If America really wants to increase entrepreneurship, make health insurance portable and not tied to corporate America. That would encourage workers to start their own business.
Trying to tweak the immigration process in the name of "increased entrepreneurship" is often just a ruse for "open the borders!!!". Fine in and of itself if that's your beef. Just please file it right folder.
Letting Congress, political donors, H1-B employers and college administrators try and engineer the future by selecting "winners" seems like something they're going to mess up.
Better to have limited, legal only immigration based on a points system rather than turn it into a subsidy for Sand Hill Road.
I'd add two other things to fix too. The first is housing. It is not a triumph every time the cost of housing goes up. That just diverts funds that could have been spent on other things into housing, makes it considerably more expensive to move, and reduces the runway given a certain amount of funding. We would all be better off if houses were $1 each not $1m each.
The second is the pitiful broadband available all over the country. With better broadband it is far easier to take advantage of contributors all over the country. Telepresence would allow collaborators to feel as though they are in the same room, and is best served by high bandwidths. Data files keep getting larger so it helps there too. And if you are using a remote computer displaying locally then again it is best served by higher bandwidths (and lower latencies).
> "We would all be better off if houses were $1 each not $1m each."
We would? Last I checked $1 can't even build some branches and a tarp.
But to address your main point:
> "It is not a triumph every time the cost of housing goes up."
Indeed. Neither is it a triumph every time the cost of food goes up. Or the cost of gas. Or the cost of clothing. Or the cost of basic needs like the plumber or the mechanic. We would all (on a micro scale) be much better off if prices simply stayed put.
Except in an economy where all prices are fixed your entrepreneurship wouldn't go anywhere either... What you're proposing is a complete removal of the free market economy and putting vast portions of it under central planning. History has some indications as to how that works (tip: "disaster" doesn't begin to describe it).
Others have answered you far better. It should be noted that there aren't newspaper articles praising increases in the prices of food, gas or clothing, but there are for house prices. Heck increasing house prices are mentioned in the context of politicians and giving them credit for doing such good things (hence my wording of "triumph").
I don't know why you think the housing market is a free market. If it was then this headline would not be possible "Obama policies ended housing free fall". And what about all the tax credits - not a free market. And what about the government pseudo agencies (Fannie/Freddie) - again not a free market. Planning permissions and zoning regulations are also part of the discussion about a free market. Even relocation allowance being taxable or not is an issue. I'd be far happier with an actual free market rather than one favoured by tax and similar policies with the goal of increasing the prices and hence taking money away from other things. (I also believe in a separate social safety net - all residents should have shelter, food, health and justice.)
Back to my original point, which scenario do you think is better for a household taking home $4,000 a month - one where they spend $1 of that on housing or where they spend $2,500 of that on housing? I think the former would greatly benefit the country. (Obviously the exactly $1/house wouldn't happen but this is about the general order of magnitude of pricing.)
We would? Last I checked $1 can't even build some branches and a tarp.
You're ignoring, or haven't seen, the real meaning of his words.
Indeed, $1 houses will probably always be undesirable and poorly constructed. But, that doesn't mean $1 million is a reasonable amount to spend on a house.
The real problem is that housing has been turned from a durable good (like an automobile or a refrigerator) into a capital asset (like a stock or bond). So when housing prices go up, the people on the news say it's good for homeowners. However, it's only good for homeowners as a rise in stock-price is good for stockholders: the gain must be realized via an actual sale to someone who can afford this higher purchase price.
With stocks and bonds, it's easy-enough to say that there's always another investor, and if there isn't, then whoever died from lack of a share of stock? You might be totally unable to realize your financial gain, causing a stock-market bubble to pop and destroying your net worth, but only you, the asset holder, are taking any damage.
Ah, but housing is actually desired chiefly for its use-value, ie: to live in. So as the investment-ization of housing raises prices throughout whole markets at a time, it pushes out whole classes of people who just wanted somewhere to live, and increases the debt/mortgage burden for those who can still afford to buy.
So, to sum up this bit of the shpiel, a rise in housing prices only benefits society insomuch as it spurs the construction of new housing in useful locations by signaling through the market to real-estate developers to build more. When the housing supply is fixed, or growing far more slowly than the price of housing (as in places like San Francisco or Boston), a rise in housing prices is effectively just a zero-sum transfer of wealth from society in general to real-estate owners -- economic rent-extraction.
Contrast with automobiles, or refrigerators. We expect to buy them fresh and new, and watch them depreciate over time. It's entirely sensible to buy a used one, but we don't ever expect to buy a used car and sell it for more later. We do, however, expect these things to last a long time, whole decades.
It's easiest for current municipalities, in the thrall of property owners, to treat housing as a capital asset and use it to extract economic rent (income earned for ownership rather than production) from the rest of society. However, it's best for society if we manage to get housing treated as a durable good: worthy of our money, but ultimately something we produce rather than invest in.
We want housing to be like cars: expensive, but not so expensive that we feel a need to sell it off at a profit later and pervert both governments and markets to achieve that goal.
Entrepreneurs would be better off if houses were $1 each not $1m each because our wealth comes from our businesses. However, for much of the past century most of the wealth accumulated by middle class America has come from their real estate investments. It's common for an urban or suburban house bought for $50,000 in the 1960s - 1970s to now be worth $500,000. So it actually is a triumph for many Americans when housing prices go up. Until of course they rise too quickly and we have a crash.
I believe this common perception rests upon a conflation of wealth, asset, and income.
Middle class America received high incomes for a period of time, and converted a chunk of it into an asset in the form of residential housing, then thought it had substantial wealth embedded in that asset. Not so.
Residential housing can be somewhat modeled by the purchasers/debtors as a put option that the debtor's income will not fall below a certain floor (sufficient to service the note), with a 7 to 10-year expiration date (the average age of a mortgage in the US before it is extinguished). If the residential housing is purchased outright, then it is a put option on the area's prevailing wages, which in turn supports the valuation.
The housing structure and property itself is much more wage-linked asset than wealth that intrinsically generates income. It is wealth only in a derivative sense, as a high-latency indicator of prevailing wages in the area when it changes ownership.
To cheerlead for housing prices to go up as an unalloyed good is to misplace the context of why it goes up in the first place. For a certain phase of economic development, it can be good because of the cascading economic benefits that arise from the growth such pricing deltas signal. For America, at its current stage of economic, technological and demographic development, in its place in the world economy, it is at least highly debatable whether housing prices going up actually leads to much positive externality economic benefits as before.
It sounds like you're saying that since the valuation of housing is primarily based on the wages of the surrounding population it should not be considered wealth. And that we shouldn't praise rising prices because we're not sure if they have a positive effect on the overall economy. But how is this different from any other investment if stocks, businesses, bonds, currency, etc all have these same properties? Or do they not?
Also what is your definition of wealth? Even though most people don't receive income from their houses (unless it's a 2nd house), I think the intent to pass it on as an asset to their family would classify it as wealth since it would then be an abundant resource as opposed to necessary shelter.
And if we got rid of housing as an investment what does the middle class have left? I'd love to see more people get into business either as an entrepreneur or an investor the risk and upfront cash means it's not for everybody. CD's and bonds are safe but no longer give the returns they used to.
I appreciate the cordial discussion; this is a subject that in my experience touches a lot of raw nerves, so it is difficult to find people who can discuss the topics with a friendly tone.
I believe the answer to many of your questions can be addressed by seeking the answer to another question. How did the upper 10% (mostly the upper 0.1%), manage to capture over 90% of the income gains in the past few decades in America?
Consider that in a typical residential single family home in one of the hot real estate markets like SV, most of the valuation is embedded in the land and not the improvements. You can confirm this by checking the values SFH's are insured for; the insurance companies aren't stupid. If homes really appreciate in value, then their intrinsic utility modulo their location is expected to rise, and their insurance valuations to correspond. They don't.
In other words, most people aren't improving their houses to the extent justifiable by the inflation of the valuation placed upon them over time. The inflation goes into the dirt. There are two entities that mostly benefit from this: the local property tax assessment jurisdiction, and the bank. The upside for them in this arrangement is much more immediate than for the typical home debtor. A junior beneficiary is the real estate agency. Under very specific circumstances, a new home developer also stands in line to financially benefit before the home debtor does.
A home debtor's financial upside is mostly realized at the tail end of the life cycle of the transaction, when they sell (there is a significant sidebar here on whether or not selling is desirable). Most US federal tax filers take the standard deduction and even the MID doesn't benefit them.
If some outlier upgraded a house to boast its own energy production (like with solar and biogas), sewage treatment (like with constructed wetland), highly-automated integrated cycle aquaponics/vermicomposting/agriculture setup, and so on, and was able to sell a surplus production/handling capacity to their neighbors, I will grant that such a house has intrinsic wealth and its improvements justify an increasing valuation. But absent that kind of actual productive capability, most houses only sell based upon prevailing wages.
This is a very bad arrangement for the middle class because it strands a lot of capital into dirt for financialization purposes, instead of actually improving the house itself. If that stranded capital was put to use in upgrades that make a house easier to maintain, longer-lasting, more sustainable, more economical to operate, just about anything other than inflating a principal number so the returns from a percentage on that principal increase, then the middle class would actually immediately benefit from their houses.
The middle class in aggregate is not organized enough to generate on demand such an aggregate comparative advantage that they temporarily possessed about 5-6 decades ago anytime soon again, and waiting for history to hand it another such comparative advantage would be folly. My guess at a solution is for individuals within the middle class to find their own localized and organized comparative advantages.
This is kind of going far astray of HN's charter, so to pull us back towards a more HN-friendly territory, I will leave this response at the following. For the majority of actors in most real estate transactions for residential real estate for occupancy by owner, very few benefit from an increasing price that is misaligned with thirty-year sustainable prevailing income trends. In the specific HN-oriented context of technology business owners and employees, each dollar spent on residential housing not spent on improving the future valuation of employees and owners can be considered a flat, deadweight loss to the venture. I would personally much rather have my capital (of all sorts) working for me in my venture or directly improving my valuation where I have far more relative control over the outcome, than stranded in dirt and subject to the capriciousness of prevailing wages where I have far less relative control.
"One of the most important impetuses to the rise of financialization was the end of the post-World War Two Bretton Woods system of fixed international exchange rates and the dollar peg to gold in August 1971."
Healthcare access is keeping a huge important demographic out of the startup scene: older, experienced engineers with domain specific knowledge.
A startup I worked for was founded by an electrical engineer with a PhD and 20 years of experience in radio engineering. He had three kids, but was lucky to have a wife whose job provided health insurance. Many potential founders aren't so lucky. And I think that fact is reflected in today's startup scene. A lot of innovation in areas amenable to being worked on by 22 year old fresh grads, but very little in "hard" areas of engineering. Projects like Tesla Motors are an unusual exception, and those seem mostly to be second-projects for successful founders.
The fundamental problem is not that insurance is tied to employment, but that you need health insurance in the first place because healthcare is so ridiculously expensive. Make it more affordable and the lack of health insurance stops being such a big problem.
Of course some things are expensive - but there are still efficiency savings to be made; Americans on average spend more for the same health outcomes.
For example, American medicine has a culture of ordering lots of tests based on legal, rather than scientific guidance. Consider the Merenstein PSA case [1] for an example.
Increasing efficiency and driving down average healthcare costs ought to reduce insurance costs.
Still, someone will end up having to pay for a month in the ICU.
Health insurance is a way to share the risks so that nobody has to die just because they can't afford treatment. The odds I'll need expensive medical care increase every year.
That doesn't work. Health care is inherently expensive. If you get a serious condition and need years of treatment, then it has to be paid for. But most people don't. This is why the insurance model exists -- the majority of people who aren't (yet) sick pay for the care of those who are.
You can't wave a magic wand and make major surgery or chemotherapy affordable. All real world solutions here are collective, they differ only in whether access is fair and what entity (public or private) does the collection and distribution.
Make health insurance universal and put downward pressure on the insurers' costs. The insurers then bargain down the health-care costs.
That's what we do over here, and the result is that doctors here complain about how hard they had to work to become merely upper-middle class rather than outright wealthy.
How about more doctors as well? - more supply to lower prices. I'd be fine with doctors who are educated in more crowded Medical Schools... for the most part, I can diagnose myself.
I think this is the best approach at the moment. No one can wave a wand and get rid of the expense of many cutting-edge treatments, and neither do we want to do away with all the expensive cutting-edge treatments in an effort to return to "simpler times" when life expectancy was lower. This is why we are trying to build solutions which reduce the wasteful inefficiencies present in America's healthcare system.
Trying to tweak the immigration process in the name of "increased entrepreneurship" is often just a ruse for "open the borders!!!". Fine in and of itself if that's your beef. Just please file it right folder.
Letting Congress, political donors, H1-B employers and college administrators try and engineer the future by selecting "winners" seems like something they're going to mess up.
Better to have limited, legal only immigration based on a points system rather than turn it into a subsidy for Sand Hill Road.