Warren Buffett and our kid's future.

[samclem]

Best read I have found explaining chart.

Understanding the Historic Divergence Between Productivity and a Typical Worker’s Pay: Why It Matters and Why It’s Real | Economic Policy Institute

Increasing productivity enables an increase in wealth (more goods/services produced per hour=more goods/services available with a given number of work hours). Pay (like any other commodity) is set by supply/demand. If the supply of workers is plentiful, we should expect pay increases to be low. Workers don't automatically get a pay increase because their companies are productive and profitable. If they want to share in that (and the accompanying risk when there are not profits), they need to become owners--buy stock.

Regarding the EPI report--well, consider the source and their viewpoint. There's very little in that report that takes into account true labor force availability and demand (which is the major factor affecting wages--a key item they are supposedly studying). U.S unemployment figures tell us little about the "slack" in the labor force (a better measure is labor force participation, not mentioned by EPI in their report, but nearing historic US lows right now). There are plenty of available people to work in the US for the number of jobs available (esp at low skill levels), that's going to drive down pay. And that's before we consider the inevitable foreign labor market factors.

 

[marko]

Back when I was a kid, a guy with a stay at home wife and a lower level job as a milkman/factory worker/grocery clerk/shoe salesman/car mechanic could buy a decent home, drive a new-ish car and put his kids through school with little problem and still have a little left over for two weeks vacation by the ocean.

Sorry Mr Buffett, I don't see folks with moderate income being able to do that today.

Yes, they can now just veg out in front of their gigantic affordable TV in their apartment and pretend it's all good, but....dunno.

 

[AnonEMouse]

Back when I was a kid, a guy with a stay at home wife and a lower level job as a milkman/factory worker/grocery clerk/shoe salesman/car mechanic could buy a decent home, drive a new-ish car and put his kids through school with little problem and still have a little left over for two weeks vacation by the ocean.

Sorry Mr Buffett, I don't see folks with moderate income being able to do that today.

Yes, they can now just veg out in front of their gigantic affordable TV in their apartment and pretend it's all good, but....dunno.

Yours and Samclen's posts meshed together perfectly. The solution is to put all the ladies back where they belong - in the kitchen. That would drastically reduce the supply of labor thereby driving wages back up.




[Just kidding. It obviously won't increase wages because of foreign labor competition and automation. Oh, also kidding about that kitchen thing. ]

 

[HFWR]

Back when I was a kid, a guy with a stay at home wife and a lower level job as a milkman/factory worker/grocery clerk/shoe salesman/car mechanic could buy a decent home, drive a new-ish car and put his kids through school with little problem and still have a little left over for two weeks vacation by the ocean.

Sorry Mr Buffett, I don't see folks with moderate income being able to do that today.

Yes, they can now just veg out in front of their gigantic affordable TV in their apartment and pretend it's all good, but....dunno.

Might still be able to do it, if you buy a 1000sf home and one economy car, similar to the 1950s lifestyle.

 

[Markola]

Has the nail gun led to more affordable houses for the construction worker whose salary has not benefited or did the productivity increases/savings go to pay for someone else to increase their standard of living from a $2M to a $10M house?

On a per square foot basis, I bet housing is cheaper and better today in relative terms, thanks to more efficient global supply chains and interest rates of 3.6%. The problem is that new 1500 sf house of our parents in a dense inner suburb seems to have gone the way of the dodo. Now that construction worker and his/her working spouse drives to the farthest exit out that the monthly payment becomes affordable for a 2500+ sf house with much bigger operating costs and massive commuting costs for two cars. In this country, average real wages have flattened but average consumption has increased dramatically. So has average debt. We assume that consumption has lead to a higher quality of life, even though we are less happy as a people as demonstrated by how we're all mad at each other and can't govern ourselves well, so it also turns out quality of life can improve while happiness declines. I do like typing into my iPad, though, and am going to get a new version ASAP!

 

[hnzw_rui]

Might still be able to do it, if you buy a 1000sf home and one economy car, similar to the 1950s lifestyle.

800-1000 sq ft home is $500+K where I live.

 

[NW-Bound]

Might still be able to do it, if you buy a 1000sf home and one economy car, similar to the 1950s lifestyle.

But where can you buy such a home with a single car port without AC, and a car also with no AC, power steering, power brake, power locks? They don't make them anymore. Take out the numerous airbags, please. Oh, they still make it, but call it EZGO now.

My mother-in-law's cell phone is on our plan, and we had to look for a simple phone for her, not a smarty one. Thank goodness they still made one.

 

[Nemo2]

Back when I was a kid, a guy with a stay at home wife and a lower level job as a milkman/factory worker/grocery clerk/shoe salesman/car mechanic could buy a decent home, drive a new-ish car and put his kids through school with little problem and still have a little left over for two weeks vacation by the ocean.

It's been eons since I took any macro/micro economics.....but, it seems to me that, immediately post WWII, pretty much the only countries whose manufacturing capabilities weren't destroyed, severely curtailed or nonexistent, were the US, Canada, and to a somewhat lesser degree, Australia.

There was 'full' employment, (and perhaps jobs even went unfilled), accounting for the higher wages paid to those holding positions which would/should otherwise have been lower paying.

Europe & Japan were slowly rebuilding their industries, the Soviets were in poor shape and isolated, and Africa/the M.E/Asia (sans Japan), were producing little or nothing of quality...it was a Goldilocks situation for as long as it lasted.

 

[photoguy]

On a per square foot basis, I bet housing is cheaper and better today in relative terms.

I forgot to add a link to my housing price graph but you can see the original here:

Daily chart: American house prices: realty check | The Economist

The chart is nicely done and you can play around with many of the display options. But basically, except for a few places like Detroit, Houston, St Louis, housing costs have gone up in real terms,

The price indexes are normally based on repeat sales of the same house, so changes in sq ft shouldn't be a factor.

 

[marko]

Yours and Samclen's posts meshed together perfectly. The solution is to put all the ladies back where they belong - in the kitchen. That would drastically reduce the supply of labor thereby driving wages back up.

[Just kidding. It obviously won't increase wages because of foreign labor competition and automation. Oh, also kidding about that kitchen thing. ]

You missed my point, but it's nap time now for me so I don't have time to explain it to you. Maybe later.

 

[Gone4Good]

Best read I have found explaining chart.

Understanding the Historic Divergence Between Productivity and a Typical Worker's Pay: Why It Matters and Why It's Real

To summarize the lengthy report linked above it sites three reasons for the divergence between productivity and pay since the 1970's.

1) A higher share of national income goes to capital and a lower share goes to wages than was true before 1970

2) A growing share of the nation's income goes to fewer people

3) A worsening in the terms of trade meaning that " the prices of things we buy (i.e., consumer goods and services) have risen faster than the prices of items we produce"

These three things are not immutable forces of nature. To a large extent they reflect choices. Other choices would yield different results with different trade offs. But often overlooked in these discussions is that the choices we've made have trade offs of their own.

 

[NW-Bound]

To summarize the lengthy report linked above it sites three reasons for the divergence between productivity and pay since the 1970's.

1) A higher share of national income goes to capital and a lower share goes to wages than was true before 1970

2) A growing share of the nation's income goes to fewer people

3) A worsening in the terms of trade meaning that " the prices of things we buy (i.e., consumer goods and services) have risen faster than the prices of items we produce"

These three things are not immutable forces of nature. To a large extent they reflect choices. Other choices would yield different results with different trade offs. But often overlooked in these discussions is that the choices we've made have trade offs of their own.

Yes. Different systems lead to different results, quite often not as predicted. Sometimes, we can look at systems in other countries and their results for a sneak preview before taking the plunge to change.

 

[HFWR]

But where can you buy such a home with a single car port without AC, and a car also with no AC, power steering, power brake, power locks? They don't make them anymore. Take out the numerous airbags, please. Oh, they still make it, but call it EZGO now.

My mother-in-law's cell phone is on our plan, and we had to look for a simple phone for her, not a smarty one. Thank goodness they still made one.

I was attempting to illustrate expectations creep.

Granted, to find a house that size, you might end up in the "older" parts of town, but the point was that families lived in much smaller houses in the good old days. Nice to have 2-3 baths, certainly, and maybe 3-4 bedrooms if your family is large enough, but that's an extra 300-500sf, not the 3000-5000sf extra found to many new homes.

As for the car, you can get a Nissan Versa, or similar, that has a/c, and likely many safety features unheard of then, for around $11k. And it will likely outlast the lifetime of a 50s-60s car by 2X or more.

 

[Gone4Good]

Sometimes, we can look at systems in other countries and their results for a sneak preview before taking the plunge to change.

Keeping in mind, of course, that things aren't binary. Policy changes happen on a very long continuum. And taking a step in one direction doesn't necessarily mean following that direction to some absurdly extreme place. Sometimes it's just a matter of backing away from the opposite extreme.

 

[clifp]

I buy the argument that due to technology innovations things will be better in an objective and quantifiable sense for new generations. But at the same time I think much of a persons happiness is due to their relative standing and relative income. This is old question about whether you prefer to make 50k when your coworkers make 40k or would you prefer to make 100k when everybody else is at 200k.

Advances in technology isn't going to help a young couple buy a home. I know an elderly couple who bought a very nice Eichler home in Palo Alto on two teachers salary. No way that can happen today. Heck I even know tech couples at Google that are struggling to buy a home in the Bay Area and they are clearly well above the median.

I'm sure there are other examples where technology can't increase the supply of a scarce good or resource and the wage gap makes many feel like they are falling behind (I.e. are worse off than their parents)




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I think Palo Alto has been out of the range of two teacher salaries for many decades. I teamed up with my old college roommate to buy my first house and even with 2 engineer salary and two roommates it was a stretch 30 years ago.

But even back than Palo Alto was unaffordable, throughout the 80s and 90s the only people that I knew that bought in Palo Alto were power couples where they both were senior managers, with combined incomes in the 400-500K+ range (in today's dollars).

 

[NW-Bound]

I was attempting to illustrate expectations creep...

So was I.

Keeping in mind, of course, that things aren't binary. Policy changes happen on a very long continuum. And taking a step in one direction doesn't necessarily mean following that direction to some absurdly extreme place. Sometimes it's just a matter of backing away from the opposite extreme.

Understood. To use an investment analogy, we are not 100% stock, nor 100% bond. Not too many countries are that way. Those failed spectacularly.

But 70% stock or 40% stock? There's plenty for discussions right there.

 

[Rustic23]

Not surprised that the avg sq. ft. of a home has gone up. Baby boomers grew up! With that the demand for larger homes grew.

 

[GravitySucks]

I'm sorry, but it is an intriguing chart, and has a obvious inflection point at 1973. How we can discuss it without singling out the event that caused it is just not possible for me. Inquiring minds want to know.


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U.S. Going off the gold standard and the start of a very inflationary period. Maybe the inflation stomped labor harder than capital.

 

[petershk]

I use two gut checks.

Let's assume you are going to roll a 6 billion sided dice and randomly be any person in the world. Would you roll it? I wouldn't... and I bet most people if not all, in the US also wouldn't.

You can roll the same dice and randomly get any point in history. 5 years ago, 50, 500... again, I wouldn't roll that one and I think most people wouldn't.

Inflation adjusted income being up less in the middle than in top does suck... but that's a small piece.

Quality of medical care, access to information and entertainment, and almost all other parts of life in the US (and most 1at world countries) is much better than 200, 100, 50 and even 20 years ago IMO.

I suspect that will be true in the next 50, 100 and 200 years.

Just think... I'm 40. When I'm 80 it's highly likely Alzheimer's, various forms of cancer, diabetes, etc are either cured or much better managed. It's likely that technology will make interacting with grand kids better and easier, travel will be faster... generally everything will be better.

Of course the media will be full of people saying how terrible things are and how much better it was back in 2016

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