Let me try to rephrase me previous post to make the point more clearly, and -taking off my William Jennings Bryan hat- with less populist righteousness. Cost-of-living measures attempt to look at quality adjusted price changes. When the rents in a given city increase, the housing portion of the CPI goes up and by that measure so has the cost of living. But this increase can simply reflect the positive amenity value of the city going up; less crime, better parks, etc. If you really wanted to do quality-controlled measure of cost-of-living you would control for the fact that higher priced cities reflect higher amenity values.
So when people say well $250k isn’t a lot when you look at the cost of living in that area, that higher cost of living does not reflect complete controls for quality but in fact measures the higher amenity value of the city. This is just consuming a better, and so more expensive good.
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Saturday ~ September 11th, 2010 at 10:30 am
Stephan
I very much prefer the original phrasing of your post: “Oh, and saying you don’t feel rich when you make $250,000 a year doesn’t just not make you less rich, it also makes you kind of an asshole.”
Saturday ~ September 11th, 2010 at 11:12 am
geaugailluminati
ditto, stephen…
Saturday ~ September 11th, 2010 at 3:13 pm
Johnnie Linn
Since commuting costs generate place utility, could the amenity value of land rents be isolated by subtracting commuting costs?
Saturday ~ September 11th, 2010 at 3:29 pm
Stephan
Posts like this make me mad. No wonder economics has such a bad rap with common folks. Every economists looks like a sociopath.
Saturday ~ September 11th, 2010 at 4:32 pm
Johnnie Linn
Stephan, why the anger? I was just wondering if there was a way of measuring these amenities we were talking about. I was using the word “isolate” to mean measure, not to make a target of.
Saturday ~ September 11th, 2010 at 3:28 pm
jazzbumpa
OK. But in your original post you also said this:
In fact in most cities there are neighborhoods with really expensive homes less than a mile from neighborhoods with really cheap homes.
Which seems to be strongly at variance with your amenity-value-of-the-city argument.
And the clever thing to do, then, is live for cheap a mile away, and ride your bike in?
I guess I’m still missing your point. You message seems a bit mixed.
Cheers!
JzB who does not qualify for asshole status
Saturday ~ September 11th, 2010 at 9:08 pm
Duke
It’s strikes me as, um, irrelevant whether *you* think that making $250k/yr makes *someone else* “rich.” The state of richness is purely subjective, which is why you can easily find a variety of opinions about what constitutes it; many declaring that the truly rich have no money at all, while others would not consider themselves or others rich unless they had tens-of-millions or billions of dollars.
Sunday ~ September 12th, 2010 at 12:55 pm
Seth
If we’re discussing this 250k threshold in order to think about tax *incidence* — ie. who will wind up paying the tax dollars — then it’s politically important to distinguish between couples “on the make” who earned $250,001 this year for the first time in their lives by dint of hard work at the things we’re constantly told we are supposed to be doing (studying, working, etc.) and who continue servicing student loans vs. Paris Hiltons who don’t even have to get out of bed in the morning, but can order room service from $5k/night hotel suites while ‘earning’ more in interest and dividends than most of us earn in several years.
The point is not that the two-earner couple can’t possibly pay a bit more — they surely could without the world coming to an end. The point is that political power flows from ASSETS, not from INCOME. If you want smart, hard working people to identify with your critique of “selfish rich” who aren’t really contributing nearly enough to society to justify according them privileges, then you’ve got to focus on value judgments like the way we tax earned income versus passive income.
Bush’s most striking change to tax policy wasn’t the 10-year period of lower rates, but the preferential treatment of DIVIDEND income. In Bush’s world, it is more Godly to be paid income on stock daddy gave you than it is to go to work in the morning. THAT is the message which promotes escalating inequality.
Tuesday ~ September 14th, 2010 at 8:13 pm
nyd
“this increase can simply reflect the positive amenity value of the city going up; less crime, better parks, etc. ”
I guess you haven’t been visiting NY very often. I understand – you think it’s full of assholes.
Friday ~ October 1st, 2010 at 9:52 am
There’s more than one way to skin a cat (and then measure cost-of-living for it) « Modeled Behavior
[...] are just some of the complications that naturally come with price indexes. For instance, as I’ve argued before, it’s probably impossible to disentangle house price inflation from amenity and therefore [...]
Friday ~ October 1st, 2010 at 9:54 am
There’s more than one way to skin a cat (and then measure it’s cost-of-living) « Modeled Behavior
[...] are just some of the complications that naturally come with price indexes. For instance, as I’ve argued before, it’s probably impossible to disentangle house price inflation from amenity and therefore [...]