Hacker News Reader

Comment by 11thEarlOfMar | Hacker News Reader

For some reason, I am reminded of the paradox of more hard disc space. Or more lanes on the highway. Any time to capacity is increased, it seems to get consumed and before long, you're out of space again.

This presents a difficulty that perhaps researchers and pollsters can tease out: How many of these cash-poor people genuinely are earning enough to live comfortably vs. don't know enough or don't care enough to build savings, and instead, spend up to their income? Increase their income and they'll just increase their spending and be back where they started.

It seems likely that we could take these numbers down substantially by improving financial management education. Or, simply accept that a large percentage of Americans want to live their life to the fullest that their income can allow.

View on HN

I have been developing another mental model of this. I think that we naturally measure our own lifestyles by looking at the people around us. We want to feel like we're beating the average or at least not too far below average. People we encounter in our lives will try to present themselves as positively as possible, so we end up thinking that their lives are a bit more prosperous than they really are. I think this is where most of the pressure to increase our standard of living comes from.

Then you bring in competition for resources. If everyone makes similar amounts of money and everyone is trying to have a similar quality of life, we will tend to spend 100% of our incomes on our cost of living. Just like how perfectly competitive companies will naturally compete away all profits, competition for housing, education, healthcare, etc. will naturally compete away all personal savings until the average savings rate is near zero.

The only way out of this competition trap is to find some way to escape the average. Either find a way to make much more money than normal, be much more frugal than normal, or be much luckier than normal.

That's "Keeping up with the Joneses".

The way out of it is with cognitive training / therapy to have a healthier outlook on your life, and/or learn to hate everyone trying to sell you stuff.

I think this model is on the right track, though I'd change "quality of life" to "positional goods and signaling games". Not all of quality of life is from doing better than other people in your reference set, else FIRE would be an unreasonable goal for middle-class workers.

It's interesting to think about how to reduce the prevalence/cost of these games.

The average is not really that important. As long as your income is not at the lower end of the distribution it’s a just a matter of choice to live as if your income was lower than it is (except in the cases where you would have access to subsidies if your income was actually lower).

I have found this to be distinctly not true. I don't know of many places were living a more modest life is a good choice. It seems like most people who says this have already benefited from cheaper education, real estate, their partner or career. In many countries average savings doesn't keep up with the increase in property values, especially not in attractive job markets. If you don't have wealth, or go into debt, you are falling behind. I really don't see it, maybe you have some example?

I think the kind of things you're talking about are more exceptions, and probably don't matter as much to a given family in the long run. For example, once I've managed to buy a house, that's a stake in the ground; it doesn't matter that property values continue to rise beyond that, since you've already got the housing you need.

But so many other things really are choices. I see lots of my colleagues replacing their new cars every 3 years; mine is five years old, having replaced the car I previously owned for 12 (and they were a Hyundai and Subaru, respectively, even if I could afford a Mercedes). Having cable TV with all the movie and sports channels is very much a decision that anyone can pass by. How often and where you eat out makes a big difference in expenses. Clothes, shoes, jewelry, furniture, matching stainless steel appliances with wifi, ... the list goes on and on.

Maybe a couple can survive changes in the housing and job market well enough that it they don’t mind the changes to their quality of life. But it very likely will be noticeable to their kids when other families have stronger finances and better access to housing and job markets. If you can’t save more than the difference to such markets what you get for the money is de facto less. It is sort of inflation by inequality. Then the theory doesn’t really hold and the frugality has just been to try and keep up.

I am all for frugality but in many places it hasn’t worked out in the last 10 years because you haven’t had the same access to growth. Unless you already had assets in the first place.

Huh? I guess I'm really not following your reply. It seems like you're saying that my willingness to keep a car for a dozen years and to bring my lunch rather than buying, and my wife having a $30 purse rather than a designer one, hasn't actually helped my financial situation. That seems a rather silly claim.

You also close the door on opportunity. Your wife with a better purse could be making unboxing videos bring in thousands.

Bringing vs buying could be an opportunity cost. I've worked in places that provided food perhaps a job change could help pay fof the lunch.

Apparently I'm wrong, and there's no point in trying to be economical. The evidence is wrong, and people who spend wantonly actually end up with more net available funds. Who woulda thunk it?

Life is not black and white and studies study only certain things. Don't consider yourself wrong because certain use-cases may lead to other outcomes.

Being economical will save you money. At some point being too economical will mean you have to accept lower quality/value. There is a tradeoff.

If your parents were being economical they might not have purchased a computer in the 80s.. It was seen as an expensive toy and not purchasing one would have saved them thousands. Long term the opportunity cost would outweigh the purchase cost.

Buying a cheap kettle it might last 6 months paying a little more and you don't need to replace it for 5 years.

There is an old British saying. Penny wise / pound foolish.

Sure, and you can also buy an expensive kettle today and replace it with an even more expensive Alexa-commanded kettle next-year.

It’s silly to say that not going to Hawaii for a week or not buying a $1000 handbag is going to cost you more money down the road...

Where is the opportunity cost in bringing your own lunch to work? Would he increase his chances of getting a better job if he stopped doing that in his current job?

The person who throws out working stuff for something newer always has a pulse on what is hype and has the first mover's advantage. You can't be the first to write an amazon kettle app if you don't own the product.

The bringing a lunch eating alone vs eating with the group does matter. A lot of company information gets shared during lunches, friendships are made and sometimes you get to interact with people from other parts of the company. This does give you a leg up when promotions come and or layoffs.

Not going on vacation ever or not buying a purse doesn't seem like it would matter. It could if you are looking to join a social group where everyone goes and shares vacation photos or if the group goes purse hunting together.

The point is any path could save/cost you as long as it fits with your goals and your situation. Saving that college money instead of spending it and going could allow you to buy a home sooner but it also could limit your career growth. Everything is a tradeoff.

It also makes sense to buy lots of kettles and designer handbags when you're a merchant of kettles or luxury goods. You could make a case for anything, but some of those scenarios may be more relevant for the general population than others. I'm sure that for most people spending in real estate or education may be better than spending in fine wines, holidays or luxury cars.

> Everything is a tradeoff.

Absolutely. You trade work against money and money against stuff. You could have more money and less stuff. Which means having less stuff now and more stuff (or less need to work) in the future. Because money and debt are tools to move consumption between the present and the future. That's the point. It's a choice and nobody is limiting your capacity to consume in the future by forcing you to consume today.

An example of what? If you are getting by with an income of $X and you get a raise of $Y you have the choice to keep your spending at $X and save the additional $Y.

>As long as your income is not at the lower end of the distribution

I think this is key. If you make $200K/yr, saving 1/10th that means you drive a lexus and not a benz. The Lexus is not worse than the Benz in any objective way; you paid less and got a car that is going to be more reliable and cost less when it does break. I mean, don't get me wrong, I like how the german cars drive, but you've gotta be really dedicated to own one out of warranty.

The problem is that sure, at a high income, you can usually save a lot of money by making sacrifices that are merely aesthetic, by buying goods that are objectively no worse (and sometimes objectively better) - but below a certain point, buying a cheaper good is going to get you something objectively worse; often something that will end up costing more in the long term. Downgrading from a 15 year old Toyota to a 25 year old ford is going to get you something that probably costs you more, in total, to operate, even though the initial purchase price will be lower.

I mean, I think the disagreement here is mostly at what level this happens.

No, the point is that you have the choice of making real sacrifices, getting something that is objectively worse than what you could afford if you spent every single cent that you have and then some. (That’s true at every income level, anyway, not having a mansion in the Hamptons is “objectively” worse than having one.)

Eating chicken today and saving so you can eat chicken in the future may be a better idea that eating prime rib and starving if you lose your income.

>(That’s true at every income level, anyway, not having a mansion in the Hamptons is “objectively” worse than having one.)

I'm assuming, from context, that the figure of merit for this discussion is having money in the future. Obviously, in the context of getting a reality tv show, a mansion in the Hamptons is "objectively" better than having a bunch of cash and a modest place to live, but we're talking about having money in the future here. Buying and living in a mansion is... usually not a great way to go about furthering that goal; I'd argue that living in a mansion, in the context of the goals we're talking about here, is objectively worse than living somewhere modest and putting the rest of the money you would have spent on the mansion in a low-cost index fund or something.

>Eating chicken today and saving so you can eat chicken in the future may be a better idea that eating prime rib and starving if you lose your income.

That's kinda my point? I mean, that if you can downgrade from beef to chicken (something that doesn't interfere with your current ability to earn money and does not incur future costs... something that will in fact lower future costs, as chicken is healthier than beef, and if you are poor, you are paying a lot more of your healthcare out of pocket than I am) sure, that's great. If your figure of merit is money in the future, eating chicken could be said to be objectively superior to eating beef.

When you aren't buying the absolute cheapest good available, you can usually find substitutes that are cheaper and impose fewer future costs, and sure, seeking those things out is great, and important to think about all up and down the income spectrum.

But there is nearly always a point at the bottom of the spectrum where there are no cheaper options that are actually cheaper long term - that don't impinge on your current ability to make money or impose big future costs.

If you don't have any place to cook, that dollar menu burger looks pretty good. If you can't get a regular loan and need a car for work, paying way too much for a low quality car at a 'buy here pay here' lot looks pretty good. Of course, both those things will cost you down the line, but what are you gonna do? you've gotta make it through today or there won't be a tomorrow to worry about at all.

Maybe we agree then. If the objective is to save money for the future virtually everyone has the option of reducing consumption to some extent in order to increase wealth (saving or repaying debt). I thought that you were aligning with the "saving is out of reach for most people" side, I apologize for the misunderstanding.

I'm pretty sure this is true, but there's an extra dimension.

When we look at others around us, we see that the Smiths take a vacation in Europe every year; the Joneses have three kids, each in travel sports leagues; Fred Johnson has a new Corvette; the Harrisons just put in a swimming pool. All those people that we take to be our peers are able to do various expensive things, and from that we generalize that we, too should be able to do those things.

The problem is that such expenditures are probably OK if you're doing one or maybe two of them. But it's hard to see that all those other people are limiting themselves in that way; it's easy to see an illusion that our peers can do all those things, and so we believe that if we're of the same economic class, we ought to be able to do them all as well.

US median household income is about $60k, which is stagnant for about 15 years despite GDP growth [1]. The median listed housing price has increased by ~50% for the same time[2]. What could a good financial management education teach with these trends in mind?

For a newly-minted median-income household, what is a good financial decision between buying a house or renting? Buying a house with much debt and mortgage payment is risky (remember 2008?) but maybe it is a good investment until that time. Or, not buying a house and continue to pay the rent and helping someone else paying their mortgage may be the safest bet. In either case, there seems growing housing cost anyways that no financial education could help.

Maybe moving to an area where no job exists but house or rent is cheap could be an alternative that no education suggests?

IMO, financial education without considering external environment is easy. It's always like, save more and keep some cash for the risk. But what it doesn't tell people is that the risk is getting higher for the same return and more and more people deplete their income paying the premium.

[1] https://en.wikipedia.org/wiki/Household_income_in_the_United... [2] https://fred.stlouisfed.org/series/MSPUS

I wouldn't say US median income is stagnant, more like volatile. It climbed from 50k to 60k between 1985 and 2008, collapsed back to 55k during the recession and slow recovery in 2012, then climbed back to an all time high of 61k by 2017. But that actually supports your point: it is very difficult to predict a "safe" time to take on debt.

Is that adjusted for inflation?

It's real income, so yes.

“Real” income is adjusted for inflation (by definition). The contra would be nominal income (or typically unqualified is also nominal).

There are two problems with your analysis:

1) You’re comparing inflation adjusted income figures to housing prices that are not inflation adjusted.

2) You’re ignoring interest rates. Low interest rates allow people to buy more expensive houses without paying any more money per month.

Mortgage payments as a percentage of income have been quite flat across all income levels over the past 15 years: http://www.pewtrusts.org/-/media/data-visualizations/infogra...

Am I reading that chart right that the average person with a mortgage pays around 15% of their income for housing? That seems implausibly low.

It might be a hair more than 15% by eyeball, but remember that’s going to include in the average a lot of people who are paying property taxes only or who bought a place 15-20+ years ago and whose PIT payments are much lower than their current income would suggest they could qualify for. I bought in 2007 and my percent of income spent on housing would now fall in-line with the charted figures.

Do you live in Silicon Valley? That might skew your perception a bit. Median income is around $60k, and median house price is $220k. With a couple assumptions that comes out to around 20%

I do not. 20% is more plausible. The gap between 15% and 20% is high.

Note that most people currently paying a mortgage has not bought at current prices.

And with the reasonable assumption that high-income households are more likely than low-income households to buy a house in any given year, we can expect the buyer of the median house to have better-than-median income.

It makes more sense when you put it like that. The average mortgage holder has a 2019 salary but probably only a 2010 mortgage. (Or whatever bygone year is correct.)

Houses are fairly cheap in the US and incomes are fairly high: https://www.nytimes.com/2017/04/21/realestate/first-time-hom....

> Of those who did manage to buy, the median age was 32; median salary, $72,000; and median home price, $182,500. (Among all buyers, the median age was 44; median income was $88,500; and median home price was $227,700.)

Assuming no down payment, a mortgage of 182,000 at 4.5% is $920 per month, which is just about 15% of $72,000 (before tax). It’s about 19% after tax. Still quite affordable.

The first set of numbers are of first-time buyers who managed to buy. That doesn't really speak to housing being affordable, it speaks to what circumstances people must be in before they feel comfortable buying. Median personal income is about half that [1].

[1]: https://fred.stlouisfed.org/series/MEPAINUSA672N

I don’t think the median individual income is the right reference point for mortgage affordability. Do we think that single people who just graduated high school should be able to buy a house in order for housing to be considered “affordable?” If not, it might be appropriate to compare median housing prices to median incomes of groups we expect to be able to buy houses. Median income for family households was $77,000 in 2016: https://www.census.gov/library/publications/2018/demo/p60-26.... Median income for married couples with both spouses working is $111,000: http://www.aei.org/wp-content/uploads/2018/09/census3.png.

Single people that just graduated high school used to be able to afford to buy a house. In some parts of the US they still can.

Part of the change is we stopped building cheap houses. Building a good 600sf house for 20-25k is very possible. Land costs are also an issue in some areas, but much like the car market people build based on who’s buying not the low end of the market. The profit margin is vastly better if you aim upscale.

They did? When did that happen? My parents --- upper-middle class, college-educated --- started their family in a series of small apartments, and certainly never owned houses when they were single.

Most famously post WWII GI bill provided mortgages to a lot of people without a collage degree. It helped them get a mortgage but they still has to pay the bills. It even still only ~5% of the population had a collage degree yet home ownership was common.

Prior to this people would often live with their parents or other other family members, before buying or building a home. Though this was far less common around cities.

My financial advisor says that poor people should start buying more houses so they can keep up with rising prices.

This comment makes the classic mistake of citing flat real (inflation adjusted) income and increasing nominal (so not inflation adjusted) housing prices. If you take the Q1 2019 vs 2004 median house prices, they are 44.6% higher 15 years later. Said differently, the median house price has gone up by 2.5% annually. Basically by inflation.

We could start by teaching about managing money in high school. I didn’t know how the stock market worked, about the Fed, about saving, IRAs, Roth, 401K, what a w2 really is, the tax brackets and how they work well until after high school.

My high school in the Midwest hardly even covered Trig. There was no Calculus course. We did invest in our football stadium, basketball gym, and various other athletic programs. I’m not saying those things aren’t important, but real education took a back seat.

I did have a class on managing money in high school. It involved a man fanning out his credit cards and explaining that if you pay off one card with another you can maximize "float." We were then quizzed on the 'best' payment methods, which required ordering a few in terms of when we'd actually have to pay. Shockingly, he was not a money-savvy wealthy man.

My point being that there are whole host of prerequisite problems to solve before we can get to a point of using public schools to effectively solve societal problems like this. I think your second paragraph begins to speak to one of the reasons these problems proliferate.

Your school allowed that man to speak to students?

I'm surprised you're being downvoted for such a reasonable statement. If schools teach essential life skills classes such as driver's ed, they really should teach personal finance and home economics (especially cooking) too.

Schools in my area stopped teaching driver's ed decades ago. The community college offers a few classes a quarter. They sell out in about 5 minutes.

I wonder why our accident rates continue to rise year after year.

Funny, my Midwestern high school actually required me to take a consumer economics class where we learned about taxes, retirement accounts, credit scores, how to balance a checkbook, and other stuff.

My highschool had personal economics courses preaching the 70/20/10 rule with saving 20% of your income for short term savings, 10% for long term. People don't follow it because credit(debt) is too easy to get and you can make impulsive decisions to blow money on vacations and other things. I don't know what the answer is but a highschool course isn't it.

I'd like to improve the financial education of people making decisions in government. Because they've run up a $22 trillion debt.

And our government cannot come up with $400 to cover an unexpected expense either. Not without going further into debt.

Which is why all such decision makers should at least learn how to run a lemonade stand profitably.

Until then, they should not be deciding what financial education people should be getting either.

I don't think an analogy that focuses on "capacity" alone is a great one. You want an analogy with both stocks and flows. It's worth checking out Donella Meadows' book "Thinking in Systems: A Primer".

here's a rough disk space analogy with stocks and flows:

Suppose you have a disk with free space X. What rate do you consume free disk space? What rate do you produce more free disk space? if flow out (of disk space) is larger than flow in (of disk space) then after some finite time you will always run out of disk, no matter how much free space X you started with. More capacity (a larger initial value of X) just buys you more time until the emergency. Which is useful, but you still haven't solved the actual problem in terms of the delta between the two flow rates. Now if you have your flow rates under control, and you produce at least as much free disk space as you consume, what if the flow rates aren't always steady, but have variability? Then having some spare capacity can help to provide slack or buffer to deal with temporary periods where disk is consumed much quicker than usual. But there are diminishing marginal returns to having lots of excess capacity.

> Annual income twenty pounds, annual expenditure nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pound ought and six, result misery. --Charles Dickens

I'd like to improve the financial education of people making decisions in government. Because they've run up a $22 trillion debt.

The people in government know exactly what they are doing -they just don’t care. Politicians only care about deficits when their party isn’t in power.

More HDD space did eventually solve the problem for most people most of the time.

Which I think is telling. People don’t need unlimited road capacity, but they do want more than a few minor improvements.

A thousand times that...

But the matter with roads is different, because we will not see orders of magnitude improvement on road capacity, ever. What we need is completely different solutions, but it would be great if people pushing for city mobility weren't pushing against the one form of mobility that actually works most of the time.

> "...roads [are] different, because we will not see orders of magnitude improvement on road capacity, ever."

you don't need an orders of magnitude increase in capacity. doubling it is probably enough.

you can do that by putting roads underground, right under existing roads. it's expensive, but we have concentrated and idle wealth that could be unleashed on it. let rich people who really want less congestion pay for it. people in LA willingly pay $20+ for one single-occupancy trip in the toll lanes.

For HDD space these days, inelastic costs are a tiny portion of most people's available space.

Most people these days have a decent amount of hard disk space, enough for essentials, with plenty left over for discretionary usage. Although software binaries and video games are larger than ever, and pictures and video have higher resolutions, changes in the distribution of commercial media have made it less necessary to have storage space for music and commercial movies. With the vast majority of people having enough space, few people are hurt if some others require more space -- those people can just buy more storage, and doing so does not affect people who have enough space.

Roads and housing are different, because one person's usage of a particular instance deprives part or all of another person's use. People (and businesses) may be able to attain a comparative advantage by deriving more benefit from their consumption pattern of these scarce resources than drawbacks they suffer from the consumption patterns of others, so any "spare" capacity is an opportunity for someone to benefit. Demand is thereby induced.

I think this is true to a point, if you are making <40k or so saving money requires almost a monastic lifestyle. My income has ranged from 20k -almost 200k and it’s ludicrously easy to save at one end, and almost impossible on the other. It is not super fair to tell people eating out is a luxury they cannot afford.

From a european perspective, eating out is a luxury. Eating out once a week is considered spendy where I live.

I live in an European capital and a decent enough meal at an ok restaurant for both me and my gf costs about 25-27 euros (no wine, just sparkling water for me and in most cases some tea for my gf). I don’t find that terribly expensive, Europe is a big place.

Usually I hear people say that they shouldn't have luxuries like cheap $300 TVs, smartphones or fridges. These things are only for the rich after all. I once tried to figure out how much money I can save by changing my lifestyle. What I found out is that there are a lot of minimum price floors under which what you're buying is complete junk. In other words you're not saving money. By paying $1 less you're also getting $1 less in value or often even $2 less value. Want a cheap computer? How about a raspberry pi? No screen, accessories, no case, no input devices and for people who aren't computer savvy it runs that weird linux thing. If you buy all that stuff you could have gotten a refurbished thinkpad which offers a better experience. Don't want to spend $1000 on proper machine tools? You can hack something together for $300 that doesn't do the job well at all. And the savings aren't even that great. You're maybe saving 40% compared to just getting the real stuff but since you're not buying much stuff anyway and therefore are primarily spending all your money on rent and food it doesn't matter at all, unless you're willing to have a room mate. This again isn't saving anything, you're getting worse quality in exchange for less money. Your "financial management skills" didn't help you out, the problem wasn't that you made a bad decision, you simply don't have enough money. Someone with enough money isn't even going to spend a single thought on buying a used computer, let alone a raspberry pi, they will straight up buy their 16 core workstation with 128GB RAM for $5000 and then be done with it, never using their "financial management skills" at all. What all these poor people need is to increase their earning potential, which obviously isn't easy.

The comparison to a $1000 laptop isn't a raspberry pi - it's a second hand ThinkPad that's three years old. It will be slower, but can do pretty much all the same things for most people, and could still cost 300 dollars.

I don't know the MTTF on ThinkPads, but the wear and tear on a three year old laptop is usually considerable.

I bought my first laptop in 2010 for about €630 and after three years switched to the current one. During that time two out of four USB ports became too loose to function properly in all circumstances. I have more anecdata like this from my friends and coworkers.

Usually the older ThinkPads last longer than 5 years, or at least long enough for the tech to become obsolete.

I think in the case of hard disk space or internet bandwidth, the blame is less on users and more on developers who seem to see this as an invitation to bloated (but convenient to develop with) data formats or frameworks since "space is now cheap". (Even if it's actually the user's space and not theirs)

So the equivalent would be rising prices to eat up any benefit - and exactly that seems to happen. At least there seem to be enough studies about the rise in prices of certain sectors vs the (far lower) rise in income to debunk the "they are just uneducated/undisciplined" hypothesis.

The fact is that people are just storing more. Higher resolution pictures or even RAW files, 4K movies, high quality audio, games with fantastic visuals in enormous worlds.

Of course the operating systems and apps are full of bloat but that’s only a small amount of storage, really.

i think this is referred to as Braess's paradox

https://en.wikipedia.org/wiki/Braess%27s_paradox

No, that's a mathematical trick in graph theory that has rarely been seen in real life because it depends on very specific arbitrary parameter choices.

> How many of these cash-poor people genuinely are earning enough to live comfortably vs. don't know enough or don't care enough to build savings, and instead, spend up to their income?

Yep. It's obviously ignorance or profligacy. The system is fine, it's the people who are wrong.

Needs a "/s". I'm still not even sure because that sounds like a legit viewpoint people on HN may have.

Are you sure it will get the economy better? Savings is essentially turning consumption money into capital money. What is the benefit of that in the economy where the latter is printed by the trillion?

It's turning consumption wealth into capital wealth. Printing money has a huge impact on that distribution, but it's not something you can increase globally by printing.

It’s called Induced Demand, a very common phenomenon in everything from traffic to housing

https://en.m.wikipedia.org/wiki/Induced_demand

Advocates of “more housing” in the Bay Area, for example, will be dismayed to see that tons of housing and higher density did not work in NYC, prices will remain high, so more housing is not the solution.

This is incorrect. The impact of supply on housing prices has been shown over and over again in the real estate economics literature.

The concept of induced demand in real estate is quite different than in transportation. The theoretical mechanism involves increased amenities induced by higher density above and beyond normal supply and demand interactions. It is likely to be a much smaller effect if it even exists at all. There is no solid research showing it is a significant in practice.

Here’s a recent presentation on the issue:

https://appam.confex.com/appam/2018/webprogram/Paper25811.ht...

"Induced demand" leads to wrong conclusions in general, analogous to confusing the local maxima produced by a hill climbing algorithm with a global one.

It's possible to build enough of anything to satisfy all the demand, even roads. The real problem with roads is the opportunity cost. There are alternative, better ways of satisfying that demand -- like building more housing, so people can live closer to where they work and don't have to drive as far.

So what's the alternative, better way of satisfying demand for housing? Nobody has one? Then we ought to build more housing, even if we have to plow through some induced demand (which may or may not even be present) in order to satisfy the full demand.

I’m glad people understand that building more housing does NOT work

Not really. Induced demand applies to housing.

Tons of housing and higher density appears to be working on London though.

https://www.forbes.com/sites/garybarker/2019/07/18/london-ho...

London has seen extremely high levels of house and apartment building. The market is being flooded with supply, and now prices have fallen 4.4% in the last year. So apparently it's definitely possible for even big global cities to get ahead of demand.

Before someone says this is related to Brexit and not the huge increase in supply, bear in mind that:

• For the whole country prices are still going up.

• That's because in regions outside of London they're going up above inflation, e.g. in the north west they went up 3.4%. But Brexit affects the whole country, so it doesn't work as an explanation.

• Prior claims about "uncertainty" affecting prices didn't pan out. Government economists claimed in 2016 that "uncertainty" would be such a strong effect it would cause a massive recession, instead the economy grew at a strong rate and unemployment hit record lows.

So it seems pretty clear to me that the simple, well understood economic explanation of supply and demand is sufficient to explain these results. New York could probably achieve the same thing if it built enough homes.

It seems plausible to me that Brexit would cause lower house prices in London without affecting the rest of the country.

1. London has (had?) a lot of immigration from the EU.

2. London's economy is very connected to the EU. Lots of European companies use London's financial and business services.

Don't want to argue against your overall point, however.

It might be that London house prices were already overinflated - look at a comparison between London house prices and the rest of the UK: https://d1btnptfa0r0eu.cloudfront.net/wp-content/uploads/201...

I don't disagree with the substance of your point, but London is far from a watertight argument.

China has built ghost cities that are sparsely occupied, so I think the supply-demand concept holds for even housing. Just because the housing was built doesn't mean people wanted it, simply because it existed.

so... I've never been really poor, but like most of us, I've had lower income and higher income. Everyone gets unexpected bills, but my experience has been that those bills don't get larger with your income (even though most of your expected bills do grow with income) - a lot of those unexpected bills get smaller in absolute terms as your income goes up; both cars and medical expenses, in my experience, tend to move from 'unexpected bill' to 'expected bill' as your income goes up, as you generally get much better health insurance and newer cars.

But even the things that don't move from unexpected to expected are harder to deal with when you are poor.

Example; person A makes $14K/yr at walmart. They put away 10% of that every month. person B makes $200K/yr at Facebook. They put away 10% of that every month.

Say you get a $250 parking ticket.

If you are putting away 10% of your 14,000/yr salary - that parking ticket is gonna be a pretty big bite of your savings. I mean, if you've been putting away $1400 a year, you can cover it, but that $250 is still a big bite.

If you work at facebook... say you are still putting away 10% of your $200,000 salary - that parking ticket costs you just as much, but it is a whole order of magnitude smaller when compared to your savings rate.

Medical expenses are the more common case for unexpected bills; it's super expensive to get hurt while poor. It's not so expensive to get hurt while wealthy.

Say you are playing catch with your kid nephew and you fall and mess up your knee. If you make $14,000, you probably have health insurance with the maximum deductible, and end up having to pay a bunch out of pocket. the 2019 out of pocket limit for an ACA compliant HDHP plan is $6750 - that's going to take a lot of saving 10% to pay off. And even if you do get it fixed, you probably have a job where you have to stand up and carry things; you will need a bunch of time off, time off that you're not gonna get paid for.

Say the same things happens to the software engineer making $200K/yr. First, that job probably comes with pretty nice health insurance; you probably aren't out much out of pocket at all. The place where I work offers a HDHP plan but they actually give you an amount of money equal to the deductible every year. (me, I still take the traditional plan, 'cause I'm willing to pay extra if I don't have to deal with medical billing at all) Next? SWE jobs usually come with a bunch of paid time off. This person probably gets paid to recover at home. And if they felt like they needed to work? they probably could work from home; and for that matter, their job probably doesn't involve knees much, so they are gonna be able to go back in to work much sooner than the guy working at walmart.

Reply on news.ycombinator.com