MIT graduate student says income inequality is actually about housing | Hacker News Reader

MIT graduate student says income inequality is actually about housing

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90 pointsadidash99 comments

He's right about housing being the #1 issue, but it's hardly the only problem created by America's ruling class.

I bet he's entirely blind to the fact that the only reason his paper is getting so much attention is that he's an "MIT graduate".

Attending an elite school like MIT is not even a 1%'er thing, it's a 0.1% thing.

There's probably some poor person, who went to a shitty college, that's even smarter and has a better theory but we'll never hear about it. Think about their career trajectories and the inequality of their outcomes.

Of course the 99.9% contains almost all of the smartest people, but they get almost none of the opportunity. This elitism is absolutely pervasive in American society.

Microsoft: "Harvard dropout inks deal with IBM"

Google: "A new search engine from Stanford."

Facebook: "The exclusive Harvard social network"

Dropbox: "Google Drive killer coming from MIT Startup".

This paper: "MIT graduate student says income inequality is actually about housing"

Something like 95%+ of people that get into elite schools graduate. It's not hard to graduate, it's just hard to get in, and the test for getting in is so gameable and rigged that almost no one pretends it isn't anymore.

As long as the rich can spend fortunes buying elite credentials for their children, we're going to have a ruling class and a worker class.

Lots of assertions and anger, not much substance. About the only thing I get from your comment is you have great antipathy for the people on top.

My personal observation is that there is a lot of close, personal interaction at top tier schools. So, while this isn't entirely wrong, its missing a useful observation. Academics working in a curated environment encounter the best ideas and encounter less 'noise' from bad ideas. This isn't a problem that's easy to solve, although technology is slowly chipping away at it. Currently there's not substitute though, for being in the same room with Picketty and other smart people, which probably happened when Picketty visited MIT after the publication of Capital in the 20th Century.

Generally speaking, ad-hominem is best served as a side-dish. Or not at all.

It's easy to take nothing from the thoughts of another when you yourself have nothing to give.

I don't care about the distinction between classes.

I care more about stress, how many months to go before I go broke, if I can get a job or not, or if I can keep a job, or what is my working condition, how many vacation days I get off, and so on.

How lazy are the 1%ers don't concern me.

That's why those schools all require a copy of your parents' paystubs as part of their applications.

To be fair, they require proof of income for financial aid, and your ability to pay for college is certainly a big factor. Most colleges (particularly the elite colleges) wouldn't want to enroll students who don't graduate.

https://www.edvisors.com/plan-for-college/college-admissions...

Including: Harvard MIT Stanford Princeton Columbia

etc.

"And while many of the wealthiest colleges offer need-based scholarships for their poorest students, they enroll a relatively small percentage of low-income students compared to their less wealthy peers. The 10 wealthiest private colleges hold cash and endowments that, combined, total nearly $180 billion. A median 16 percent of their 2012-13 enrollees received Pell Grants, a form of federal aid only available to low-income students, according to an analysis of federal data."

“We are spending the most money as a society educating the wealthiest people.” -- Ronald Ehrenberg, director of the Cornell University Higher Education Research Institute

https://www.insidehighered.com/news/2015/05/21/rich-universi...

http://money.cnn.com/2015/04/28/pf/college/ivy-league-low-in...

https://www.bostonglobe.com/magazine/2015/04/09/what-like-po...

http://www.forbes.com/sites/maggiemcgrath/2013/11/27/the-cha...

http://www.cnbc.com/2015/09/16/top-1-of-harvard-grads-richer...

You're making a tangential point about representation of various socioeconomic classes in admissions. This has more to do with intrinsic correlations in academic performance then biased admissions process.

"A median 16 percent of their 2012-13 enrollees received Pell Grants, a form of federal aid only available to low-income students, according to an analysis of federal data."

What's low-income? If you define low-income as the bottom 20% of income earnings, that would be very close to proportional representation. That's outstanding, given all the confounding factors connecting performance and income.

29% of incoming Harvard freshman (class of 2017) reported family incomes of more than $250,000 / year.

- http://www.thecrimson.com/article/2013/9/4/freshman-survey-a...

less than 2% of families earn more than $250,000 / year.

- http://www.politifact.com/florida/statements/2012/apr/10/bar...

Again, this is a tangential point about how upper socioeconomic classes can better prepare their children for college admissions. The obvious solution is to invest in the public education system, but that's not likely to happen anytime soon (in America anyway, due to it being within the purview of individual states).

The point I'm making is that inequality in colleges is due to better preparation by higher-earning families and not some conspiratorial old-boys club. The hypothetical "some poor person, who went to a shitty college, that's even smarter" the original commenter referred to would have had as fair a shot as any of their caliber to get into the top schools. It's the poor precocious 5 year old that doesn't get read to every night and falls behind because both parents are working late at minimum wage jobs that defines the difficulty of escaping poverty through education. Top schools get to the table wayyy too late to heap the blame on them.

So how do you explain the discrimination against Asian in elite university admissions?

It seems deeply unlikely to me that children of the 0.1% make up more than 5% of MIT.

This comment rings very true for me. I am 30 years old and come from a solidly middle class background - mother was a high school teacher and my father was an airline pilot. I grew up in the Hamptons (Southampton to be exact) and went to a private school. After that I went to U Penn. I ended up dropping out in my sophomore year. I spent the next couple years doing literally nothing productive. I could best be described as very self destructive in those years.

Now, I'm 30. I have a very well paying job. I have quite a bit of money in my bank account. Things are good for me. Much better than some people I know who started off with less than me and worked twice as hard. I cant help but think that my own status in life can mostly be attributed to the access I had to people of power and wealth. Though my family could hardly be considered part of the 1% I did manage to rub shoulders with enough of them that I have received some residual benefit. School was a huge part of that.

It's a weird thing. I sometimes feel guilty about it. Particularly when I meet people who are smarter or harder working than I am.

It's worth pointing out the silliness of the title ("well, if an MIT grad student claims things are so, who am I to suggest otherwise?"). But it isn't so difficult as you seem to think for a somewhat talented and hard-working student of the middle class to be accepted to an elite school. I think there are many here who can attest to this. The wealthy will always have an advantage, but it isn't as though it's easy to literally buy admission. The sheer number of do-nothing rich kids who never make the cut is evidence of this.

Considering that almost half of Harvard students come from families in the top 4% by income, I'd say the rich have a pretty big advantage.

Harvard is basically free for low income students, yet they make up a very small percentage of total students.

One thing they could do is to increase their outreach to lower income students. When I was in high school, I had no idea that Harvard was affordable for me. Looking back, I probably had the SAT scores and grades to get in, but I never even considered it as a possibility.

http://www.thecrimson.com/article/2012/1/26/diversity-lack-f...

I think I understated the advantage the wealthy have while making the point that the parent comment had overstated it. That said, I'm embarrassed to admit my opinion was mostly informed by anecdotal evidence, and your example with Harvard is certainly better than that. The "fact sheet" in the article is dead, but the conclusion seems reasonable. I'd hoped my comment might serve as some encouragement of the sort outreach might, not as a justification for the current state of economic diversity at elite schools.

> Something like 95%+ of people that get into elite schools graduate. It's not hard to graduate, it's just hard to get in

As someone from a middle class background who went to a top-tier school, you have no idea what you are talking about. Sure, there were/are plenty of humanities majors who had relatively light workloads, but as an engineering major I worked my ass off 8 days/week.

Compare your struggle as a well off person attending an elite university to what your poor counterparts were doing at the same time. They were cleaning bathrooms, waiting for buses in the cold, dealing with criminals in bad neighborhoods, and living in apartments with cockroaches.

While they worried about buying food and paying the rent, you "worked your ass off" doing homework in total safety and comfort.

But I was wrong. Poor kids who get into MIT ("Recipients of a Federal Pell Grant") only graduate at a rate of 87%. It's just the wealthy students with such incredibly high graduation rates.

http://web.mit.edu/ir/pop/students/graduation_rates.html

Poor kids don't make it to top tier schools. It's hard to have good "intangibles" when you have to work while going to high school to pay for your own room and board. Maybe you can get a 4.0 and good SAT scores, but so can a 50,000 other teenagers.

-> It's hard to have good "intangibles" when you have to work while going to high school to pay for your own room and board.

OTOH, that sounds like a pretty darn good "intangible" to me and would certainly warrant further consideration in my book.

I agree, but even if you considered that a good intangible, there are many students who have to work to support themselves and their families. By definition, the things the 1% do to be impressive will always be more unusual and stand out. You pilot your own hot air balloon, are fluent in Farsi, and put in 500 hours helping the underprivileged(a) write resumes? Impressive.

(a) If you are underprivileged, you might have time to volunteer somewhere, but typically supporting your family doesn't count as helping the underprivileged. Changing grandma's bedpans isn't volunteer work, and it's kind of exploitative to make that a major portion of your college application.

> Compare your struggle as a well off person attending an elite university to what your poor counterparts were doing at the same time. They were cleaning bathrooms, waiting for buses in the cold, dealing with criminals in bad neighborhoods, and living in apartments with cockroaches.

No, nobody at my school was doing this[1]. Top-tier schools leverage their massive endowments to provide substantial need-based financial aid. Basically their mission is to ensure, if you get in, that there is absolutely no financial friction to attend. In one high-profile instance Princeton University provided a full scholarship entirely from its own endowment to a formerly homeless undocumented immigrant who went on to become his class's salutatorian[2].

[1] except the cockroaches but that applied to everyone as many of the dorms were quite old.

[2] https://en.wikipedia.org/wiki/Dan-el_Padilla_Peralta

Historically places like Yale, MIT, Princeton, etc. had what are called Gentleman Cs. George W. Bush is a famous recipient of this. One can absolutely work hard and excel at MIT, Yale, etc. But also can get (or used to?) Gentleman Cs and still have access to great opportunities after school. Those places have much higher networking effects than Mid Tier State U.

I don't know that this is bad as such but the high end schools aren't exactly very good about educating large numbers of people. That is, very large endowments per student. Large state universities do much better in this area. Also large state universities do a better job of recruiting students outside of the top 0.1% of society.

I believe you when you say you worked your ass off- but did you have to work a full time job while you were doing it? That's what I was doing. It was mostly my own fault, in my case. I went to school later, as an adult, and had to pay my own way due to misspent time as a youth. But for many people the option of not working is just not an option.

>Something like 95%+ of people that get into elite schools graduate.

>It's not hard to graduate, it's just hard to get in,

These two things are related

>Attending an elite school like MIT is not even a 1%'er thing, it's a 0.1% thing.

No. If you're insanely hard working, passably smart and somehow lucky, you can get in. I knew someone like that - and she reported that she was one of the dumber people there. If 0.1% have their kids there, these are not slacking at all.

> test for getting in is so gameable and rigged that almost no one pretends it isn't anymore.

SAT tests are rigged?

You seem to be confusing graduate school with undergraduate school. None of the grad students I work with at MIT have rich families. Many come from very non-elite colleges. They're smart and hard-working, much like grad students elsewhere. We get paid below national average salaries to work 60 hour weeks on technically challenging projects.

That said, MIT has an unfair reputation of containing geniuses. Elite schools do have a greater impact, but only the true theories/discoveries stand the test of time.

Housing functions like a reverse auction. In the most HCOL areas, demand usually outstrips supply to such an extent that prices float up to a maximum ceiling (40-50% of avg income IIRC). Above which people's checks would bounce. That's NYC and SF. The average person seems to simply pay ''as much as they can afford'' for housing. In LCOL areas, it's a function of land and materials prices, and in some super LCOL areas, where demand is flat or shrinking, prices can even fall below this.

As most/all other areas of life experience deflation (iphones, education, food, travel, entertainment), HCOL residents will reallocate the savings into housing, pushing the ceiling and housing prices up. Even despite attempts to increase supply, I think. The best solution is to redesign the economy to enable and incentivize the relocation of young people throughout lower tier cities and rural areas in the US.

Or we could have saner zoning laws that provide for more housing. The most expensive metros nearly always have lots of restrictions on land use that prevent higher-density developments. Just look at SF, whose residential areas should all be zoned to allow buildings at least up to 5 or 6 stories: http://www.sf-planning.org/?page=1569

Of course, booming cities will nearly always have somewhat high rent prices, but they're way out of whack in some areas.

SF yes I totally agree with you. But what about NYC specifically Manhattan? How do you make it significantly more dense than it already is?

The best answer for NYC is probably to aggressively gentrify as many neighborhoods as possible, which means (bluntly) displacing most lower income residents and moving in bicycle riding organic jam loving armies of hipsters. This comes with a lot of challenges. The biggest pressure release valve for Manhattan real estate prices has been the very successful gentrification of Brooklyn (and a few years behind is Oakland filling the same role for SF).

So, what is the most economical skycrapper that they can build in NYC? 20 stories tall? Ten stories tall?

How many buildings are at the economical height or taller? How many are lower?

Have you seen NYC? 20 stories is a small walk-up these days.

I've lived in and around NYC my entire life, and I always thought that the shape of the skyline was governed mostly by the underlying granite: lots of support for huge buildings downtown and midtown, not so much everywhere else. But in the past five years or so very tall buildings have been popping up all over. I think it won't be long until you'll have trouble finding the Empire State Building lost amongst it's bigger neighbors.

Most of Manhattan isn't actually all that tall. Just go over to Google Maps and look at it in the tilted 3D view: https://www.google.com/maps/place/New+York,+NY/@40.6654432,-...

The south end and midtown are tall, the rest is not. You can stuff way more density into Manhattan than currently exists.

And Brooklyn is shorter yet, of course. Could put way more tall buildings into Brooklyn if you wanted to.

> The best answer for NYC is probably to aggressively gentrify as many neighborhoods as possible, which means (bluntly) displacing most lower income residents and moving in bicycle riding organic jam loving armies of hipsters.

Where exactly will you find these armies of upper-middle class people? Wages and social mobility continue to decline.

http://www.epi.org/publication/even-the-most-educated-worker...

http://www.theatlantic.com/business/archive/2015/07/america-...

That's one advantage that urban planners have. These people don't need to be upper-middle class by income. They just need to be trendy culture-wise and support the development of safe, fun neighborhoods. I have a friend in Brooklyn who pays $500/month to share a large 1 bedroom apartment with 2 other guys (all in the same room). He works at a bicycle repair shop and participates in a ton of neighborhood activities. He isn't upper middle class, but he is promoting gentrification of the neighborhood. (Unfortunately for him, that gentrification will eventually force him out unless he improves his income or purchases property.)

> How do you make it significantly more dense than it already is?

Better transportation in outer burroughs will expand the supply of housing within a reasonable commute distance.

Ideas:

* Invest more in expanding public transportation. More express buses, local buses that run more frequently and on time.

* Deregulate private transportation (taxis, private buses).

* Incentivize commutes during off-peak hours.

* Encourage working remotely or flexible work schedules.

* Find ways to get tractor-trailers out of dense areas.

* Actually start enforcing double-parking and jaywalking laws (this one even pays for itself).

* Encourage business development away from already-congested areas

Rebuilds, upzoning, microapartments, public housing. The list is long:

https://medium.com/@opirmusic/fixing-the-nyc-rent-crisis-or-...

Read Matt Yglesias' "Rent is Too Damn High" book if you want a more thorough treatment the topic.

> The average person seems to simply pay ''as much as they can afford'' for housing.

And the government has made the problem worse, by skewing the mortgage market with ultra-low interest rates and thereby making "as much as they can afford" significantly larger.

> The best solution is to redesign the economy

No, the best solution is to stop messing with it. If long-term interest rates were set by a free market, significantly fewer people would be able to buy homes, or at least homes of the size they're buying now in the areas they're buying now. So they would either choose to live in less populated areas, or they would choose smaller homes, or they would rent instead of buy. All of those things would reduce the average cost of housing compared to other things.

The people getting priced out of a housing market are not choosing to live somewhere/somehow else. They're being forced out by the wealthier people who are bidding prices up.

For these same people, moving to less populated areas is probably not an option because they can't afford to commute long distance to their job(s), and don't have the kind of job mobility enjoyed by wealthier people.

They probably can't choose a smaller home, because the small home prices get bid up along with the other homes. (I speak from experience; I recently moved out of a 'starter' size home in the 'bad' end of town, where the houses cost $300K - $500K even over the past few years.)

Renting instead of buying might be an option, but even there prices get bid up in desirable locations.

Where do these people actually wind up? In undesirable locations: places with higher crime rates, more obvious poverty, worse public services, etc. And for most of them, and their children who have to be raised in that environment, it becomes a trap that's very difficult to escape.

> They're being forced out by the wealthier people who are bidding prices up.

"Wealthier" in the sense of "can qualify for a larger mortgage". But the ability to qualify is skewed by the fact that the money that is borrowed is printed on the spot when the mortgage is created; it doesn't come from actual savings. If that didn't happen--if the money loaned out for mortgages had to come from actual savings--the market for mortgages would look very different, which means the population of people who were looking to buy homes would look very different.

And not just that everybody would have less buying power across the board--the people who would qualify for mortgages in a free market would have different financial habits. For one thing, they would have no incentive whatever to use "creative" loan vehicles to buy more home than they could actually afford--which is what many of the "wealthier" people who are bidding prices up in the current market are doing.

> They probably can't choose a smaller home, because the small home prices get bid up along with the other homes.

But a smaller home in a given area still costs less than a larger home in the same area. Furthermore, in a free market for loans, where the government wasn't printing money to finance them, smaller homes would probably be more common, compared to larger homes, than they are now, which would reduce the price of smaller homes relative to larger homes, over and above the general price reduction that would take place if the government stopped printing money for mortgages.

> Where do these people actually wind up? In undesirable locations: places with higher crime rates, more obvious poverty, worse public services, etc.

This is another example of government failure. If the government spent its resources on what it was supposed to be doing--ensuring that everyone's rights were respected--instead of trying to run expensive and damaging experiments with the economy, there would be far fewer locations that were undesirable in these respects.

> And the government has made the problem worse, by skewing the mortgage market with ultra-low interest rates and thereby making "as much as they can afford" significantly larger.

In effect a transfer of taxpayer money to developers and mortgage originators.

> No, the best solution is to stop messing with it. If long-term interest rates were set by a free market, significantly fewer people would be able to buy homes, or at least homes of the size they're buying now in the areas they're buying now.

That would only work if you also abolish laws regulating the supply and liquidity of the land and housing market, like zoning laws and restrictions on property taxes (such as California's infamous Proposition 13: https://en.wikipedia.org/wiki/California_Proposition_13_%281...).

Without also freeing the supply side of the market, a lower home ownership rate will just be a forced transfer of wealth to rental property landlords.

Zoning laws and sales disincentives are pushing land values so high in major metropolitan areas that it is commercially unfeasible for developers to significantly increase density or supply. They are effectively restricted to building medium-density luxury housing to make a projected profit. Unfortunately between the shrinking middle class, decreasing social mobility, and coming self-driving car commuting patterns this is just inflating another real estate bubble.

Education is experiencing deflation? Not in my world, it's not.

(If by "education" you mean "learning something", then yes, I agree with you. If you mean "college degree", though, not so much.)

Not yet, but it's on the horizon. The current model of student debt for a degree which conveys little to no advantage in the job market is unsustainable. Once it starts to turn the deflation will be rapid and impactful. Not only does higher education employ lots of people (funded by student debt) but also keeps millions of hard working 18-25 year olds who would otherwise need jobs, out of the work force.

"The current model of student debt for a degree which conveys little to no advantage in the job market is unsustainable."

I don't mean to be a smartass, but https://en.wikipedia.org/wiki/Conspicuous_consumption

Harvard and MIT - sure. But what about the millions of people who went to schools that no one has ever heard of, or for-profit schools like University of Phoenix?

In addition to that. Do you see the broad concept of conspicuous consumption increasing or decreasing? All of the signals I see show it decreasing thanks to the great recession and the new generation coming into the market. Dave Ramsey, MMM, et al have started to make it trendy to be frugal. Once it starts to become trendy to go to vocational training or straight into the job market a cultural shift can happen quickly.

Because of its combination of white collar income/career attributes and vocational like self-training nature, I think Computer Science will be at the forefront of this trend. Note how few people advise ''go back to school and get a degree in computer science'' and rather ''learn how to code'' (boot camp, self taught, however possible).

Social housing would end the madness. In Hong Kong they merely had to announce that they were building 50,000 new units and prices plunged overnight.

New York and SF could do that tomorrow.

Raising property taxes would also help drag down the prices to saner levels and ensure that this rich source of rent ends up distributed fairly rather than coagulating in the pockets of the 0.01%.

Pardon my ignorance, but wouldn't higher property taxes further increase rents and housing prices? I would instinctively assume the increased costs would be passed on to buyers and tenants.

Normally yes but not in areas where prices are already at the maximum ceiling of what people can afford. Raising property taxes shifts net income from the property owner to the taxing authorities. This reduces net income (yield or CAP rate) from the property and drops the price accordingly as investors sell investment properties and migrate their capital to other assets. Now, there's no free lunch. You end up hurting both wealthy investors and poor/middle class mortgaged-to-the-hilt homeowners who barely squeezed into the market. As we saw in 2008, bad things happen when a large % of mortgages plunge under water.

> You end up hurting both wealthy investors and poor/middle class mortgaged-to-the-hilt homeowners who barely squeezed into the market.

You don't necessarily hurt anyone, you just lower the attractiveness of real estate as an asset class. The yield chasers will move their money into a more attractive asset class, the value investors who buy real estate for price stability or tax reasons would stick around with lower yields.

>You end up hurting both wealthy investors and poor/middle class mortgaged-to-the-hilt homeowners

Yet you'd be helping everybody else who didn't take on irresponsibly large debts.

Pardon my ignorance, but property owners have the most fixed supply possible - they're selling house space, it's literally nailed to the ground. To paraphrase the root comment, the prices are set by how much tenants are willing/able to pay. Higher property taxes mean investors take less profit from housing, which means it takes longer for them to save enough rent money to buy more properties to lease. And therefore less money with which to drive up the bidding war prices.

Is that a tax on _property_ or a tax on _land_?

My city has several blocks of its downtown used for surface parking lots. If a lot with a building paid the same tax as the parking lot, how long do you suppose it would take for the parking lots to turn into skyscrapers with parking garages?

Of course, this would also force people to sell their property to pay the tax.

Rents would stay the same. The supply of housing will not have changed and neither will the demand.

House prices would go down though - a house with a high recurring tax is much a less attractive investment.

Singapore has social housing as well and it works well.

This seems like an odd way to think about the problem to me.

Housing is, to a first order approximation, the only thing I spend money on.

Savings are framed in terms of 'how long could I afford the rent', or 'how long before I could pay off a mortgage'.

Everything else is.. well, fluff. I would be happy to read books for a lifetime, I don't need 'fancy' food, but a stable home is pretty important to me.

A 1 bedroom apartment with a reasonable commute to my job costs £10000pa as a lower bound. Add on the UK's equivalent of property tax and you're at 11000.

Food? 1-2K. Gas, electricity, water, internet, cell phone? 1K, maybe 1.5K. So a combined upper bound of 3500.

The only place in which those costs would get to 100% of housing would be in a depressed economic area. One in which most would struggle to find a job that paid much more than minimum wage.

So the argument should be flipped, I think. Income inequality only actually matters at all because people have to buy housing. If everyone had a stable home then it would matter far less that other people could afford more toys. It's an issue because having a stable base is such a useful thing - without that problem, I don't think it matters that some are rich and some are poor, not really anyway.

when a bunch of people have a "stable home" provided by somebody else, it results in the extra time on the hands of surprising few to absolutely destroy the place for everyone. Because value to people. See housing projects across the United States for more on that.

Oh yeah the added bonus, when the place does get destroyed the inhabitants find ways to put the blame on the providers to usurp more while taking less responsibility or ownership over the situation.

The story of public housing in the United States is quite a bit more nuanced then occupants "biting the hand that feeds," so to speak. There's a history of disinvestment and bias in the system that has had lasting repercussions through the present day, up to and including decaying conditions.

Some reading:

http://archive.law.fsu.edu/journals/landuse/Vol141/seit.htm

https://books.google.com/books?id=jjX2N9HgmWQC&lpg=PA1&ots=0...

Also, check out Show Me a Hero[0] or the HBO miniseries based on it, which is excellent and informative while doing a better job than any book I've read at evoking empathy with people trying to find a better place to live. Although, I'm not sure if it's unfair to the existing homeowners, or if they deserve their portrayal.

[0]: http://www.amazon.com/Show-Me-Hero-Lisa-Belkin/dp/0316088641

I'm curious if there are any solid solutions for solving this problem. i.e. how can you provide free housing that people take pride in and care for?

This strikes me as an equivalent formulation of the argument rather than a flipped version.

> I don't need 'fancy' food, but a stable home is pretty important to me.

Health and dental care probably rank up there too...dentistry can be quite expensive when you finally need it, and is definitely not "fluff"

This reminds me of an unfortunate part of history.

When Roosevelt signed the G.I. Bill in 1944, a lot of soldiers who returned from the war were able to claim benefits in the form of tuition assistance, low-cost mortgages and low-interest loans. Soldiers coming home from overseas had the choice of pursuing higher education, purchasing a home, or starting a business. Another result of the G.I. Bill were Levittowns, newly sprouting suburban neighborhoods offering low-cost housing to these returned soldiers ($8,000 in 1950, approximately $80,000 in 2015). With the help of the expanding auto industry and the joining of highways, people began to move out into the suburbs and build new communities.

The unfortunate bit is that while the G.I. Bill didn't advocate discrimination, it was interpreted differently for people according to their race. For example; of the 67,000 mortgages insured by the G.I. Bill, fewer than 100 were taken out by non-whites.

Now, the heavily-inflated value (example; houses in Levittown, NY are selling for approximately $350,000) of these post-WWII homes are passed down and borrowed against or leveraged to send the grandchildren of those veterans to private schools and expensive universities, while many black families struggle financially in urban sectors. The racial discrimination of WWII veterans has been cited as a reason for the increased economic inequality and racial tensions being experienced today in the United States.

Do you have any proof to back up your assertions?

As the grandson of a WWII veteran, they ring awfully hollow to me. I assure you we did not live high off the inheritance of his mobile home when he passed on.

Sure thing.

The $8,000 figure for the Levitt & Sons housing can be seen on this ad: http://explorepahistory.com/displayimage.php?imgId=1-2-16F7

The $80,000 figure was from http://www.dollartimes.com/inflation/inflation.php?amount=80... . I can't vouch for its accuracy, though.

Current prices for ranch-style homes in Levittown, PA: http://www.trulia.com/PA/Levittown/

67,000 mortgages insured, fewer than 100 to non-whites: A book citation from Wikipedia; https://en.wikipedia.org/wiki/African_Americans_and_the_G.I....

I didn't really explain why this figure is so astonishing, though. According to http://www.shsu.edu/~his_ncp/AfrAmer.html black people comprised around 8-9% of the US military. With that figure in mind, an expected number of G.I. Bill insured loans to black veterans should be around 5,300, not under 100.

Someone's master's thesis on how the Post-WWII G.I. Bill has shaped modern homeownership: http://www.academia.edu/8352751/The_Homeownership_Gap_How_th...

I don't dispute your inflation figures.

But I do find fault with your conclusion. Where is the proof that the children and grandchildren of WWII vets are living these upper class lives of private schools and expensive universities?

Here's a selection starting from Page 75 of the above-linked Master's Thesis, along with her citations for the statements.

P.76: "Homeownership has numerous positive effects on children" -> Dietz and Haurin 2003

P.77: "homeowners can borrow against their equity at favorable interest rates in order to make investment opportunities that require substantial amounts of money, such as home improvements, education, business ventures, or additional properties, all investments that might provide considerable future returns." -> Zhu Xiao Di, "The Role of Housing as a Component of Household Wealth"

"[life cycle wealth accumulation] is also largely determined by parental net worth, which has been shown to be the most important predictor of wealth in young adults, even over income, savings or investments" -> Conley 1999, p. 50

P.78: Mean lifetime inheritance for white baby-boomers: $125,000. Mean lifetime inheritance for black baby-boomers: $16,000. (according to the value of the dollar in 2000)

P.79: "Transformative assets are those gifts provided by parents to adult children that allow them to maintain a class status that might otherwise be out of reach. These include the payment of private school and college tuition, tutoring and extracurricular lessons for grandchildren, gifts of big-ticket items like appliances and furniture." -> Shapiro 2004, P. 10

Naturally, not all veterans' families share the same story. However, I think it is hard to argue against the immense advantage of being a homeowner on accumulating and protecting wealth, and that this opportunity was unfortunately denied to a large number of black veterans.

Article doesn't do justice to original paper. In fact I was left totally confused what it's trying to even say. However after reading the paper, it feels very profound. Paper basically finds a subtle but important issue in Piketty's famous argument that people with capital would grow much faster than rest of economy in current century than any other time (aka rich becomes even more richer than before). This paper says that Piketty's argument is correct only because of one component in their capital investment: real estate. In essence, if you had invested money in anything but real estate you would have much lower eventual return over very long term with high probability. This even includes areas that is believed to be gold rush like technology. Not only nothing beats real estate but the fact only real estate will allow rich people to grow fastest than any other time in history!

The consequence of this assessment is very stark: People with money will continue to invest large chunk of their capital in real estate. The money invested in real estate is essentially "dead" because that money is locked up doing nothing, it doesn't work to produce goods, innovations or make world a better place. But real estate is indeed the most rewarding thing for your investments. So the thing is that behavior of real estate is completely against at odds with advancement of humanity. Real estate is in essence like cocaine of economy and there are no DEAs.

If these conclusions are right then it's huge problem. Goverments across the world should immediately take measure to discourage real estate possessions if you are not living there. Real estate should be placed in same category as food and water. We don't let wealthy hog up all the food and water and then inflate the prices for higher return on their capital. There can be progressive tax for the real estate properties you own but don't live at. Further, there should be national movement to aggressively create and encourage new housing . Without these measures, our economy is living on real estate cocaine with little productivity. I would wonder if our current limbo state of economy where nothing grows except real estate is precisely the manifestation of these issues.

Thanks for actually reading the paper and summarizing it properly. Now, I'm willing to go read it as well.

You can see this happening in London, which is in the middle of a useless government-supported property bubble.

Areas with prestige developments of > £20M houses and apartments are being left almost empty - because they're an investment, not a home.

What you're describing would essentially be a land and property tax. The idea is so shocking that proponents of both - like Henry George - literally tend to be written out of economic history.

It's very easy to see where all the wealth is going and how and why it is divided unequally in this county. It's a simple observation that is self evident.

Look at yourself, the average joe. Where is the wealth you generate going?

Let's follow the process step by step.

You work for a company and most of the wealth you generate is for said company... the company pays you a salary, lets say 10$/h. In order for the company to afford you, you must be generating more wealth then 10$/h. You're generating 20$/h of wealth and the company is shafting you by paying only half of that. It's one of the ironies of capitalism... employment is usually a deal that is unfair and weighted heavily towards the employer. But hey, it's a freemarket... you chose to get shafted.

The rest of your money goes to things related to your survival. Unless you own a house, then the majority of what's left will go to RENT.

So in the end, rent and labor output is what's sucking out the wealth from underneath you. Where does this wealth go? To the owners of the houses that are rented to you and the owners of the corporations you work for.

In short owners of both HOUSING and HUMAN Capital is where most of your wealth getting extracted. Logically if your friends and coworkers are also employees then the same shit is happening to them and the rest of the population of the united states.

Simply by observing where most of your own wealth goes, you can see where all of the wealth flows in this country and elucidate the primary cause of wealth inequality.

The person who wrote this article seems to think that rich people invest their wealth in something called "technological capital" which "depreciates." What is he talking about? Does he think wealthy people are putting their wealth into warehouses loaded with piles of smartphones and macbooks? Rich people put their money into real estate and stocks (aka Housing and Human capital).

> employment is usually a deal that is unfair and weighted heavily towards the employer

I agree with most of your comment, but the sentence above is a bit of a fallacy. Sure, the employer isn't paying you the whole of the value you generate, but it works the same in reverse - you're getting paid much more than you would be if you were working on your own.

Math:

X = what you can produce on your own Y = what your employer can produce without you Z = what you and your employer can produce together

employment only makes sense if Z > X + Y. In that case, your split of Z is > X, and the employer's split of Z is > Y.

Z is not what the employer and I can produce together. Z is what I and other employees produce when working together. The employer itself is just a thin layer of leadership that gets way more compensation then it deserves.

The reason why employers get an unfair share is due to strategic and organized negotiation. They utilize the might of the entire organization itself to negotiate salaries with each individual employee. Unions are designed to counteract this unfairness.

Vox has a much more nuanced analysis of the finding:

http://www.vox.com/2015/4/1/8320937/this-26-year-old-grad-st...

This is a much better analysis and should really be swapped with the current article.

Thank you, that was informative. But something seems very wrong to my uneducated understanding. Quoting the Vox writer,

>The issue here is depreciation. When a firm buys a computer, the value of that purchase erodes with time. A $2,000 computer bought in 2012 is not worth $2,000 in 2014. When you take that into account, business profits look less impressive.

That the resale (or "book" or "scrap") value of a $2K laptop is small after two years' use means nothing in practical terms. It's a significant item in the asset-accounting for the business, sure. But the damn laptop is still working, still being used, still grinding out Excel spreadsheets under Windows XP, two, five, even seven years after it was bought. The department that bought it for $2K in 2012 is, bitter employee experience proves, NOT going to get authorization to replace it with a shiny new one in 2014, nor 2015 either. So although the $2K capital cost of the laptop might evaporate from the company's books, the UTILITY of the laptop remains and it replacement cost is NOT incurred.

This I think would apply with even more force to something like an assembly-line robot. At least my impression from seeing videos of car and motorcycle assembly lines is that the robots and other high-tech tools are quite well built -- better built than the average laptop fer sure -- and although they might depreciate, they won't stop working. In fact don't they become MORE valuable and profitable as their book value drops while their productivity contribution remains steady?

You're correct that "utility"-type depreciation isn't that fast when it comes to the day-to-day, but "business profits" don't typically (ever?) take that into account in the calculation. So it's really two different things. As an aside, here are the BEA's depreciation rates:

http://www.bea.gov/scb/account_articles/national/wlth2594/ta...

None of the above take into account the "utility goes to zero" fact for certain computer hardware: i.e., if a machine winds up too slow to run the latest software because of ever-increasing system requirements, the practical value of said hardware can go from "less than recently calculated resale value" to "possible resale value of raw parts" or even "zero."

Turning heads?

This message, in the form of a very similar graph, was a Reddit post a few months ago and ensured a long discussion where people were quoting all sorts of historical figures who claimed that land ownership was the key to all sorts of power.

I thought it was a fairly common theory.

A lot of modern liberalism is about hiding the brute calculus that underlies relations of property ownership. I'd love it if Marx became mainstream again without all the MLs and Stalinists ruining his ideas for everyone.

It was probably the same graph. This article was published Mar 25 - it says there's a followup coming, but I don't see any sign it's arrived.

Homes and communities are so intertwined with personal life and family that people forget it's also a huge investment / market.

So we allow all sorts of behavior towards homes that we wouldn't let happen in other markets. NIMBY and zoning laws are a form of collusion.

Also since the housing boom people have viewed high home prices as a good thing.

This and important issue, but is not original analysis... for instance was discussed on The Weeds just recently

http://voxtheweeds.slate.libsynpro.com/are-we-counting-pover...

But it's an MIT student! OMG! Time for the front page of HN!

In a lot of areas housing is deeply entwined with the education market. Uniformly high housing prices aren't a problem, high housing prices and NIMBYism in particular areas is a solution to keep out the sorts of people parents believe cause Bad Schools.

I doubt this comes as a surprise to most economists. After all demand for housing is pretty inelastic, universal and the supply in terms of property is finite. It reaffirms my believe that restrictive zoning regulations are one of the leading causes of wealth inequality in modern economies. In the Vox article about the paper they mention that Lawrence Summers supports "an easing of land-use restrictions" because otherwise they " [...] cause the real estate of the rich in major metropolitan areas to keep rising in value".

So strange. this guy housed me for admitted-student-college-visit-weekend about 6 or 7 years ago. really nice guy who had the complete genius vibe.

he told me that in high school he didn't care about anything, and then around junior year he realized that he should give a shit, and self-studied for 22 AP courses and got 5s on all of them. he also had research papers lying around everywhere in his room and had also made a ton of money working at Jane Street and said it was fun but not for him.

This seems more relevant than ever today: https://en.wikipedia.org/wiki/Georgism

This isn't:

>Local housing boards have made it damn-near impossible to build new condos. After much infighting, San Francisco plans on building up to 50,000 more units. But, San Francisco’s chief economist, Ted Egan, estimates that that the city would need at least 100,000 new units to stem increasing costs, let alone bring prices down to something more affordable.

>If Rognlie is correct and we really care about inequality, it might be wiser to redirect anger towards those who get in the way of new housing, rather than rely on taxes to solve our problems.

Millionaire NIMBY homeowners in San Francisco fighting with luxury condo developers has nothing to do with the rest of us.

There's something particularly distasteful about luxury condo developers trying to position themselves as champions of equality while trying to gouge huge profits from this state of affairs.

An important thing to note is that of those 50,000 units being built in San Francisco, the vast majority are market rate, which are out of the price range of most people who want to live in the city. Developers are strong-armed into building a certain percentage of "affordable" units, but that's defined in relation to area median income for the city of San Francisco, which is unusually high.

Take the massive development in Hunters Point. 35% of the 12,500 units being built are affordable, but affordable is defined as less than 150% of area median income -- that's AMI for the entire city, not the impoverished Bayview neighborhood the development is being built in.

150% of AMI in San Francisco is $107,050 for one person, or $152,850 for a family of four. A new unit that's priced for someone making six figures a year doesn't really meet the common sense definition of affordable.

And with market rate housing, a lot of it is bought up as an investment property or vacation property for the ultra-wealthy, which means each new unit of housing is underutilized compared to a truly affordable unit bought by someone who lives and works in the city. If a developer builds 5,000 market rate units, that has less of a supply and demand effect than 5,000 truly affordable units, since they aren't even really the same kind of asset. Demand for market rate housing in major cities is largely driven by a need to shelter money, where truly affordable housing is driven by a need to shelter people.

This means that the statistics for San Francisco are even worse than they look, since the 50,000 units being built will be unaffordable and underutilized.

The article addressed this. It said estimates are that 100,000+ units are required just to stop the inflation. So the solution is simple: zone for way more than that. Offer financing. The ability to construct for a new high density zoning change is a huge advantage in the market. City-financed developments will start eating the margins on the places people are living in now. With enough density, the cost of new housing can start to approach the cost of construction.

There's no market reason why the floor should be where it is. It's just artificial scarcity to benefit property owners.

I really dislike the use of the qualification "luxury" for land developers. People constantly complain about how ridiculously expensive the bare minimum housing is getting in high demand areas, but endlessly complain that "new luxury apartments" aren't going to solve the problem.

I think that this is just a bias that is blinding people to the inherent contradiction. The reason that shithole apartments become so expensive is because there are people with the money to spend who "need" (i.e. work in the area) that apartment. It has nothing to do with construction or maintenance costs, just demand. Even the "luxury" apartments have inflated prices compared to their material values. Which means that there is a lot of room to move up.

Basically what I'm saying is that people need to stop complaining about the "type" of housing. If someone builds 50,000 cubicle apartments or 50,000 luxury flats in a high demand area, your shithole apartment's value/rent is going to change the exact same amount. Because there is plenty of room for the people generating the demand to "afford" better (in strict material/construction terms). It shouldn't matter to anyone who isn't already in the mid-range of units to begin with (i.e. people complaining about the rent on their 400sqft hole in the wall). The real issue is that these places are "only" building 50k (or whatever the number) new units, when they actually need far more.

Maybe building cheaper (and therefore smaller) units could make allocating the area for this number of units more palatable, but that is still a secondary problem. This just runs into the issue that as much as people bitch about "luxury" condos, they want crappy high density ones nearby even less.

>I think that this is just a bias that is blinding people to the inherent contradiction. The reason that shithole apartments become so expensive is because there are people with the money to spend who "need" (i.e. work in the area) that apartment. It has nothing to do with construction or maintenance costs, just demand.

It is certainly demand but it's not demand coming from the people working and living there. It's demand coming from millionaire investors buying up high end property as an investment.

Google for dark condos.

Something I like to point out when discussing wealth distribution in the US: http://i.imgur.com/NRAhNYU.png

data source: https://www.census.gov/hhes/www/income/data/historical/house...

Previous discussion:

https://news.ycombinator.com/item?id=9263107

Price controls would be appropriate in this situation. I'd much rather have money in the hands of tech workers than in the hands of banks or landlords. Rent-seeking behavior is too often allowed and ignored. The demand/price correlation is not a natural law or a natural good.

Incredibly astute observation. Housing does eat most people's income.

It is about land ownership sinse beginning of time.

I look to graduate students for all my personal advice. The have such deep experience of the real world.

An MIT degree to find the obvious? (go ahead downvote me)

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