Please explain the wealth effect

[novice1027]

I still think that our society thinks they we are entitled to have everything right now. I understand housing is out of control, but it was only ten years ago, when I wasn’t making the salary that I make now, and I managed fine. I certainly didn’t have all of the nice things I have now, but I managed just fine with the basics.
When I was growing up we had 1 car, 1 TV, my mom hung the laundry out to dry, etc. Now a days obviously 1 car isn’t reasonable, but how many people do you know that have more than one vehicle per person in a family? I know a lot, myself included. What about computers, TV’s, VCR’s all that crap, one in every room,that is total over indulgence. Don’t get me wrong, I’m guilty of it, but I live within my means.
Our culture needs to take another look at itself, and maybe this big downturn, if it happens will be a good thing.

[rankandfile]

I think the social services have provided a “safety net” of comfortability since post WWII that has lulled us all into a false sense of security. There was a time when you ran out of money or times got tough, and you took what you could get and stuck with it (save, get re-educated, etc.) until you could move up. I am not so sure it’s that way these days.

Instead of the saying, “when the going gets tough, the tough get going,” we get “when the going gets tough, there’s some government program to bail you out.” If we can bring back the focus on personal accountability, we will be a much better nation in general.

[rankandfile]

I think the social services have provided a “safety net” of comfortability since post WWII that has lulled us all into a false sense of security. There was a time when you ran out of money or times got tough, and you took what you could get and stuck with it (save, get re-educated, etc.) until you could move up. I am not so sure it’s that way these days.

Instead of the saying, “when the going gets tough, the tough get going,” we get “when the going gets tough, there’s some government program to bail you out.” If we can bring back the focus on personal accountability, we will be a much better nation in general.

[BikeRider]

powayseller, I guess I hadn’t thought it all through. You are right, we need all those jobs and no, they can’t be filled by the 23 year olds. Man, very complicated subject really. I grew up hard, so I kind of know the skill involved in several different jobs. A lot of skilled labor jobs are way under paid. It takes skill to properly rebuild a car engine, but those people aren’t paid anywhere near what a programmer gets. Yet, the programmer really needs that car to get to work. Growing up I was in I’d say a lower middle class family. One Black and white TV, no A/C, small house, new clothes bought at the START of the school year and you made them last. I was a teen in the 70’s. Anyway, I kept my car running and such. So I know what is required. I realize I really don’t know the answers, but just am amazed by it all. Maybe nothing is going to change at all, but I just think that something is coming in a way of a correction to our economy and I am a bit worried.

[powayseller]

I’ve mulled this over quite a bit, and it seems that we must have a tiered society. If the guy repairing my car or serving fries at McDonalds made as much as we do, then we couldn’t afford to hire them. So we need a lower paid tier. So those of us in the middle class or those making $300 mil per year can afford to hire everyone below them. It’s kind of a service tier, isn’t it?

One thing I don’t know is if wealth could be better distributed. If every hedge fund manager and CEO was paid only $200K, could we raise minimum wage to a “living wage” and provide health insurance to everyone? Would this bridge the gap to the poor?

Are we destined to keep shrinking our middle class?

Are tens of millions of America’s children destined to grow up in poverty? It’s a shame, we are supposed to be the richest country in the world but we have a high rate of infant mortality (highest in the industrialized world, higher than Poland and parts of Russia) and a high rate of poverty. Our health care costs more per person than any other industrialized country, but we get less for it.

[BikeRider]

powayseller, good thoughts. Until recently I didn’t even realize that the median income is around 40K. That is pretty low. Right now my wife and I both work (we are DINKs, Double Income No Kids). Combined we are at 150K. We have no mortgage and just one car payment. That should be done in eight months. We could ride out a rather long dry spell if we had to. It took a lot of work getting here though. When we got married 22 years ago I was making $18K and I think she was making $16K. Several career changes have brought us to today. The thing is, we don’t feel rich (and know we aren’t). I wonder how in the world a family makes it on 40K . They sure as heck aren’t doing much other than paying for living expenses. I get erked when I hear what some CEOs make a year. Incredible salaries and bonuses, and some of the companies aren’t doing very well.

Thing is, not everyone WANTS to work. I know people where I grew up that are tickled pink to be on welfare. They don’t have to work and they don’t appear to want to work. It disgusts me. I know a person that was in a car accident and got on perminent disability. He actually works as a day laborer sometimes for cash (he appears to be fine physically), but doesn’t want to do anything that would cause him to lose his “check”. He actually refers to the check as his “take home pay” So, his family lives at about poverty level because they don’t want to chance losing this free money by going out and finding a job. I’m not sure the government is helping at all with all the different programs.

[PD]

That median seems very low from our SoCal viewpoint. However, it would go very far in much of rural America. You can still buy a manufactured house on 10 acres in rural Oklahoma for under 100k.

I think the huge pay given to CEOs of sinking companies is absurd. It is embezzlement, in my opinion. Pay should be tied to performance (but then there would probably be even more book cooking…). I don’t have any problem with huge salaries, if it can be justified.

I do hear a lot socialist sounding posts from a couple of posters. Socialists think that the pie slices are unfairly portioned and it should be evened out. Take from the rich and give to the poor in the form of socialized healthcare, housing assistance and extensive government programs. Sure, you can change the portions so that everybody gets an even amount, but the pie will be much smaller, causing the pie pieces to then be much smaller for everyone. I wonder how many of these posters have actually been to former or current socialist countries. I have been to the Czech Republic and the pall that still hangs over much of the country is disturbing.

Further, socialized healthcare is not better than what we have here. It may be easier to get your cold checked out but if you really need advanced medicine, you could find yourself dealing with a doctor or set of doctors who are not as highly trained as those we have here. Socialized medicine takes away much of the incentive for highly intelligent, highly skilled people to enter the profession. Many people with money who live with socialized medicine go elsewhere for advanced care.

As for a higher infant mortality rate, there could be many reasons for this to be the case here. It is very possible that our healthcare is so good that that a much greater number of pregnancies actually reach birth. Many pregnancies that would have terminated naturally because of a problem with the fetus are continuing to birth because of excellent care. This is a theory that I haven’t verified, but is seems a reasonable explanation.

[powayseller]

I am not a socialist, and I wish the government were half its size. I have a bleeding heart for the poor, and wish the minimum wage was higher. The poor need to work for their money, but their pay seems too low.

As far as the health care system, I got this at the UCLA Anderson Forecast. Christopher Thornberg said that one of the big problems in our country is our inefficient and expensive health care system.

From the UCLA Anderson May 2006 Forecast:
“Benefit payments now accountg for almost 1/5 of toal payroll earnings, up from less than 1/6 in 2001. …

This is hardly surprising. Healthcare spending is on a double digit growth path get again…reaching a level of $6,280 per person in the US, about 20% of personal income. This is driving up health insurance costs…This is 60% more on a person-by-person basis than Switzerland – a nation that spends the second most on healthcare per person in the world. Oh, by the way, they [the Swiss] are on average older than we are and live longer than we do.

As a nation, we spend more money on publicly provided healthcare than Canada. …keep in mind that the sale of [pharmaceutical] products remains at about 10% of the total health bill, exactly what it was a decade ago. [Rising cost has nothing to do with drug costs.]

Most of the debate on the issue seems to focus on who is going to pay, but this misses the point. No matter who is paying, we all pay. If insurance pays, premiums rise. If employers pay, take home pay goes down. If the government pays, taxes go up.

The issue in the U.S. is that we have a wasteful system that encourages consumption that isn’t effective from a cost-benefit viewpoint. Until this fundamental issue is understood, nothing much will change.”

I heard an analysis on a KPBS talk show, and the author said that our health care premiums are so high because insurance covers non-catastrophic things like lab tests and office visits. If we had true health insurance, i.e. coverage for catastrophic events, then the premiums would be much less and more people would have insurance. He says why should insurance cover your office visit? It’s like your auto insurance covering your oil change. Do you have any idea how high auto insurance premiums would be if the insurance covered new tires, maintenance, oil changes?

I have compassion for the poor, and I donate money to organizations in India that feed and educate the poor. I dontated to a hospital in India, after I was fortunate to have a life-saving appendectomy a few years ago, realizing that had I lived in India’s back country, I would have died. Let’s all have a little compassion. Not everyone is fortunate enough to be born in an industrialized country, and not everyone has an IQ over 100. We have to provided work incentives and opportunities to all, unless we enjoy the power we get from being able to have them all as our servant class. I don’t get off on that kind of power trip.

[PD]

I do think that we need to keep minimum wage in line with inflation. Perhaps it should be set to automatically increase with inflation each year.

I also feel for the poor. I feel for the people who truly have some unusual circumstance that prevents them from bettering their life. However, there are a lot of poor people who do nothing to improve their life or earning potential. There are many who are content to sit back, take public handouts and do nothing to improve their situations. I have a problem with paying for them to watch TV all day.

As for our health care system, perhaps it would be a good idea to quit paying for regular visits. However, this could lead to even greater costs down the road as many illnesses would be more expensive to treat because people would delay seeking care. The fact that the Swiss live longer says nothing about the health care system. Europeans are much thinner than we are. I am always struck by the difference when I go there. Americans eat like pigs and have rampant diabetes and heart disease to prove it.

[powayseller]

I agree with you PD about people taking handouts. I met a beautiful healthy young woman last week, who is on disability because of a car accident. From the activities she engaged in while I spent the day with her, I was shocked. I also have a friend in Texas who gets more money from his VA disability (while he zones out on Percocets), than he made while working. While he was “disabled”, he used to move and repair furniture. Until he decide to milk the system. Geez, but what does all this have to do with the housing bubble? Oh yes, if government were smaller, our budget deficit could be eliminated, and our economy would improve. Yes, that’s the tie-in 🙂

[BikeRider]

The housing bubble in a nut shell is “people having more money than they have sense.”. Where I live it became standard practice (until recently) to put an offer on a house several thousand dollars higher than the asking price. Now, that seems insane to me. I like to haggle. Whatever happened to expecting to pay less than the stated price? It took a lot of fools to get housing to where it’s at now. A real combined effort.

[Author]

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