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Benjamin L. Mabry's avatar

One of the biggest errors being made in these kinds of generational comparisons is the true equivalence of these goods across time. Some of those equivalences are not quantitative. The equivalent to a 1960 house is not just a question of square footage or appliances, but also the house being in a neighborhood with the 1960 equivalent crime rate in a school district with a 1960 equivalent public school.

Let me use a personal example. When I taught in the Atlanta area, we paid a premium on our house to live in the "good" school district in our county. Our last year there, a 7th grade girl in my son's PE class got her face slashed up with a razor by another girl who thought the first girl was looking at her boyfriend. The real question becomes this - if girls are getting their faces cut with razors in the "good" school and girls were not getting their faces slashed with razors in a 1960 school, then these schools are not actually equivalent. The best school in the county is actually worse today than the median (or maybe even worst) school in 1960. If you want to truly find the equivalent in terms of quality of life, you have to determine how much more it would cost to live in a place where girls don't get their faces slashed with razor blades in the local school. That generally means that you have to add the cost of private education to the cost of living to calculate an equivalent to 1960 education.

We could do the same with crime rate in general. If you want to find the equivalent value of a house, you need to control for the crime rate. How much does it cost to buy a starter home in a neighborhood where the crime rate is the same as the median crime rate in 1960? The shrinkage of neighborhoods that have a safety equivalent to 1960 shows that the "official" data is off base. The equivalence is about quality of life, not abstract notions like price per square foot.

The reality is that ballooning social dysfunction drives up the real cost of living for middle-class folks who do not want to live amidst violence, squalor, and degrading public services. The question is not "how much is it to buy a basket of market goods." The real question is "how much do I have to pay to avoid the social dysfunction that the government incentivizes in formerly middle-class communities." Matching our parents' lifestyle is not so much about the car or the house. It's about making sure my daughter isn't the next girl to get her face slashed by a jealous 12-year-old with a razor blade. It's about making sure my son doesn't get jumped and beaten behind the school for his wallet. It's the price of living in peace, which has gone up exponentially since 1960.

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virginia's avatar

You note the peculiarity of housing prices going up faster than rent. Housing buyers are not just families who are currently renting, relocating, trading up, downsizing, etc. the homes they live in. A lot of the demand for housing is driven by investors purchasing residential real estate that they will not themselves live in. These investors are not just buying properties because of the income stream that they expect to generate from rents. They're also betting that the properties will appreciate in value (a good bet in recent years), and that they'll be able to make a profit when they or their heirs sell the properties in the future.

The solution to this would be a land value tax as advocated by Henry George in Progress and Poverty. Like you say, we also need "a monetary policy that cares less about the net worth of older asset owners." However, making these changes would be politically challenging, because older asset owners exercise great political influence, especially in an era of low birth rates and an upside-down population pyramid.

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