Americans Feel Economy Much Worse Than it Is

It turns out "the economy" isn't just one thing.

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At the NYT Upshot blog, Neil Irwin reports “Americans Are Flush With Cash and Jobs. They Also Think the Economy Is Awful.” While I was expecting a treatise on the irony of it all, the piece contains some useful insights as well as a healthy dollop of conjecture.

The setup is an elongated form of the headline:

Americans are, by many measures, in a better financial position than they have been in many years. They also believe the economy is in terrible shape.

This is the great contradiction that underlies President Biden’s poor approval ratings, recent Republican victories in state elections and the touch-and-go negotiations over the Biden legislative agenda. It presents a fundamental challenge for economic policy, which has succeeded at lifting the wealth, incomes and job prospects of millions of people — but has not made Americans, in their own self-perception, any better off.

Workers have seized the upper hand in the labor market, attaining the largest raises in decades and quitting their jobs at record rates. The unemployment rate is 4.6 percent and has been falling rapidly. Cumulatively, Americans are sitting on piles of cash; they have $2.3 trillion more in savings in the last 19 months than would have been expected in the prepandemic path. The median household’s checking account balance was 50 percent higher in July of this year than in 2019, according to the JPMorgan Chase Institute.

Yet workers’ assessment of the economy is scathing.

The assessment is much more complicated but the key thing to remember is that the median isn’t necessarily the same as the mode.

In a Gallup poll in October, 68 percent of respondents said they thought economic conditions were getting worse. The share who thought things were getting better was lower than in April 2009, when the global financial crisis was still underway. And it is not merely a partisan response to the Biden presidency. In the University of Michigan’s consumer sentiment survey, Republicans rate current economic conditions worse than Democrats do — but both groups give ratings about as low as they did in the early 2010s, when unemployment was much higher and Americans’ finances were a wreck.

The reasons seem to be tied to the psychology of inflation and the ways people assess their economic well-being — as well as the uneven effects that rising prices and shortages have on different families. It may well be shaped by the psychological scars of the pandemic, one manifestation of this being an era of exhaustion.

Regardless of the exact causes, after decades in which the availability of jobs (or lack thereof) drove economic sentiment, inflation now appears to have become the more powerful force.

As a federal employee in my mid-50s, inflation is mostly a nuisance. I definitely see higher gas and food prices and find it annoying. And I’ve already been hit hard by increased property taxes (housing and especially used cars are more expensive and thus our basis is higher) and expect to be socked with increased winter heating bills given higher propane prices. But my salary should more-or-less keep up with the cost of living and my retirement savings, which are mostly in index funds, will likely go up as a result of the stronger economy.

But not everyone is in that boat.

“The major issue is rising inflation and falling confidence in economic policies,” said Richard Curtin, who has overseen the University of Michigan survey for decades. “Consumers see rising prices, and they see no policies that would correct it.”

There is no doubt that prices are rising rapidly — the Consumer Price Index is up 5.4 percent over the past year, and there are shortages and other inconveniences that do not show up in inflation data but reflect the same underlying phenomenon.

[…]

To economists, higher wages and higher prices for consumer goods are two sides of the same coin, and a spurt of inflation creates both winners and losers. In the last few months at least, the public hasn’t appeared to view it that way — and inflation and related shortages seem to loom particularly large in their overall perception of the economy.

That’s not surprising. And gas prices, in particular, seem to take a huge psychological hit because they’re the only thing we buy with the price displayed in three-foot numbers visible from the highway.

Interestingly, the way inflation is hitting is topsy-turvy this time:

Any group of individuals might end up better or worse off in a time of elevated inflation, depending on whether they’re debtors or creditors, and whether their wages rise faster or slower than the particular goods they buy.

A restaurant worker who has received an 11 percent pay increase over the last year — the average for the leisure and hospitality sector, according to government data — probably has higher spending power despite high inflation.

But many people are losers in times of rising prices — and even those who may end up being net winners can end up feeling the pain of higher prices more intensely than the benefit of higher wages or more manageable debts.

About 13 percent of workers have a paycheck that is unchanged over the last year, according to data from the Atlanta Fed. Many retirees receive pensions that are not adjusted for inflation.

And it is middle- and high-income earners whose pay gains were least likely to have kept up with inflation. Over the 12 months that ended in September, those in the top quarter of earners experienced 2.7 percent gains in hourly earnings, compared with 4.8 percent for the lowest quarter of earners. For lower earners, that follows years leading up to the pandemic in which pay gains exceeded inflation rates.

It’s good news for people low on the wage scale that businesses are competing hard for their services, increasing their bargaining power. But a relatively small percentage of the populace is in that boat and everyone who uses those services are paying more, often for a worse customer experience.

The details of what a person buys can have an outsize effect on how acutely he or she feels the pain of inflation. For someone who has had no need to buy an automobile this year, steep inflation in cars and trucks has been a nonissue.

Now consider someone whose car broke down and who needs another one to get to work. A rise in prices of 40 percent for used cars and trucks since the start of the pandemic amounts to a costly burden. The same applies to many other physical goods that have been in short supply, like home appliances.

And, obviously, those of us who aren’t in the market for a car or refrigerator don’t feel any surplus relief that we’re not paying higher prices. So the effects on sentiment about the economy is almost entirely negative, unless you happen to sell cars or refrigerators.

As previously noted,

Rising costs for staple goods tend to influence people’s perceptions of inflation. Gasoline prices, for example, are visible on big signs on every street corner, and have risen 74 percent from their pandemic lows of May 2020.

But they are below their levels for most of 2011 to 2014, and average earnings have risen sharply since that period. To look at it one way, in October it took about six minutes of work at the average private sector wage to earn enough to buy one gallon of regular unleaded gasoline. In October 2013, it took almost nine minutes of work.

But people’s perceptions of these things are just odd. I remember gas prices being over $4 a dozen-plus years ago and am still find it annoying to pay $3.25 after so long in the $2 range.

To get a better idea of why elevated inflation can contribute to such negative assessments of the economy, it helps to go beyond the details of wage and price trends in 2021 and turn to a piece of economic research from the 1990s, conducted by Robert J. Shiller, the Yale economist.

He led surveys to try to ascertain why inflation, even at moderate levels, frustrated ordinary citizens so much more than economic theory implied it should. He found that people did not believe they would receive adequate pay raises to keep up with rising prices. He also found that people believed it would hinder overall economic growth; that it would be harmful to national morale; and that it could fuel political chaos or damage national prestige.

“In answering questions about what is really important and what our national leaders really ought to pay attention to, people may tend to rely on some deep intuition derived from life’s experiences,” Professor Shiller wrote in 1997. The idea of inflation, he continued, evokes “arbitrary injustice, arbitrary redistributions and social bitterness,” and “memories of social situations in which morale and a sense of cooperation were lost.”

That may be what makes the inflation surge such a tricky policy problem: It can be about something more profound than dollars in people’s pockets and the price of a gallon of gas.

This is essentially Prospect Theory, the idea the psychologist Daniel Kahneman won an economics Nobel for. We’re not rational calculators; rather, we have all manner of biases based on set points. Most notably, we value losses much higher than we do gains. So, if prices go up 10 percent and we get a 10 percent raise, we’re still likely to think we’re falling behind.

FILED UNDER: Economics and Business, Public Opinion Polls, US Politics
James Joyner
About James Joyner
James Joyner is Professor and Department Head of Security Studies at Marine Corps University's Command and Staff College and a nonresident senior fellow at the Scowcroft Center for Strategy and Security at the Atlantic Council. He's a former Army officer and Desert Storm vet. Views expressed here are his own. Follow James on Twitter @DrJJoyner.

Comments

  1. Tlaloc says:

    I’m devoid of empathy for people who bitch about gas prices but absolutely refuse to support or use mass transit.

    12
  2. gVOR08 says:

    Why do “ Americans Feel Economy Much Worse Than it Is”? A big part of it is simply that public perception is subject to time lags. In six months they may realize things are better. And, mindful of fundamentals, Biden wants to manage good growth three to six months before the mid-terms.

    But mostly it’s because of reporting like the now infamous CNN Milk Story. Many critics seized on the “12 gallons of milk a week”. Seizing on that is actually a valid example of the bubble journalists live in. When our son was a teenager we’d go through a gallon every day or two. These (Mormons?) have nine kids. The real focus should be on the fact that the scary numbers quoted are all wrong, and uncorrected by CNN.

    I recall seeing headlines a month and two ago about disappointing job growth. I don’t recall seeing front page headlines about the upward correction of those numbers. On jobs, the headlines I see are about how hard it is for your local Applebees to find staff, not about how the waitstaff at Applebees were able to find better jobs. The supposedly liberal MSM reflect the concerns of the establishment, and inflation is the great bugbear of the wealthy establishment.

    11
  3. steve says:

    At some blog sites people are writing like we are looking at hyperinflation. Early 89s levels at least and they certainly try tomato it should like we are heading towards Zimbabwe. There are a couple of really odd things here. First, the markets dont seen convinced that we are facing out of control inflation and the people making these claims nearly always claim to believe in markets. Second, it really is clear that a lot of this current inflation is driven by prices with a few key items. I dont really believe that used car prices will keep going up 35%.

    Steve

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  4. EddieInCA says:

    One of the reasons I’m switching over to a fully electric car within the next two months is gas prices. I drive an auto that needs 91 octane minimum and yesterday I paid $5.19 per gallon. Premium gasoline is over $4.75/gallon pretty much everywhere here in Southern California, with some stations getting $5.59 per gallon. I’m spending over $550/month on gasoline.

    3
  5. @gVOR08: To agree with your basic point, and as I like to point out, the real bias in the media is to dramatic stories and for the cheap-and-easy. Bingo the milk story and the like.

    It is super easy to put a camera on a row of gas stations with the large prices that James notes and then interview a handful of consumers about how much it is costing to fill up their tanks.

    While I fully understand that I make enough money that a change in gas prices really doesn’t affect me in any appreciable way, it is also annoying that we make have a national breakdown over relatively minor differences in gas prices (not to mention that adjusted for inflation we are nowhere near peak).

    A 25 cent increase in gas prices means rough an extra 3.75 for filling up a 15-gallon tank. While I certainly understand that’s not nothing, it isn’t a huge amount, either. Certainly, if one in the middle-class, broadly defined, an extra, let’s say 15 bucks a month in fuel costs is not likely to be noticed unless one is being told on the news constantly that that sky is falling.

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  6. Jay L Gischer says:

    The ideas of Shiller and Kahneman are solid. They have a very sound basis. They have a lot to do with what’s going on now. And the architecture of human perception has a lot to do with why we can’t have nice things.

    AND, the monied class hates inflation, because it erodes their safe rent collection on bonds. Inflation is good for the debtor, but bad for the creditor. And they have an enormous amount of influence on what stories get driven through the media.

    We are still awash in loose money spent over the last year by both fiscal policy and the Fed loosening. That really ought to be a lot more inflationary than it has been. And so lots of the finance people are getting really itchy.

    6
  7. becca says:

    This is the End of Plenty Era. I am willing to state that as fact. Climate change eats up more arable land than it creates. Climate migrants numbers will continue to grow. Shipping goods around the world costs more and more. Clean water sources grow scarce and coveted. This is the future we need to confront with a clear eye.

    Things are just going to cost more, folks. Get used to it.

    3
  8. Mister Bluster says:

    @Tlaloc:..mass transit
    When municipal bus service was re-established for the fourth or fifth time in the 50+ years that I have lived in or near Sleepytown the closest bus stop to my abode which sits 4 miles from downtown was .3 miles. That stop was also the end of the line. I did use it on occasion. Usually when my truck was in the repair shop. I gladly paid the $1 or $2 bus fare as I knew from experience that the cab ride would cost $12 + $2 tip.
    That’s all ancient history. Several years ago the “end of the line” was relocated 2 miles due north.
    Not that it matters. I can not walk the .3 miles to the site of the former bus stop today.
    I would consider a Park and Ride option at the current bus stop however there is no place to park.
    In the meantime since I live in Illinois I pay one of the highest state gas taxes in the country and the same federal gas tax that most drivers pay. Per Credit Karma some of the federal gas tax goes to the Highway Trust Fund that allocates money to mass transit. Apparently it’s not enough to build a monorail to my house.

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  9. CSK says:

    @Tlaloc: @Mister Bluster:
    I had an annoying acquaintance who hectored people constantly about the need to use mass transit. When I faux-innocently asked him why he didn’t use it, he replied: “I like to drive.” There was a train station a block from his house.

    4
  10. mattbernius says:

    @Steven L. Taylor:

    To agree with your basic point, and as I like to point out, the real bias in the media is to dramatic stories and for the cheap-and-easy. Bingo the milk story and the like.

    The frustrating part of that story wasn’t so much the milk part of it, but that the reporters unquestioningly accepted the premise that a gallon of milk was recently significantly under $2 a bottle. This gets to how perception often trumps fact in cases like these (ditto across the board sharp and constant rises in crime while we are still near historic lows and we have yet to see if this is a sustained trend).

    It is super easy to put a camera on a row of gas stations with the large prices that James notes and then interview a handful of consumers about how much it is costing to fill up their tanks.

    Yup, and this is another example of the price of cutting newsrooms. It inherently moves away from research and investigative journalism and moves towards easy stories (i.e. camping outside the courthouse and transcribing for police).

    Which often leads us to think in terms of hyper-inflation or crime waves.

    3
  11. Michael Reynolds says:

    @becca:

    This is the End of Plenty Era.

    Maybe. Depending on how you define it.

    Let’s start with the fact that we are at a high point in terms of reducing the number of people in absolute poverty around the world, a truly astonishing leap of progress. No one starves in this world absent deliberate government policies, generally civil wars. And there hasn’t been a major power war in 76 years. Compared to basically all of human history we have never been richer, better fed or more secure. And Americans are the foam topping that cappuccino.

    We’ve lost ground against bacteria but made giant leaps against viruses. We are within inches of seizing complete control over our biological evolution. The sum total of human knowledge is available essentially everywhere, all the time, and mostly for free. Cars are both safer and cleaner. Ditto planes.

    I could go on (and also on) but the bottom line is that by contrast with just about any era in human history, things are amazingly good. Now, is that coming to an end? Like I said, maybe. We are not helpless. Homo sapiens didn’t become boss of planet Earth by being slow to adapt. As Greta Thunberg pointed out recently, if we can’t hold warming to 1.5, maybe we can still hold it to 1.6 or 1.7.

    We have wind and solar coming on line, growing dramatically cheaper. We have the ability as individual homeowners to become substantially energy independent. We also have recent leaps in fusion technology. (Yes, we all know the 30 year joke). We do also still have fission. At the same time we have techniques already on the shelves to dramatically lower the amount of water needed for agriculture, and have the ability to genetically manipulate crops to thrive in harsher conditions. Flooding in a clear threat, but we do have dikes. The Netherlands doesn’t seem to be giving up, and they’re in greater danger than anyone but Bangladesh.

    So, maybe the next 100 years is a bleak dystopia of starvation and flooding and mass migrations of the desperate with consequent wars and atrocities. Or, maybe we’re on the precipice of homo sapiens once again snatching victory from the jaws of defeat.

    I’m not pollyanna, but I can tell you one thing for free: trying to win elections on gloom and doom is self-defeating. We need to stop acting like whipped curs and decide to survive, and not just survive, but thrive. Because it is still eminently possible.

    16
  12. Gustopher says:

    @CSK:

    I had an annoying acquaintance who hectored people constantly about the need to use mass transit. When I faux-innocently asked him why he didn’t use it, he replied: “I like to drive.”

    As a good and proper liberal, I want to make mass transit as cheap and easy as possible for the masses. It’s good for the environment, and it helps keep the traffic in check so there are less people to get in the way of my SUV.

    (Were I a progressive, I would be trying to bike everywhere, and still not be riding the busses…)

    4
  13. Gustopher says:

    @mattbernius:

    Yup, and this is another example of the price of cutting newsrooms. It inherently moves away from research and investigative journalism and moves towards easy stories (i.e. camping outside the courthouse and transcribing for police).

    Cletus Safaris. They are a pretty poor form of journalism that makes a certain type of reporter feel like they are doing something important — listening to people, and presenting the views of those people in their own words.

    Without context, it’s not great. When Cletus is marinating in misinformation from social media this just ends up laundering the crazy, putting the stamp of the distinguished “real journalists” on it, and then broadcasting it wider.

    I don’t know how we handle that underlying misinformation.

    3
  14. CSK says:

    @Gustopher:
    This guy drove a Jaguar, not an SUV. Total gas-guzzler. He also took fake deductions on his taxes, while urging tax increases.

    2
  15. Andy says:

    I think this is one of those things where looking at the aggregate is misleading, like the notion that Americans are sitting on piles of cash. In short, the current economic effects and conditions are not distributed evenly among the population. I don’t have data to support this, but my sense is that the piles of cash are being held by the top quintiles of wealth and income.

    And just looking around here in Colorado, there is a housing crisis in mountain communities as rich people are buying second homes such that locals are increasingly unable to find any place to live, much less something affordable. And here on the front range, housing is crazy. In my area rents have gone up by almost 50% in the last couple of years. Since we moved here three years ago, our house (which be bought) has increased in value by 30%. If we tried to move here now, we couldn’t afford it. But hey, inflation is good for my mortgage!

    Secondly, I don’t think one can look at gas prices in isolation. It’s not just gas prices, it’s rents, housing, energy, and other things. If it was just gas prices it wouldn’t be that big of a deal, but it’s not. Just in my own situation, our expenses have grown, but modestly since my wife and I both work from home and we haven’t been hit by housing price increases. But I work in an industry that’s done very well during covid, so our income has kept pace and then some. I see that we have been very lucky and fortunate compared to many other people we know in our area. There are a lot of people who aren’t doing well.

    @Tlaloc:

    I’m devoid of empathy for people who bitch about gas prices but absolutely refuse to support or use mass transit.

    Most parts of the country have shitty mass transit. Half of Americans live in suburbs where options are thin.

    I remember way back when my wife and I were looking for housing in the DC area. We wanted to live near a metro station to make her commute to the Pentagon easy. Turns out that housing near good mass transit gets a premium price – back then (wow, I think 20 years ago now – time flies) it was at least another $50k for something within walking distance or a short bus ride to a metro station.

    9
  16. becca says:

    @Michael Reynolds: I don’t disagree. People adapt, sometimes in amazing ways, sometimes not.

    I wish l knew how to frame the subject of climate change so that people are aware that steps will have to be taken to try and mitigate the worst of it. It never should have been a political issue in the first place, so harder still. American domestic agendas are proving hazardous to the planet, and I do find that worrisome.

    3
  17. David S. says:

    @Gustopher: Psychological infrastructure, mostly. I know this comments section hates education, but that’s always been the problem. The only tenable response to misinformation is better critical faculties at an individual level, and the only way to raise those is more schools, more universities, more teachers, and more libraries. That’s not enough (just as building more roads and actually bothering to maintain them won’t fix the problem of too many cars), but it’s a bare minimum we haven’t actually achieved.

    2
  18. CSK says:

    @David S.:
    This comments section hates education? Since when? JJ and ST are professors (as was I), and several other prominent commenters here have taught on various levels.

    6
  19. James Joyner says:

    @Tlaloc: There are relatively few places in the United States where mass transit makes any sense. It’s pretty heavily used in our major metro areas.

    2
  20. Michael Reynolds says:

    @becca:
    I think we need a carrot to go with the sticks. It’s not enough to say that if we strain every last nerve we’ll still be worse off. People work for, not just against.

    2
  21. Monala says:

    @Michael Reynolds: co-sign to everything you wrote

    1
  22. becca says:

    @Michael Reynolds: The carrot could be clean rivers, streams. Fresh air, cleaner skies. Who wants to be the pro-pollution party?

  23. Modulo Myself says:

    People are pessimistic about the economy. A median checking balance of 2,000 is not that much money given that the bad things that can happen–like health care or job loss–can eat into that in a second. You can’t really tout as a sign of doing well. It’s a sign of holding on. I mean, if you start talking about taxing the rich you get a slew of articles wondering if someone making 500K is really rich but economists are shocked that they’re getting negative responses about the economy because a bunch of people who have a month’s rent or maybe a mortgage payment in their cash non-savings reserve aren’t happy?

    This reminds me of the national minimum wage debate. The median wage in Mississippi in 14.04. MIT’s living wage for 1 adult with 1 kid is 26.74. Even if you adjust the living wage, it doesn’t even matter. In economics, there’s just a huge gap between what constitutes a good life and what the median existence is in this country.

    3
  24. Mimai says:

    Pet theory: People are enraged (about all the things, real or imagined) because to feel otherwise is to acknowledge that perhaps we are not living in the very most important epoch of all time.

    To feel meh or anything short of furious is unacceptable. To feel contentment or joy? Oh the horror…the horror of insignificance! (or perhaps that should be “asignificance”)

    2
  25. gVOR08 says:

    @Gustopher:

    I don’t know how we handle that underlying misinformation (in the Cletus Safaris).

    A couple years ago NYT promised they’d stop doing that. They didn’t. As a small, but effectual, first step, NYT could check whether their Cletuses are genuinely simple farmers, the common clay of the New West, or local Republican activists, which happens too often to be chance. Have they ever done a safari down the street to a Starbucks to ask what man-in-the -street urbanites think? Conservatives hate NYT, but liberals, with better cause, also hate FTFNYT.

    3
  26. Gustopher says:

    @gVOR08:

    Conservatives hate NYT, but liberals, with better cause, also hate FTFNYT.

    If they are pissing off both sides they must be doing it right!

  27. Gustopher says:

    @Michael Reynolds:

    So, maybe the next 100 years is a bleak dystopia of starvation and flooding and mass migrations of the desperate with consequent wars and atrocities. Or, maybe we’re on the precipice of homo sapiens once again snatching victory from the jaws of defeat.

    Why not both?

    Given that half out country is wildly misinformed, and the easier answer to mass migrations of desperate refugees is to put up barriers or just “get rid of them”… I expect that an “America First!” will drop a nuclear weapon on a refugee caravan.

    We aren’t going to be doing a lot until it is so bad that even a particularly dim midwesterner fed a diet of corn chips, hatred and lies cannot ignore the climate problems in their backyard. There are a lot of people pushing back against a free, effective vaccine against a global pandemic because solutions require modest amounts of collective action, and I don’t see that problem going away. Not unless the corn fields go up in fire or something.

    Maybe Europe or China will lead the way, and drag the US kicking and screaming down the path. That’s the best case scenario.

    I have no doubt that we will engineer and science our way out so that some wealthy people and the people they depend upon for their lifestyle will be fine (be a good, useful serf, I guess), but there’s going to be a lot of unnecessary suffering and cruelty along the way.

    (If Biden had given a speech at the recent climate summit, in which he said “If you’re waiting for America, you’re going to drown — half our country thinks this isn’t even real, and half of the ones who think climate change is real think it’s overblown,” would that be better or worse?

    6
  28. gVOR08 says:

    @Gustopher: Indeed. I assume you’re referring to IIRC their publisher having said exactly that. Weird. See the other thread https://www.outsidethebeltway.com/sundays-forum-76/#comment-2653388 . How often do I have occasion to say “argumentum ad temperantium” twice in one day?

    1
  29. Jc says:

    Let’s see, we have created trillion plus dollars, pumped all that into the system, have zero interest rates, tons of programs, yet a lot of people are still no better off and GDP growth is still meh. So what if inflation starts to stick? What happens to rates? Gov borrowing is primarily short term. When those interest?rates and payments start to increase and crowd out other spending, then what? Print more money?

    1
  30. wr says:

    @Andy: “And here on the front range, housing is crazy. In my area rents have gone up by almost 50% in the last couple of years.”

    One infrequently mentioned reason for this is that private equity — ludicrously flush with cash since they are so undertaxed and running out of retail businesses to loot and destroy — has started to buy up the rental housing stock. You can bet that they’re doing everything they can to drive up prices…

    2
  31. Michael Reynolds says:

    @Gustopher:
    We’re not really the big problem anymore. We’re not on the path we should be on with CO2 trend lines, but we’re about on par with Europe, and way ahead of China, which is much worse in terms of quantity and no one knows what price they’ll be willing to pay. India’s right with them.

    I expect that an “America First!” will drop a nuclear weapon on a refugee caravan.

    That’s crazy talk. We have 6,000 tanks in the inventory.

    2
  32. Just nutha ignint cracker says:

    @James Joyner: I would say that there are very few places where mass transit doesn’t “require heavy subsidization” rather than “makes sense” (and that list would include most major cities to have levels of service that would effectively reduce traffic),” but since we’re talking American values systems, it’s probable that requires heavy subsidization = doesn’t make sense. We gotta protect the country from shoshulizm after all.

    3
  33. Just nutha ignint cracker says:

    @Jc: “Let’s see, we have created trillion plus dollars, pumped all that into the system, have zero interest rates, tons of programs, yet a lot of people are still no better off…”

    A feature, not a bug. And, while the GDP may be lack luster, the people at the top of the equity pyramid are doing just fine. Again, a feature.

    2
  34. Gustopher says:

    @Andy:

    And just looking around here in Colorado, there is a housing crisis in mountain communities as rich people are buying second homes such that locals are increasingly unable to find any place to live, much less something affordable.

    Perhaps the answer is to set property tax rates sharply higher for non-primary residences. Or a vacancy tax.

    My guess though, is that the people who can afford a second house are getting a really nice second house, and not the lower and middle class housing stock.

    A vacancy tax also a plausible solution for investors trying to change the market.

    But, in all likelihood, the effects of rich people’s second homes and investor manipulation are overblown, and the real cause of high housing prices is that demand is outstripping supply. That’s the case in most of country where this is a problem so it is a fair bet to be the case there.

    No one wants to increase supply, because that means more density, and changes the character of the neighborhood. Increasing supply somewhere else is always an option, but that tends to get bogged down because the people already living at that somewhere else get annoyed. And if you push it out too far into the boonies, people will be trying to get the government to subsidize the farms or whatever are there to “preserve our historic vistas” or something like that.

    No, the best approach is to decrease demand.

    The town of Enumclaw, WA got famous for bestiality, and I believe housing prices there dipped after that, but it wasn’t lasting. Washington State passed a law making bestiality illegal, which put a damper on that. Maybe invite the Klan to put a Klavern there?

    Conversely, you could try to make the town three towns over look better, so people want to live there instead. But before too long your town will be referred to as That-Other-Town-Vicinity, and people will be mentioning how it’s only 30 minutes away.

    I think you will have to either destroy the infrastructure leading into town — are there any bridges that can be destroyed?

    Other alternatives of cutting demand include pandemics, mass slaughter, and the like. I would hold off a bit, and explore the other options first, but you do you.

    Even there, though, you will run into the problem of your neighbors who have most of their money invested in their house complaining that the death camps and the mounds of burning bodies are bringing down the property values.

    (Hot tip: they can’t complain if they are the ones in the funeral pyres… get it, it’s a “hot” tip because they’re on fire.)

    Or I guess you could revisit the supply side. But people really don’t like that.

    3
  35. Gustopher says:

    @Gustopher: Another idea, and if you’re an economist, I think you’ll like it:

    Count the homeless people living in tents and under bridges. Estimate the value of their homes (zero, roughly), and then include that in the calculations of average housing costs! The numbers will look great.

    Pretty good, eh?

    4
  36. Andy says:

    @wr:

    One infrequently mentioned reason for this is that private equity — ludicrously flush with cash since they are so undertaxed and running out of retail businesses to loot and destroy — has started to buy up the rental housing stock. You can bet that they’re doing everything they can to drive up prices…

    There’s been some of that for sure. And also property management companies are buying as well as people and companies purchasing for AirBNB/VBRO.

    Perhaps the answer is to set property tax rates sharply higher for non-primary residences. Or a vacancy tax.

    There is some of that going one – several communities want to raise taxes significant on short-term rental (AirBnB/VBRO) properties.

    No one wants to increase supply, because that means more density, and changes the character of the neighborhood.

    It varies by location, but lead times for new construction are really long right now in most mountain communities. Like a construction project may not start for a year. And, of course, zoning is a continual problem.

    The supply-demand is really out of whack. Too many people coming to Colorado and the supply can’t keep up for a lot of things. And the popular places in the mountains are getting loved and visited to death.

    Overall it’s making life very difficult for people at lower income levels.

    2
  37. flat earth luddite says:

    @Andy:

    it’s making life very difficult for people at lower income levels

    As Cracker has mentioned repeatedly, that’s a feature, not a bug.

    1
  38. James Joyner says:

    @Just nutha ignint cracker:

    it’s probable that requires heavy subsidization = doesn’t make sense. We gotta protect the country from shoshulizm after all.

    While I’m something of an outlier, I don’t see much difference between roads, airports, rail, and public busses. They’re all infrastructure that get heavily subsidized, although some slightly more than others.

    But I’m in the outer reaches of the DC suburbs and the nearest Metro station is too far for me to utilize without driving and paying to park, by which point I may as well simply drive in. And that’s if I worked in DC. I work in Quantico, which is serviced by both Virginia Railway Express and Amtrak trains—but ones that only go in the opposite direction! Because I live north of the base rather than south, there is no public transit option for me even though I’m 27 miles from the base.

    Would it be worth the investment to change that? I seriously doubt it. And I’m in one of the most affluent and densely-populated counties in the country.

    1
  39. flat earth luddite says:

    @James Joyner:
    James, in the “konservativ” circles, you are definitely an outlier. I was raised with the view that things like schools, roads, transportation, etc., etc., etc. were all part of the public good (social contract) that we all chipped in for to have a civilization, as opposed to a dystopian hell where I’m teaching the youngins how to knap flint arrowheads. Current conservative thought is that those things MAKE it a dystopian hell.

    2
  40. Michael Reynolds says:

    We should stop comparing mass transit in the US to mass transit in Europe. The US is incomparably larger and emptier. A more apt comparison might be Canada, Russia or Brazil. And BTW not all of Europe is Germany. I’m setting up a rather complex two month European trip at the moment, determined to avoid driving*, and it is not as easy as people assume. And I’m not even talking eastern Europe.

    Here in California we’re dumping billions into an asinine project to connect the Bay Area and LA. But really connecting Bakersfield to Stockton. I predict the project will a) cost multiples of the estimates, b) take much, much longer to complete than projected, c) trains will travel far slower than hoped, and d) the system will be used exclusively by people who are afraid to fly and don’t drive. The idea that people would take a train into LA and then switch to the buses? In LA? Really?

    *I’m not always clear on national preferences for raised digit communication between drivers, and I get confused.

    1
  41. Flat Earth Luddite says:

    @Michael Reynolds:

    cost multiples of the estimates, b) take much, much longer to complete than projected

    Ah, yes, Chaeops Law… Nothing comes in on time or under budget…