumb me sees no difference in the actual topic discussed. - 2. I read about only brutal "mortgages" available to black home-buyers in the bad ol' times. Not sure, it's true. In Germany now, mortgages work mostly as they did 1970.
A lot of rules cut people out of mortgage availability after 2008.
On the other hand my wife and I got our first home while both working part-time jobs and barely ever using a credit card (and not being married to each-other at the time) in 2010 so... I dunno.
Excellent points. Me and others buy a lot used from ebay these days. Much better options than 1975. And I would take primary school from 1976. Not cheaper, really, but much less harmful nonsense (not about woke). 2. I want kids, I have them. You wanna "thrive" - sure, much easier without those pesky little ones. Been like that in 1985 and before, too. Kids AND thrive: Takes guts and hard work. As it did then. Cities are and were population sinks. Nothing new under the sun. - The change I see: Kid rooms today are as stuffed with toys as toy shops were in 1980. Though all they really use is their tablet. ;)
"Linder’s Theorem, which I hadn’t seen before, which states (correctly): “rising productivity decreases the demand for commodities whose consumption is expensive in time.”"
Isn't that the Baumol effect? I don't see the difference
> The whole idea is to ask what it takes for a typical man to support a typical family
The typical family today is vastly more likely to have two incomes than the typical family in 1985. So if you are setting your standard of living by comparison to a two-income household, but asking how much income a single provider needs in order to meet that standard, then *of course* that amount of income has gone up.
> If I am consuming 53% more goods, but comparing myself to a 75% higher standard, am I better off?
If not, then your misery is self-inflicted due to your choice of comparison. If your standard of consumption is relative (e.g., the median household), then your standard of income should be likewise (the median *household*).
I think extrapolating outward from the two-income bit and a lot of the other comparisons and pushbacks are also affected.
Think about it this way: in single-income households in 1985 the non-earning spouse was providing a significant quantity of domestic labor. This is absolutely reflected in the basket of goods selected at the time.
Goods that are labor-intensive but lower cost can be selected because there was a large pool of available labor to draw from. When Zvi pushes back against Winship by saying that the 1985 goods aren't exactly available anymore, well the "lack of second income" isn't exactly available either (speaking on average).
So if the cost of the average goods in the basked has increased because there isn't as much domestic labor to expend on them, then it's entirely appropriate to use both incomes to judge whether it can be obtained.
Speaking from personal experience, I found it pretty easy to maintain 2018 lifestyles in 2018 with below-median income and a family of four. I had a non-employed spouse and as a result I ended up selecting higher-labor, lower-cost goods than was typical in 2018 and my average costs were lower than my peers.
Probably a better way of getting apples-to-apples comparison is to find a way to quantify the value of domestic labor in 1985 (but if you were to do so, you'd need to increase the cost of the basket of goods in 1985 to prevent double-counting the effects of that labor).
Mentions in 1984 only 29 percent of married women had full time year round jobs (not exactly same demographic), but I didn't even think about seasonality.
So if the argument is it hasn't changed, why not throw female income into the ring on both sides? The pay gap is overly politicized but as an overall figure has decreased significantly simce 1985 so that should show an improvement over time.
> You can in theory tap the new home equity while not moving, but you have to finance that and people are wisely loathe to do this.
I don't agree with the term "wisely" here. A home equity loan (or some other similar form of collateralization) is one of the most powerful financial tools available to the average middle-class homeowner. It's much easier to buy your second house than your first one, and so on.
Perhaps the idea is that the average or marginal person under consideration here is not financially responsible or savvy enough to pull this off? Maybe so, but I think that's a different argument.
There might be 'wisdom' there in the Nassim Taleb sense of hedging against tail risk. You avoid utter catastrophe for your family during an unexpected black swan event by not using your home as collateral.
This seems backwards. If all your net worth is in real estate equity, then in a stroke of bad luck all your eggs are in a single basket. It's like the tech worker who has most of their net worth in stock options of their own company. If anything you should consider that loan and diversify away from both your employment sector and real estate (and possibly even your country).
Yeah, that's not an obviously crazy move but I would be worried about overextending on real estate, and if you're considering a second home I assume you're thriving, at least financially.
It is a powerful tool and also a very good way to lose your house if it goes badly. It's great in a real emergency but if you are doing it and not to invest, I'd say you aren't thriving.
Two of your final three questions (which I agree are all good ones) hinge on social comparisons. Certainly it seems like a lot of the problem would go away if we could just... do a lot less of that. Of course, the major technological revolution that has occurred since 1985 has resulted in us doing... a lot more of that. Not sure how you put a number on this, but it seems highly relevant to assessing the difference between then and now.
> What good does it do us to have better goods, if we do not have felt economic permission to start families?
https://twitter.com/theHauer/status/1222514313723875332 - if this data is correct, it seems like we'll need to get everyone's household income above $250k to get the total fertility rate above 2 children per woman. Seems a bit unrealistic to me, even if we implement a full YIMBY utopia, abolish regulations on childcare and privatize every school in the nation.
Yeah, no. I've written posts on this and there's no way it costs that much. Marginal cost per additional birth from even poorly targeted subsidies is only ~$270k and other programs come in far cheaper, and as theric42 notes desired fertility is over replacement already.
Giving people a reasonable lifestyle and income expectation that they can trust is more important than current income level, as is not having people fear wrecking their career paths.
In any case, I've thought a lot about this, and reversing the problem is well within our grasp if we cared. The problem is that we don't.
I like this, but where do you see places like Japan where due to labor laws there is a lot of job security (fulfilling "...income expectation that they can trust...", also known for YIMBY construction and cheap food) but still has a low birth rate? (maybe accounted for in "...fear wrecking their career paths". See the "short-timer"/"bench-warmer" workplace insult for young women that people assume will have kids and quit.)
Still feels like there's some missing X-factor in the equation...
Birth rates drop with economic development and more money or job security will have little to no impact. People in lower economic situations with the least economic security are the ones having the most kids.
But "marginal cost" isn't how people perceive things, right? Someone like Bryan Caplan might sit down with a spreadsheet and work out that they can afford 4 kids, but that's not how the average person operates in their life.
Not to mention other concerns - for example I've recently spoken to a doctor (as in, proper MD, working full time in a large US city) who told me he's not sure about kids because the cost of living is too high, so he doesn't think it's a good idea to bring more humans into this world. You can present this guy all the spreadsheets in the world about how an MD can afford to have children but that's not how he operates.
I don't think it has anything to do with afford. Kids can be raised cheaply. People can make a lot of money and live paycheck to paycheck. But if they feel strained, regardless of what the spreadsheet says, they will act strained.
But if the obstacles directly in the way of having the children they want are removed, they don't feel as strained.
The biggest killers of fertility I see are the people who say they have to wait until they are established first. If you start having kids in your thirties and fourties you run out of time and energy a lot faster a nd have fewer than you would otherwise, and then that rolls to the next generation as you will be an older grandparent.
On the question of transportation, "consuming safety" seems like a conceptual error every bit as much as treating transportation consumption generally as a benefit rather than a cost. In both cases, better to get things into a single unit either by converting the time lost to money, or converting money into a share of one's time budget (which would better allow budget comparisons across income levels). Examples follow.
If someone makes $100/hr, and has an hourlong commute, on top of whatever the direct financial costs are of the commute, we should count the time spent as an additional (untaxed) $100 worth of work they're doing - or some fraction of it if you think people recover some time by talking on the phone or listening to audiobooks.
Alternatively, if someone works a 40-hour week and makes $100,000 annually, then the marginal $36.54 post-tax expense would require an additional $50 of pretax income to pay for, or one hour. This comes out of their time budget, which is less of an abstraction than the money budget of someone who may be deciding how much to work or what sort of job to work. For someone else working the same hours making $50,000, a marginal post-tax expense of only $18.75 costs an hour.
For either of those two people, an hour of commuting also costs an hour (or less, again if you think they recover some value via audiobooks or something).
Now let's consider safety. Driving mortality rates in the US are about 1 per 100 million miles traveled. So if in a year someone drives about 10,000 miles, then they have a 1 in 10,000 chance of dying. In other words, if driving were the only cause of death, for 9,999 people to thrive that year, 10,000 have to pay a year's costs. So, simply divide ALL costs by .9999 to account for the danger of driving - and by a higher or lower number if the car is safer or less safe than average. Obviously we shouldn't limit this to driving, but should divide by the all-in expected annual survival rate - in which case it becomes more obvious how comparatively trivial a time savings automobile safety is vs variation in commute times, and how important a cure for aging would be! For a 95 year old the expected cost of thriving another year is quite high.
I agree that commuting time should be part of the calculations if we were doing them correctly, but no one involved attempted that, only counting the dollar costs. It's unclear to me if commutes generally cost more or less per hour than work - some people get value out of commutes, but studies show they make people miserable in general.
The proposal on safety I don't think targets the thing we're trying to measure here. Happy to discuss more some time.
It's hard to extrapolate additional "labor" against a person's typical wages. While it's certainly true some people can put in more hours and get paid the same amount (or 1.5x more) there are diminishing returns. Maybe you can't put in more labor at your work but you can resell some stuff on Ebay for 1/4 your normal wages. Or maybe you can get equal wages but you need to accept a 20 hr/wk commitment and not any chunk smaller than that (as well as possibly some negative effects on your health).
Interesting aside, apparently the mean one-way commute in 1985 was 21.4 minutes and median 15 minutes. In 2019 (figured that was a good date for obvious reasons) it was a mean of 27.6 minutes (median not given but between 20 and 24 minutes looking at this chart).
(Note the 1985 figure was for men and the 2019 figure was for both sexes, in 1985 women had a lower mean but the same median so adjust mentally as needed.)
Also I have to ask: how does commute time play into the average basket of goods? Since you can probably pay to lower costs on a number of those goods in with your longer commute (living in cheaper bedroom communities might make both childcare and mortgage less expensive, maybe even healthcare).
I see the argument that it's unfair to adjust for quality if the cheap stuff you got 40 years ago is no longer for sale, at least if you assume that change in the market is just an exogenous change, but why should we assume that? If we're stipulating that the typical man wants the same market basket as before and would be happier if everything was 15% cheaper and 50% worse, why aren't those things ever available?
Of course you can just appeal to regulation or incompetence sometimes but I think a simpler answer is Cass is imagining everything from the POV of someone who doesn't value quality improvements for anything in the first place except for the purposes of status seeking.
I don't think anyone would really disagree with your second paragraph. As I understand it, the point being made here is exactly that - Cass's concept of 'thriving' is about status. So while quality improvements are valuable, if they don't affect 'thriving' the COTI should ignore them.
Obviously this means changes in the COTI don't capture everything that's important in life, but if one is clear about what it represents it can still be a useful measure. Unless you don't think status is important at all?
I think you need to say more than "status matters" for this to be a terribly useful measure. Closer to "status is all that matters", or else it's hard to make sense of the market.
And if we're going to be stipulating a zero-sum measure of individual welfare and then aggregate (selectively), why should we even expect it to be a useful measure except for ease of obfuscation?
Saying status is the only thing that matters to the COTI isn't the same thing as saying status is the only thing that matters to society. I don't see any reason why the COTI can't be combined with other more objective measures of welfare for a more rounded picture.
To your second point, even if status is a zero-sum game, it doesn't follow that 'thriving' must be. I see it as asking something like 'can you afford to live the life of Homer Simpson?' The proportion answering 'yes' increased massively in the 20th century, but this is arguing it's decreased since the 80s. Obviously the importance you place on that proportion will depend on your political position, but there does seem to be a societal ideal that the median person should expect a life roughly along those lines. You can argue that focussing on that at the expense of quality isn't a good idea, but I don't really see why you should write it off as obfuscation.
But I'm not saying "status matters => only status matters." I'm saying "only status matters" is implied (admittedly, only sometimes, but again, part of my complaint about the Am Compass project is they flip back & forth between assumptions). Heck, Zvi himself views a bunch of this basket as a red queen's race anyway. Which is internally consistent to an extent, but I'm not sure why we'd want to base policy around this idea. (And if we do, doesn't that again just necessarily tell us we should embrace degrowth as Pareto improving? So either I should bite that bullet, or I should go back and figure out where my math went wrong.)
Regarding *thriving* not being a 0 sum game, isn't that intrinsic to the vibe they're trying to get here? Thriving here seems to be defined as keeping up with the Joneses - again, why, if we stipulate people don't want the quality upgrades, is there essentially 0 demand for those goods? The answer seems to be that whenever median real consumption increases, I have to increase my consumption proportionately to maintain equivalent "thriving-ness".
Sorry, I edited my reply shortly after posting, but think you might have missed that. I wasn't trying to suggest you were claiming that.
I think we interpret status quite differently. Your measure of status seems to be something like order in a hierarchy, whereas I was trying to refer to a concept more like the level of respect a person is given by society. To illustrate the difference, someone from the lowest centile in a caste society could be ostracised as an untouchable, whereas in another society someone from the same centile could still be a member of the community. So I interpret Cass's 'thriving' as something much closer to 'living a life which society considers respectable' than 'keeping up with the Joneses'.
On looking into the data in more detail though, I think this is mostly irrelevant. Because actually, the changes to the COTI are almost entirely down to healthcare. According to Winship's improved calculations for men over 25, healthcare spending nearly quadrupled from 2.1 weeks of income to 7.9 weeks. In 1985 it made up 5.2% of the total 'thriving' expenditure, but by 2022 it was 17.7%. The overall improved COTI has increased by 5 weeks from 39.9 to 44.8, but with healthcare excluded it would actually decreased by a week from 37.8 to 36.8. One of the main factors in Winship's preferred COTI is that, adjusting for quality, a 2022 level of healthcare would have required 5.3 weeks of income in 1985.
I'd therefore claim that the answer to the question of whether Winship's quality improvements should be taken into account comes down almost entirely to whether you think an increased consumption of healthcare can be considered more 'thriving'. For reference, life expectancy in the US has only increased by 7%, from 75 to 80 over the same period. In that sense, I think you're right that a lot of the discussion around the COTI is confusing the real issue.
I'm not sure I follow. What should make us think that what Cass et al are trying to measure is the cost of a basket of goods and services needed to maintain constant respect by society? As you suggest (I think?), it's hard to see why I should (or Cass does) interpret healthcare spending as more or less pure untouchable-caste-avoidance.
“He points to Linder’s Theorem, which I hadn’t seen before, which states (correctly): “rising productivity decreases the demand for commodities whose consumption is expensive in time.”
What happened to the great stagnation? If productivity isn’t rising very much relative to the sentiment that people aren’t thriving so easily anymore, then this story doesn’t seem to make sense. Unless the effect is exclusively being driven by women in the workforce which I suppose it could be.
But TFP at least seems to indicate productivity is especially flat over the last 20 years (cue famous graph, linked below). And my sense is that much of the feeling of not thriving has been concentrated during that window of time.
Yeah, there are a lot of things one should factor in that are not there. If state/local taxes moved a lot that's important, retirement account contributions need to be factored in, etc.
Crime is actually down a bunch though, and safety is way up, a 'safe' area in 1985 would be dangerous now I think.
Crime is complicated. There was a peak in 1990, but that followed a massive increase since 1960. What’s the correct measure?
School districts are also interesting. there are fewer “good” school districts than before in the inner suburbs, and the ones left are more expensive.
I look at my dads job and everyone that has it now seems a lot worse off. They need to buy houses out in the far away exurbs and commute an hour plus each way every day because it’s all they can afford. There is no way my dad could buy the house he bought in the 1980s today.
Great analysis.
Your last paragraph is dispositive. Measures of well-being are always going to be part absolute and part relative. And the relative part is not only vs. others but vs. our memories, accurate or flawed, of previous times. A huge factor in :"thriving" is whether today's two parent families perceive they can thrive on a single income with childcare provided by the non employed spouse. That's the nostalgic "gold standard."
This all seems like an exercise in confirmation bias. Should we start claiming the average American is much poorer than the average African because they demand more? The Venezuelan may be happy they are able to get a loaf in the breadlines. The American isn't happy with SUVs and Sushi buffets so the Venezuelan is thriving and the American isn't.
The media loves to excite outrage by telling people they are poor. It gets them the clicks.
I also disagree about not being able to get 1985 quality goods. You can buy a used car that will probably last longer at cheaper prices than new cars in 1985. For education, you can do 2 years of community college then transfer to university for likely the same or better learning than 1985. For healthcare we have heavy ACA subsidies or if you're low enough income you can get Medicaid for nearly free care, all probably better than healthcare in 1985. Housing in major metros may be more expensive today because we have so many more people today but prices haven't changed that much in less populated areas.
I should also note crime rates were much higher in major cities in the 1980s. At least near me, crime-ridden neighborhoods are still quite cheap. Google tells me the average cost of a home in 1985 adjusted to today was around $230k. There's lots of homes available in the major metro near me at that price. It won't be one of the richest neighborhoods, but you could get something in a decent lower-middle class area for that price pretty easily.
Also, keep in mind interest rates in 1985 were sky high, like double digits high. Twice as much as they are today. Some more Google Fu tells me that the average mortgage payment in 1985 was around $700, which adjusts to over $2000 today. Today even with our highish interest rates, that will buy you a $300-$350k house, more than enough to buy a single family home in a middle class neighborhood in the major metro near me.
Rent is a better metric than mortgage payments because credit is not uniformly available, and is in large part allocated on the basis of participation in correlated behavior complexes that also include escalating consumption patterns, so those have to be considered part of the cost of credit, and not necessarily valued at the nominal purchase price.
No they don't require such participation. They simply require proof of income and income history and a basic credit history you can get for free by using a credit card and paying it off every month. Maybe take out an auto loan on your used Toyota Corolla as well for good measure.
No one said “require” except you. The method you’ve so breezily summarized but not actually proceduralized is not equally well known across all classes. And it can take years to get access to significant amounts of credit & establish a payment history, so if someone who wasn’t brought up to behave that way needs to make a housing purchase or secure a lease now, it’s not at all available.
Also, as someone who has worked in the mortgage industry for years, went through the process of getting a mortgage myself, and has witnessed people being capriciously denied access to financial services for political reasons, I know for a fact that that is not the full set of relevant criteria. Sometimes if your vibe is wrong, they’ll just “lose” the paperwork over and over.
1. You said "not uniformly available" - EL said "require". Dumb me sees no difference in the actual topic discussed. - 2. I read about only brutal "mortgages" available to black home-buyers in the bad ol' times. Not sure, it's true. In Germany now, mortgages work mostly as they did 1970.
It's double-edged...
A lot of rules cut people out of mortgage availability after 2008.
On the other hand my wife and I got our first home while both working part-time jobs and barely ever using a credit card (and not being married to each-other at the time) in 2010 so... I dunno.
Excellent points. Me and others buy a lot used from ebay these days. Much better options than 1975. And I would take primary school from 1976. Not cheaper, really, but much less harmful nonsense (not about woke). 2. I want kids, I have them. You wanna "thrive" - sure, much easier without those pesky little ones. Been like that in 1985 and before, too. Kids AND thrive: Takes guts and hard work. As it did then. Cities are and were population sinks. Nothing new under the sun. - The change I see: Kid rooms today are as stuffed with toys as toy shops were in 1980. Though all they really use is their tablet. ;)
Interesting subject
I don't know enough to have strong opinions
"Linder’s Theorem, which I hadn’t seen before, which states (correctly): “rising productivity decreases the demand for commodities whose consumption is expensive in time.”"
Isn't that the Baumol effect? I don't see the difference
Baumol is more supply side thing: lower than average productivity-growth sectors get more expensive
> The whole idea is to ask what it takes for a typical man to support a typical family
The typical family today is vastly more likely to have two incomes than the typical family in 1985. So if you are setting your standard of living by comparison to a two-income household, but asking how much income a single provider needs in order to meet that standard, then *of course* that amount of income has gone up.
> If I am consuming 53% more goods, but comparing myself to a 75% higher standard, am I better off?
If not, then your misery is self-inflicted due to your choice of comparison. If your standard of consumption is relative (e.g., the median household), then your standard of income should be likewise (the median *household*).
I think extrapolating outward from the two-income bit and a lot of the other comparisons and pushbacks are also affected.
Think about it this way: in single-income households in 1985 the non-earning spouse was providing a significant quantity of domestic labor. This is absolutely reflected in the basket of goods selected at the time.
Goods that are labor-intensive but lower cost can be selected because there was a large pool of available labor to draw from. When Zvi pushes back against Winship by saying that the 1985 goods aren't exactly available anymore, well the "lack of second income" isn't exactly available either (speaking on average).
So if the cost of the average goods in the basked has increased because there isn't as much domestic labor to expend on them, then it's entirely appropriate to use both incomes to judge whether it can be obtained.
Speaking from personal experience, I found it pretty easy to maintain 2018 lifestyles in 2018 with below-median income and a family of four. I had a non-employed spouse and as a result I ended up selecting higher-labor, lower-cost goods than was typical in 2018 and my average costs were lower than my peers.
Probably a better way of getting apples-to-apples comparison is to find a way to quantify the value of domestic labor in 1985 (but if you were to do so, you'd need to increase the cost of the basket of goods in 1985 to prevent double-counting the effects of that labor).
Stats actually show that female labor force participation is essentially unchanged since 1985.
Interesting!
https://www.pewresearch.org/social-trends/2013/03/14/chapter-5-americans-time-at-paid-work-housework-child-care-1965-to-2011/#fn-19096-21 puts it at an average of 2.6 hours a week increase from 1985 to 2011 and I cant find anything newer.
https://www.theatlantic.com/magazine/archive/1986/09/women-in-the-work-force/304924/
Mentions in 1984 only 29 percent of married women had full time year round jobs (not exactly same demographic), but I didn't even think about seasonality.
So if the argument is it hasn't changed, why not throw female income into the ring on both sides? The pay gap is overly politicized but as an overall figure has decreased significantly simce 1985 so that should show an improvement over time.
> You can in theory tap the new home equity while not moving, but you have to finance that and people are wisely loathe to do this.
I don't agree with the term "wisely" here. A home equity loan (or some other similar form of collateralization) is one of the most powerful financial tools available to the average middle-class homeowner. It's much easier to buy your second house than your first one, and so on.
Perhaps the idea is that the average or marginal person under consideration here is not financially responsible or savvy enough to pull this off? Maybe so, but I think that's a different argument.
There might be 'wisdom' there in the Nassim Taleb sense of hedging against tail risk. You avoid utter catastrophe for your family during an unexpected black swan event by not using your home as collateral.
This seems backwards. If all your net worth is in real estate equity, then in a stroke of bad luck all your eggs are in a single basket. It's like the tech worker who has most of their net worth in stock options of their own company. If anything you should consider that loan and diversify away from both your employment sector and real estate (and possibly even your country).
True. I was referring to the specific example of leveraging on Home 1 to buy Home 2. Not really diversifying there.
Yeah, that's not an obviously crazy move but I would be worried about overextending on real estate, and if you're considering a second home I assume you're thriving, at least financially.
It is a powerful tool and also a very good way to lose your house if it goes badly. It's great in a real emergency but if you are doing it and not to invest, I'd say you aren't thriving.
Two of your final three questions (which I agree are all good ones) hinge on social comparisons. Certainly it seems like a lot of the problem would go away if we could just... do a lot less of that. Of course, the major technological revolution that has occurred since 1985 has resulted in us doing... a lot more of that. Not sure how you put a number on this, but it seems highly relevant to assessing the difference between then and now.
> What good does it do us to have better goods, if we do not have felt economic permission to start families?
https://twitter.com/theHauer/status/1222514313723875332 - if this data is correct, it seems like we'll need to get everyone's household income above $250k to get the total fertility rate above 2 children per woman. Seems a bit unrealistic to me, even if we implement a full YIMBY utopia, abolish regulations on childcare and privatize every school in the nation.
If every women had the number of children she wanted to have, we'd be over replacement rate. If you decrease costs you don't have to increase income.
Yeah, no. I've written posts on this and there's no way it costs that much. Marginal cost per additional birth from even poorly targeted subsidies is only ~$270k and other programs come in far cheaper, and as theric42 notes desired fertility is over replacement already.
Giving people a reasonable lifestyle and income expectation that they can trust is more important than current income level, as is not having people fear wrecking their career paths.
In any case, I've thought a lot about this, and reversing the problem is well within our grasp if we cared. The problem is that we don't.
I like this, but where do you see places like Japan where due to labor laws there is a lot of job security (fulfilling "...income expectation that they can trust...", also known for YIMBY construction and cheap food) but still has a low birth rate? (maybe accounted for in "...fear wrecking their career paths". See the "short-timer"/"bench-warmer" workplace insult for young women that people assume will have kids and quit.)
Still feels like there's some missing X-factor in the equation...
Birth rates drop with economic development and more money or job security will have little to no impact. People in lower economic situations with the least economic security are the ones having the most kids.
But not necessarily the ones wanting the most kids.
Also interesting in Japan your statement doesn't seem to hold true. Male fertility is positively correlated with both income and college educatiom.
But "marginal cost" isn't how people perceive things, right? Someone like Bryan Caplan might sit down with a spreadsheet and work out that they can afford 4 kids, but that's not how the average person operates in their life.
Not to mention other concerns - for example I've recently spoken to a doctor (as in, proper MD, working full time in a large US city) who told me he's not sure about kids because the cost of living is too high, so he doesn't think it's a good idea to bring more humans into this world. You can present this guy all the spreadsheets in the world about how an MD can afford to have children but that's not how he operates.
I don't think it has anything to do with afford. Kids can be raised cheaply. People can make a lot of money and live paycheck to paycheck. But if they feel strained, regardless of what the spreadsheet says, they will act strained.
But if the obstacles directly in the way of having the children they want are removed, they don't feel as strained.
The biggest killers of fertility I see are the people who say they have to wait until they are established first. If you start having kids in your thirties and fourties you run out of time and energy a lot faster a nd have fewer than you would otherwise, and then that rolls to the next generation as you will be an older grandparent.
On the question of transportation, "consuming safety" seems like a conceptual error every bit as much as treating transportation consumption generally as a benefit rather than a cost. In both cases, better to get things into a single unit either by converting the time lost to money, or converting money into a share of one's time budget (which would better allow budget comparisons across income levels). Examples follow.
If someone makes $100/hr, and has an hourlong commute, on top of whatever the direct financial costs are of the commute, we should count the time spent as an additional (untaxed) $100 worth of work they're doing - or some fraction of it if you think people recover some time by talking on the phone or listening to audiobooks.
Alternatively, if someone works a 40-hour week and makes $100,000 annually, then the marginal $36.54 post-tax expense would require an additional $50 of pretax income to pay for, or one hour. This comes out of their time budget, which is less of an abstraction than the money budget of someone who may be deciding how much to work or what sort of job to work. For someone else working the same hours making $50,000, a marginal post-tax expense of only $18.75 costs an hour.
For either of those two people, an hour of commuting also costs an hour (or less, again if you think they recover some value via audiobooks or something).
Now let's consider safety. Driving mortality rates in the US are about 1 per 100 million miles traveled. So if in a year someone drives about 10,000 miles, then they have a 1 in 10,000 chance of dying. In other words, if driving were the only cause of death, for 9,999 people to thrive that year, 10,000 have to pay a year's costs. So, simply divide ALL costs by .9999 to account for the danger of driving - and by a higher or lower number if the car is safer or less safe than average. Obviously we shouldn't limit this to driving, but should divide by the all-in expected annual survival rate - in which case it becomes more obvious how comparatively trivial a time savings automobile safety is vs variation in commute times, and how important a cure for aging would be! For a 95 year old the expected cost of thriving another year is quite high.
I agree that commuting time should be part of the calculations if we were doing them correctly, but no one involved attempted that, only counting the dollar costs. It's unclear to me if commutes generally cost more or less per hour than work - some people get value out of commutes, but studies show they make people miserable in general.
The proposal on safety I don't think targets the thing we're trying to measure here. Happy to discuss more some time.
It's hard to extrapolate additional "labor" against a person's typical wages. While it's certainly true some people can put in more hours and get paid the same amount (or 1.5x more) there are diminishing returns. Maybe you can't put in more labor at your work but you can resell some stuff on Ebay for 1/4 your normal wages. Or maybe you can get equal wages but you need to accept a 20 hr/wk commitment and not any chunk smaller than that (as well as possibly some negative effects on your health).
Interesting aside, apparently the mean one-way commute in 1985 was 21.4 minutes and median 15 minutes. In 2019 (figured that was a good date for obvious reasons) it was a mean of 27.6 minutes (median not given but between 20 and 24 minutes looking at this chart).
(Note the 1985 figure was for men and the 2019 figure was for both sexes, in 1985 women had a lower mean but the same median so adjust mentally as needed.)
Also I have to ask: how does commute time play into the average basket of goods? Since you can probably pay to lower costs on a number of those goods in with your longer commute (living in cheaper bedroom communities might make both childcare and mortgage less expensive, maybe even healthcare).
I see the argument that it's unfair to adjust for quality if the cheap stuff you got 40 years ago is no longer for sale, at least if you assume that change in the market is just an exogenous change, but why should we assume that? If we're stipulating that the typical man wants the same market basket as before and would be happier if everything was 15% cheaper and 50% worse, why aren't those things ever available?
Of course you can just appeal to regulation or incompetence sometimes but I think a simpler answer is Cass is imagining everything from the POV of someone who doesn't value quality improvements for anything in the first place except for the purposes of status seeking.
I don't think anyone would really disagree with your second paragraph. As I understand it, the point being made here is exactly that - Cass's concept of 'thriving' is about status. So while quality improvements are valuable, if they don't affect 'thriving' the COTI should ignore them.
Obviously this means changes in the COTI don't capture everything that's important in life, but if one is clear about what it represents it can still be a useful measure. Unless you don't think status is important at all?
I think you need to say more than "status matters" for this to be a terribly useful measure. Closer to "status is all that matters", or else it's hard to make sense of the market.
And if we're going to be stipulating a zero-sum measure of individual welfare and then aggregate (selectively), why should we even expect it to be a useful measure except for ease of obfuscation?
Thanks for the reply!
Saying status is the only thing that matters to the COTI isn't the same thing as saying status is the only thing that matters to society. I don't see any reason why the COTI can't be combined with other more objective measures of welfare for a more rounded picture.
To your second point, even if status is a zero-sum game, it doesn't follow that 'thriving' must be. I see it as asking something like 'can you afford to live the life of Homer Simpson?' The proportion answering 'yes' increased massively in the 20th century, but this is arguing it's decreased since the 80s. Obviously the importance you place on that proportion will depend on your political position, but there does seem to be a societal ideal that the median person should expect a life roughly along those lines. You can argue that focussing on that at the expense of quality isn't a good idea, but I don't really see why you should write it off as obfuscation.
But I'm not saying "status matters => only status matters." I'm saying "only status matters" is implied (admittedly, only sometimes, but again, part of my complaint about the Am Compass project is they flip back & forth between assumptions). Heck, Zvi himself views a bunch of this basket as a red queen's race anyway. Which is internally consistent to an extent, but I'm not sure why we'd want to base policy around this idea. (And if we do, doesn't that again just necessarily tell us we should embrace degrowth as Pareto improving? So either I should bite that bullet, or I should go back and figure out where my math went wrong.)
Regarding *thriving* not being a 0 sum game, isn't that intrinsic to the vibe they're trying to get here? Thriving here seems to be defined as keeping up with the Joneses - again, why, if we stipulate people don't want the quality upgrades, is there essentially 0 demand for those goods? The answer seems to be that whenever median real consumption increases, I have to increase my consumption proportionately to maintain equivalent "thriving-ness".
Sorry, I edited my reply shortly after posting, but think you might have missed that. I wasn't trying to suggest you were claiming that.
I think we interpret status quite differently. Your measure of status seems to be something like order in a hierarchy, whereas I was trying to refer to a concept more like the level of respect a person is given by society. To illustrate the difference, someone from the lowest centile in a caste society could be ostracised as an untouchable, whereas in another society someone from the same centile could still be a member of the community. So I interpret Cass's 'thriving' as something much closer to 'living a life which society considers respectable' than 'keeping up with the Joneses'.
On looking into the data in more detail though, I think this is mostly irrelevant. Because actually, the changes to the COTI are almost entirely down to healthcare. According to Winship's improved calculations for men over 25, healthcare spending nearly quadrupled from 2.1 weeks of income to 7.9 weeks. In 1985 it made up 5.2% of the total 'thriving' expenditure, but by 2022 it was 17.7%. The overall improved COTI has increased by 5 weeks from 39.9 to 44.8, but with healthcare excluded it would actually decreased by a week from 37.8 to 36.8. One of the main factors in Winship's preferred COTI is that, adjusting for quality, a 2022 level of healthcare would have required 5.3 weeks of income in 1985.
I'd therefore claim that the answer to the question of whether Winship's quality improvements should be taken into account comes down almost entirely to whether you think an increased consumption of healthcare can be considered more 'thriving'. For reference, life expectancy in the US has only increased by 7%, from 75 to 80 over the same period. In that sense, I think you're right that a lot of the discussion around the COTI is confusing the real issue.
I'm not sure I follow. What should make us think that what Cass et al are trying to measure is the cost of a basket of goods and services needed to maintain constant respect by society? As you suggest (I think?), it's hard to see why I should (or Cass does) interpret healthcare spending as more or less pure untouchable-caste-avoidance.
“He points to Linder’s Theorem, which I hadn’t seen before, which states (correctly): “rising productivity decreases the demand for commodities whose consumption is expensive in time.”
What happened to the great stagnation? If productivity isn’t rising very much relative to the sentiment that people aren’t thriving so easily anymore, then this story doesn’t seem to make sense. Unless the effect is exclusively being driven by women in the workforce which I suppose it could be.
But TFP at least seems to indicate productivity is especially flat over the last 20 years (cue famous graph, linked below). And my sense is that much of the feeling of not thriving has been concentrated during that window of time.
https://www.elidourado.com/p/notes-on-technology-2020s
The health insurance premium thing was off for sure. Still, it’s a huge increase burden either way.
We could just as easily drag in state and local taxes to offset the federal.
There is also the matter of retirement. People used the have pensions (for free). Now they have 401ks, which they have to contribute to.
The housing discussion was confusing. The real question ought it be:
Is it easier for a man in his 20s starting a family to buy a house in a safe neighborhood with a decent school near good jobs.
That’s a negatory.
Yeah, there are a lot of things one should factor in that are not there. If state/local taxes moved a lot that's important, retirement account contributions need to be factored in, etc.
Crime is actually down a bunch though, and safety is way up, a 'safe' area in 1985 would be dangerous now I think.
Crime is complicated. There was a peak in 1990, but that followed a massive increase since 1960. What’s the correct measure?
School districts are also interesting. there are fewer “good” school districts than before in the inner suburbs, and the ones left are more expensive.
I look at my dads job and everyone that has it now seems a lot worse off. They need to buy houses out in the far away exurbs and commute an hour plus each way every day because it’s all they can afford. There is no way my dad could buy the house he bought in the 1980s today.