He's right about housing being the #1 issue, but it's hardly the only problem created by America's ruling class.<p>I bet he's entirely blind to the fact that the only reason his paper is getting so much attention is that he's an "MIT graduate".<p>Attending an elite school like MIT is not even a 1%'er thing, it's a 0.1% thing.<p>There's probably some poor person, who went to a shitty college, that's even smarter and has a better theory but we'll never hear about it. Think about their career trajectories and the inequality of their outcomes.<p>Of course the 99.9% contains almost all of the smartest people, but they get almost none of the opportunity. This elitism is absolutely pervasive in American society.<p>Microsoft: "Harvard dropout inks deal with IBM"<p>Google: "A new search engine from Stanford."<p>Facebook: "The exclusive Harvard social network"<p>Dropbox: "Google Drive killer coming from MIT Startup".<p>This paper: "MIT graduate student says income inequality is actually about housing"<p>Something like 95%+ of people that get into elite schools graduate. It's not hard to graduate, it's just hard to get in, and the test for getting in is so gameable and rigged that almost no one pretends it isn't anymore.<p>As long as the rich can spend fortunes buying elite credentials for their children, we're going to have a ruling class and a worker class.
Housing functions like a reverse auction. In the most HCOL areas, demand usually outstrips supply to such an extent that prices float up to a maximum ceiling (40-50% of avg income IIRC). Above which people's checks would bounce. That's NYC and SF. The average person seems to simply pay ''as much as they can afford'' for housing. In LCOL areas, it's a function of land and materials prices, and in some super LCOL areas, where demand is flat or shrinking, prices can even fall below this.<p>As most/all other areas of life experience deflation (iphones, education, food, travel, entertainment), HCOL residents will reallocate the savings into housing, pushing the ceiling and housing prices up. Even despite attempts to increase supply, I think. The best solution is to redesign the economy to enable and incentivize the relocation of young people throughout lower tier cities and rural areas in the US.
This seems like an odd way to think about the problem to me.<p>Housing is, to a first order approximation, the only thing I spend money on.<p>Savings are framed in terms of 'how long could I afford the rent', or 'how long before I could pay off a mortgage'.<p>Everything else is.. well, fluff. I would be happy to read books for a lifetime, I don't need 'fancy' food, but a stable home is pretty important to me.<p>A 1 bedroom apartment with a reasonable commute to my job costs £10000pa as a lower bound. Add on the UK's equivalent of property tax and you're at 11000.<p>Food? 1-2K. Gas, electricity, water, internet, cell phone? 1K, maybe 1.5K. So a combined upper bound of 3500.<p>The only place in which those costs would get to 100% of housing would be in a depressed economic area. One in which most would struggle to find a job that paid much more than minimum wage.<p>So the argument should be flipped, I think. Income inequality only actually matters at all because people have to buy housing. If everyone had a stable home then it would matter far less that other people could afford more toys. It's an issue because having a stable base is such a useful thing - without that problem, I don't think it matters that some are rich and some are poor, not really anyway.
This reminds me of an unfortunate part of history.<p>When Roosevelt signed the G.I. Bill in 1944, a lot of soldiers who returned from the war were able to claim benefits in the form of tuition assistance, low-cost mortgages and low-interest loans. Soldiers coming home from overseas had the choice of pursuing higher education, purchasing a home, or starting a business. Another result of the G.I. Bill were Levittowns, newly sprouting suburban neighborhoods offering low-cost housing to these returned soldiers ($8,000 in 1950, approximately $80,000 in 2015). With the help of the expanding auto industry and the joining of highways, people began to move out into the suburbs and build new communities.<p>The unfortunate bit is that while the G.I. Bill didn't advocate discrimination, it was interpreted differently for people according to their race. For example; of the 67,000 mortgages insured by the G.I. Bill, fewer than 100 were taken out by non-whites.<p>Now, the heavily-inflated value (example; houses in Levittown, NY are selling for approximately $350,000) of these post-WWII homes are passed down and borrowed against or leveraged to send the grandchildren of those veterans to private schools and expensive universities, while many black families struggle financially in urban sectors. The racial discrimination of WWII veterans has been cited as a reason for the increased economic inequality and racial tensions being experienced today in the United States.
Article doesn't do justice to original paper. In fact I was left totally confused what it's trying to even say. However after reading the paper, it feels very profound. Paper basically finds a subtle but important issue in Piketty's famous argument that people with capital would grow much faster than rest of economy in current century than any other time (aka rich becomes even more richer than before). This paper says that Piketty's argument is correct only because of one component in their capital investment: real estate. In essence, if you had invested money in anything but real estate you would have much lower eventual return over very long term with high probability. This even includes areas that is believed to be gold rush like technology. Not only nothing beats real estate but the fact <i>only</i> real estate will allow rich people to grow fastest than any other time in history!<p>The consequence of this assessment is very stark: People with money will continue to invest large chunk of their capital in real estate. The money invested in real estate is essentially "dead" because that money is locked up doing nothing, it doesn't work to produce goods, innovations or make world a better place. But real estate is indeed the most rewarding thing for your investments. So the thing is that behavior of real estate is completely against at odds with advancement of humanity. Real estate is in essence like cocaine of economy and there are no DEAs.<p>If these conclusions are right then it's huge problem. Goverments across the world should immediately take measure to discourage real estate possessions if you are not living there. Real estate should be placed in same category as food and water. We don't let wealthy hog up all the food and water and then inflate the prices for higher return on their capital. There can be progressive tax for the real estate properties you own but don't live at. Further, there should be national movement to aggressively create and encourage new housing . Without these measures, our economy is living on real estate cocaine with little productivity. I would wonder if our current limbo state of economy where nothing grows except real estate is precisely the manifestation of these issues.
It's very easy to see where all the wealth is going and how and why it is divided unequally in this county. It's a simple observation that is self evident.<p>Look at yourself, the average joe. Where is the wealth you generate going?<p>Let's follow the process step by step.<p>You work for a company and most of the wealth you generate is for said company... the company pays you a salary, lets say 10$/h. In order for the company to afford you, you must be generating more wealth then 10$/h. You're generating 20$/h of wealth and the company is shafting you by paying only half of that. It's one of the ironies of capitalism... employment is usually a deal that is unfair and weighted heavily towards the employer. But hey, it's a freemarket... you chose to get shafted.<p>The rest of your money goes to things related to your survival. Unless you own a house, then the majority of what's left will go to RENT.<p>So in the end, rent and labor output is what's sucking out the wealth from underneath you. Where does this wealth go? To the owners of the houses that are rented to you and the owners of the corporations you work for.<p>In short owners of both HOUSING and HUMAN Capital is where most of your wealth getting extracted. Logically if your friends and coworkers are also employees then the same shit is happening to them and the rest of the population of the united states.<p>Simply by observing where most of your own wealth goes, you can see where all of the wealth flows in this country and elucidate the primary cause of wealth inequality.<p>The person who wrote this article seems to think that rich people invest their wealth in something called "technological capital" which "depreciates." What is he talking about? Does he think wealthy people are putting their wealth into warehouses loaded with piles of smartphones and macbooks? Rich people put their money into real estate and stocks (aka Housing and Human capital).
Vox has a much more nuanced analysis of the finding:<p><a href="http://www.vox.com/2015/4/1/8320937/this-26-year-old-grad-student-didnt-really-debunk-piketty-but-what-he" rel="nofollow">http://www.vox.com/2015/4/1/8320937/this-26-year-old-grad-st...</a>
Turning heads?<p>This message, in the form of a very similar graph, was a Reddit post a few months ago and ensured a long discussion where people were quoting all sorts of historical figures who claimed that land ownership was the key to all sorts of power.<p>I thought it was a fairly common theory.
Homes and communities are so intertwined with personal life and family that people forget it's also a huge investment / market.<p>So we allow all sorts of behavior towards homes that we wouldn't let happen in other markets. NIMBY and zoning laws are a form of collusion.<p>Also since the housing boom people have viewed high home prices as a good thing.
This and important issue, but is not original analysis... for instance was discussed on The Weeds just recently<p><a href="http://voxtheweeds.slate.libsynpro.com/are-we-counting-poverty-all-wrong" rel="nofollow">http://voxtheweeds.slate.libsynpro.com/are-we-counting-pover...</a><p>But it's an MIT student! OMG! Time for the front page of HN!
In a lot of areas housing is deeply entwined with the education market. Uniformly high housing prices aren't a problem, high housing prices and NIMBYism in particular areas is a solution to keep out the sorts of people parents believe cause Bad Schools.
I doubt this comes as a surprise to most economists. After all demand for housing is pretty inelastic, universal and the supply in terms of property is finite. It reaffirms my believe that restrictive zoning regulations are one of the leading causes of wealth inequality in modern economies. In the Vox article about the paper they mention that Lawrence Summers supports "an easing of land-use restrictions" because otherwise they " [...] cause the real estate of the rich in major metropolitan areas to keep rising in value".
So strange. this guy housed me for admitted-student-college-visit-weekend about 6 or 7 years ago. really nice guy who had the complete genius vibe.<p>he told me that in high school he didn't care about anything, and then around junior year he realized that he should give a shit, and self-studied for 22 AP courses and got 5s on all of them. he also had research papers lying around everywhere in his room and had also made a ton of money working at Jane Street and said it was fun but not for him.
This seems more relevant than ever today: <a href="https://en.wikipedia.org/wiki/Georgism" rel="nofollow">https://en.wikipedia.org/wiki/Georgism</a><p>This isn't:<p>>Local housing boards have made it damn-near impossible to build new condos. After much infighting, San Francisco plans on building up to 50,000 more units. But, San Francisco’s chief economist, Ted Egan, estimates that that the city would need at least 100,000 new units to stem increasing costs, let alone bring prices down to something more affordable.<p>>If Rognlie is correct and we really care about inequality, it might be wiser to redirect anger towards those who get in the way of new housing, rather than rely on taxes to solve our problems.<p>Millionaire NIMBY homeowners in San Francisco fighting with luxury condo developers has nothing to do with the rest of us.<p>There's something particularly distasteful about luxury condo developers trying to position themselves as champions of equality while trying to gouge huge profits from this state of affairs.
Something I like to point out when discussing wealth distribution in the US: <a href="http://i.imgur.com/NRAhNYU.png" rel="nofollow">http://i.imgur.com/NRAhNYU.png</a><p>data source: <a href="https://www.census.gov/hhes/www/income/data/historical/household/2013/h06AR.xls" rel="nofollow">https://www.census.gov/hhes/www/income/data/historical/house...</a>
Price controls would be appropriate in this situation. I'd much rather have money in the hands of tech workers than in the hands of banks or landlords. Rent-seeking behavior is too often allowed and ignored. The demand/price correlation is not a natural law or a natural good.