the social sickness of artificially promoting asset growth over wage growth

[phantom power]

I've long argued that one of the primary ills that plague the American economy is the desperate attempt to inflate asset bubbles in order to disguise wage stagnation. Wage stagnation leads to weak consumer demand; asset bubbles are volatile and require a number of ill-conceived incentives to keep them going.

Dave Dayen today has good point on that front on the subject of the biggest asset bubble of them all: housing.

Americans “like their cheap mortgages,” we are told. I’ll bet they like having a job even more. New research from the Peterson Institute for International Economics shows a healthy correlation between rises in the homeownership rate and rises in the unemployment rate, because business entrepreneurship suffers and sprawl increases, and investment plows into home equity rather than more productive purposes. Furthermore, the Organization for Economic Cooperation and Development finds no correlation between high rates of homeownership and satisfaction with the quality of housing.

...

The other point one might make here is the obvious generational Ponzi scheme at work. Unlike Social Security which is actually a fairly stable social insurance program, runaway housing prices in deflationary wage environment mean that younger generations will have no ability to afford decent homes where most of the jobs are. Most of the action in the housing market right now is by large investment firms and middle-aged Americans cashing out stock investments or other real estate assets. Most college grads are barely able to pay down their student loan debt, much less afford a downpayment.

That in turn is leading another class-based division in American society: those with parents who can help them with downpayments and promise them a real estate inheritance in their late middle age, and those who cannot. The former can afford to buy, while the latter cannot.

It's just another symptom of the social sickness of artificially promoting asset growth over wage growth.

http://digbysblog.blogspot.com/2013/08/do-we-really-want-to-be-incentivizing.html

[PowerToThePeople]

1. K&R