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  1. #1
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    Default The real cause of Financial Apocalypse: Flat wages since about 1970

    Just watched a documentary called "The Flaw" about the 2008 real estate crash and those dudes made a compelling point that was interesting as well.

    (Synopsis of their argument as I understand it: Looking back at least to 1929, lots of factors went into the disaster. But the largest was flat wages which caused many people to borrow their way to a middle-class lifestyle. And that meant that many people were refinancing homes all the time. The banking sector, too, saw that investing in mortgage-backed securities paid a higher return than just about anything else, including the mythical lending to businesses so as to promote a healthy GDP and job growth. So the whole thing crashed when those home loans went bad. There was some other worthwhile ideas in there too about the models of a free market that greenspan and others were using since the 1970s, and the very wealthy buying assets rather than goods and services, thus decreasing the perceived correlation between the strategy of making more millionaires/billionaires and some kind of grand trickle-down economy.)

    So this brings me to my two questions:

    1. I don't see wage growth recovering to immediately-post WWII levels any time soon. So where's the right kind of investment now... and for the next 30 years?

    2. How would you *tell* when wages have returned to a healthy level? I watch college grads entering adulthood with lame job prospects and a butt-load of debt and can't help thinking that no matter what else happens, wages will be flat for a long time.

    What do y'all think?
    Last edited by mvp; Nov. 21, 2012 at 06:15 PM. Reason: Better synopsis
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  2. #2
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    I agree. Many jobs do not pay fair wages and cost of living has gone up exponentially. I saw a graph that showed how many hours one would have to work to pay for a basic apartment in different areas of the country and the work hours required to do so were well above a full-time job in many places.
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  3. #3
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    Pretty much spot on. Instead, we rely on dual income families.

    It seems like having a baby or three is the best way to lose one's shirt, these days. So many friends have stopped at one because that is quite literally all they can afford. (To be fair, I live in a very expensive area of the country.)
    You have to have experiences to gain experience.

    Proudly owned by Mythic Feronia, 1998 Morgan mare; G-dspeed Trump & Minnie; welcome 2014 Morgan filly MtnTop FlyWithMeJosephine



  4. #4
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    Quote Originally Posted by LexInVA View Post
    I agree. Many jobs do not pay fair wages and cost of living has gone up exponentially. I saw a graph that showed how many hours one would have to work to pay for a basic apartment in different areas of the country and the work hours required to do so were well above a full-time job in many places.
    "fair wages?". How do you define a "fair wage"? An employer will pay as little for a job as they can find someone to to the job for. Why they should they pay an inflated amount because of some mythical "fairness" that liberals are always whining about?

    Get a clue...LIFE'S NOT FAIR! No everyone is entitled to be paid $100k/year. Low-wage jobs should be a motivator for people to improve their skills and move up.

    Aside from that, the world will always need ditch diggers. One of the biggest issues I see nowadays, is this push for everyone to go to college. Guess what, not everyone is cut out for college, or even needs to go to college. Everyone is not equal, and low skill jobs should be paid low wages. Life sucks, but that's reality.


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  5. #5
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    Quote Originally Posted by quietann View Post
    Pretty much spot on. Instead, we rely on dual income families.

    It seems like having a baby or three is the best way to lose one's shirt, these days. So many friends have stopped at one because that is quite literally all they can afford. (To be fair, I live in a very expensive area of the country.)
    I remember reading an article in Time published during the 1990s about what happened in the 1970s. We got poorer but didn't notice because we added a second income and kept buying the same amount of stuff. I filed that for future reference.
    The armchair saddler
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  6. #6
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    It depends on your job title. Meanwhile CEO's have increased their earnings 300%, but then I guess they earned it, right. "Earned" seems to be the stickler.


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  7. #7
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    Quote Originally Posted by dressurpferd01 View Post
    "fair wages?". How do you define a "fair wage"? An employer will pay as little for a job as they can find someone to to the job for. Why they should they pay an inflated amount because of some mythical "fairness" that liberals are always whining about?

    Get a clue...LIFE'S NOT FAIR! No everyone is entitled to be paid $100k/year. Low-wage jobs should be a motivator for people to improve their skills and move up.

    Aside from that, the world will always need ditch diggers. One of the biggest issues I see nowadays, is this push for everyone to go to college. Guess what, not everyone is cut out for college, or even needs to go to college. Everyone is not equal, and low skill jobs should be paid low wages. Life sucks, but that's reality.
    Let's dispense with fairness and justice for the sake of this argument. Their point was that when people can't afford to buy consumer goods-- and big ones like houses, higher education and the like-- the whole free market falls apart. The other trend-- concentrating wealth in smaller and smaller islands at the top is a problem, too: The uber-rich guy just can't buy enough $1,000 shirts or vacation homes to equal the contribution to spending that, say, 1 Million families buying refrigerators.

    And the poorly-paid masses will help to export manufacturing jobs, whether they like it or not, because they cannot afford to do otherwise.

    Fairness, then, means nothing in this "Oh sh!t, we don't know how to fix it" moment. But it doesn't mean that we aren't in that excrement-meet-fan crisis and need to think about its causes. And, by they way, the graphs they showed illustrating disparity of income and taxes paid by the top and the bottom look eerily similar in 1929 and 2008.

    And I don't think the liberals have a monopoly on the handwringing about exporting jobs. Nor should they.
    The armchair saddler
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  8. #8
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    Quote Originally Posted by sunridge1 View Post
    It depends on your job title. Meanwhile CEO's have increased their earnings 300%, but then I guess they earned it, right. "Earned" seems to be the stickler.

    They had a graph for this, too.

    In 1983, just 15% of the GDP went to the banking industry. By 2003, 40% was in banking. We now pay more to the folks moving money around than those using it to build widgets.
    The armchair saddler
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  9. #9
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    Yo, get a clue there Urper, it's not about fair, it's about the odds. The economy is a lot like Mother Nature, it doesn't care who lives or dies. Right now the average person has very poor odds of making any kind of living when even a generation ago they did. It's going to tip over.


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  10. #10
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    Curious, but there aren't many ditch diggers in these times. And those are mostly undocumented workers. Most of the work is done by machines.

    It is not bad to want to have the same things that everyone else has. A home, furniture, food, a tv and a car. I don't think too many poor people are hankering for yachts. But I guess it is easier to blame the down and out than to show some compassion.


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  11. #11
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    mvp- I haven't see that movie, but I think blaming the financial crisis on flat wages is a bit simplistic. Truly, a multiplicity of factors contributed, but it would be remiss to not look at the role of Fannie/ Freddie, the slow de-regulation of the financial industry (over the last 30 years), and the then affiliations allowed between banking and securities under the Gramm-Leach-Bliley Act.


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  12. #12
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    Quote Originally Posted by quietann View Post
    Pretty much spot on. Instead, we rely on dual income families.

    It seems like having a baby or three is the best way to lose one's shirt, these days. So many friends have stopped at one because that is quite literally all they can afford. (To be fair, I live in a very expensive area of the country.)
    Yes! We're in the same expensive area. We have children, but can really only afford one at a time....12 years between my two. DH also had a son from his first marriage, who was 14 when ours was born...three only children . I do not know how people do it with multiple, closely spaced, kids and both parents working, the daycare, after school, camp...bills are bank breaking. We had it pretty good, the older ones didn't need full-time supervision any more when the youngest came along and they could help out.



  13. #13
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    Quote Originally Posted by Judysmom View Post
    mvp- I haven't see that movie, but I think blaming the financial crisis on flat wages is a bit simplistic. Truly, a multiplicity of factors contributed, but it would be remiss to not look at the role of Fannie/ Freddie, the slow de-regulation of the financial industry (over the last 30 years), and the then affiliations allowed between banking and securities under the Gramm-Leach-Bliley Act.

    Absolutely.

    It wasn't the focus of this documentary, but the leitmotif of regulators being in bed with the very wealthy and Wallstreet was there.

    Actually, I found it refreshing and thought-provoking that these guys called attention to some failures of macroeconomic theory as well as the wage question.

    I'm particularly interested in the wage question because it seems to me that it's a very useful measure of our economy's health. And I like it because I think it will be a helluva long time that wages stay flat. And if that's true then I think it will change how investing works for a generation.

    To wit, you post-college adults: Does it still make sense to think of your house as a major part of your retirement plan if you *know* that the young whippersnappers graduating from college now won't have a great deal of money to pay you when you are ready to cash out of your real estate investment?
    The armchair saddler
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  14. #14
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    I think a big difference between this generation and my parent's in the 50's is that back then people tended to live within their means, and not need "The biggest, newest, best". And they paid cash for things. Today, people feel that they are owed a living that entitles them to the newest cell phones, tv's internet, etc. And they are willing to get it on credit. And they want convenience...fast food instead of making meals that can be stretched into other meals as leftovers. Kids NEED Pre K, Soccer classes, karate, dance lessons, etc.
    My niece dropped out of high school, later got a GED, has never worked a job longer than 2 months, often gets let go after 3 days, because she shows up late and has a poor work ethic, yet thinks she shouldn't have to apply for a job that pays less than 15.00 per hr. She thinks she is too good to work at a fast food restaurant. Yet when she got an ins settlement from an accident, bought a new car, new phone, NEEDS a manicure each week,etc.


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  15. #15
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    Quote Originally Posted by jetsmom View Post
    I think a big difference between this generation and my parent's in the 50's is that back then people tended to live within their means, and not need "The biggest, newest, best". And they paid cash for things. Today, people feel that they are owed a living that entitles them to the newest cell phones, tv's internet, etc. And they are willing to get it on credit. And they want convenience...fast food instead of making meals that can be stretched into other meals as leftovers. Kids NEED Pre K, Soccer classes, karate, dance lessons, etc.
    My niece dropped out of high school, later got a GED, has never worked a job longer than 2 months, often gets let go after 3 days, because she shows up late and has a poor work ethic, yet thinks she shouldn't have to apply for a job that pays less than 15.00 per hr. She thinks she is too good to work at a fast food restaurant. Yet when she got an ins settlement from an accident, bought a new car, new phone, NEEDS a manicure each week,etc.
    The "crappy attitude vs. crappy wages" question may be a chicken and egg question.

    It is true, especially in housing, that we suffer from the trickle down effect: So many people see granite counter tops and then, as an interviewee put in the film, shift their frame of reference. Others point out that as houses got bigger and more expensive, the child-ed set had to buy because quality schools are so tightly correlated with wealthy neighborhoods.

    But the other point I'd invite you to consider is that "the means" your had to live within during the 1950s were greater than they are now if you are middle class. In short, your wages did go further to buy the things you wanted/needed. Heck, you (assuming you are white and male) could have a modest but not undoable life with that GED your niece is talking about. I doubt your niece could do similar today making a career of the jobs you think are appropriate for her education and stage of the game.
    The armchair saddler
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  16. #16
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    jetsmom, I could give you a list of people I know who are like your niece, and a much, much longer list of people who are just trying to get by, and not being extravagant at all.
    You have to have experiences to gain experience.

    Proudly owned by Mythic Feronia, 1998 Morgan mare; G-dspeed Trump & Minnie; welcome 2014 Morgan filly MtnTop FlyWithMeJosephine


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  17. #17
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    Quote Originally Posted by Canaqua View Post
    Yes! We're in the same expensive area. We have children, but can really only afford one at a time....12 years between my two. DH also had a son from his first marriage, who was 14 when ours was born...three only children . I do not know how people do it with multiple, closely spaced, kids and both parents working, the daycare, after school, camp...bills are bank breaking. ...
    Sometimes, having baby #2 or #3 means mom (and it's almost always mom) quits working, because daycare alone costs more than her take-home pay. Which is a HUGE risk for a woman, because if hubby steps out on her, and she's been out of the workforce for a few years, she's basically scr*wed.
    You have to have experiences to gain experience.

    Proudly owned by Mythic Feronia, 1998 Morgan mare; G-dspeed Trump & Minnie; welcome 2014 Morgan filly MtnTop FlyWithMeJosephine


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  18. #18
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    Quote Originally Posted by Judysmom View Post
    mvp- I haven't see that movie, but I think blaming the financial crisis on flat wages is a bit simplistic. Truly, a multiplicity of factors contributed, but it would be remiss to not look at the role of Fannie/ Freddie, the slow de-regulation of the financial industry (over the last 30 years), and the then affiliations allowed between banking and securities under the Gramm-Leach-Bliley Act.
    And another interesting connection made with respect to regulation. When the Federal Housing Authority was created (1940?), it started the ball rolling on making mortgages standardized, tradeable commodities. Rather than local bankers evaluating borrowers and conditions one at a time, there became a standardizing rubric for evaluating those loans' health.

    This helped create the suburbs and white flight from the inner cities. In particular, the FHA thought a mortgage in a neighborhood a good risk if Jews and people of color weren't buying homes there. Then, when investors wanted a new place to put their money, they could invest in mortgages far from their place, those having been subjected to a universal standard of risk.

    Banks dug it too as they could sell mortgages and relend money, gathering fees as they went. After all, once a loan is made, the bank just has to wait for it to be repaid. No new sexy fees involved.

    Then the folks left in inner cities, those of non-white ethnicity and non-Christians were left underserved by the banking industry. I had never thought about this banking-related cause of housing patterns before.
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  19. #19
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    Quote Originally Posted by mvp View Post
    To wit, you post-college adults: Does it still make sense to think of your house as a major part of your retirement plan if you *know* that the young whippersnappers graduating from college now won't have a great deal of money to pay you when you are ready to cash out of your real estate investment?
    I'm a post-college adult (degree #1 finished in 2004; worked for 2 years; degree #2 finished in 2009; worked since then) with student loans and a crappy car, and I have continued riding. (So I can't whine that I live a totally frugal life.) Right now buying a house doesn't make sense. Maybe a small apartment that I could have a room-mate with. I have friends with dual incomes who have bought real estate, and almost every one of them did it with money given or lent generously by their parents.

    Most adults in the Baby Boomer generation that I have spoken with DO consider their real estate their retirement plan. But the issue, as I see it, is that people are living for a very long time these days. So many adults are selling and using the funds to travel, pay for medical care/services etc. Today's post-college adults may or may not be in a position to inherit from their Baby Boomer parents. Apparently that is going to be a big determinant of their financial picture in the future.

    That being said, estate litigation is a growing field - I am starting to focus on that, as distasteful as it sounds.
    Blugal

    You never know what kind of obsessive compulsive crazy person you are until another person imitates your behaviour at a three-day. --Gry2Yng



  20. #20
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    I read something similar to the OP documentary a while back. It also offered up an alternative theory to the always-popular idea that people today waste their money on foolish consumer items their parents and grandparents were too wise/frugal/rural/whatever to buy. According to the author, the percentage of their income that people spend on food - not a luxury - today is far higher than it was 20 years ago - and even if you immediately scream "Yeah, sure, Twinkies and splurging on steak!", it only takes a nanosecond in the grocery store to see how bad food prices are.

    *sorry for the lack of percentages, I don't remember where I read it. Probably NYT.


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