You should buy my new e-book original (Amazon / iTunes / Barnes & Noble / Google / You Do Not Need A Kindle) The Rent Is Too Damn High and read it today. It’s about the high cost of housing in America’s coastal metropolises and downtowns everywhere, but more broadly it’s about the crucial role that dense urban development and barriers to its creation matter in a service economy. If you’ve ever read me on housing and wondered “why does this guy think this is so important” or read me on manufacturing and thought “yeah, but what’s his answer” then you will find the answers herein. Andrew Chesley has been reading his copy and liked this line:
Lots of people buy RVs, but nobody “invests” in them. And what’s a house but a giant RV with no wheels?
As I said before, one of my key goals with this book was to write something that would not only be cheap to buy (just $3.99!) but also short. That means I didn’t pad it out with a lot of to-be-sures and efforts to guess what objections people will have. Better, I thought, to release a detailed-but-not-tedious version of my ideas into the world and then see what people see. So if anyone reads it and has questions, objections, thoughts, ideas, etc. please do email me about them or send links to your own blog where you’ve written about it. I’d love to continue the discussion and follow whatever points people think are interesting or flat-out wrong or in need of elaboration.
Here’s a selection on inequality and education:
Return again to the idea that $250,000 doesn’t buy you as much in Manhattan as it does in Fargo. Northwestern University Professor Robert Gordon cited much data along these lines in a paper asking “Has The Rise in American Inequality Been Exaggerated?” answering, as you can imagine from the title, that it has been. Many observers have noted that the so-called “college wage premium”—the gap between what college graduates and those without college degrees earn—has increased over the past thirty or forty years. This increases income inequality. Gordon argues that the real increase in inequality hasn’t been as large as it first appears, noting research from Enrico Moretti which concludes that “fully two-thirds of the previously documented increase in the return to college between 1980 and 2000 vanishes when he corrects for differences in the cost of living across metropolitan areas.”
This finding is important but Gordon is, I think, misinterpreting it. The measured inequality in earnings may vanish when you control for cost of living, but the actual money doesn’t vanish. It’s rent. Imagine two tenant farmers, one of whom sells crops worth twice as much as the other. At first glance, inequality seems high. At second glance, it turns out that the “richer” farmer’s earnings are mostly vanishing in the form of higher rent. That’s not an optimistic story about inequality being lower than it seems. It’s Ricardo’s story about diminishing returns, the limits to economic growth, and an increasingly unequal society in which the rewards of human labor are going to landowners rather than working people.
I try to avoid saying that any one thing is the reason for wage stagnation, sluggish productivity growth, underinvestment in human capital, etc., but the point is that the consequences of sky-high real estate prices are quite broad notwithstanding the fact that the portion of the American land mass that’s affected is relatively small.