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Author: KluverBucy One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 461403  
Subject: The Stagnant Wage Problem? Date: 1/9/2013 11:54 PM
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The previous post by LorenCobb comments on the "American Crisis of the Middle Class" and provides the following statistics on stagnating wages: "Median male wage income was a little over $33,000 in 1969 and, adjusted for inflation, stayed stagnant with minor ups and downs to be about $32,000 in 2010.

I have seen similar numbers quoted frequently and the authors all seem to imply that such "stagnant wages" are a major problem. Certainly at first glance it sounds depressing that median wages (when adjusted for inflation) have not grown for 30 years. But I always have this nagging question whenever I hear this stat: "why is it bad?" In 1969, the United States was by most measures the wealthiest and most prosperous nation on earth, with perhaps the highest standard of living. The above statistic implies that over a 30 year period the median wage earner has maintained his purchasing power despite inflation. Hence, the average American has retained his ability to enjoy an incredibly high standard of living (compared with the rest of the world) for three decades - despite the major wage pressures created by globilization over that period.

In these discussions, is it really the starting premise that wages should indefinitely continue to rise beyond the rate of inflation? How can that type of exponetial growth be expected to continue forever? To me, that creates the same theoretical problems seen in other exponential growth situations such as populations or money supply. In most systems, be they biological or financial, exponential growth cannot last forever and eventually a steady state must be achieved or a systemic collapse will occur. Now, in this era of globalization, I would expect individuals in poorer countries to continue with wage growth in excess of inflation until their standard of living is roughly on par with the first world nations. At that point, labor would be compensated equally across the globe and a "steady state" would be achieved. Of course, the alternate path to that "steady state" is declining wages and standards of living in the US (and other prosperous nations). Given those two paths, merely having stagnant wages in the US seems like a good outcome.

The next problem often identified as being caused by "stagnant wages" has been the requirement of the average wage earner to take on increasing amounts of debt to maintain their standard of living. But is that really the case? I would argue that the "standard of living" has actually increased over the last 30 years. The average square footage of homes has increased by about 20%; a standard car of 1970 pales in comparison to a 2010 model; computers, HD TVs, cell phones, high speed internet, and cable TV are common in many/most households. Clearly our standard of living has increased ,and it is that increase that has required the average wage earner to become so indebted. So. this of course brings up my next question: "can we really expect our standard of living to increase forever?". Once again, it seems as though a "steady state" must be obtained; hence, either poorer nations will increase thier standard of living or ours will decline. But, until the rest of the world starts to catch up, I don't see how it is realistic (again in the context of globalization) to expect our standard of living to continually increase. What would be so tragic with the average US wage earner owning a smaller home (large by international standards), driving a car for more than 5 years, choosing between a smart phone or cable TV, staying out of debt, and enjoying the same standard of living (amongst the highest in the world) that his parents did?

KB
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Author: MegHammond Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 413144 of 461403
Subject: Re: The Stagnant Wage Problem? Date: 1/10/2013 8:15 AM
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Are you asking a macroeconomic question or a moral one?

I believe you have left out a few items:

Cost of health care
Opportunity costs of not participating on the Internet (cultural currency, skills acquistion, networking)
Cost of education (perceived as necessary to acquire a good paying job.


If the supply of smaller energy efficient homes in areas near decent paying jobs were sufficient, wouldn't the prices for these homes be affordable for the median wage worker?

Please note I am not arguing "we (can) really expect our standard of living to increase forever". I just think your analysis has left a few things out. Not everything on your list is pure consumption. Some items are better characterized as investments with consumable characteristics, such as smart phones and internet connections.

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Author: rharmelink Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 413146 of 461403
Subject: Re: The Stagnant Wage Problem? Date: 1/10/2013 8:49 AM
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I believe you have left out a few items: ... Cost of health care

Although I recall a congress critter complaining a much larger portion of seniors' (fixed) incomes was being spent on drugs as compared to 40-50 years ago.

I doubt that would be true if they only used the drugs that were available 40-50 years ago.

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Author: goofnoff Big funky green star, 20000 posts Top Recommended Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 413152 of 461403
Subject: Re: The Stagnant Wage Problem? Date: 1/10/2013 9:43 AM
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Let 'em cake. Ah, if it was that simple. It must be wonderful to sit in your den and imagine this being the best of all possible worlds.

But that is not how the income thing breaks out. The problem is income distribution has skewed badly. To see how this will turn out read up on the French Revolution.

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Author: rubberthinking Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 413161 of 461403
Subject: Re: The Stagnant Wage Problem? Date: 1/10/2013 10:42 AM
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In these discussions, is it really the starting premise that wages should indefinitely continue to rise beyond the rate of inflation?

firstly inflation is a wedge issue. in the 1950s and up into the mid 60s there were no inflation issues and workers got paid more.....

secondly CEO pay well out paces inflation.....and they dont care......they kind of like it......in fact I bet they like it a lot.....

it was borrowing in the late 60s and 70s that created the inflation. the middle classes saw capital gains taxes receding and borrowed and borrowed.......this time twenty years from now capital gains rates should rise.....and cut off inflation......

the powers that be are trying to smooth out the cycle......much of what they will do will work.....

Dave

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Author: Goofyhoofy Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 413168 of 461403
Subject: Re: The Stagnant Wage Problem? Date: 1/10/2013 12:12 PM
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It's an interesting, if blind take.

Rather than look at it from the perspective of today, let's pretend that "stagnant wages" started in, say 1950 instead of 1980. Would your commentary be the same? Let's pretend that the disparity between the middle class wage and the CEO wage had continued to grow from that point; your annual take might be around $25,000, and the CEO wage in the hundreds of millions. Welcome back to the Best of Times, the Worst of Times.

Let's compare those "stagnant wages" with "worker productivity." Since productivity (per worker) is triple since 1950, wouldn't you expect workers to reap some of that reward? Oh, well, they did, at least up until around 1980. Since then productivity is up about double, but wages have not moved. Why is that?

Is that a good thing? Isn't that the 1930's (nee: 1880's) argument against unions, that the workers don't deserve any more than they get, and that all benefits should flow to the factory owners?

Where would you be today if some of the benefits of productivity and profitability hadn't been shared (demanded) by all the participants over longer spans of time, rather than just the few at the top?

I guess it's good to be the King, but as people keep saying "That system failed."
 


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Author: rharmelink Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 413173 of 461403
Subject: Re: The Stagnant Wage Problem? Date: 1/10/2013 1:00 PM
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Let's compare those "stagnant wages" with "worker productivity." Since productivity (per worker) is triple since 1950, wouldn't you expect workers to reap some of that reward? Oh, well, they did, at least up until around 1980. Since then productivity is up about double, but wages have not moved. Why is that?

Why would wages go up? The business now needs 67% fewer workers to get the same work done. Supply and demand says the cost of labor would go down because you have the same labor pool competing for fewer jobs.

An individual worker would be more valuable if his productivity had tripled while all of his co-workers maintained their old level of productivity. But if technology makes all of them more productive, they all become less valuable.

For example, when I worked in a grocery store in high school (early 70's), the cashier's job was MUCH different than it is today. In our store, cashiers had to be certified, by ringing up an entire cart of groceries with a minimum level of data entry errors. Today, it's all bar code scanners. They even have self-checkout lanes where one cashier can monitor 6-12 lanes with customers doing the scanning, versus needing one cashier per lane.

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Author: whafa Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 413180 of 461403
Subject: Re: The Stagnant Wage Problem? Date: 1/10/2013 1:45 PM
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But if technology makes all of them more productive, they all become less valuable.


Not the ones who make the technology.

whafa, technologist.

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Author: mschmit Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 413185 of 461403
Subject: Re: The Stagnant Wage Problem? Date: 1/10/2013 3:08 PM
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Since productivity (per worker) is triple since 1950, wouldn't you expect workers to reap some of that reward?

The question is who deserves the rewards.

Let's using corn farming as an example over many years. In year zero the farm hands do a lot of manual work. Fast forward 50+ years and now one guy can sit in an air-conditioned GPS controlled tracker/harvester and plant/harvest/sort/etc huge acres of corn and the machine does pretty much everything...but does require more skills...but isn't simplistic/hard manual labor.

But every other farm also has the same level of productivity.

Who should "win" and lose in this scenario? The biggest winner is actually the consumer, IMHO. The laborers, more or less lose because the jobs are gone. The few remaining jobs, in some sense win because it is less "hard" manual labor and thus allows a longer career -- no matter what the wage. And the actual relative wage is probably higher because it requires more education/training to operate the tractor. This is where we are no longer comparing apples to apples. None of the previous low productivity jobs now exist. Only fewer higher paying jobs. So an individual manual labor job today is actually worth much less, thus the wage goes down (relatively).

And the GPS tractor designer/builder creates new higher paying jobs and makes a lot more as well as the capitalist that funds that and the one who funds the purchase of the tractor.

Mike

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Author: Windchasers Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 413189 of 461403
Subject: Re: The Stagnant Wage Problem? Date: 1/10/2013 3:54 PM
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So true. See the first chart in this Atlantic article:

http://www.theatlantic.com/business/archive/2011/10/why-work...

Real wages for those with a graduate school education have increased 60% over the last 50 years, and fallen 5% for high school dropouts. (And that includes all graduate degrees, not just math/science/etc ones).

This isn't surprising, as the low-education jobs are often the easiest to outsource.

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Author: goofnoff Big funky green star, 20000 posts Top Recommended Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 413190 of 461403
Subject: Re: The Stagnant Wage Problem? Date: 1/10/2013 4:07 PM
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Except that the fifty laborers who lost there job couldn't afford to buy the corn. So the supply of corn vastly exceeded the demand.

The farmer couldn't pay for his tractor, and all the folks at the tractor plant got laid off. The capitalist lost his investment but he was rich so it was a tax write off.

They called it a depression.

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Author: rharmelink Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 413191 of 461403
Subject: Re: The Stagnant Wage Problem? Date: 1/10/2013 4:16 PM
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RH: But if technology makes all of them more productive, they all become less valuable.
W: Not the ones who make the technology.

Actually, it can. It takes a lot more people to develop new technology than it does to maintain it.

And those now unemployed people may not be qualified for the next generation of technology without a lot of retraining. Specialized training can become obsolete very quickly.

I've only been out of corporate IT programming for about 6 years, but I would have to spend a lot of time getting up to speed with the new tools and software. I was a mainframe programmer, and developing software for the personal computer is a whole different ball game.

About a decade ago, my brother got a very good offer to come in and support programs on an older computer environment at General Mills. But it was at best a 3 year gig, because they were in the midst of replacing the applications on a different platform. And there might have been no place for him to go after that assignment.

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Author: mschmit Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 413195 of 461403
Subject: Re: The Stagnant Wage Problem? Date: 1/10/2013 4:37 PM
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Except that the fifty laborers who lost there job couldn't afford to buy the corn. So the supply of corn vastly exceeded the demand.

The farmer couldn't pay for his tractor, and all the folks at the tractor plant got laid off. The capitalist lost his investment but he was rich so it was a tax write off.


That is what happen in the alternative world where the laid off workers goofed off. In the real world that did not happen. Corn got cheaper and all the ex-farmers found something else to do that provided value to the economy.

Mike

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Author: Windchasers Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 413199 of 461403
Subject: Re: The Stagnant Wage Problem? Date: 1/10/2013 6:27 PM
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Except that the fifty laborers who lost there job couldn't afford to buy the corn. So the supply of corn vastly exceeded the demand.

The farmer couldn't pay for his tractor, and all the folks at the tractor plant got laid off. The capitalist lost his investment but he was rich so it was a tax write off.



The capitalist's investment was liquidated, and the corn sold off at a price where people people would buy it (i.e., a price they could afford).

The laid-off workers, now without a job, have less money to pay for corn. But what money they have, they spend, and the money went to the banks/bondholders/etc, whoever held the corn after the capitalist lost it. Other capitalists.

So, whereas the capitalists may lose 50% of their savings, the poor lose all of theirs. Income inequality increases.

The laborers find jobs where they can, sometimes at 1/2 the wages they used to. The capitalist who now owns the farm is faced with a dilemma: is there a market for his corn when part of the population makes 1/2 the wages as before? If so, the farm stays open. If not, it closes down.

Heck, maybe this whole thing started with corn prices being in a bubble, and the farm was never a good investment in the first place. In which case, it should shut down, and the laborers should find other jobs.



Stein's Law says "if something cannot go on forever, it will stop".

Now, obviously the capitalists can't automate everything. If they put everyone out of a job, then those people would lose their savings, and then, with no money left, there'd be no one to buy the capitalists' goods. Suddenly that $2 billion factory is a lot less useful. Oops.

And then what happens? The capitalists have to lower prices to a level where there's a market. The laborers have to lower their wage demands to a level where they're cheaper than automation, or at least where they can find some job that others will pay for.

So, I'm not really worried. Bubbles come and go, and in time, the market adjusts, and standards of living around the world will continue to slowly rise. I know this isn't really a popular view on this doom-and-gloomish board, but capitalism has always worked out in the past.

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Author: telegraph Big funky green star, 20000 posts Top Recommended Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 413203 of 461403
Subject: Re: The Stagnant Wage Problem? Date: 1/10/2013 8:54 PM
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KB:"The next problem often identified as being caused by "stagnant wages" has been the requirement of the average wage earner to take on increasing amounts of debt to maintain their standard of living."

A big part of that problem is the 'entitlement mentality' and "I want it now" society.

30-40 years ago, folks SAVED up to buy a house. THey saved up to buy a new car. they didn't have 2 dozen expensive toys and take $10,000 vacations to 'recreate'.

Now, it's get out of college with big debt, get married , buy gigantic mcMansion, never save, spend 130% of what you make.

Sorry.....we just got a sicks society with no money management skills.


-------


"But is that really the case? I would argue that the "standard of living" has actually increased over the last 30 years. The average square footage of homes has increased by about 20%; a standard car of 1970 pales in comparison to a 2010 model; computers, HD TVs, cell phones, high speed internet, and cable TV are common in many/most households. Clearly our standard of living has increased ,and it is that increase that has required the average wage earner to become so indebted. "


Back in 1960, no internet fee..no cellphone fee....no iPhone fee....no nuttin...

Now, you got to pay for all your toys, or go without.

-------


t

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Author: telegraph Big funky green star, 20000 posts Top Recommended Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 413204 of 461403
Subject: Re: The Stagnant Wage Problem? Date: 1/10/2013 9:01 PM
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"About a decade ago, my brother got a very good offer to come in and support programs on an older computer environment at General Mills. But it was at best a 3 year gig, because they were in the midst of replacing the applications on a different platform. And there might have been no place for him to go after that assignment."


hah...my BIL worked for IBM for 25 years..... he was 'retired early' at age 50...with a nice pension...

but ...

he went to work for another company...... who did contract work for IBM maintaining code and updating code for applications that were 15 and 20 years old....in 'ancient' programming languages on mainframes.


He did that for 13 years....then retired a second time.

Remember, half the business world still runs COBOL programs, and a lot of stuff is still written in FORTRAN for scientific number crunching and super computers use all sorts of exotic vector programming....


I suspect there are still jobs maintaining and converting programs written 20 years ago and will be for a while.

t

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Author: telegraph Big funky green star, 20000 posts Top Recommended Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 413205 of 461403
Subject: Re: The Stagnant Wage Problem? Date: 1/10/2013 9:09 PM
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"Except that the fifty laborers who lost there job couldn't afford to buy the corn. So the supply of corn vastly exceeded the demand.

The farmer couldn't pay for his tractor, and all the folks at the tractor plant got laid off. The capitalist lost his investment but he was rich so it was a tax write off."


--

Actually what happened was the 'agri business' folks went running to Washington DC with this 'idea' about ethanol.


THey foisted a nonsense plan where taxpayers and food buyers would be screwed, and 30 ethanol companies would be subsidized to the tune of 100 billion or so to take corn and waste a lot of energy to turn it into ethanol. The corn surplus dissappeared.

THe price of corn skyrocketed, but the farmers were happy. Even happier were the Al Gore investors who got a 100% guarantee.....

Of course, all 30 of those ethanol refineries went bust, but Al Gore and his ilk lost not a dime. The taxpayers did, big time. Tens of billions.

Now, some investor sharks, the Al Gore round II folks, bought up the failed ethanol refineries at 1 or 2c on the dollar. with the new cost structure, they could make money.

Now, they want to destroy your cars by upping the percentage to 15% ethanol crap in gas, which reduces your fuel mileage. But it makes Al Gore types happy, makes the agri business folks happy and they contribute hundreds of millions to politicians.

THe fact that the car makers say your warranty will be void with 15% ethanol..is a minor detail. The fact that tests shows is destroys major parts of cars 3 years and older....minor details to politicians lining their campaign chests.

Oh..and of course, corn prices are skyrocketing, and a few hundred million people are being pushed into starvation and death due to the high cost of their basic foods.......

Our economy exists only to funnel dollars to politicians these days

THey, in turn, open the spigots and deal out the porkulus to FAVORED companies (who contribute to the right party)....and to voters who keep them in office via 'entitlements' and 'handouts'.


That is how the US works today

It's never about jobs. That's a side show.



t.

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Author: mschmit Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 413207 of 461403
Subject: Re: The Stagnant Wage Problem? Date: 1/10/2013 9:52 PM
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The capitalist's investment was liquidated, and the corn sold off at a price where people people would buy it (i.e., a price they could afford).

The laid-off workers, now without a job, have less money to pay for corn.


Your scenario is how it worked in some theoryland.

In the real world...the US went from 50%+ of the population as farmers ~100 years ago to today where the number is about 2%. And most of us have enough money to buy enough food to survive or be over weight or even obese. Food being too high priced does not seem to be a problem in the real world.

Mike

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Author: WilliB Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 413228 of 461403
Subject: Re: The Stagnant Wage Problem? Date: 1/11/2013 12:22 PM
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The business now needs 67% fewer workers to get the same work done.

So why is the business content to just get the same work done? Why aren't new businesses developing to employ those 67%? Why does housing cost too much for the average person to afford? Why does education cost so much that students leave school with crippling debt? Howcome people are still bankrupted by illness? If everything is so much more efficient, why is it still so expensive?

And where is my flying car?

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Author: tim443 Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 413229 of 461403
Subject: Re: The Stagnant Wage Problem? Date: 1/11/2013 12:30 PM
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And where is my flying car?

There you go, at that price you should pick up a second one for the family or visitors?


Tim <planning to visit> 443


http://www.hammacher.com/product/11812

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Author: Hawkwin Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 413231 of 461403
Subject: Re: The Stagnant Wage Problem? Date: 1/11/2013 12:40 PM
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Why does housing cost too much for the average person to afford?

It doesn't. People are generally just less willing to buy the home they can afford.

Look up prices on homes at 1400 sq ft (the average home size in 1970) and I bet you would find a lot of affordable homes. Today, the average home size is 2900 sq ft.

Why does education cost so much that students leave school with crippling debt?

They don't have to. Pick an in-state public university and your average cost would be $9000 a year (as of 2011).

If everything is so much more efficient, why is it still so expensive?

It isn't. We simply buy a lot more of everything - or at least a lot more of everything that has significant increases in efficiency.

Take a look at TVs. A 25" color TV would cost you over $500 in the 1980s. I bet you could get a nicer TV today for the same size for a lot less - but no one buys 25" TVs any more. We all want 50" and larger.

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Author: WilliB Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 413374 of 461403
Subject: Re: The Stagnant Wage Problem? Date: 1/14/2013 12:06 PM
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Why does housing cost too much for the average person to afford?

It doesn't. People are generally just less willing to buy the home they can afford.



Yes it does, in any place where there are jobs available. And most homes are rented, not bought.

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Author: warrl Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 413459 of 461403
Subject: Re: The Stagnant Wage Problem? Date: 1/15/2013 6:34 PM
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Why does housing cost too much for the average person to afford?

Housing has always (at least several centuries) been too expensive for the majority of people to OWN their own homes. And for the past couple decades government (particularly but not exclusively US government) has been pouring money into misguided attempts to make everyone homeowners, driving housing prices up further.

Why does education cost so much that students leave school with crippling debt?

Government (again particularly the US government) has been pouring money into making college education universal (even though that makes no sense). With an effective guarantee that no matter how expensive a college is anyone who gets admitted can afford to go, there's no constraint on what colleges charge so costs soar... then when that gets too expensive for even government, they replace grant programs with loan programs.

How come people are still bankrupted by illness?

Well, this is somewhat less common than some people want us to think - if you have $30,000 in credit card debt, are upside down on a house, are paying half your monthly income in car payments, and also have had $2000 in medical expenses in the past three months, the medical expenses aren't really the cause of your bankruptcy. But some people will count it that way.

But medically-driven bankruptcy does happen.

Since WWII the US government has followed tax policies that essentially encourage a medical-care insurance system that maximizes the separation between receiving care and paying for it. As in education, this has caused soaring costs which are now causing the system to break down (and the government has responded to that breakdown by making the separation an explicit legal mandate rather than an unanticipated and unintended side effect).

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Author: alchook Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 413462 of 461403
Subject: Re: The Stagnant Wage Problem? Date: 1/15/2013 7:38 PM
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Another point to consider is that even though wages may have been stagnant, the costs of employment have not.

The charts showing stagnation of wages don’t include the considerable increases in costs such as payroll taxes and health insurance since 1969.

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