I wonder if people have shifted spending habits and values leaving them with less real money month after month or psychologically less… something like the bundle of “psychologically necessary goods and services” costs more now than in the past. Or, in the past people said, “if you can’t afford it go without it.” And now people are hearing, “ well you need a car, you need a computer, you need a smart phone (a newish one?), you need a tablet, you need to eat out, you need DoorDash…”
Or maybe I’m an old curmudgeon who sometimes thinks accountability has become watered down.
Really? Yglesias sounds out of touch; I expect better. Interesting fact on college costs, I did not know that, but absolutely not the case with housing, people's biggest expense and one over which renters have little control, and probably not the case with healthcare. The discussion of relative prices gets at that, but since he only mentioned college I suspect he either did not look at the issue enough or realizes that the anger is because the most essential items are going up in real terms (relative prices) but that does not make for a good headline. Who cares if I can watch infinite streams on an 84" 8K OLED for 1% of my income if the other 99% go to housing and healthcare?
To the discussion of how many years it used to take to buy a home. And how many it takes now. Here are the 5 most and 5 least affordable metros according to ChatGPT. The interesting thing is unemployment rate is almost identical across the 10 (I asked in separate thread).
LA / Long Beach 12 years of median income to buy a median house
San Jose - 11
SF - 10
NYC - 10
San Diego - 10
…
Detroit - 1.9x
Cleveland - 2.8x
Akron - 2.9x
Toledo - 2.8x
Tulsa - 3x
I get that LA has nicer beaches than Detroit. But is it worth it needing 10 years of median income to buy a house vs 3?
“Incomes have risen in real terms”. My guess is that this is not evenly distributed: most people don’t get a big raise every year, maybe 1-2% if they’re lucky; instead it’s people who change jobs that see their incomes go up. This seems like a plausible explanation for why so many people are upset.
Trump won in 2016 and again in 2024 because the Dems, in the form of Obama/Clinton/Biden/Harris, failed to act in any way sufficient to the Dem Party having been complicit in 40 years of the middle/working class being financially undermined and politically marginalized by Neoliberal Trickle-down economics.
Inflation and affordability have now been adopted as the main issues for the disenchanted American middle by mainstream pollsters, economists, and pundits as the culprit. This is such weak tea. It turns EPI-phenomena into explanations for popular disenchantment that is so much more fundamental and, at least to me, obvious. ‘Inflation,’ ‘prices,’ and ‘the cost of living ‘ are just proxies in the popular mind for how precarious, exhausting , demeaning, and impossible for many tens of millions of Americans is the struggle to ‘make it in America.” Please read that sentence again — and again.
We, the professional and managerial elite have arrogated to ourselves the keys to relative security and prosperity in a socio-political order that values what we do most. And we continue to fail to appreciate how complicit we are in the decades-long evisceration of the middle/working class.
How to “Make it in America” as a middle/working class person/family is the most important ‘popular’ issue over the last 40 years. It spans well more than a generation. And as Tuesday showed, America’s middle/working class (and youth, more generally) are still waiting for one of the parties to actually champion and act in serious, epic, and epoch-defining ways to ensure that the average person can actually ‘Make it in America.’
I’m entirely confounded by the continuing failure of the punditocracy, including Matt — let alone the Democratic Party — to understand this and to insist that the party recast and recommit itself to this simple but overwhelmingly important cause of being the party of Making it America.
Come on, Matt, tell us why this is not obvious and imperative?
To begin with, what does time frame have to do with people's perceptions of affordability? Everything dipped during Covid. Some people trace their current dissatisfaction with salary vs. living expenses back to the Great Recession. Now we all know now that Bad Things Can Happen. Current events with their threat to healthcare premiums and federal layoffs are no exception.
Financial acumen and personal financial strategy take years to develop. It's no surprise that people's opinions about how well off they are "right now" reflect the events they have encountered throughout their adult lives.
Affordability is only one side of the coin. The other side is long-term wealth accumulation: a down payment for a house, college tution for kids, a retirement portfolio that has to last thirty years, or probably all three. Those accounts grow very slowly.
Politicians are correct to artfully play to cultural economic attitudes rather than to what's available from mathematical charts. The assumption that the range of demographic opinions about "affordability" can be measured and quantified puts too much trust in the mathematics of economics, which is still really a social science.
I think there are two points here. First is that inflation has been very noticeable in everyday items-food and housing, in particular. The second is that, as Joe Frikker mentioned, taking 4 or 5 years just to get back to the pre-Covid starting line feels like treading water. And when your goal is to gradually improve both your income and your lifestyle, adding responsibilities and benefits as they become affordable, five years treading water is hardly good news.
It will be interesting to see the influence Trump may wield on cost of living through a pro-rate-cut Fed chair appointment next year. This could get him out of part of his dilemma, since borrowing costs creep into perceived costs of living. (Re “the cost of money is part of the cost of living,” the NBER paper.)
The timing of that appointment could influence prospective homebuyers’ view of their household finances in time for the midterms.
This is a good article. However, I would like to make a small defense of the people. As best as we can tell, price changes for goods follow something like state-dependent pricing, where firms pay some cost to change prices. Thus, when we have higher inflation, the absolute size of price changes doesn't change -- instead, we get more of them. However, wage contracts exhibit elements of both time-dependent and state-dependent pricing. When there's an increase in inflation, you get a very lumpy and uneven adjustment process. If we say that people are risk averse due to consumption commitments like a house and car, then we can get very large decreases in utility.
No, affordability is not just high nominal prices. It's also a matter of a broader set of observations - about the escalating cost for major purchases - housing, education, automobiles - that limit other options, and about job insecurity that results from a business environment that's frozen by uncertainty. I'm living this at the moment - I was laid off a month ago as part of a workforce reduction - one of several this year - in a services business. The layoffs are happening because our clients aren't spending, and they're not spending because Trump's insane, capricious policies make it impossible to plan for the future. For the same reason, hiring has stalled - those of us who are laid off aren't finding new full-time work. So what do we do? We cut costs, we pull back on our own spending... and the spiral continues. I'd argue that "affordability" is a surrogate marker for the increasingly widespread and increasingly urgent sense that life in general is getting vastly worse. The sense of crisis isn't a misperception - it's a diagnosis. I'd respectfully suggest that Matt cast his net wider.
I wonder if some of this is just that people are averaging over a longer period of time? Looking at the Real Median Household Income graph, it looks like real incomes are basically back to where they were 5 years ago. Over the prior 5 years, they rose by (eyeballing) maybe 30%? People may have expected to be better off today than they are, and they’re unhappy about that, even if the more recent trend has been positive. I know if in 2019 I expected my income to grow enough to buy a nice house, say, and then 6 years later that hasn’t happened, and I feel like I’m just getting back to where I started, I probably wouldn’t be super happy about economic conditions…
Agree that this could be a problem for Trump. But he will solve it! He's already jaw-boning prices down (meat packers and drug companies). Why not a few more visible products? Or just some outright price controls? Or a surprise tariff cut? If folks just care about nominal prices, there are ways....
On the one hand, the median voter is plainly irrational about this.
On the other hand, if you take a big step back and think about what money is in the first place, it's incredible that people buy into a monetary system at all. By and large, unless it's related to their job, the average person doesn't "do" abstraction. But money is the big exception. It's the abstraction that won so hard that it doesn't feel abstract!
In the first place, money is a shared illusion that only works because everyone buys into it. A lot of Obama-era money-focused cranks were fired up about the fact that, at bottom, money is just a type of trust in other people. Something like: "You fools! Fiat money isn't real! The emperor has no clothes!" Which, if it were to get memed hard enough, would become true.
Matt Levine reminds us every weekday of the fun ways that this shared illusion has counterintuitive results. Matt Levine is a great writer, but it helps him make an entertaining and interesting column that money is a crazy thing in the first place.
All this is to say that events that break the illusion, especially in ways that everybody sees that everybody else sees, are bad for a monetary system! Like inflation. Voters are irrational about inflation, but it's this sort of 'irrationality' that makes money work to begin with. We need to ensure that neither inflation nor anything else fully lifts the curtain.
Ok, but... sure, money is a fiction, but what's the alternative? If we were to dispense with the fiction that is money, should we all become self-sufficient economically or revert to a barter economy? (How many gallons of milk would you like for a pair of running shoes, and how many pairs of running shoes for a 2025 Prius plug-in hybrid?)
Sapiens: A Brief History of Humankind by Yuval Noah Harari.
In Sapiens, Harari argues that shared beliefs—like religion, nations, and money—are “imagined orders” that allow large groups of humans to cooperate flexibly and in huge numbers. He explains that these shared fictions were key to humanity’s dominance, enabling complex societies, trade, and civilization itself.
I wonder if people have shifted spending habits and values leaving them with less real money month after month or psychologically less… something like the bundle of “psychologically necessary goods and services” costs more now than in the past. Or, in the past people said, “if you can’t afford it go without it.” And now people are hearing, “ well you need a car, you need a computer, you need a smart phone (a newish one?), you need a tablet, you need to eat out, you need DoorDash…”
Or maybe I’m an old curmudgeon who sometimes thinks accountability has become watered down.
This hurts Trump’s chances for re-election.
Really? Yglesias sounds out of touch; I expect better. Interesting fact on college costs, I did not know that, but absolutely not the case with housing, people's biggest expense and one over which renters have little control, and probably not the case with healthcare. The discussion of relative prices gets at that, but since he only mentioned college I suspect he either did not look at the issue enough or realizes that the anger is because the most essential items are going up in real terms (relative prices) but that does not make for a good headline. Who cares if I can watch infinite streams on an 84" 8K OLED for 1% of my income if the other 99% go to housing and healthcare?
To the discussion of how many years it used to take to buy a home. And how many it takes now. Here are the 5 most and 5 least affordable metros according to ChatGPT. The interesting thing is unemployment rate is almost identical across the 10 (I asked in separate thread).
LA / Long Beach 12 years of median income to buy a median house
San Jose - 11
SF - 10
NYC - 10
San Diego - 10
…
Detroit - 1.9x
Cleveland - 2.8x
Akron - 2.9x
Toledo - 2.8x
Tulsa - 3x
I get that LA has nicer beaches than Detroit. But is it worth it needing 10 years of median income to buy a house vs 3?
“Incomes have risen in real terms”. My guess is that this is not evenly distributed: most people don’t get a big raise every year, maybe 1-2% if they’re lucky; instead it’s people who change jobs that see their incomes go up. This seems like a plausible explanation for why so many people are upset.
Trump won in 2016 and again in 2024 because the Dems, in the form of Obama/Clinton/Biden/Harris, failed to act in any way sufficient to the Dem Party having been complicit in 40 years of the middle/working class being financially undermined and politically marginalized by Neoliberal Trickle-down economics.
Inflation and affordability have now been adopted as the main issues for the disenchanted American middle by mainstream pollsters, economists, and pundits as the culprit. This is such weak tea. It turns EPI-phenomena into explanations for popular disenchantment that is so much more fundamental and, at least to me, obvious. ‘Inflation,’ ‘prices,’ and ‘the cost of living ‘ are just proxies in the popular mind for how precarious, exhausting , demeaning, and impossible for many tens of millions of Americans is the struggle to ‘make it in America.” Please read that sentence again — and again.
We, the professional and managerial elite have arrogated to ourselves the keys to relative security and prosperity in a socio-political order that values what we do most. And we continue to fail to appreciate how complicit we are in the decades-long evisceration of the middle/working class.
How to “Make it in America” as a middle/working class person/family is the most important ‘popular’ issue over the last 40 years. It spans well more than a generation. And as Tuesday showed, America’s middle/working class (and youth, more generally) are still waiting for one of the parties to actually champion and act in serious, epic, and epoch-defining ways to ensure that the average person can actually ‘Make it in America.’
I’m entirely confounded by the continuing failure of the punditocracy, including Matt — let alone the Democratic Party — to understand this and to insist that the party recast and recommit itself to this simple but overwhelmingly important cause of being the party of Making it America.
Come on, Matt, tell us why this is not obvious and imperative?
To begin with, what does time frame have to do with people's perceptions of affordability? Everything dipped during Covid. Some people trace their current dissatisfaction with salary vs. living expenses back to the Great Recession. Now we all know now that Bad Things Can Happen. Current events with their threat to healthcare premiums and federal layoffs are no exception.
Financial acumen and personal financial strategy take years to develop. It's no surprise that people's opinions about how well off they are "right now" reflect the events they have encountered throughout their adult lives.
Affordability is only one side of the coin. The other side is long-term wealth accumulation: a down payment for a house, college tution for kids, a retirement portfolio that has to last thirty years, or probably all three. Those accounts grow very slowly.
Politicians are correct to artfully play to cultural economic attitudes rather than to what's available from mathematical charts. The assumption that the range of demographic opinions about "affordability" can be measured and quantified puts too much trust in the mathematics of economics, which is still really a social science.
I think there are two points here. First is that inflation has been very noticeable in everyday items-food and housing, in particular. The second is that, as Joe Frikker mentioned, taking 4 or 5 years just to get back to the pre-Covid starting line feels like treading water. And when your goal is to gradually improve both your income and your lifestyle, adding responsibilities and benefits as they become affordable, five years treading water is hardly good news.
It will be interesting to see the influence Trump may wield on cost of living through a pro-rate-cut Fed chair appointment next year. This could get him out of part of his dilemma, since borrowing costs creep into perceived costs of living. (Re “the cost of money is part of the cost of living,” the NBER paper.)
The timing of that appointment could influence prospective homebuyers’ view of their household finances in time for the midterms.
This is a good article. However, I would like to make a small defense of the people. As best as we can tell, price changes for goods follow something like state-dependent pricing, where firms pay some cost to change prices. Thus, when we have higher inflation, the absolute size of price changes doesn't change -- instead, we get more of them. However, wage contracts exhibit elements of both time-dependent and state-dependent pricing. When there's an increase in inflation, you get a very lumpy and uneven adjustment process. If we say that people are risk averse due to consumption commitments like a house and car, then we can get very large decreases in utility.
I wrote about this earlier on my blog. https://nicholasdecker.substack.com/p/why-do-we-hate-inflation
No, affordability is not just high nominal prices. It's also a matter of a broader set of observations - about the escalating cost for major purchases - housing, education, automobiles - that limit other options, and about job insecurity that results from a business environment that's frozen by uncertainty. I'm living this at the moment - I was laid off a month ago as part of a workforce reduction - one of several this year - in a services business. The layoffs are happening because our clients aren't spending, and they're not spending because Trump's insane, capricious policies make it impossible to plan for the future. For the same reason, hiring has stalled - those of us who are laid off aren't finding new full-time work. So what do we do? We cut costs, we pull back on our own spending... and the spiral continues. I'd argue that "affordability" is a surrogate marker for the increasingly widespread and increasingly urgent sense that life in general is getting vastly worse. The sense of crisis isn't a misperception - it's a diagnosis. I'd respectfully suggest that Matt cast his net wider.
I wonder if some of this is just that people are averaging over a longer period of time? Looking at the Real Median Household Income graph, it looks like real incomes are basically back to where they were 5 years ago. Over the prior 5 years, they rose by (eyeballing) maybe 30%? People may have expected to be better off today than they are, and they’re unhappy about that, even if the more recent trend has been positive. I know if in 2019 I expected my income to grow enough to buy a nice house, say, and then 6 years later that hasn’t happened, and I feel like I’m just getting back to where I started, I probably wouldn’t be super happy about economic conditions…
Agree that this could be a problem for Trump. But he will solve it! He's already jaw-boning prices down (meat packers and drug companies). Why not a few more visible products? Or just some outright price controls? Or a surprise tariff cut? If folks just care about nominal prices, there are ways....
In Trump's defense, he has put a considerable amount of effort into triggering "an economic disaster"
I have the Yglesias response to $3 candy bars at the grocery checkout. There’s no way that’s what it should cost.
On the one hand, the median voter is plainly irrational about this.
On the other hand, if you take a big step back and think about what money is in the first place, it's incredible that people buy into a monetary system at all. By and large, unless it's related to their job, the average person doesn't "do" abstraction. But money is the big exception. It's the abstraction that won so hard that it doesn't feel abstract!
In the first place, money is a shared illusion that only works because everyone buys into it. A lot of Obama-era money-focused cranks were fired up about the fact that, at bottom, money is just a type of trust in other people. Something like: "You fools! Fiat money isn't real! The emperor has no clothes!" Which, if it were to get memed hard enough, would become true.
Matt Levine reminds us every weekday of the fun ways that this shared illusion has counterintuitive results. Matt Levine is a great writer, but it helps him make an entertaining and interesting column that money is a crazy thing in the first place.
All this is to say that events that break the illusion, especially in ways that everybody sees that everybody else sees, are bad for a monetary system! Like inflation. Voters are irrational about inflation, but it's this sort of 'irrationality' that makes money work to begin with. We need to ensure that neither inflation nor anything else fully lifts the curtain.
Ok, but... sure, money is a fiction, but what's the alternative? If we were to dispense with the fiction that is money, should we all become self-sufficient economically or revert to a barter economy? (How many gallons of milk would you like for a pair of running shoes, and how many pairs of running shoes for a 2025 Prius plug-in hybrid?)
What you wrote is almost exactly the Jeremy Irons money speech from Margin Call.
https://youtu.be/tMgwBG2j-yo?si=B6k5OXlz55opmSfc
Huh! Today I learned!
Sapiens: A Brief History of Humankind by Yuval Noah Harari.
In Sapiens, Harari argues that shared beliefs—like religion, nations, and money—are “imagined orders” that allow large groups of humans to cooperate flexibly and in huge numbers. He explains that these shared fictions were key to humanity’s dominance, enabling complex societies, trade, and civilization itself.