This seems a _little_ alarmist, no? Assuming you're in a major developed economy, inflation is falling. It's still too high, but 'ever increasing pace' is simply incorrect.
And while this high inflation is kinda shocking in modern terms, it's not actually that_ unusual historically. The current US inflation rate is lower than it was for the _entire period_, bar one year in the 80s, between 1971 and 1992, for instance.
The housing thing is much more of a legitimate point, but people are over stressing the inflation thing.
It is really important that people understand that inflation isn't "falling" in the sense that things are getting cheaper
A lower inflation rate just means that stuff is getting more expensive more slowly, but it is still getting more expensive
Unless we see actual negative inflation, the damage of high inflation rates has already basically been done. Salaries have not kept up and will likely just continue to fall further behind
"Inflation falling" does not mean "things are getting cheaper" in exactly the same way that "driving backwards" does not mean "reducing speed".
Where did this meme even come from, that this is confusing? Did they stop teaching what the definition of the word "inflation" is? Or did they stop teaching about the relationship between measuring values over time and measuring rates of change in those values?
Inflation isn't a confusing concept! Are people really confused by it, or is there just a lot of noise about this?
> Unless we see actual negative inflation, the damage of high inflation rates has already basically been done.
"Negative inflation" is called deflation. That's what happens during a depression. Deflation would be a very bad thing, you do not want deflation.
> Salaries have not kept up and will likely just continue to fall further behind
This one is just simply not supported by economic data. If you're just talking about the tech industry, then, yeah, maybe. But it's not true of the workforce as a whole.
It's a fairly straightforward misunderstanding of terminology being used in public discussions
"Why are things getting more expensive?" "Inflation"
"Inflation is falling" "Oh so that means things are getting cheaper right?"
People make this mistake constantly. One could argue that discussions about inflation is framed specifically to lead people to make this mistake
> This one is just simply not supported by economic data
Look at any graph of cost of living versus incomes and it's absolutely plain to see that it's true. Not sure what other economic data you're referring to, but I suspect it's misleading at best
So I've been trying to put together graphs to share with you, but I think it's sort of hopeless without knowing what data series you mean when you say "cost of living" and "incomes", or what time period you're thinking of.
I think "cost of living" is usually a city or region specific concept. To get a sense of that nationally, are you thinking of one of the inflation measures, like consumer price index (either "headline" or "core")?
For "incomes", FRED has both "personal income" and "disposable personal income" measures, both from the Bureau of Economic Analysis. Is that what you're thinking of?
Probably more interestingly, what time period are you thinking of when you say "have not kept up"? I was thinking of "since the pandemic started", so I was looking at what's been going on since 2020, but I realized it's quite sensitive to this starting point, and you might be thinking of a different one.
I should have asked these questions before I replied originally :) Sorry about that!
Edit to add:
I guess you did say "look at any graph of cost of living versus incomes and it's absolutely plain to see that it's true", so I can at least give one counterexample before you answer my questions:
Here is CPI (both headline and core) against personal income (and disposable personal income also), with the value of each index set to 100 on 2020-01-01: [0]. The income lines are up ~25% since then, while the CPI lines are up ~20% from then until February 2024. That's 49 months, so normalized by the number of months, that's ~0.5 for income and ~0.4 for CPI.
0: https://fred.stlouisfed.org/graph/?g=1kiu7
But here is the same thing, starting one year later: [1]. This is a very different story! In this case, income is only up ~8% while CPI is up ~17%! This is 37 months, so normalizing the same way gives ~0.2 for income and ~0.45 for CPI each month on average.
1: https://fred.stlouisfed.org/graph/?g=1kiv5
But then the story since 2023 is better again: [2].
2: https://fred.stlouisfed.org/graph/?g=1kivz
So I guess, if you accept the series I've chosen to analyze this, and the time period you're thinking of is the beginning of 2021 to now, then I accept your premise.
But I still don't see any evidence for "will likely just continue to fall further behind"; the trend is flat to closing (albeit slowly).
https://www.epi.org/publication/charting-wage-stagnation/
https://www.pewresearch.org/short-reads/2018/08/07/for-most-...
That first article is focused on making the case that inequality is a big problem. And on that, I certainly agree! But the amazing thing about the pandemic recovery in the US is that inequality has actually improved. The recovery has been better for lower wage workers and worse for higher wage workers. This is not unrelated to the bleak feeling in "tech" at the moment; we are among those higher wage workers for whom the recovery has been relatively less robust.
And again, the starting and ending points matter a lot. That article from 2015 showing how bad the financial crisis and "great recession" were just aren't very relevant to this discussion of "is the economy good right now?". It's true that the great recession was incredibly awful! But since them we've had a period where the economy was good again, and global upheaval due to a pandemic, and a complicated recovery from that upheaval. So that's the period that is more relevant, IMO.
I think the second article is more interesting though. I'd certainly be interested to see a fresh analysis of that same thing.
But I honestly really wonder what people use to anchor their expectations for real wage growth. I think it's pretty clear why it's super bad for it to be negative (that is for nominal wage growth to be less than inflation), but how high "should" it be?
I guess, to me, all else equal - that is, for the same work at the same company, without getting promoted or taking on new responsibilities or switching into a new role at a new company (or a different organization within the same big company) - I don't expect my income to grow much if at all above the rate of inflation. And I don't think the aggregate wage data captures this kind of income growth through career progression (nor is it intended to).
So I dunno, I'm unsure about it, but when I see "real wages haven't grown much", I kind of think, ok, but should they even be expected to grow much?
Again, I'm specifically talking about real (that is, inflation adjusted) wages here. Of course everyone expects nominal wages to increase over time, but I think that's mostly because we also expect inflation to be nonzero.
Seems a bit of a strawman to me, because I don't think you can realistically stay in one place this way without taking on anything new or extra over time
Some new tool is built or purchased that makes you 5x more productive, so half your team is cut and now you're doing the work of multiple people. Or maybe they just downsize and toss extra responsibility onto you. Or you get promoted just because of seniority. Or frankly, because of seniority you now have knowledge few people do so you are responsible for mentoring
The "static, never done anything extra, no new responsibilities" is not realistic
And the productivity thing is massive too. Computers mean that one person can do the work that entire teams used to, in a lot of industries. But they aren't earning as much as entire teams. Workers have captured basically none of the value of our increased productivity
So, yeah. I think it's actually just plainly obvious that our real money incomes should have grown faster than they have
Yes, this (and the rest of what you said about this) is true for an individual. Certainly, individuals should expect their real wages to rise over time, as they gain experience and seniority, or take on new roles at new organizations.
But that's not what is tracked by aggregate wage / income data. In aggregate, as one person is getting raises based on growing experience and seniority, other people are filling in behind them, all the way down the line until you get to new entry level people coming in. So absent any other effects, that would all balance out to no real growth.
But you're right that the missing variable is productivity growth. (Which is also what drives real gdp growth.)
So yeah, that's the answer to my question about what makes sense to anchor expectations for real wage growth on. But, to out myself as a capitalist monster, I think it is actually reasonable for a larger portion of those gains from productivity growth to accrue more heavily toward the top of the income range. But, to remind you of my comment above about how I think inequality is very bad, I do think those gains have been and have a tendency to be way too concentrated toward the top.
So I guess the upshot of all of this for me is that I am actually sympathetic to people who hold the view that "the economy" has always (or at least, for generations) been "bad" because of this problem of inequality. But I'm not so sympathetic to the view that the economy of 2024 is comparatively bad. I think it is, and has been for a little over a year, quite good relative to any recent period.
The more pertinent question is how these have changed on a percentage basis, and relative to each other and median income.
Housing is, though.
If they are stable at 6%-7% for the next 20 years, you're right, they will absolutely be "totally within reason". But it's a big distortionary problem that a huge number of people have fixed rates at ~2.5% with almost three decades left on them, while the current rate is more than double that. It's super hard to eat an almost 5% rate increase to do the kind of normal nearly like-for-like home sale that usually comprises a big portion of housing turnover.
I make about 2 times the median income in my area, that puts me in the top 5% nationally. I can 'afford' the bottom 10-15% of housing. It's already a shitty proposition for me with 16 years experience and career progress. I can't blame young people for saying fuck this shit.
But at least I can afford food. So there is that.
Either way, it has never been the case that the average person is able to afford to live in the city and raise a family. why do you think that everyone moves out to the suburbs to buy a house.
The town your parents moved to was not as built up when they moved there as it is now. The city expanded. We just have to accept that we'll probably have to move a lot farther out from the city which is really the same equivalent that your parents did.
The CA housing market is just totally distorted by Prop 13. It is by design meant to screw new home buyers. And has been doing this for 46 years, with absolutely no end in sight.
I guess my point is that CA folks shouldn't generalize the issues with the housing market to the rest of the US/world just because they have a dogshit law on their books.
No, this is true almost everywhere. Wages are low in comparison to housing cost. If the poster was living and working where houses are cheaper than SF, then his salary would also be lower and he would still be limited to bottom tier housing on his income.
The only way possible right now is to own real estate by inheritance or by having been born earlier to get in before those people who decided to be born later. Either that or you have to find a way to get your income from somewhere different to where you live, so that you can afford property. With WFH normalised I'm predicting massive migration waves as the younger generations from expensive towns, cities and countries move away to where they can afford to live.
the nation is not completely homogeneous. In the situation where you are looking to purchase housing, the only comparison is in the immediate region (such as the county or at most, the state), as only others in the region competes with you, not somebody in a faraway state whose wages are much lower.
What percentile are you in your area?
And yeah, housing is screwed, but no that does not mean "the economy" is fucked.
I think a good lesson to learn from this period is "people are very sensitive to gas prices and the rates on mortgages and car loans".
If the central banks can keep from going down to near zero interest rates of course.
And I agree with you that younger generations, probably at large due to social media, are not patient enough to get rich by saving.
Speaking as someone in a younger generation, there's a sense that with the climate sword of Damocles dangling overhead and countless people stressing the already fraying hair, perhaps we may not have sufficient time to accumulate any sort of wealth by saving. Perhaps this is just a lack of patience in our generation, but I think it's quite possible there are bigger factors at play.
Think of it like nuclear weapons. You can't really plan for nuclear war, but you can still take nuclear capability into account when making financial decisions (e.g. China is unlikely to annex Taiwan because of US nukes so investing in TSMC is not a terrible move).
Which is why people are choosing not to bother saving, of course
Because they're constantly being told that it is in fact cataclysmic and there's no stopping it
People forget that the "climate cataclysm" doomsaying started decades ago. There are articles about "we will be under water/burning alive/etc in only a few years!!" As far back as the 70s. Maybe before!
So it's been a huge mistake in two ways, because it's led to two types of outcomes:
The first is like you said, the younger generations have basically given up. High rates of depression, anxiety, and just general "checked out of society"
The second is the older generations that have high rates of "They've been saying the world will end in five years for the past fifty years, so clearly this climate stuff isn't a problem at all" and they are behaving accordingly, as though it weren't a problem at all
It's also notable that the "Boomers" managed to do this with the spectre of nuclear war hanging over them and this threat never actually went away. The younger generation just chooses to ignore possible nuclear war cataclysms in favor of possible climate cataclysms.
Edit: Just consider how "real" the threat of nuclear war must have been to someone who had regular "duck and cover" drills in school. There's nothing comparable for climate change (yet).
while the climate crisis "is happening already and it's too late to stop"
People genuinely believe we will not have a habitable planet in a couple of decades no matter what we do now.
That seems a lot different than "maybe some people decide to fire nukes but probably not"
A lot of people live paycheck to paycheck, especially younger people. How are they supposed to take advantage of this, exactly?
I was born in abject poverty. I went to public school and state colleges. I made money in TN, GA, AL, and TX before settling in northern CA. This area is my dream location and it took nearly 2 decades of planning and effort out of college to prepare to buy and settle here in a financially stable way.
San Fransisco isn't the only city available to US citizens. If you can't save in a high COL location, move to a lower COL location so you can save. Then, when you've saved enough, move back to a higher COL area.
This idea that you're stuck in some expensive geography and can't do anything about it is plain silly. I made most of my moves with less than $1,000 in the bank and plenty of credit card debt. After moving a dozen times across nearly half a dozen states, today I own a home in the Bay Area outright, have zero debt, and do what I like with my time and I'm not yet 50.
If I would have left college for the Bay Area immediately, none of that could have happened. It took planning and stages and moving all around the country (and living in the cheap South) but it was doable and is doable now for anyone that wants to make the effort. Yeah, boomers had it a lot easier, but so what. That's history. That was what they got for living in a high tax high investment era and we get what 20 years of Reagan and Clinton gave us, trickle down, so we deal with it.
"I want to live in SF or NYC out of college and own a home because boomers could do that" is bullshit. There's a substantial generation between you and boomers, my generation, X, that saw we weren't gonna have it as easy as the boomers and we didn't complain, we changed tactics and adapted to the environment. We figured out by going to state schools, busting our humps at a half a dozen different jobs including ones with serious physical labor that might even cost you a finger, being illing to live in less than ideal places for years or even decades, could let us settle into something better in middle age.
California costs about 2.5 months more salary to live in than the national average and about 4 months of salary more than truly affordable states. If you can increase your savings by 2.5-4 months of take home all for the price of a bus ticket and a few days of hotel stay to find a place to rent in a more appropriate COL location, you can save for a house, even a house in a high COL location, no problem. You probably cannot save for a high COL location house living in a top 3 COL state while trying to do so.
Moving costs thousands. Finding a better job is good advice but often requires investment in yourself (education costs money).
How could anyone move to a lower COL area for less than $1000? A security deposit and first month's rent will be more than that almost anywhere you can "find a better job". And that's ignoring the cost to move your things. (But maybe you didn't have any things or expect someone to sell/start over?)
It's clear your intentions here are good but you're giving poor advice. You're out of touch.
That sounds like you've got some extra money laying around that should belong to your landlord...
In any case, there is no reason people cannot put some money aside each month and earn some interest every year. And on top of that the house prices will not increase, at least not insanely as in the past, so you have a chance to catch up if increasing your salary and savings for a few years.
It's unrealistic that renters could save themselves out of the hole they are in. Their efforts are much better spent making drastic career changes, high risk investments, or even extreme measures such as drug dealing or moving to another country, than thinking they can beat a game that is completely rigged against them.
I'd estimate that a single individual with zero skills in NYC could get:
1) A receptionist job for $46k/yr (includes health insurance) [1]
2) A shared $2k/mo 2BR Jersey City apartment [2]
They'd have a take-home pay of $2960 - $1000/mo (rent) - $1000/mo in other expenses (fairly high estimate IMO).
Annual savings (with a traditional IRA) would be about $13k/yr.
It's not much, but the savings rate is almost 30% of gross income, and retirement calculators say you'll retire at 65 a multimillionaire. Surprisingly, a daily Starbucks or avocado toast (or forgetting the tax-deductible IRA contribution) really does eat into the savings numbers. And forget about having kids until you get a career upgrade.
The major risk is an increase in rent without an increase in wages. Let's investigate:
From 2012-2024, rent in Queens (not sure about JC) rose 45% ('only' 3.14% APY) [3]. Over the same period, national wages grew 47% (3.3% APY) [4]. That's good, since our individual earns 3x more wages than they pay rent. Wage growth was even higher among nonmanagers, so I don't think the growth was captured by the 1%. [5]
Overall, it looks OK to me, though the margins are thin, and you need to share an apartment. Hard to make it work for a family. I'd be curious to see some others run the numbers.
[1] https://www.indeed.com/jobs?q=receptionist+-hour+-experience...
[2] https://streeteasy.com/building/3657-kennedy-boulevard-jerse...
[3] StreetEasy Rent Index: https://streeteasy.com/blog/data-dashboard , chose Queens as it was most comparable in price to JC
Why is it a foregone conclusion that these things are only occurring in one direction? What evidence is there to support that (or not)?
I'm going to use that. Great summary.