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A Higher American Minimum Wage Is Something We Shouldn’t Even Be Debating

A Higher American Minimum Wage Is Something We Shouldn't Even Be Debating

You’ve probably heard the phrase “too big to fail.” Hopefully, you’ve also recognized what a dangerously faulty argument it is.

Dangerous how? Because it encourages the assumption that human enterprises of a certain size can’t do any wrong. As a consequence of giving undemocratic institutions the benefit of the doubt, we’re not just giving them a pass when it comes to questions of monopolypreying on customers, and lobbying watchdog institutions into oblivion. We’re giving them a pass on failing to protect human dignity itself.

Here’s one alternative: If you’re too big to fail, you’re too big to exist. And if you’re “too successful” or “too important” to pay your workers a living wage, you don’t deserve to be a business owner, and your business doesn’t deserve to survive.

Anybody keeping score honestly knows that it’s workers who “create jobs” for CEOs and “shareholders” — not the other way around. And once that becomes obvious, the next obvious conclusion is how completely we’ve all failed the very idea of a minimum wage. In fact, stop thinking of it as a “wage” at all, and instead think of it as something that protects a country’s most vulnerable citizens — and its minimum standard of living.

The minimum wage in America isn’t succeeding on either of these fronts. In fact, it’s failed so completely that raising the minimum wage isn’t merely a good idea — the urgency of doing so is actually something of a humanitarian crisis.

Debunking the Most Persistent Myths About the Minimum Wage

The federally mandated minimum wage came about in 1938, but President Franklin D. Roosevelt began campaigning directly to the public on its behalf in 1933. As he did so, he laid out a clear vision for a major part of the safety net which would, as best as we are able, attempt to spread out society’s purchasing power across “job-creators” and wage earners alike.

Here we arrive at one of the most dishonest modern talking points about the minimum wage: that it “was never intended” to support a family and a household. Of course, this idea isn’t a talking point at all, but sheer propaganda — said FDR in 1933:

“No business which depends for existence on paying less than living wages to its workers has any right to continue in this country … [and] by ‘business’ I mean the whole of commerce as well as the whole of industry; by workers I mean all workers, the white-collar class as well as the men in overalls; and by ‘living wages’ I mean more than a bare subsistence level — I mean the wages of decent living.”

He continued: “Without question … [the minimum wage] starts us toward a better standard of living and increases purchasing power to buy the products of farm and factory.”

Many states over the years have added legal weight to the murky idea of “purchasing power,” but the end result is that most progressive minds view the minimum wage as inexorably tied to the major components of the American Dream: financial stability and dignity, the freedom to pursue a family and the ability to own a home. There are two takeaways from all this:

  • A “minimum wage” is not the same thing as a “living wage.”
  • Businesses that pay their workers the minimum wage would likely pay them even less if they could — except that we’ve made it illegal to do so.

And as our collective national productivity has increased, the average worker’s “share” of all that success has grown by a pittance compared with the rich man’s share of it. Between 1973 and 2013, the average wage of a typical hourly employee rose by just nine percent. Over the same period, overall economic productivity increased by 74 percent.

In other words, all workers are working harder than ever — but wages haven’t reflected it. But guess whose income — whose “minimum wage,” so to speak — definitely has reflected all of this additional breakneck productivity? It’s CEOs, whose average pay has ballooned by 930 percent since the year 1978. That’s faster growth than the entire stock market saw over the same period.

One last data point. It’s one that might make this sad situation harder, rather than easier, to believe: It has actually become impossible to pay for a two-bedroom apartment, anyplace in America, while earning the current federal minimum wage. In some states, you’d have to earn $20 or more, while in others, you’d have to make $30 or more per hour.

This situation is part of why affordable housing crises in powerful nations are still a problem, so much so that individuals often have to rely on unlikely sources of funding just to pay their mortgage or rent. Americans shouldn’t have to rely on the goodwill of friends, strangers on GoFundMe, local organizations and businesses by which they’re not even employed, and other volunteers for financial support. Their own employers should be taking care of the basic human need for shelter and a base level of comfort.

So: We’ve already erased homeownership from the “privileges” reserved for minimum wage earners. Now, we’re on the verge of erasing even the privilege of renting what somebody else already owns. This crisis is what people mean when they say the minimum wage has “lost its buying power.”

All of this change means that paying seven bucks for an entire hour of any human being’s life is either a joke or a tragedy. In any event, it’s an embarrassment for a country that barks about being the best at — well, anything at all.

The Moral Case for “Spreading the Wealth”

Armchair economists, like our aunts and uncles, believe hiking the federal minimum wage would cost human jobs. The entire accumulated life work of many honest economists has refuted this claim again and again in manifold ways. Our accumulated research points to the opposite conclusion: A minimum wage that protects the purchasing power and dignity of all citizens is far better for the overall economy than one that does not. The call for a higher minimum wage should be on the lips of every politician who wears the mantle of “fiscal conservative.”

And money sense is just the beginning of the case to be made. America is one of, if not the, most productive and successful nations in the history of Earth. But for many decades, the most well-off among us have rewritten the rules of the game so that they can take home more pieces of a pie that we’re all supposed to be sharing. One way they’ve done this is by lying to us about the intentions of the minimum wage.

It’s time to end this campaign against economic dignity and redress the shortcomings of our social contract. Today, the average CEO makes many hundreds of times as much money as the average worker, often for many hundreds of times less honest work.

Meanwhile, the minimum wage isn’t even enough to escape from poverty, which is literally the one last thing we should be able to count on a minimum wage to do. And that’s even if we’re willing to concede that it “can’t” or “isn’t supposed to” facilitate childrearing, marriage or the dream of property ownership — which we shouldn’t be.


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Kate Harveston is originally from Williamsport, PA and holds a bachelor's degree in English. She enjoys writing about health and social justice issues. When she isn't writing, she can usually be found curled up reading dystopian fiction or hiking and searching for inspiration. If you like her writing, follow her blog, So Well, So Woman.

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286 thoughts on “A Higher American Minimum Wage Is Something We Shouldn’t Even Be Debating

  1. “Armchair economists, like our aunts and uncles, believe hiking the federal minimum wage would cost human jobs. The entire accumulated life work of many honest economists has refuted this claim again and again in manifold ways. Our accumulated research points to the opposite conclusion: A minimum wage that protects the purchasing power and dignity of all citizens is far better for the overall economy than one that does not.”

    This isn’t accurate, and the Media Matters link with a few studies doesn’t support this.

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  2. Here’s one alternative: If you’re too big to fail, you’re too big to exist. And if you’re “too successful” or “too important” to pay your workers a living wage, you don’t deserve to be a business owner, and your business doesn’t deserve to survive.

    What the hell kind of bass ackwards opening argument is this?

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    • We used to call them “Mom and Pop”s. The good news is that we can put them out of business and have them be replaced by national chains like Wal-Mart or Dollar Chancellor that can afford to pay minimum wage.

      (Hey, do you think that there’s a reason that Wal-Mart is lobbying for a higher minimum wage?)

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      • I am slightly confused by the claim that Mom and Pops will be driven out of business if their workers are paid a reasonable wage. And if that question isn’t worth answering, perhaps it is worth asking why we’re still making policy focused on the preservation of those Mom and Pops, while ignoring the giant corporations barely paying their workers, and all of the workers themselves.

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          • The more right-leaning people make the argument against basic social democratic policies that are supported all around the world, even by center right parties in other nations that basically, “if you don’t do what corporations want, they’ll hurt the economy,” you shouldn’t be shocked, when in response, more and more people ask, “why do we let these corporations have so much power then?”

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        • I am slightly confused by the claim that Mom and Pops will be driven out of business if their workers are paid a reasonable wage.

          Perhaps it would make more sense if I talked about multi-national corporations gentrifying neighborhoods populated with one-of-a-kind shops that were owned and managed by members of the community?

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        • I wasn’t aware that Wal-Mart was lobbying for a higher minimum wage, not that it matters because if it does go up, they, like other retailers, fast food restaurants and grocery stores, will continue to reduce headcount by putting self-checkout stations in stores where they don’t have them and maybe expand on the concept.

          The two McDonald’s closest to me are tear-downs and rebuilds, done over the last five years or so. The most noticeable difference was increasing the number of drive through stations from one to two and the drastic reduction in the number of cash registers. Now I’m seeing automated ordering.

          What I’m interested in knowing is whether or not the food preparation areas have been changed in order to require fewer people to prepare orders at or better than what was previously done.

          Anyway, we can argue about the minimum wage all we want, but at least let’s do it from the proper context.

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          • We should note that, as McDonald’s has (and they absolutely have) steadily cut human staffing (which is not the same as automatization, which has happened more unevenly), the value of the product they offer, which I will define as (quality of food product) divided by (time from order to delivery) has plummeted, mostly on the denominator side. We should also note that the minimum wage was not increased during the relevant period.

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            • Michael,

              Technically, you’re correct if we’re discussing federal wages.

              State minimum wage in NJ is $8.85 /hr and increased $0.25/hr effective January 1. It was also increased from $7.25 to $8.25 effective January 1, 2014. From 2013 to today, that’s an average annual increase of 4%. The basic math increase is 22%.

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              • I’ve noticed the effect – I want to say in a pronounced way but I’m not sure I have a lot of comparison – in places where there certainly haven’t been increased, namely Wisconsin, where the minimum wage stands at the federal minimum at this very moment.

                There is actually one variable I left out in my account of the decline in experience value stemming from staff cuts – it could also come (in and or/and way) from a decline in worker quality or motivation. And if wages have been depressed due to whatever factor, that is likely part of the story. This is something that minimum wage increases actually could probably help with.

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                • It’s very possible that our experiences differ based on geography. It’s also possible that fast food restaurants do better business in other markets where there’s some headroom on wages. It’s not out of the realm of reason.

                  As to worker quality or motivation, wages could play a part in that or at the very least, it could reduce turnover. High turnover is costly in any situation.

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      • I mean, some of the worst stories about labor abuse I’ve read about is from dictatorial Mom & Pop stores that think they’re allowed to do whatever they want because they’re a “small business” so I don’t have much sympathy for them either.

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        • I’ve heard many stories of labor abuse. Interestingly enough, the thing they have in common is that the jobs were minimum wage rather than Mom&Pop. Stories from McDonalds right next to stories from the little local place.

          Delicious Tacos has an amazing post about a Shit Job at Mickey D’s and the comments have an amazing story about UPS.

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          • (I suppose I’ve also heard stories of abuse in middle-class white collar jobs as well… but they all involved capricious managers and no chain of command where their misdeeds could be brought to light. But I suppose we’re not talking about that sort of thing in this thread.)

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          • Jeeezus.

            I must be sure that Oldest Boy never ever ever reads that blog. I already can’t convince him that he needs to get a damn job and that blog would pretty much cement the idea in his head that jobs are bullshit.

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  3. https://ordinary-times.com/2015/11/17/market-failure-1/

    “The conditions required by the First Welfare Theorem area little technical, but in broad terms for markets to be perfectly efficient the following things need to be true:

    -The costs and benefits of a transaction accrue to those who are engaged in the transaction – that anyone who is gaining or losing from another’s activity has a chance to bargain with them.

    -No one player in the market, be they buyer or seller, may have enough influence to materially affect prices through their own decisions.

    -People need to have some baseline level of information and decision-making ability.

    Having read that list, you may be ready to object that the real world doesn’t look much like that. And you’d be right. The point of the First Welfare Theorem is to give us a model of a perfect market, so we can identify the flaws in real-world markets. ”

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  4. This post is passionate but sorely lacking in recognizing the balance and trade offs involved in minimum wage policies. Setting a single blanket minimum wage for the entirety of the United States and thus applying the same standards to urban New York and rural Mississippi, for instance, is a very blunt instrument. It also ignores that there’re serious consequences to an excessively high minimum wage- to wit- the elimination of jobs entirely. It’s not like the choice here is between having a low paying job and a high paying job but rather a paying job vs no job at all. If we set the floor on minimum wage above what a given job is worth to the employer than the employer will simply not fill the position.

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  5. Poverty is a valid social problem to be concerned about, but minimum wages are not a good solution.

    1) Price controls will always do unpleasant things to a market – prices are the nervous system of an economy and tampering with them will cause perverse behaviour in some way. Much of the reason your healthcare system is so messed up is because of New Deal-era wage controls.

    2) Employers will never pay more for a worker than the value the worker generates for that employer. Minimum wages don’t change this calculus, they just result in employers being less willing to hire. Now, don’t get me wrong – it isn’t a worker’s fault they can’t can’t generate enough income to sustain a decent standard of living, market’s don’t operate on principals of desert. But the cost burden of addressing that problem should rest on society collectively via taxation and welfare, not on a specific employer who is nor more responsible for the situation than anyone else.

    3) Most of the rest of what you are talking about is unrelated to wages themselves – housing affordability in urban centres is a supply issue driven by urban planning policies. If businesses are driving down wages by colluding then am,minimum wage might have positive effects, but imperfect competition is a problem in its own right, and empowering the FTC is a much better idea than trying to claw back a small amount of monopoly rent with minimum wage laws.

    The only real upside to minimum wages is a political one – because the costs are pushed onto a third party it looks like a cheap policy, but hiding the costs of solving social problems is bad practice, especially since those costs won’t ultimately be borne exclusively by those employers.

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    • “2) Employers will never pay more for a worker than the value the worker generates for that employer. Minimum wages don’t change this calculus, they just result in employers being less willing to hire. Now, don’t get me wrong – it isn’t a worker’s fault they can’t can’t generate enough income to sustain a decent standard of living, market’s don’t operate on principals of desert. But the cost burden of addressing that problem should rest on society collectively via taxation and welfare, not on a specific employer who is nor more responsible for the situation than anyone else.”

      I think there is a theory/practice problem here. Theoretically you are probably nice but the same people who say the minimum wage is no good also decry the taxes necessary to have a good welfare state.

      So lots of people like me and Jesse just see this as “Heads I win, tails you lose” argumentation by the power and money horders and their lickspittle lackey defenders/courtiers.

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      • I understand how that could be annoying. A group of people telling you “do Y not X”, and then you say “OK, how about Y then?” and a similar group of people start yelling “No, we’ll never accept Y!” That’s a really frustrating position to be in.

        Think about it this way – there is a significant constituency in the US who will oppose any government policy to help the poor. Since they are your primary obstacle and they will oppose you no matter what, why not go with the policy with the best technical merits? After all isn’t using expertise to guide government to achieving its greatest good part of the liberal ideal? That’s an ideal you and I share, even if it manifests differently in each of us.

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    • Well said. It is encouraging to read comments which are better in every way than the original post.

      I would add that minimum wages are a terribly inefficient way to address poverty, and that they foster unfairness and privilege as they privilege higher productivity employees against lower productivity employees, and take away the bargaining power of lower productivity employees (to do the job for a lower wage than the high productivity competitor).

      I suspect Kate is framing the issue as a competition or conflict between labor and management, which leads to incorrect conclusions. It is more enlightening to frame it as a competition between potential employees for a job of cooperating with management to serve customers. A minimum wage handicaps lower productivity employees against those with higher expected productivity at that point in time. It is unfair to the truly disadvantaged.

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      • The original min wage was passed to support Jim Crow laws.

        The first attempts at a minimum wage rate occurred in 1931 with the Davis-Bacon Act… The act was initial championed as a method to prevent non-unionized black and immigrant labor (primarily from China and Japan) from competing with existing union labor, which often limited or prohibited minority membership.

        The act was initially written by Representative Robert Bacon of Long Island who expressed concern during his attempts to get a series of bills passed that limited immigration to preserve the “racial status quo” and supported early version of Jim Crow laws. During the debate over what became the Davis-Bacon Act, Rep. William Upshaw, a Georgia Democrat quipped to his northern colleagues that he hoped it wouldn’t be held against him if a southerner “smiles over the fact of your reaction to that real problem you are confronted with in any community with a superabundance or large aggregation of Negro labor.”[36]

        https://en.wikipedia.org/wiki/Minimum_wage_in_the_United_States#Progressive_Era

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  6. Re: all of the arguments about how little the minimum wage workers are “worth” to the companies they work for.
    How much money does McDonalds make without line cooks? Without cashiers? How much does Walmart or Kroger make without people to unload the trucks or stock the shelves? There’s automation, yes, but that’s not (yet) a feasible replacement for all actual humans in all low-level jobs.
    The idea that these low-level workers are of so little value to a company boggles my mind.

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    • How much money does that line cook make without a place to work?

      The average restaurant has a profit of 3-5 percent, the average auto shop 3 percent. And that is just to pick two common businesses. No, they don’t work without the cooks, mechanics, cashiers, etc. But those positions don’t assume any of the risks with business ownership. My business dropped around 10% with the fires in CA this year. Would any employee will take a 10% cut in pay for something they have no control over, that I had no control over? No, I have to bear that cost (not that I have any employees).

      An employee is worth exactly what they bring to the table, no more, no less. Trying to make the laws of supply and demand act differently doesn’t work.

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      • So instead of looking at it as “a restaurant doesn’t deserve to stay in business if it can’t pay its staff a living wage”

        How about

        “We as a society don’t deserve restaurant meals if we’re not willing to pay enough for them for the restaurant to pay its staff a living wage.”

        Labour costs are, what, 15-20% of a restaurant’s overall expenses? So, a 20% wage increase means a 3-4% increase in menu prices. We can probably pay that.

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    • To echo Aaron, yes the cook is necessary. But are they adding sufficient value to the whole to be worth $X more than the owner is paying?

      Something or someone being necessary to the proper functioning of a system does not indicate that it’s cost should exceed it’s worth.

      Think of it this way. If you get a flat tire on your car (and it’s beyond simple repair), your car becomes worthless. How much are you willing to pay to replace that slab of rubber? Without that tire, your car’s utility is close to zero (I guess you could use it as shelter from rain, so it’s not quite at the point of ‘sell it for spare parts’, but it’s not going anywhere). So the tire vendor should be able to set a price high enough that it would vastly exceed the cost of making the tire, but not quite high enough that replacing the car is a better value.

      But they don’t, because competition.

      Line cooks at fast food places are necessary, and valuable, but they are also very low skill and easily replaced. Competition for those positions keeps the wage low.

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      • Competition for those positions keeps the wage low.

        Which means all the babbling about “marginal productivity of labor” has fuck-all to do with wages.

        MPL is one of those abstract concepts from academic econ that has no practical application. What’s your MPL? How would you even begin to measure it? At best you may be able to ordinal rank two workers doing the same job but I would defy you to put cardinal numbers on it.

        Another way to look at it: I could pick up a box and start walking with it, say, 50 lb 5 mph. With my rig I can haul ~ 45k 70 mph. That’s a ratio of 12600:1 in productivity. So does that mean the owner of the capital (the rig) is due 12599/12600 of the profit and I’m due 1/12600 of it? Good luck finding drivers.

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        • I wouldn’t say it has nothing to do with wages, but marginal productivity of labor isn’t the sole variable in the wage equation. Competition factors in as well.

          The thing about MW jobs is that they tend to be easy to get, easy to learn, low skill jobs, which means everyone trying to enter the labor force and build up the experience needed to go further (i.e. High School Kids, etc.), is competing with the adults who lack the skills (or resume*) to get something better, but still need to live as an adult.

          *Including people recently out of the correctional system who aren’t allowed to get better paying work, for ‘reasons’…

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          • I agree with you insofar as competition goes but you didn’t answer my question.

            “What’s your MPL? How would you even begin to measure it? ”

            The reason I insist on asking this is that, if I’m correct in my belief that MPL is only an immeasurable, abstract concept, then arguments incorporating that concept to explain low wages are really just gussied up versions of “You don’t deserve to make enough money for a decent life. Sit down and shut up!”

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            • That might be a better question for . My gut says, “this is why we have markets, because the variables are hard to measure, but the system seems to figure out some way to come to a value/price/wage”.

              But I wouldn’t try to pin a single reason for why a price/wage is what it is. I don’t think I did, did I?

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              • Well NOW I can see this comment. I replied below. But let me reiterate and clarify my position here as well.

                We agree that wages are set by the market as functions of supply and demand. I believe we disagree on two points:
                1. I reject the idea that The Market (PBUH) somehow magically calculates how much a particular type of labor is worth in the sense of how much it contributes to the bottom line. The Market can’t see that; all it can see is the abundance of willing and capable workers relative to the demand for that species of labor. Example: Famously, when labor was tight during the recent oil boom in N.D. McDonald’s was having to pay something like $15/hr to staff up its stores.

                2. The supply curve for labor doesn’t look like the neat charts presented in Econ 101. Rather than being monotonically increasing I believe it’s actually U-shaped. Why? Mostly because we can’t live on O2 and humidity. There’s a minimum amount of income necessary to stay alive and if the wage level is too low to provide that with a normal 40-hr workweek then those workers have no alternative but to supply even more labor to the market to make up the difference.

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                • I can see your confusion. My intent wasn’t to try and slap a single variable onto the problem and claim it stands independent of all the other variables. I recognize that it’s a combination of factors coming together that determine a price for a given labor. The point I was trying to make was (and that I was stumbling toward) was that being necessary to the operation of a business is not a claim that can alone demand higher wages. If a business is efficient, everyone working there is necessary to the operation.

                  Given that everyone is (ideally) necessary, something else has to be at work to determine the price for a given labor. Part of that is how much value the labor adds to the operation, part of that is how easily the person providing the labor can be replaced, part of that is the local price for such labor (which is what MW tries to set a floor under), etc.

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                  • I don’t disagree with anything you just said with one exception.

                    Part of that is how much value the labor adds to the operation, part of that is how easily the person providing the labor can be replaced, part of that is the local price for such labor (which is what MW tries to set a floor under), etc.

                    I don’t believe it’s possible to define, let alone measure and quantify, “how much value the labor adds to the operation”. I don’t believe you realize it or intend to do it, and I’m sure you’re horrified at the suggestion, but you’ve pretty clearly invoked the spectre of Marx’s Labor Theory of Value there.

                    My contention is that wages are set entirely by market forces, absent a MW of course, and that invocations of MPL to justify shitty wages in some situation are really invoking LTV in a tautological fashion. Low market wages are proof of a low LTV which justifies the low wages in the first place.

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                    • I don’t believe it’s possible to define, let alone measure and quantify,

                      Neither do I. It’s a variable, but it’s a variable that is hard to measure. It’s estimated value is deduced from other, more measurable values. But it’s still a variable.

                      I’m OK with this. My day job is full of variables that are hard, if not impossible, to measure. Their value is computed by solving the equations with data we know or assume to know.

                      If it helps, think of MPL as a dependent variable.

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          • Which is sorta where I’m at.
            I first remember hearing this Econ 101 stuff with regard to outsourcing and automation back in the late 70s, when Springsteen was singing about displaced steelworkers.
            And the story was that hey, those dirty dull jobs were going boys, but the new clean high tech jobs were coming along, any minute now, and everyone will be better off. Just like how the buggywhip makers got laid off, but got better jobs at the Ford plant.

            ITS BEEN FORTY EFFING YEARS!

            Where are the new jobs? Where are the jobs that allow a single income household to support a family and buy a home?

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            • Buying a home in San Fran is reserved for the top X% because that’s all they build. You have issues with the cost of living for similar reasons. That link I posted at the bottom goes over the growth in single income household income. We make more money than back in the day.

              Counter intuitively, there are more jobs available which can give you that lifestyle. Part of the problem with this kind of discussion is we end up comparing a well paid GM factory job to whatever. The equiv today would be a well paid Amazon or Google job, or if you were very lucky you might be a Microsoft millionaire.

              Yes, Google jobs are rare and not everyone can get them… but no, the entire country wasn’t working for GM.

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              • In 1978, I walked into a factory and get a job on the spot pushing a broom for triple minimum wage.
                That wasn’t considered unusual, it was just how things were, all over.

                Where are the places where single income people are buying houses?

                How many jobs are Amazon/Google producing?

                Where is this wave of middle class prosperity?

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                • You are right to complain about Google.

                  Amazon? Here’s a quote from Google, ironically enough:

                  “Amazon now employs 566,000 people worldwide”

                  So I googled “how many people does GM employ?”

                  180,000 people.

                  Ford?

                  202,000 people.

                  Amazon might be the one internet bubble company that actually has a decent enough number of W-2s that it’s sending out in a couple of weeks.

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                  • Yes, exactly my point.
                    We’ve gone from unionized auto workers to nonunion Amazon fulfillment center jobs who make less than half that.

                    But any day now, those great new high paying jobs are coming along..
                    Any. Day. Now.

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                      • Claiming the US economy was better for workers in 1930 than it is today is seriously using rose colored glasses. There was this thing called the Great Depression.

                        Moving on to 1950, Median family income in 1950 was $3,300. Adjusted for inflation that’s $35,279.53. Median income in 2017 was $59,039. That’s ignoring lower technology and the other ways life sucked back in 1950, especially for minorities.

                        We tend to picture 1950 as great for workers because it was so much better than the previous decades; However not only did 1920 suck compared to 1950 but both of them sucked compared to today.

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                        • Well, from the start, lets just say that innovation happens over time in a free market, so that is kind of a wash if a free market is maintained. We can start claiming deviations of innovation if distortions of free markets occur.

                          As far as minimum wages go, in the thirties there wasn’t much distortion in the job market, and production* was relatively more distributed than what it is today. Therefore capital formation, at least what there was of it, was more distributed.

                          The barriers against owner operators where at a ridiculously low bar compared to any time after.

                          Plus the yay in the 30’s was in reference to socialists and reformers of the day getting their way. Not the conditions of the workers. I apologize, that I may not have made that clear and we could be talking past each other on that issue.

                          *although it was going through a economic problem that had little to do with the free market, and more to do with chance processes built around financial social constructs

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                        • Yeesh, first you suggested up thread that I’m a tea party sympathizer and now a libertarian, heh. Snark aside it was pretty easy for America to be the manufacturing job capital of the world when everywhere else was either crushed under communism or crushed from the wars. The end of the historically unique era you’re talking about bringing back tracked pretty solidly with the re-development of the rest of the worlds manufacturing capacity and the retreat of command economies. But even during that era, in libertarians defense, the exchanges of manufactured goods for raw materials or dough was still mutually beneficial.

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                • I looked up min wage, 3x it, and the median wage for the country.

                  In 1978 you STARTED with the median wage for the country. Congrats, that’s a serious statistical anomaly.

                  But no, every job everywhere isn’t (and wasn’t) above average.

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                • I looked up the median income for 1978 as well as the min wage. Congrats, you STARTED at the median income. Really good for a starting kid pushing a broom.

                  However claiming it was like that everywhere is like claiming all jobs were above average.

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                • Hang on, you got two competing narratives that you are claiming are equivalent, when they are not.

                  1) There should be jobs that pay enough to allow an unskilled worker to support themselves/their family on a single income.

                  2) We were promised good paying, clean jobs to replace the dirty factory jobs.

                  Number 2) happened, but there was a big caveat to it – there was no more ‘unskilled’ part. No more stepping out of High School and getting the job pushing a broom at the factory for triple the minimum wage. You need to have a marketable skill greater than “able to push a broom and avoid getting sucked into machinery”. I know lots of people who have the middle class life on a single income, and the one thing they all have in common is some manner of education, or training, or in-demand skill that they didn’t get in High School.

                  Oh, and they also do stuff like ‘not living in downtown Seattle or Bellevue’.

                  Number 1) was a fluke, because for a brief time, unskilled labor was in demand in the factories in America, and the labor Unions at the time had the power to control the wages in the plant. It was only in those factories where the unskilled labor was so well paid. When you were pushing that broom, how much was the fry cook at the local diner getting paid? He could have done your job, but the factory only needs so many broom pushers, so everyone else is not living that middle class dream you had the start of.

                  Now sure, we could have labor Unions in every workplace, enforcing living wages for every employee, but that didn’t happen, and IMHO, the labor Unions have done such a fantastic job squandering their power and public goodwill for so long that I strongly doubt they will ever rise to such heights again (in their current form).

                  But your fantasy that once upon a time every unskilled person made enough to support themselves or their family is, and has always been, a fantasy.

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        • And yet the OECD comparison of Average Individual Consumption (AIC) which is a measure of actual mean living standards reveals that the US is by far the most affluent nation on earth, and historically has the highest living standards now of any place ever. On top of that we have been the driving force for new tech, new science, new innovative corporations and new medicine for the planet.

          Low unemployment, highest living standards since the Cambrian explosion, and yet for some reason we need folks like Kate and you to tell us jobs don’t pay enough?

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            • Chip: And yet young people are less able to buy a home, compared to their parents and grandparents.

              If this is the yardstick you want to use, then this link showcases why it’s between impossible and very expensive to build homes in your area. I’m just posting the first part, the rest reads like a bad soap opera.

              Bob Tillman has spent nearly five years and $1.4 million on a legal battle to turn his coin-operated laundromat into an apartment building. His saga perfectly encapsulates the political dysfunction that’s turning San Francisco—once a beacon for immigrants and home of the counterculture—into an exclusive playground for the ultra-wealthy.

              The median cost of a single-family home in San Francisco is already five times the U.S. average, and the city now has the highest rent per square foot of any municipality in the nation. The explanation for the crisis is simple: As the city’s population has surged, developers have found it nearly impossible to construct more housing. About 80 percent of San Francisco’s existing buildings were already standing in 1980.

              Tillman has owned his small laundromat in the Mission District for 20 years. In 2013, with the housing market hitting record highs, he decided to tear it down and build an eight-story, 75-unit apartment building. (Christian Britschgi first covered Tillman’s project for Reason back in February.)

              At first, it didn’t seem like a controversial project: Nobody lives above the laundry, the building wouldn’t displace anyone, it qualified for a density bonus and streamlined approval process under state law, and the site was already zoned for housing. While San Francisco passed a comprehensive zoning code in 1978 that restricted the construction of new housing to certain areas, mandated design elements, and limited the height of new structures in some parts of the city to just 40 feet, none of those regulations stood in the way of Tillman’s plans.

              “If you can’t build here, you can’t build anywhere,” he told Reason.

              But San Francisco developers are still required to get permission from city officials for any new construction, so, in early 2014, Tillman began submitting paperwork to the City Planning Department. He went through an environmental review, an application for a conditional use permit, and multiple public hearings.

              In late 2017, the Planning Commission was ready to vote on Tillman’s project, three and a half years after he first applied to build. That’s when the real fight started. …

              https://reason.com/reasontv/2018/12/27/san-francisco-mission-housing-crisis

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            • Standards of living in the US are substantially higher for young people than that of prior generations. They are substantially higher than in Europe. Homes here are larger, much nicer and home ownership is not changing significantly, except in areas with exploitative limits on new home building.

              When you are losing an argument please try not to shift the discussion. Just admit you were wrong.

              I repeat, actual living standards are higher here than any place or time in the history of the human race. Read that sentence again. Try to let its significance sink in. Then Either deal with this as a fact and build it into your assumptions, or understand that your argument based on a false premise probably suffers as well.

              Should I link you to the AIC data?

              The empirically honest way to discuss this issue is to admit that living standards are higher here than every other place and every other time. Thus any honest appeal for higher minimum wage must address the likelihood that it will, as critics who actually understand economics and history suggest, possibly derail something that is working smashingly, unusually, historically exceptionally well.

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              • Adding on to my own comment to Chip…

                For example, one could try to argue that the higher minimum wage rate of the past was partly responsible for our current unusual affluence and that with a higher minimum wage we would be even richer today. I would still be skeptical, but at least the argument is coherent and factually worth considering.

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    • How much money does McDonalds make without line cooks? Without cashiers? How much does Walmart or Kroger make without people to unload the trucks or stock the shelves? There’s automation, yes, but that’s not (yet) a feasible replacement for all actual humans in all low-level jobs.

      This is a variation of Smith’s Value Paradox. In summary, Smith’s version was “if we need water to live, why does it cost so much less than diamonds?”. The answer came in the 19th Century with the Marginal Revolution. The 19th Century economists proved that the relevant factor in determining prices is marginal benefit, not average or total benefit. When you weight up whether to buy a cup of water, your alternative is not usually dying of thirst, so the relevant question is “how much better off will I be for having one more cup of water?” Look at this way, the paradox is resolved – one more cup of diamonds provides more subjective well-being than one more cup of water, given the water we already have.

      Similarly, while the total aggregate benefit of cashiers, frycooks etc. is large, the question bushiness are trying to answer is “will one more hour of labour make me less money, or more money?” Labour, like most things has diminishing returns, and once the benefit of hiring one more hour of labour exceeds the cost, they will stop hiring. Raise the cost of labour, and they will stop hiring sooner.

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  7. Abolishing the minimum wage seems more obviously like a better policy. Even if without the minimum wage, people would be too poor to subsist, it is better to remedy that by wage supports (e.g. EITC), a negative income tax or universal basic income.

    As a moral matter, there is no particular reason why the employer specifically is on the hook to ensure that a person has enough to feed her family. If people are entitled to sufficient resources to support themselves and their families, it seems that society as a whole is on the hook for this and any shortfall in household income should be supplemented from tax dollars rather than employers specifically.

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    • Is there anything keeping EITC, negative tax, or universal basic income from becoming a subsidizing affect against able people finding job/market niches to operate?
      (I may have not put that very clear but not sure how to describe it otherwise.)

      I’m a big fan of thinking there are a near infinite amount of jobs, but think there is a finite amount of pursuit of discovering those niches, when there is a subsidizing of not finding those niches(like minimum wagerism).
      (still may have not made it clear)

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      • Human nature? EITC’s and UBI schemes provide a very low level subsistence level and people generally are inclined to want more than that so they’ll find niches and work if such work is available.

        It does, however, screw over jobs where the only way you can get people to work in them at those wages is threaten them with dead via privation to which folks supporting a UBI etc retort good riddance.

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        • Subsistence level in one place may be 10X the global average, so there is some pretty whack numbers unless you localize. Then there is some pretty sideways morality of saying “because you live 5 miles east of point X you only get 10% of what ‘they’ get”.

          This is where I think Hobbes got it backwards. We start out with few wars against each other. The more Leviathan there becomes, the more wars we have against each other.

          There are the ‘hard to fill jobs’ but how is there ever going to be innovation in some of those jobs if you tend to slice them out of the economy?

          Then there is the problem of not even knowing about those jobs to create innovation in those jobs.

          If there is a localized tax scheme to attempt these subsidies, then you are affecting the local velocity of money in a adverse way. Slower localized velocity of money means there will eventually be lower localized capital formation.

          If I squint just right, it looks a lot like replacing a bad situation, with a really bad situation.

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          • we’re not talking globally, we’re talking nationally. Also to your point- if within the US the UBI goes a long way in certain regions then people who were on UBI would have a tendency to gravitate to those regions which would then put developmental pressure on those regions; a salutary side effect. Likewise people on UBI would likely tend to move away from high cost of living areas which would create some very virtuous cycles in those regions as well.

            If people can’t fill horrible jobs with low pay with other people at that pay level they will have to innovate- develop a way to either automate those jobs or do business without them. Compared to that simply saying “eliminate wage floors and no UBI so people are forced into those positions” is considerably less innovative and also utter political poison.

            If you compare a UBI or a minimum wage scheme to the small gummint utopia that glows in your mind I have no doubt they come out looking inferior; but in this scenario the small-government-shouts-at-clouds option isn’t on the table, and probably never will be. The choice Murali posited is between a UBI and the existing scheme of minimum wages and subsidies and I agree with him that it seems likely a UBI would be the more efficient and effective of those two options.

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            • As long as there are significant quantums of goods being imported we are talking a global framework. I don’t see future wage support schemes that end up differently than the same growing problems that are observed now.

              People vote the schemes, they become less wage competitive than the average global labor market.

              There is no US politician that will do the heavy lifting of making the workforce competitive at the global level.

              Automation doesn’t solve this.

              I don’t have to shout at the clouds. People will continue to vote up minimum wage and all sorts of government intervention until they can’t.

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              • That presumes unimpeded trade. If any nation’s electorate is faced with a choice of having free trade and adopting third world labor wages and standards vs not having free trade then free trade will end up hooked in the dumpster.

                Fortunately I am a bit more optimistic about the global dynamic; wages are rising globally. As to the policy at hand? I think a UBI would work better than a minimum wage (and similar subsidies) but I remain dubious that the US is where it’ll be tested in large numbers. Too big and too immature a political system.

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                • In reality FT should result in higher wages because average productivity in the economy will go up, or at a min cheaper prices for goods which is like a pay increase because your dollar buys more.

                  None of which prevents politicians and the ignorant from pointing to people who lost their jobs and claiming (sometimes correctly) they are unemployed because of cheap labor. Worse, that guy who lost his job may have a lifetime train wreck on his hands. He, personally, may be MUCH worse off for this aspect of FT even if the economy as a whole is better off for it.

                  Which also doesn’t change that tearing up FT agreements makes the country as a whole poorer.

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                  • All well and good and I don’t disagree but the free traders, from the neoliberals like my own tribe all the way to the right from there flat out miscalculated how trade with China was going to go. Coupled with the utter madness (or partisan hypocrisy) of conservative austerity fetishists from 2008 on and we’re looking at an error that has pretty badly wounded center left economics, nearly killed center right economics and utterly annihilated libertarian economics as ideologies that electorates are sympathetic to. As I was saying to Joe; if the voters think that free trade means they have to work at wages that the developing world does? Free trade will go in the chipper.

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                    • Source that trade with China has been a bad thing. And I don’t mean that China has broken various political rules, I mean that we’ve broken various economic rules.

                      As far as I can tell, the usual rules have applied, with something close to the usual results. We heard the same thing about Japan in the 80’s, etc.

                      My expectation is FT is working as usual, and as usual it’s the politics that are hard.

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                      • Over all free trade with China’s been a good deal for the US and a great deal for the world and China. But it’s been a terrifically bad deal for specific parts of the US- the rust belt and 1 factory manufacturing towns all over the country.

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                        • Sure, this is the political problem. The gains of FT are vast, greatly outweigh the problems, and are diffuse. The losses of FT are narrow and concentrated. Those loses are also overstated, job losses due to technological increases (automation for example) can use FT as a scapegoat.

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                    • Isolationism doesn’t make a workforce competitive. If you cant globally compete, locking yourself in a room doesn’t make you competitive, it just makes you still unable to compete and locked in a room.

                      Here, lets scrub some of that optimism off. Take the rise-run slope of global wage increase for the last 9 decades and compare that to the US rise-run slope of minimum wage incease.
                      That’s not fetish territory, thats 90 years of progressive-liberal pushing wages into the sky.

                      Of course no liberal or progressive will admit to it. Of course it is poison to a politician to frame it that way, or even suggest a ‘difficult’ solution.

                      And then well meaning peeps like Kate here look barking at the moon silly for attempting to push the pie in the sky higher.

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                      • “Take the rise-run slope of global wage increase for the last 9 decades and compare that to the US rise-run slope of minimum wage incease.”

                        Okay, but if we do the same thing for executive compensation, which is much further up in the sky, how does that affect the equation? Do you not draw the same conclusion that that should also come down to achieve global competitiveness?

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                        • I appreciate the push back here. My very first comment was a link about Rent Seeking. I think James H. did an astounding job on that, and I still hold that series as the best thing I will ever read.

                          Of course my application of it may be much wider than James originally had framed.

                          Fixing disparities in executive compensation where they exist still doesn’t make the workforce competitive. Either on the way here, or even after we are here.

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                          • There is even a “chance process” thing that is of a greater concern in this area.

                            https://youtu.be/CsRLVZTYpGo?t=253

                            If there is a ‘social chance process’ it can lead to stratified capital accumulations by socializing the chance mechanisms.

                            The key factor in production is that there is capital formation of some type. In chance operations taking place around capital, there is no capital formation in the risk itself. It is a gamble, and as is well illustrated, the results of gambling become about winners and losers.

                            It is stated, “People start to stack up at zero.” This is not an economic principle. It is a gambling principle.

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                        • The question of how much any given wage increase affects competitiveness is a matter of what fractional difference this makes in profits (as opposed to expenditures).

                          So, a given wage increase may be a drop in the bucket of total expenditures, for instance increasing it by 0.5%. But if the profit margin was originally just 1%, that’s a 50% reduction in profits.

                          And when we’re talking about executive compensation, we’re not talking about the guy doing statistical analysis and data reconfiguration, we’re really talking about CEOs and CFOs. Here, it is often going to be a numbers game. Compensation for everyone else from the bottom up except the very top tier exists on a scale. If a janitor is earning so much, the PA should earn a bit more etc etc. That is wage increases at the bottom ripple up. There is no obvious effect the other way around. Wage increases at the very top pay grade do not ripple downwards. Therefore in a large company, CEO pay is going to be a drop in the bucket compared to the sum of everyone else’s pay.

                          The interesting question might be: why isn’t there a downward ripple? And this might just be due to a brute psychological fact: a large gap between paygrades creates more incentive for workers to climb the ladder. This, to some extent increases productivity, and may wash out the effect of any disgruntlement brought about by envy. That’s going to mean that increases in top salaries hurt profits (and hence competitiveness) less than increases in salaries at the bottom.

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                      • You know that and I know that but that doesn’t mean free trade will be spared if the electorates issues and perceptions of it aren’t addressed. Which is why liberals and progressives from Kate on the left to me on the center left have a pretty good shot at addressing policy concerns while the GOP and the political right barely even pretends to give a crap about libertarian policy ideas anymore outside of their donor paymasters ordering up rounds of deficit financed tax cuts.

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                        • I don’t see Libertarian Policy in play, and it wouldn’t matter. It looks like the left to center left is using the same ole, with whatever spin the popular kids will spin up.( I think it is reparations in 2020 yes?).

                          The GOP is on the socialism crack as well, so there is no reason to pretend anymore.

                          The donors on both sides will be getting of the bus right before it goes off the cliff, so there is no big surprise there.

                          All this stuff is working just the way it is supposed to be.

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          • Well we were discussing a world where a UBI was enacted and how it would work- specifically with regards to Joe’s points; not the practicalities or political considerations of enacting UBI which is an entirely different conversation.

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  8. I’m generally supportive of the minimum wage laws but only because it’s the only thing being offered in the conventional paradigm. As others have noted, it’s a generally poor solution to a very legitimate concern.

    The problem with the LF approach is that people want to treat labor as if it were just another consumer commodity that can be analyzed with the econ 101 supply/demand curves. There are so many problems with that that I’m not sure where to start.

    Basically people aren’t ferns; we can’t subsist on oxygen and stray humidity. Wages (or income anyway) can’t just fall arbitrarily to some market clearing price. There’s a subsistence floor and that’s where economics has to yield to morality.

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    • But labor does fit the supply/demand curves, or the services industry would be a fiction. I mean, services are nothing if not labor being applied to supply and demand.

      Look at your own example. Drivers are needed, so the owner can’t simply pay 1/12600 of the profit. But neither is the owner merely taking that amount and giving the bulk to you, even though without you, the truck goes nowhere.

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      • Yeah, that’s my point. Wages are set by the market, not by MPL, mostly because MPL is an academic concept that’s actually impossible to calculate in the real world.

        As to the applicability of the supply curves you see in econ 101: I ask you, who is actually supplying more labor hours to the market? The low wage earner working two or three jobs, begging for overtime, working side hustles? Or the high earner, working 9-5 — if they must, never or rarely on weekends, and taking nice vacations? Standard theory says the quantity supplied to the market rises as the price received rises, but is that what we actually see in the real world?

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        • Supply isn’t about bulk hours worked, it’s about what kind of labor and how many people are capable of and willing to provide the labor.

          Picking strawberries is physically demanding, but very low skill, and there are a lot of people capable and willing to do that job (granted, they are mostly migrant workers of dubious legality, but still).

          Preparing engineering drawings, or piloting $250K worth of vehicle and cargo across the country, on the other hand…

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        • , please pardon this out of alignment comment. I can’t see your reply here that I read in SOD to reply properly. Anyhoo…

          In your first comment, waaayy up there somewhere, you made two statements. You started with: “To echo Aaron, yes the cook is necessary. But are they adding sufficient value to the whole to be worth $X more than the owner is paying?” And then later you stated that wages are set by supply/demand.

          Do you see how those statements are in conflict? In particular, the “market” can’t “see” how much value the line cook is adding. And crucially, neither can the restaurant owner. Without the cook he has no business, revenue is zero. But that’s true for all the inputs — no groceries, no food to cook; no stove, no way for the cook to prepare meals, etc. What makes a car go? The engine? The transmission? The tires? There’s simply no way to divvy this sort of thing up in the way implied by MPL theory. All the restaurant owner knows is how much he has to pay for these inputs on the market and how much he can get away with charging for the meals.

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          • Well, if you want to claim that nobody knows anything and nothing is knowable, isn’t that an even better argument for leaving everything up to the decisions of individual business owners? If nobody knows what labor is worth, well, “nobody” includes the government officials who’d be writing the minimum-wage regulations…

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  9. “Armchair economists, like our aunts and uncles, believe hiking the federal minimum wage would cost human jobs. The entire accumulated life work of many honest economists has refuted this claim again and again in manifold ways. ”

    This is … not right. “Armchair economists” don’t say this; every economist said it up until relatively recently. And “entire accumulated life work of many honest economists” is a handful of studies, which the authors themselves think are being over-interpreted. The Seattle study you cite is highly questionable as the Seattle govt has limited the information available and hand-picked who they share it with to make sure no one gainsays anything that’s happening.

    My problem with the economists with this is that they see human beings as nothing but subjects for their little experiments. If it turns out their theory that the Law of Supply and Demand is magically suspended for low-wage labor is wrong and hundreds of thousands of working poor lose their jobs, well I guess that was just another calculated risk. And all of the health problems, life setbacks and suicides that result from job losses is just collateral damage.

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  10. Its interesting how the argument against higher wages/ taxes is always framed as a zero-sum axiom:

    “If wages go up, employers have no other choice but to reduce labor hours.”

    So by this logic if the cost of insurance, or electricity, or commercial rent, or even executive pay rises, well, there is simply no other choice but to lay people off, or shut down or something.

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        • Eliminate all tariffs (and other trade barriers), corporate taxes and other inflationary pressures. Since nominal wages are sticky downwards, at the worst case, nominal wages remain stagnant. Decreasing consumer costs result in higher actual wages.

          This might be a cliche, but that doesn’t make it wrong.

          The other part of it is tighten the labour market. workers are in a better position to bargain if employers are competing for workers more than workers are competing for open positions.

          A UBI here is helpful. If you don’t have to worry about starving, then employers will have to offer more for unpleasant work than they used to.

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          • Or those on UBI will be seen as lesser people who should have no voice in society and organizing by them for a better life can be easily ignored by saying, “why are those on the Dole still bitching? They’ve got their UBI, so they should just shut up.”

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            • Why can’t we say the same about people on minimum wage? e.g. Why are those on minimum wage still bitching? they’ve got their minimum wage job which is obviously a bit of charity with make-work to provide a fig leaf of respectability.

              Anything mean spirited we could say about people on a UBI is something we could also say about people on make-work minimum wage jobs. There is also the added question of what to do with all those people who are out of a job because it is cheaper to automate the job than to pay someone $15/hr to do it.

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              • If *only* the only people on minimum wage were those in make-work jobs….

                Your idea of the US is puzzling at times.

                Or were you being sarcastic?

                (I am in favor of UBI and/or extremely generous non-limited unemployment / retraining / etc packages, so I’m not really interested in distinguishing that hard… but yo. So much of America runs on minimum wage or pennies over, jobs without healthcare or benefits or anything other than the virtue of being a job doing something real and surviving. Most of the time folks in these positions are having to get 2 or 3 jobs, working 60 hours a week or more, just to get by, and because they’re working so much they have to spend ridiculous amounts of money on things they dont’ have time to fix at normal cost, and sleep less which affects their cognition, and have no reasonable amount of time to learn or study. Poverty trap. It’s disgusting, not in general, but because minimum wage is not a sustainable way to live and because it provides so many disincentives to do anything beyond trying to get by and numbing yourself to how much that sucks.)

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                • My point is that if people want to be mean-spirited, they would be mean-spirited regardless of which policy we used to help the poor. And the facts may not actually matter. And meanwhile a UBI helps the poor more efficiently.

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        • Raise prices.

          “Oh, why don’t they raise prices to pay for labor then?”

          If you think poor people need more money and this should come from income, then why not argue for an increase in welfare benefits? Why require employment? Why force poor people to dance so that you can assuage your feelings of guilt over giving them money?

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        • Do other costs go up and are they subject to the same kind of variability that labor can be subject to?

          Are you suggesting that if a franchisee is required to buy its food items from X vendor and use A service provider to maintain the machines and a franchisor has national contracts with these providers, don’t you think the franchisors have control over those costs because of their purchasing power.

          Franchisees don’t have the same benefit on labor costs and it’s not like the franchisors can step in there because then it creates a joint employment situation.

          You’re comparing apples to oranges.

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  11. (Without reading all the comments)

    RE: Min wage
    Three of my girls are teenagers with jobs. The 19 year old college student makes a LOT more than min wage as an intern.

    I don’t see why either the 15 or 17 year old deserve a “living wage”, they’re not supporting themselves on it. If memory serves their situation is pretty typical. BTW the 17 year old will graduate HS soon and become an intern herself making intern wages, not min.

    Certainly they’d be better off with more money (although I do NOT want them to think they can keep out of poverty with a min wage job), however they don’t need it.

    Another question is whether or not they’d even have a job if the min wage were higher. My expectation is “yes”, both of them are functional enough that they’re not going to be the people thrown out of work. Throwing someone out of work who needs the money so my kids can get a raise seems problematic.

    My expectation is different groups/areas are affected by the min wage increase differently. Puerto Rico’s unemployment rate seemed high in part because of the min wage. Black teenager unemployment rates also seemed really high. We’d expect already-high unemployment groups to feel the effects of a min-wage increase a lot more than my kids.

    So in theory I could vote my kids a pay increase, maybe throw some people I never have contact with out of work, and feel great about myself for “helping” everyone.

    RE: CEO pay
    I am not impressed with efforts to use large outlyer numbers to drive the conversation. Median CEO would be some self employed guy in a one person company. “Average” here presumably means some subset of the Fortune 500, which is like measuring overall actors’ pay increase by averaging just the top 20.

    RE: Wages have stagnated
    Mostly this is a statistical illusion. Drill down to “some type of household” income and you’ll find it’s gone up a lot. So “median unmarried female with children” income has increased a lot, ditto “median married with children and one income” or “median married with children and two incomes”.

    However our mix of households has changed a lot. We have a lot more “single with children” as a percentage than we did before. That they’re doing a lot better than they used to isn’t the same as them doing as well as “married with two incomes” or whatever.
    https://www.minneapolisfed.org/publications/the-region/where-has-all-the-income-gone

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    • Great comment DM,

      I suspect some high profile CEO’s are indeed paid more than they deserve in a more efficient market, but that has no bearing on minimum wages, which is a completely distinct topic. The two are just conflated together as a rhetorical trick to imply some kind of zero sum fallacy between executives and labor. Funny how we never hear progressives lobby against outrageous athletic salaries (which in pro sports are substantially higher than CEO salaries).

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  12. I’m on the pro-minimum wage side but the idea that a higher minimum wage makes so much sense we shouldn’t even be debating it is risible. There are hundreds of millions of Americans. We are going to have some very different ideas on the subject statistically even though must of us support a higher minimum wage. There are non-crank economists that see minimum wage as overall bad as demonstrated by this post. Everything is debatable.

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    • My issue with the OP is that they are trying to make a moral/ethical argument for a poor means of addressing poverty.

      One can make a moral argument that we should make sure that free citizens are not denied the most basic things one needs to live.

      Making a moral argument for a given technocratic fix… that’s like making a moral argument for Apple over Android.

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      • Whats weird about our current politics is that the simple statement:
        “we should make sure that free citizens are not denied the most basic things one needs to live” places one on the very left edge of American politics.

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        • Whats weird about our current politics is that the simple statement:
          “we should make sure that free citizens are not denied the most basic things one needs to live” places one on the very left edge of American politics.

          I think that the hangup is what constitutes “denial”.

          Should anyone with $.79 be able to purchase a cup of coffee?

          Yes. Absolutely.

          Should coffee be given to anyone who needs it?

          No… they can pay $.79 for it like everybody else.

          And now we’re arguing over whether people should have to pay for coffee. And whether coffe counts as one of the most basic things one needs to live.

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            • We’ve argued this sort of thing before. We can replace “coffee” with “laptops” and “internet access”.

              Are we just keeping it limited to “apartments” and “healthcare”?

              Sure. We could discuss that sort of thing. How many square feet? Does “healthcare” include cosmetic surgery?

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              • You are demonstrating the point.

                That we as a society should craft policy to make access to housing and healthcare easily and universally accessible is considered astonishing, something that demands cautious parsing and hedging lest it become wholly preposterous.

                And what’s especially weird is that this is always in the same thread where people assert how our economy has produced so much prosperity, that medieval kings would envy our poor.

                Yet…we also live in a lifeboat, where resources are so scarce we must cull the weak and infirm with benign neglect.

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                • This doesn’t even pass the laugh test.

                  That we as a society should craft policy to make access to housing and healthcare easily and universally accessible is considered astonishing, something that demands cautious parsing and hedging lest it become wholly preposterous.

                  Is there any possible construal of the sentence “we as a society should craft policy to make access to housing and healthcare easily and universally available” that is preposterous?

                  And what’s especially weird is that this is always in the same thread where people assert how our economy has produced so much prosperity, that medieval kings would envy our poor.

                  Is it or is it not the case that most of us (except the homeless) are in many important ways (except in the size of our houses) materially better off than medieval kings?

                  Yet…we also live in a lifeboat, where resources are so scarce we must cull the weak and infirm with benign neglect.

                  Do we or do we not live in a post scarcity society?

                  If your answer is not yes, yes and no, you are disconnected from reality

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                  • You were around, weren’t you, for the 2010 national debate over healthcare, where in one famous incident, a group of Republican voters was asked if a sick person couldn’t afford healthcare they should be allowed to die, and they responded with applause?

                    Apparently a largish group of Americans think it is entirely preposterous that healthcare be universally available.

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                    • If a 17 year old has pneumonia and cannot afford a $200 treatment which would cure her, should she be allowed to die?

                      If an 87 year old has cancer and cannot afford a $200 000 treatment which would extend her life by six months should she be allowed to die?

                      Both are cases of sick people who would need life saving treatment. I’m pretty sure one is a more salient case than another.

                      I’m also pretty sure that healthcare costs are high not because of 17 year olds with pneumonia, but, at least in part, because of 87 year olds with cancer.

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                • I’m asking engineering questions.

                  If your response to my asking “what are the square footage requirements for the housing we’re obligated to provide” is to say that I’m demonstrating that this is astonishing and preposterous, then the problem just might not be with the guy asking exactly what needs to be done.

                  Hey, could we tackle the homeless problem by moving them to dying towns in the midwest/prairie? (I wonder if moving someone more than 30 miles away from San Francisco is an option or if we have to address homelessness locally or not at all.)

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                • This is easy. The floor is E1. What I mean is, your basic necessities are what the military provides to an E1 (that is the average person who completes basic training). If you are single, you get a small room (10×10 – ish), a small paycheck, and access to the mess hall (they even have coffee!).

                  Sick? Go see the doctor, it’s covered.

                  Married folks, and people with kids, get small apartments, a small food stipend on top of the small paycheck, and access to the mess hall (for a small fee, since you get the food stipend).

                  People make E1 work, for a good long while at times.

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                • That we as a society should craft policy to make access to housing and healthcare easily and universally accessible is considered astonishing, something that demands cautious parsing and hedging lest it become wholly preposterous.

                  If the resources are artificially scarce because the gov is making them scarce, then I’d suggest fixing that. There’s no good reason housing has to be limited. If you want San Fran to have more housing, change the rules so you can build more housing, don’t try to restructure the laws of Supply and Demand for the global economy.

                  our economy has produced so much prosperity, that medieval kings would envy our poor.

                  They would. In 1925 half of US homes had electricity (so half did not). That same year(ish) we had a sitting President’s son die from a blister on his toe. Last week I watched a movie about a Polish medieval king who murdered his followers because he needed food for his family, and who eventually died badly because he ran out of food.

                  Yet…we also live in a lifeboat, where resources are so scarce we must cull the weak and infirm with benign neglect.

                  If you’re trying to make everyone equal to a medieval king, then that mission is already accomplished. If you’re just sounding the rally cry of “More!”, then I want definition.

                  Before you reach into my wallet to fund your utopian ideal, I’d like to know what you’re trying to do, what the budget is, how you plan to stay inside your budget, and so forth. I’d also like to know if this is more important than all the other reasons you’re reaching into my wallet. If so, then maybe redirecting funds is appropriate.

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        • Chip,

          And yet those on the left are the ones trying to deny those with a marginal productivity under the minimum wage with the opportunity to make a living and develop experience. The argument against a minimum wage is both consequentialist and aimed at protecting the least advantaged. Until those on the left grok this, the issue will make no sense to them, and they will continue to recommend something which feels good despite its harmful effects.

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            • Chip: Before we can argue about crafting new policy, we should at least grasp that the younger generations are getting poorer, not richer.

              They’re not getting poorer. In general, the economy continues to grow, that link I posted shows every family type continues to see their pay increase, great jobs are continuing to be created. I don’t live in an area where the gov prevents new houses from being created and there is no housing crisis here. Even as interns my older girls are/will make enough to join the middle class. I see no reason to think their younger sisters will do differently.

              There are absolutely issues that face us, but they’re FAR less serious than what faced our grandparents. My grandmother grew up without electricity or a flush toilet. Grandfather served in WW2 and his family’s business was destroyed by the great depression. Average income in those days was a fraction what it is now ditto the average lifestyle.

              On a side note imho most of the big economic issues that are facing us have their roots in bad gov policy, just like restricting housing has led to a housing crisis in various areas.

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              • Um, no.

                https://www.cnbc.com/2018/10/25/the-homeownership-rate-is-falling-among-millennials-heres-why.html

                “The researchers found homeownership declining most steeply among people under the age of 30 when compared with other generations. “They’re not able to hit the mark at the same age as their parents,” said Tamara Sims, a research scientist at Stanford.”

                https://www.cnbc.com/2017/07/06/how-much-millennials-are-earning-in-11-major-us-cities.html

                “Data shows that millennials are falling behind: Those born around 1980, or roughly today’s 30-year-olds, have only a 50 percent chance of making more money than their parents.”

                The second link offers data on income for Millennials across a number of cities.

                For those around 30, the number hovers around $3,500 per month after taxes.
                Lets look at where that gets them in housing.

                Assume that the target is to spend no more than a third on rent.
                That means they can afford an apartment of about $1,000 per month.

                This will barely get you a studio apartment in any major city, maybe possibly one in a depressed suburb outside the city core where the jobs are.

                Again, this is the median, not even the upper quintiles. And the takeaway for everyone should be that this represents a loss of prosperity compared to their parents, not an increase.

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                • and you are talking past each other.

                  DM is saying that people are still gaining income and wealth as they age. While Chip is saying that wealth growth for the young is being severely constrained by th epric eof housing.

                  You are both right, and the solution is, as DM pointed out, a large increase in supply via taking an axe to urban planning laws.

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                  • We discussed this before.

                    The gap between what young people can afford and the lowest conceivable price builders can offer is vast. Right now, the typical rent is about double what the median Millenial can afford.

                    No one has ever demonstrated how lessened restrictions somehow leads to apartments renting for half of what they do now.

                    Again- I am in favor of lessened restrictions- but these can only amount to a nibble at the margins, when we need wholesale change.

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                    • Chip: The gap between what young people can afford and the lowest conceivable price builders can offer is vast.

                      Then make it a lot cheaper for builders to build. However buildings built 40+ years ago in San Fran were constructed by people who have long since made their money and retired, they don’t just disappear.

                      Chip: No one has ever demonstrated how lessened restrictions somehow leads to apartments renting for half of what they do now.

                      The laws of Supply+Demand function in San Fran too. You stopped building in… 1980? So you’ve just had a 40 year experiment on how to vastly increase housing prices by restricting supply. Cities that didn’t or couldn’t do this don’t have this problem.

                      Chip: we need wholesale change.

                      If you’re only building for 15% of the demand, then increasing wages will just bid up the price of housing.

                      The wholesale change you need is to triple(ish) the amount of housing. If memory serves, the current growth spurt in building that you have only full-fills one year of demand. So double your current rate of housing construction and then keep that rate up for about 20 years.

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                      • Econ 101 is not your friend here.

                        The world supply of building materials is not going to suddenly increase.
                        What happens to price when there is a surge of demand, while the supply remains constant?

                        This “If only the market were free” is a bit of fundamentalist handwaving, the conservative equal to “Come the Revolution”.

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                        • Chip, I’m sorry but that simply is not the case. The cost of housing in dense housing restricted regions is simply, flat out, not caused by the cost of building material inputs. There’s no national housing crisis (which is what you’d have if there was a building materials price issue)- only a crisis in dense housing restricted areas.
                          I hate to say it but this is an area where the libertarians are more correct than not; it’s the zoning and building restriction regulations that’re driving up the cost of housing in urban New York, Cali, Oregon et all.

                          If building was suddenly vastly expanded in those markets the cost of housing materials in those markets would increase for a tiny amount of time and then housing materials would flood in from every direction. The US isn’t suffering a concrete, steel or timber shortage.

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                        • The world supply of building materials is not going to suddenly increase.

                          At a world level the supply/demand of building materials has been dominated by China and it’s expansion in the last few decades. And yes, as Econ 101 suggests, the supply has massively increased because of Chinese demand.

                          Given that the Chinese economy is slowing and their demand for this sort of thing is decreasing, my expectation is the problem facing the building materials companies is too much stock, not too little.

                          San Fran is much smaller than China. If China didn’t break the market then San Fran won’t either.

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                        • Of course it won’t suddenly increase, but it will increase over time in response to increased demand. It took decades for the world’s least affordable cities to end up in the hole they are in. Digging them out will take time, but nothing will get better until the supply constraints are dealt with.

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                          • @dark-matter

                            About 80% of the cost of buildings is in land, and bricks and mortar construction costs.

                            If suddenly all restrictions were to be lifted tomorrow, how would the cost of construction drop?
                            Would the price of land drop?

                            There is a mechanism here that none of you are mentioning.

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                            • Land costs per dwelling will fall through two mechanisms:
                              1) To the extent that permitted density is increased, the amount of land per dwelling unit will fall, reducing land costs per dwelling unit.

                              2) By increasing the amount of land than can be used for housing, the price of housing-land will fall in accordance with the laws of supply and demand.

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                            • No, but the price of the land is the overwhelmingly larger portion vs the cost of materials. If builders could build 200 living units on a block instead of 5 or six then the price of the housing will be divided among 200 units instead of 6. This is basic math. It is regulation that prevents dense housing construction; Not land prices or material costs.

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                              • Was just talking to some contractors yesterday about the price/sq ft in Boulder County (CO USA): ~$300. That’s for an addition or structural remodel. Obvs doesn’t include price of land. (Also obvs, Boulder isn’t indicative of the entire country.) New construction is a bit cheaper, but only marginally.

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                                • You are buying your construction work and materials custom and expensive. People who build structures for their business are buying wholesale and in bulk.

                                  And if construction materials and labor were the price bottleneck then housing issues would be national instead of being exclusive to geographically and/or regulatorily constricted markets.

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                                • That link I posted about developer experiences in San Fran has him spending much more than a million dollars in administration/legal costs. That’s pure overhead, it’s the cost just to stay alive.

                                  When he ends up building, it will be added to his price/sq ft. Similarly the anti-growth people aren’t limited to just one way to increase costs and slow development, when he breaks ground there will be other problems.

                                  All of those ways, which are mostly rules and restrictions, are also added into your cost per square foot.

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                              • For urban apartment buildings land comprises about half the total cost.
                                Even if land prices dropped 20%, (a staggering, market disrupting amount!), the rent would be reduced by about 10%.

                                That’s nowhere close to where we need to get.

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                                • And over what period of time does this cost need to be paid back?

                                  Apt buildings built this year are expected to be expensive, Apt buildings built 50 years ago are not (well, they shouldn’t be).

                                  Right now the BULK of your housing is so old that it’s original land cost is irrelevant (I don’t recall what one of those links said exactly, but it was something like 80% of your housing was built before 1980).

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                                • I think there is some major issues with whatever math you are using to guess at these predictions. Putting tens of thousands more housing units into the supply of markets that currently only permit low numbers of hundreds of units to be built and added would have a spectacularily more dramatic impact on rent than 10%.

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                                  • You keep asserting this, without walking through how this comes about.

                                    Your comparison (from Econ 101 naturally) is when there is a bumper crop of oranges, and suddenly all the farmers have to cut their price to entice people to buy.
                                    Competition, in other words.

                                    But hey, why talk theory when we have actual history?
                                    It has happened in history, when there is a sudden glut of buildings.

                                    Can you guess what builders did when faced with a product no one wanted?
                                    Watch the final scene of Lethal Weapon 3. In that case, they literally just burned it to the ground. In most cases though, they just shut the doors and turn out th elights and wait for the price to go back up. Reference the glut of abandoned buildings in the postwar decades.

                                    This conversation is weird.
                                    You guys are giving the “Command Economy” argument, where by One Weird Trick we can make prices fall dramatically, without obvious secondary effects.

                                    And I’m giving the old Republican argument, that the economy is an ecosystem, where even minor tweaks are difficult accomplish and their effects difficult to predict.

                                    And we seem to have strayed from my original point of housing purchase.
                                    If we accept that the medial Millennial earns about $3500/ mo., the purchase price of a house will need to virtually collapse in order for the median earner to buy one.

                                    As per the title of this article, I don’t know why we are even debating this.

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                                    • Heck, Chip, I don’t know why we’re debating it either since it is not exactly a controversial point. You are the one who declared that there is a fictional floor on how low rental prices can go and that permitting more construction of housing in the high demand urban regions that people want to live in would have no significant impact on rent or housing costs. It’s kind of been a bizarro world conversation since then from magically expensive building materials onward. I mean, hell, you just cited the example of landlords burning down their properties for insurance money in rent controlled markets as a reason to not allow more building?

                                      I mean it seems circular; if we enacted whatever other left wing idea people had to put more money in poor peoples pockets but left the building restrictions in place then housing costs in those desired areas would effortlessly rise to consume the additional money- as you said, it’s Econ 101! Keep the supply inelastic and the prices will rise.

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                                    • If we accept that the medial Millennial earns about $3500/ mo., the purchase price of a house will need to virtually collapse in order for the median earner to buy one.

                                      Caveat: This applies to housing markets in high demand urban markets. Move out of those markets and housing costs tumble dramatically.

                                      I mean, I can’t afford to live on Mercer Island, or on the Western shore of Bellevue, even though both locations are much closer to my office. When someone says they can’t afford to live somewhere, and that that is a dramatic departure from what their parents were able to do at the same age, you can’t just look at incomes and costs. Back when I was born, people were still fleeing urban cores and settling in suburbs who were building supply at fantastic rates. Now we have people wanting to move into urban cores, or the inner suburbs, where supply is highly restricted.

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                                    • If we accept that the medial Millennial earns about $3500/ mo., the purchase price of a house will need to virtually collapse in order for the median earner to buy one.

                                      Local Median home price, $119,900.

                                      Average rent for our local city is as follows:

                                      All-rentals Studio 1-Bed 2-Beds 3-Beds
                                      Ave Rent $890 $694 $696 $844 $1,083
                                      Ave Size(sq ft) 977 502 712 981 1,311

                                      So between 20% and 31% of income… assuming one income. Half that with two median incomes and these are median prices, not starter prices. BTW it’s very reasonable to earn “medial” around here, our interns do.

                                      This is what the nation looks like if you don’t have rent control and the other absurdities which are used to keep the supply down. You have a local problem, it’s self inflicted.

                                      The magic way to lower prices is to let the market work. However that’s simply looking at this from the standpoint of economics and ignores how insanely hard it would be to rip up the maze of regulations which created this.

                                      Rich people fear they’d have tons of poor neighbors. White people fear tons of non-white neighbors. Poor people fear their neighborhoods “gentrified”. Everyone who purchased land/homes at the current prices would be screwed, as would banks which made loans based on that evaluation, etc. Your “affordable housing” activists would be out of jobs and would lose tools they use to blackmail developers. The rest of the repress-housing bureaucracy infrastructure would also be out of a job.

                                      All of these groups would predict that the heavens would fall if these regulations were removed and that the outcome wouldn’t be that great anyway. They have lots of arguments on why the free market would fail, a few of which you have presented here (I’m sure they’re a very loud voice in San Fran).

                                      These arguments are mostly self interested, keep in mind the market solution results in large well established special interests being the big losers. The big winners mostly don’t vote and/or don’t understand how and why they’re being screwed.

                                      You don’t have economic problems on why you can’t have cheap housing, you have political problems which are trying very hard to disguise themselves as economic problems.

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                                      • Anecdote, anecdata, plural, etc.
                                        I get it, your neighborhood hits that sweet spot where interns earn enough to buy a house. Great.

                                        But you should post house prices from the cities I listed in that article- Atlanta, Seattle, Los Angeles, etc.

                                        But in the rest of America, this just isn’t happening.

                                        I don’t know why there is this ferocious resistance to the idea of incomes rising, but have any of you guys thought through the consequences of relying entirely on reducing housing prices to square this affordability circle?

                                        I mean, is the argument here, really that we want to somehow make the value of houses drop to around $100,000 in all major metro areas to match median Millennial income?

                                        Isn’t the insanity of that self evident?

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                                              • I never said I wanted wages to rise by fiat.

                                                I said the younger generations are poorer than their parents, in part due to low wages in comparison to housing (and other things like healthcare).

                                                I wouldn’t suggest that there is a One Weird Trick to lift wages in relation to prices, but at least there should be an awareness that it should happen.

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                                                        • Because if the problem with housing is not being able to get any because the price is out of reach and more money for the people competing for housing would make the house prices rise, then we are in a place where giving people more money doesn’t address the problem of prices being out of reach.

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                                                            • No I am not.

                                                              Neither am I suggesting that Milky Way candy bars are better than Snickers candy bars.

                                                              There are a great many things that I am not talking about at all.

                                                              I am, however, talking about the relationship between the rate of growth of supply vs the rate of growth of demand and this relationship’s effect on price.

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                                                              • Damn, I would almost take the wager that prices will on average outpace wages. M2 will go from 16 trillion to 32, to 64, to 128. After it starts doubling 128 I don’t think there is a economy anymore.

                                                                If Chips camp continues, the time between 16-128 is pretty short. Shorter if it doesn’t make it to 128.

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                                                        • Seriously Chip, this is like talking to a Climate Change denier. Pushing demand income just isn’t going to work while supply is constrained. Multiple people, including an actual credentialed expert have pointed this out to you, and yet the only solution your willing to countenance is one that will mostly just enrich existing land owners further.

                                                          Urban planning laws are causing serious social and economic problems across the developed world, but you don’t want to hear about it because it challenges your view of the role of government in the economy.

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                                                          • Once again, I’m happy to increase supply.
                                                            But relying on supply alone isn’t sufficient.
                                                            Let’s walk thru the logic.
                                                            1. Restrictions are removed.
                                                            2. Developers build more than they would otherwise.
                                                            3. Prices begin to fall as demand is absorbed.

                                                            Now what? How does a developer make money if prices are falling?

                                                            Are costs likewise falling? Maybe land, but that is only a portion.

                                                            And what happens to the existing building stock when the value of their investment is falling?

                                                            Again, this is not hypothetical. Over building and price crashes have actually happened. And the result is not a good one.
                                                            And again, the amounts we are talking about are vast. Prices would need to fall to about half to make a median millennial afford a house.
                                                            We can’t get there with supply alone.

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                                                              • You are stating this like it is some sort of iron law.
                                                                Forever and always?

                                                                The median income will forever be below the purchase threshold?

                                                                Have there been historical periods when wages rose fast enough to lower the threshold?

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                                                                • As long as there is a strong demand for X, and the supply of X remains tightly constrained, then yes, raising wages solely for the purpose of allowing more people to compete for X will cause the price of X to rise hand in hand with wages.

                                                                  You need to either reduce the demand, increase the supply, or install a control on the price.

                                                                  If you truly believe that you can raise wages and resolve this, and you truly believe that this has happened in the past, I’d love to see some examples.

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                                                                • Let me expand on this. You have a desirable city. The city has 100,000 housing units. You have 150,000 people/families who want to live in that city. How do you decide who gets to live there an who doesn’t? If all you do is raise real wages, and let the market sort it out, you will still have 50,000 people who can not live in the city, and they will be the people who can not afford to live there. The best you’ve done is maybe managed to shuffle some people in & out of the city.

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                                                                  • I’ll outsource this to the commies over at Forbes:
                                                                    https://www.forbes.com/sites/patrickwwatson/2018/09/25/real-wage-growth-is-actually-falling/#6d9a22887284

                                                                    Just so we are all on the same page, “wage growth” here means nominal wages minus inflation.
                                                                    Here the author shows a graph of wage over the past decades back to 1965:

                                                                    “When the blue line is below zero—as it was for long periods—real wages were actually dropping instead of growing.
                                                                    [graph]
                                                                    On the positive side, there were a couple of times when real annual wage growth approached 5%. But only a couple, and they didn’t last long.”

                                                                    So real inflation adjusted wages can and did grow in past historical periods.

                                                                    You quote this abstract theory of constrained supply- I get it, making it easier to supply the demand is a good thing! We all agree!

                                                                    But the question is whether how much price drop will be created by loosening the constraints.

                                                                    Because even absent restrictions, the market is constrained by the need for all parties to make money. Developers and investors need to get a return at least equal to comparable investments. And no one here has suggested a theory by which construction costs drop by any dramatic amount (they might go up, since there is more demand for them!).

                                                                    So in the end, yeah, developers might build some more, and soak up some of that demand and prices might drop a little.
                                                                    But only a little, and nowhere near half which is the gap right now.

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                                                                    • Actually, my point is that raising real wages will not address the affordability problem, at least not in housing markets that are desirable.

                                                                      If your average Millennial is insisting on living in the Bay Area, and can not easily afford to rent a place on their own, much less buy one, because so many other people want to live there too, then raising wages won’t work. Sure, raising the wages of that Millennial will help them afford a place, but raising the wages of everyone will just give the owners in that desirable area a windfall.

                                                                      And this is not to say that we shouldn’t make the effort on raising wages (which is a whole different discussion, the hows and whys of doing that), but that raising wages will not allow people to move into desirable urban cores with constrained supply, because prices will just rise to meet the prices people are willing to pay.

                                                                      Go back to my example city. If there is a dramatic rise in wages for all 150K people who want to live in the city, the 50K still on the outs will largely remain on the outs. Even if you could somehow target the 50K on the outs with a wage hike, all you’d wind up doing is displacing the lowest earning 50K people from the urban core.

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                                                                  • This would be a VAST improvement on what San Fran is doing. Your example has them meeting 66% of demand.

                                                                    If memory serves from the last time we looked at this, they’ve met only 15% of demand.

                                                                    Just giving money to people is an effort to get everyone into the top 15%.

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                                                            • How does a developer make money if prices are falling?

                                                              1) That developers make less money isn’t a problem as long as they’re profitable. Prices in San Fran could fall a long way before a lack of profit is a problem.

                                                              2) Given that many of developer costs are political, getting rid of those political barriers will automatically reduce their costs.

                                                              Over building and price crashes have actually happened.

                                                              1) Why do you care? A large decrease in the price of housing in your area would solve FAR more problems than it would cause, to FAR more people. I would guess you have people dying on the streets because of a lack of shelter.

                                                              2) It will take 20 years of development to build San Fran to where you have a reasonable amount of housing.

                                                              3) Realistically the market will only be allowed to partly fix things and disruptions will be minimal.

                                                              4) San Fran is so amazingly far away from over building that this is like a homeless guy worrying about his yet-to-be-won lottery money being stolen. I don’t view “over building” as a serious concern, it seems to be there only to introduce solutions that are in search of problems.

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                                                              • You’re handwaving.
                                                                And I don’t get the fixation on SF.

                                                                But hey lets go with this.

                                                                Come The Revolution, President Commandante Ocasio Cortez orders an immediate crash program of federal housing construction, and massive new Soviet skyscrapers of worker housing suddenly appear in San Francisco, with such a massive glut of housing that prices fall to half of what they are now.

                                                                Overnight, all real estate developers and homeowners in the Bay Area see the value of their investments fall by half.

                                                                Then what happens?

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                                                                • You’re handwaving.

                                                                  No sir, you are trying to claim that letting the market work, won’t work. That developers will burn down their own buildings rather than sell them at a loss because housing will be too cheap.

                                                                  That hasn’t been a problem for the rest of the country.

                                                                  Overnight, all real estate developers and homeowners in the Bay Area see the value of their investments fall by half. Then what happens?

                                                                  Before I go further, look at what it took to make this happen even in your own thought experiment. My expectation is this will take multiple decades. But fine, it happens. And btw in the situation you describe you’re not talking about prices halving, it will be a lot worse than that.

                                                                  Banks take it on the chin. Large numbers of people who borrowed heavily from banks are now “under water”, i.e. they owe more than the house is worth. Many of them will walk away from their mortgages.

                                                                  People who are flipping houses also take it on the chin… although I expect this to be a tiny number of people given how hard it is to do this.

                                                                  Two and three hour commutes turn into 20 minute commutes over night. The homeless problem doesn’t disappear totally but it is greatly lessened. Given that people who own land are a 15%/85% minority the number of winners will VASTLY outweigh the losers and given the scale of the current disruption there will be massive overall gains to society.

                                                                  However we’re looking at a serious economic disruption that will cause problems. But to get the “overnight” aspect of this, which is the real source of the pain here, you needed a magic wand.

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                                                                      • I’m mostly on Chip’s side here. I live in the suburbs of a highly-desired city and have been watching. Clearly there was a shortage of apartments — rents were spiraling upwards in excess of increases in anything else. The city government noticed, and began approving any sane proposal to build. The builders went out and got financing — up to a point. The materials people kept more stuff in their warehouses — up to a point. There was insufficient labor, so wages went up and trades workers relocated into the area — up to a point. The community colleges increased their trades programs — up to a point.

                                                                        It’s a system of interconnected feedback loops, operating on different time scales. All of the players are risk-averse to one degree or another. Unsurprisingly, to everyone except the city council, resources flowed into luxury apartments first, since that’s where the profits were largest. After a few years of construction at historically insane rates, the real estate people think the luxury part of the demand may have been satisfied, as those rents seem to be stabilizing and projects for more modest sorts of places are being put forward.

                                                                        Not particularly clean feedback loops, either. Odd time-variable hysteresis effects, for example. And other strange things — Denver’s need for affordable apartments is much more likely to be satisfied because of the light rail system than because of anything the City and County of Denver do with building regulations.

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                                                                        • Denver’s need for affordable apartments is much more likely to be satisfied because of the light rail system…

                                                                          Bingo! If you can not build enough to meet the housing demand in the core, the next best thing is to make it so people can actually get into and around the core while living somewhere else.

                                                                          Of course, if you think building housing is a tough nut to crack, just try public transit!

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                                                                        • I don’t understand. There was an unprecedented amount of building of luxury apartments and the price seems to be stabilizing after the feedback loops of providing training and jobs and materials all seemed to work together and now the building is slowing?

                                                                          That seems to me to be an example of the market actually working?

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                                                                          • For the record:

                                                                            Median household income in Denver, $69k.
                                                                            22% of their rentable places are in the $7k-$10k range (only 1% below that).
                                                                            Min wage is $11/hour.

                                                                            Presumably the bottom of the market is squeezed and those long lag times need more time to work… which can be decades. So there are issues but not on SF’s scale.

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                                                                            • So, only 22% of the housing is affordable to minimum wage earners?

                                                                              What percentage of workers makes minimum wage?

                                                                              Is it somewhere around 22%? Here’s what the BLS has to say:

                                                                              In 2016, 79.9 million workers age 16 and older in the United States were paid at hourly rates, representing 58.7 percent of all wage and salary workers. Among those paid by the hour, 701,000 workers earned exactly the prevailing federal minimum wage of $7.25 per hour. About 1.5 million had wages below the federal minimum. Together, these 2.2 million workers with wages at or below the federal minimum made up 2.7 percent of all hourly paid workers.

                                                                              The percentage of hourly paid workers earning the prevailing federal minimum wage or less declined from 3.3 percent in 2015 to 2.7 percent in 2016. This remains well below the percentage of 13.4 recorded in 1979, when data were first collected on a regular basis.

                                                                              Now, granted, that’s national rather than Denver.

                                                                              But if Denver is somewhere within 10% on either side of that, I’m not seeing the failure.

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                                                                              • Kudos to Jaybird for bringing in data on minimum wage workers. The other problem here is the comparison mismatch. Affordability isn’t a function of someone’s wage, but a function of their household income. Wage is a component of household income, but more important is household composition.

                                                                                In other words, is the minimum wage earner a single mother raising four kids on thirty hours a week as a Walmart cashier or is she a housewife who works a few hours a week outside of the home to supplement her husband’s earnings? If you’re not addressing that question, then you’re not really talking about affordability.

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                                                                                • I think Chips repeated point was that ‘median millennials’ (who we are probably assuming are near minimum wage levels) are not able to afford housing in urban cores where the price of land has a high value.

                                                                                  There is also a separate issue of ‘kids not making more than their parents made’.

                                                                                  Another being that ‘real wages’ haven’t increased.

                                                                                  One about possible ‘price crashing’.

                                                                                  I think there is an added ‘markets are sluggish to respond’ because of risk aversion.

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                                                                                  • Then talking about the minimum wage is probably a huge distraction because it won’t help those people.

                                                                                    Maybe we could make H1-B visas transferrable. Like, give them to the worker instead of to the company. Oh, that would disproportionately help the more high-paying jobs rather than the ones we’re worrying about.

                                                                                    Um… maybe do a better job of getting fiber into every town about the size of Cody, Wyoming and up? This would make telecommuting more of an option?

                                                                                    I mean, would you rather make $100,000 in Cody or $150,000 in San Fran?

                                                                                    Personally, I’d rather make the $100,000 in Cody. (Now, I understand that my preference is far from universal, but that would be one hell of a release valve to allow those not inclined to big city living to make big city salaries without having to pay big city prices.)

                                                                                    Now, what do we do to make real wages increase? I think that the last real *holy crap what a boom* we had was the internet bubble of the 90’s (also tied into the cell phone boom that became the smart phone boom).

                                                                                    We need a new level of tech that has about that much impact. What’s the best way to cultivate that? I think we need much stronger patent protection for a much shorter period of time. Make your million, then your idea is in the public domain for others to improve upon.

                                                                                    But none of that has to do with the minimum wage.

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                                                                                    • Maybe we could make H1-B visas transferable.

                                                                                      If we’re getting into sound economic ideas:

                                                                                      1) Staple a Green Card to every 4+ year degree at graduation from any accredited US college.

                                                                                      2) Get rid of the min wage and anything else which gets in the way of job creation including various taxes on jobs. We want employers fighting for employees, not the reverse.

                                                                                      3) We want the creation of a job to be risk free and the first stick out of the bag for any economic problem, so make it real easy to fire people.

                                                                                      4) We want the creation of lots of things NIMBYers would object to, everything from low income housing to factories. State or even federal level legislation preventing locals from creating anti-growth policies would be an economically good idea.

                                                                                      Now, what do we do to make real wages increase?

                                                                                      Increase productivity. Counter-intuitively, that implies letting robots displace workers, letting free trade displace workers, etc.

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                                                                                  • There is also a separate issue of ‘kids not making more than their parents made’.

                                                                                    This is probably true, but I’m not sold on the idea that it’s a problem in need of intervention.

                                                                                    Our parents had a wide selection of employment choices that paid well (for the time) and did not require a great deal of skill, walking in the door. And for the skills that were needed, employers were much more willing to OJT.

                                                                                    These days, a lot of those low skill but well paid jobs are either overseas, or automated. The ones that are left that pay well demand a lot more skill or experience walking in the door. The failure here is that companies are not always being realistic about their expectations with regard to the local workforce[1], and they are less willing to engage in OJT so our incoming workforce can get the skills and experience needed. That is something we should do more about.[2]

                                                                                    Pile onto that the fact that a lot of professional compensation is reflected in non-wage benefits. My employer drops $15K a year toward my medical and dental coverage, plus offers a number of other insurance (life, disability, etc.) packages for little to no cost, plus retirement savings, plus generous vacation, plus financial planning services, plus education benefits, etc.

                                                                                    Couple all of that with the fact that the Boomers and GenX largely fled the urban cores for the suburbs, where land and housing was cheap as hell. The younger generations want to move back into the urban cores, which spent decades turning abandoned housing into commercial properties, and I bet you the cities are not keen to rezone commercial property back to residential and take the tax hit.

                                                                                    That said, the fact that someone can not afford to move into an area they want to live in is not intervention-worthy. You want to talk to me about the senior citizen who’s lived in a brownstone since they were a young adult, and the taxes/rent/etc. are forcing them out? Sure, I’m willing to hear an argument that they should be able to stay until their health demands they move. But the argument that they should leave because a younger person/family wants to live there…

                                                                                    [1]e.g. Entry level jobs requiring 5 years of experience with a product that has only existed for 2, etc.

                                                                                    [2] Expanded internships, apprenticeships, etc.

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                                                                        • I wouldn’t be surprised if it was the city that wanted the luxury apartments built first to boost the taxes needed to cover future utility costs of lower tax units.

                                                                          Cities do other nefarious things that warp time scales that wouldn’t normally occur.

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                                                                        • The real issue is that urban cores don’t really want to be residential. Picking of the Bay Area again, San Francisco has about 400K units of housing, and about 2.5M jobs in the city.

                                                                          Commercial real estate is always more attractive to developers, and to governments.

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                                                        • Jay: I was just wondering if you’d noticed that “more money” would not address the problem.

                                                          Chip: Why not?

                                                          Because San Fran only builds for 15% of the demand, and it’s impossible to have everyone in the top 15%.

                                                          Any increase in the amount of money simply increases the price of housing since increasing the supply is impossible. 85% of the demand is going to be priced out of buying a house.

                                                          This is the root cause of the “housing is too expensive” problem.

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                                            • Prices can rise faster than wages. Happens all the time. Especially when supply is constrained.

                                              Couple that to the fact that a lot of wage growth is expressed through compensation methods that are not in the take home paycheck.

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                                            • Those wages aren’t globally competitive. The prices you are talking about are in regions that are resource intensive.

                                              I think this is all driven by your own fear. If one were to deconstruct the social construct of cities along with centralized production and distribute it over the land, there wouldn’t be point loads on particular pieces of land and the housing costs and wages would eventually reach equilibriums (at least equilibriums not distorted by the constructs of cities).

                                              But this is completely in opposition to how you want things to be. You want there to be cities, but equilibriums. I don’t see how you are even considering your arguments rational.

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                                            • I’d be interested in seeing the answers to:

                                              A) More Money
                                              B) Voucher that Landlord can trade in for money
                                              C) Voucher that Landlord can trade in for tax break
                                              D) Refundable tax credit

                                              Because, just off the top of my head, the answers that I’m getting for each of those would be “the price would go up”. Some are just more roundabout.

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                                              • Well A, which is straight up more money, seems to be much less likely to be captured by landlords, but I suppose the question of how we determine eligibility is crucial there. It’s even possible to envision scenarios where it reduces housing prices, at least in some markets, though they seem a bit far-fetched.

                                                B, C, and D all seem like they would raise housing costs. I also believe they are all bad ideas.

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                                                  • Yes, which is why I generally advocate giving everybody who needs housing the money, and since that is such a good approximation of “everybody”, not bothering to check for eligibility much beyond that.

                                                    It’s not immediately obvious that this will increase housing prices, but then again we would probably have to dicker about what it means to “increase housing prices”.

                                                    Anyway the other stuff is bad and we shouldn’t do it.

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                                                    • If we still have more people who desire apartments than apartments, we aren’t going to fix the problem of people needing apartments, no matter how much money we give the people who desire apartments.

                                                      We’ll just reshuffle who desires one.

                                                      Maybe the problem is who is in the stack of people who tend to get shuffled, that’s fine! But that’s a different problem than “people can’t afford to live in an apartment because apartments are in such high demand”.

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                                                      • If we still have more people who desire apartments than apartments, we aren’t going to fix the problem of people needing apartments, no matter how much money we give the people who desire apartments.

                                                        Wait, what? Why not?

                                                        It’s not like there’s a fixed number of apartments in the country.

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                                                          • OK. So hypothetically, there is exactly one person that we don’t have an apartment for.

                                                            We give the one person who is literally out in the cold a zillion dollars.

                                                            You can’t envision a scenario where that person gets an apartment without kicking someone out on the street?

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                                                            • Of course I can. Here are the main ones:

                                                              A) Roomies! For a mere monthly payment of 3% of a zillion, you can sleep on the couch!
                                                              B) A zillion dollars will buy a permit to build a new apartment!
                                                              C) I can give this poor schmuck a half-zillion and he’ll move to South Dakota where there is not a housing shortage and I can stay in his place (now my place)

                                                              Are we pushing for more Brooklynites to have more roomies? I admit, I hadn’t been looking at things that way.

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                                                              • D) A zillion dollars means you can move to South Dakota because why not, you have a zillion dollars.

                                                                There are many reasons that people want to cram themselves into Brooklyn (or the Bay Are, or…) but one very common one is that doing so gives them the best chance to make a zillion dollars. There are other reasons, of course, but many of them would be shifted substantially by actually having the zillion dollars to start with.

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                                                                • I admit, I thought that the problem we were trying to solve with the guy who wanted an apartment was to get him an apartment.

                                                                  It never occurred to me that we could solve the problem by making him just not want the apartment anymore.

                                                                  Oooh, we can even quote Stalin! “Death is the solution to all problems. No man, no problem.”

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                                                                  • I’m not sure I follow the leap from “not wanting an apartment in a particular place” to “actually being dead”, to be quite honest.

                                                                    In any event, that’s the great thing about people giving money instead of vouchers or whatever. They can use it to solve the problems they actually have, instead of the problems we think they have.

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                                                                    • Because I don’t know how much lateral thinking we’re being expected to do.

                                                                      “There are tons of people who want apartments who can’t afford them.”
                                                                      “Maybe we should build apartments?”
                                                                      “No, we should give people more money.”
                                                                      “Won’t giving them more money result in rent going up?”
                                                                      “Not if they move to Cleveland with the money we give them!”

                                                                      While I appreciate that this is doing stuff to address demand (make the demand go away by making the person go away) this is not the same thing as meeting the demand.

                                                                      And I thought we were trying to figure out how to meet the demand. Not reduce the demand.

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                                                                        • If we are allowed to spend $X to make people go to Cleveland, I’m sure that apartment rent prices would go down.

                                                                          But not by more than $X. We’d spend $X to make the rent go down by just a little bit. Marginal.

                                                                          While that’s true, it’s not particularly interesting.

                                                                          If we assume that they’re not going to end up in Cleveland but try to get an apartment, the price of housing goes up.

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                                                                          • Well, why would we assume that? Especially if people in Cleveland who were thinking about moving to Brooklyn for more money are like, “Hey, someone mailed me a check. I can afford to say in Cleveland now!”

                                                                            Or maybe they’ll think, “Hey, I can finally afford to move to Brooklyn!”

                                                                            Dunno which will happen more. But I do know a lot of people who would prefer to stay where they are move elsewhere to make more money, so we shouldn’t rule them out.

                                                                            (I seem to have replied twice because I thought my first reply didn’t go through.)

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                                                                        • “And it depends why they want the housing!”

                                                                          If they want the housing to live in the area, the money will be competing against the money we also give other people to live in the area.

                                                                          If they just want the money and would be willing to move if you gave them enough of it, I suppose that that would be a release valve for some of the demand.

                                                                          But I don’t see how that’s a better solution than “build more condos”.

                                                                          I don’t see how it’s a more workable solution than “build more condos”.

                                                                          It strikes me as an interesting thought experiment, sure, but as much pleasure as it provides, it’s not going to produce fruit.

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                                                                          • I’m not at all confident that “build more condos” is actually the easier solution, since the biggest barriers to building more condos are at the municipal level where building more condos means fights with some of the most politically powerful local interests. I’m all for fighting the NIMBYs, but sometimes you’re going to have to route around their damage.

                                                                            Also, of course, it means people become less risk averse (or perhaps more accurately are at less risk), which can reduce the lag and hysteresis that was describing in his comment about Denver.

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                            • The price of land would drop. Zoning and other land use regulations artificially restrict the supply of available land. So relaxing zoning regs will almost certainly increase the available supply and result in a drop in price. Restrictions on the height of construction reduce the available housing per unit land area. This reduces supply of housing which would otherwise be cheaper. (note that all public housing in Singapore is high or medium rise, with much fewer of the latter).

                              Eliminating all import tariffs on building materials will reduce their price especially for things like steel which are imported.

                              Eliminating the minimum wage and opening up the borders will reduce the cost of producing those building materials like bricks, mortar and concrete which are not imported. The actual raw material for construction is soil of one kind or another. While not just any kind of dirt would do, I doubt that these materials are so scarce as to be the real reason why the cost of housing is so high. Apart from man-power, the only other significant cost is energy to, for instance, fire the bricks.

                              Will housing be significantly cheaper in a free-er market? almost certainly yes.

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