I’m willing to bet at least one person reading this will have to go change their Facebook profile to remove a quote.
One of the hottest economic topics coming out of the recession is income, or wealth, inequality. We know that wealthy people have gotten wealthier and this has occurred theoretically at the expense of the middle and lower classes. One of the ways this is measured is through the Gini index, which attempts to track income inequality with one datapoint. A higher number indicates greater inequality. It’s uncertain exactly what is causing this inequality, and there are likely many factors. Just a few are globalization, favorable taxes on investments, and an education gap. To what degree each of these factors and more play is still the subject of great debate. That’s not our purpose today.
Throw out everything we think we know about inequality in the US. Let’s just explore one possibility for inequality. Think back to your parents, or your parents’ parents. At some point in your past, there was probably a man working and the mother not. The traditional household came standard issue with a woman at home. This is something that’s very much changed since back then. Now as many as 40% of households have a woman as the primary breadwinner. The norm today is to have both the man and woman of the house working, regardless of who is making the most.
One can reasonably assume that we’re attracted to like-minded people. So if I make $75k a year I may be attracted to someone that has a similar income. If I meet someone at work it’s very likely we’re going to have similar incomes depending on where we work. The point is that working professionals are most likely to meet other working professionals. And those that may be rising to the top of the income chain on their own may be getting hitched to someone on that same chain.
In the past there was only one working professional. Let’s say they made $75k. That was the household income. Now with two people earing $75k, the household income has doubled. Those that were perhaps on track to become wealthy as standalone professionals are now making twice as much per household. In the old days, there would be two households making $75k each. Now there’s one household making $150k, and another with $0.
Is it possible, that the rise of two-income households has had an effect on inequality in this country? I don’t have any data to back up this idea. Nor am I sure that if such data existed it would really explain much about inequality at all. But, if some two-income households are effectively doubling their income then there would be some cannibalization of the available high paying jobs and a rise in inequality would be just a natural effect of household formation.
Does this idea fly with you? Is there a reason no one has really talked about this before?
Stocks had a great day on Tuesday thanks to a positive report on housing prices from the Case-Shiller Home Price Index. Headlines like “Home prices up 10 percent: How strong is this year’s US housing market?” got everyone’s attention. Now the question is whether or not prices are rising too quickly.
10% is a lot in a year for housing. Especially considering where we’ve been. But are we in danger of another bubble that could come crashing down? Probably not.
The chart above shows two of the most memorable housing markets from the crash, Phoenix and Las Vegas. I’ve graphed them with the 20 city index Case-Shiller provides, and the much more stable Atlanta for comparison. Obviously, there was a huge run-up in prices in these markets. And while prices have started to run up again, we’re nowhere near the prior peaks. Take note as well; that it’s the markets that got hurt the most that are recovering the most. 10% on a national average may not mean much to your neighborhood.
There are other factors contributing to this new rise in housing. The prevailing interest rates are a big factor. The Federal Reserve has kept interest rates low for years now to incentivize borrowing. Banks wouldn’t lend to consumers though and many consumers didn’t want to borrow. That’s changed on both fronts as both sides can be reasonably certain housing has returned to a somewhat stable asset.
Another factor is the available inventory of housing. After all, prices are a function of supply and demand. Clearly demand has picked up. But supply is something different. Supply is as low as its ever been. We’re talking record lows. So we have to be looking at a pretty substantial increase in demand.
What this means is we shouldn’t expect this strong increase to continue. As prices have risen, more homeowners get into a better situation to sell. Either the price hits the right point for them, or they just finally think they can sell without taking a loss on the home. Whatever it is, supply will increase. And if the existing supply isn’t enough to slow down prices, expect builders to pick up their construction efforts to meet the demand.
Regardless of how supply increases, it will increase nonetheless. Bubble territory this is not.
Healthcare costs are crazy. We know the entire industry is pretty much broken. Obamacare was the closest thing we got to a fix, and no one is really all that happy about it. But if there’s one thing Obamacare has done, it’s bring about sweeping changes to the industry. One of the biggest upgrades to the industry is the electronification of healthcare records, partially brought about by Obamacare. Since we’re a few years into the legislation now, let’s take a look at how the economics of these changes is shaping up.
Prior to Obamacare, the market for electrified healthcare records was soft. We were already well into the information age, but few actually had their medical records available online. The market had not emerged naturally for electronic records, so Obamacare gave it a shot of adrenaline. Incentives and subsidies came in, as well as penalties down the road. Recognizing a market disruption when they see one, venture capitalists piled in to companies designing electronic healthcare systems. With the government push, the industry took off.
Electronic health records have a lot of pros. Many people impacted by Hurricane Katrina lost their medical records completely. Having it available online likely means it’s backed up in a few places around the country. The collective knowledge that can be gained from have this information should improve patient care as well. Imagine if a doctor can look up a database and see what type of side effects were most common on a drug for patients with similar characteristics. The records can also be used by doctors to confirm patients actually went and saw the specialist they were asked to see.
It’s not all great of course. Electronic records open the door for all kinds of privacy issues. While everyone says your data is private today, that’s nothing that couldn’t be changed in the future. Costs savers at major organizations would love to find out which employees cost them the most in healthcare. A well-placed hack could cause serious problems as well.
The expectation is that the pros outweigh the cons, notably in improved patient care and maybe a reduction in costs. Surely though as data about us shows up online, a very profitable industry selling our data (in an anonymized way) will emerge.
These reforms to healthcare are not without collateral damage. Independent practices are being bought up at very high rates. Less than 40% of physicians are independent today, a number that’s fallen from the upper 50% range since the 2000s. As doctors are faced with the reality of putting records in an electronic format or paying fines, the option to sell to a larger healthcare network is appealing. The is resulting in a consolidation of healthcare providers which could reduce competition. Competition is just what the industry needs to help keep prices in check and better inform the patient of their options.
Getting our healthcare records electronified will likely create more good than bad. But it’s never great when the government has to kickstart an industry into reform, and most of the bads are still unknown.
Read: Now a majority of doctors use electronic health records — what does this mean for you? (Venture Beat) & Downsides for Doctors and Patients (NY Times)
Image: North Charleston
So far with the sequester we’ve yet to see any hard damage to the US. Yes, many programs have been cut or cancelled and some federal employees furloughed, but the pain seems to be contained with most of America not noticing too much. The budget cuts, while a bit crude, are a pill we have managed to swallow. But as the weather gets warmer and drier, we may still feel some pain from the cuts. Pain that could end up costing us more than the cut saved in the first place.
We’re talking about wildfires. One of the many, many, many agencies with the federal government is the US Forestry Service, a division of the Department of Agriculture. The service employs a few thousand people and has a budget of about $5 billion to help manage our national forests and grasslands. Apparantly, close to half of their budget goes towards fighting fires. The sequester took a 7.5% chunk out of that.
When a forest fire breaks out, the cost is in the tens of millions to finally get it under control. The feds put up a sizeable amount to help fight the fire, but the bulk of the total costs is laid on the local governments. This includes clean-up and damage caused by the fire. One of the most vital functions of the federal budget is to help prepare forests for the dry season. By conducting controlled burns a real fire is easier to control if it breaks it. This limits the damage caused by the wildfires. A little investment up front yields a lot of savings elsewhere.
But when evaluating the impact of federal spending on wildfires, the feds may not be accounting for the costs incurred by state and local governments. If these costs were included as well, the return on investment for preventative measures would be much higher.
This is a problem with any investment where the only real return is a potential cost savings in the future. But how can you estimate the cost savings for a fire that may have never happened in the first place? It’s difficult to be sure. What is the value of insurance if you never need it?
One can only hope that a reduction in available spending for wildfires will lead to smarter spending. If we can get better at predicting fires and preventing them, we won’t need such a large budget in the first place to fight them. But it’s a hard sell to an owner in a risky area that the loss of hundreds of millions of dollars in federal money will somehow help keep their home safe. Let’s have some faith and hope for the best.
What if Earth had rings around it like the rings of Saturn. Wouldn’t that be an incredible site from space? Earth, already a gorgeous planet, would have the kind of jewelry it deserves.
Well, Earth may have had rings at one point in the earlier part of its formation. As gravity slowly pulled material together we were left with just the planet and the moon. And while the moon is quite pretty from our perspective on the surface, rings might just have been a lot nicer.
Read: If Earth Had a Ring Like Saturn (io9)
The internet has destroyed many business models. Just look at Circuit City, Borders, and travel agents. But one area where we haven’t seen much impact is with real estate agents. Sure, you’ll look online for hours on end for different houses and whatnot, but when it comes time to start looking at them in the real world, or make a purchase, we all go with a real estate agent. Why has this business model not been destroyed yet?
BusinessWeek looks into this with the story of three major players in online real estate. Two you probably know: Zillow and Trulia. The other, Redfin, predates them both. Redfin has tried to turn the real estate game on its head but so far hasn’t gotten significant traction. Whereas Trulia and Zillow have instead partnered with the existing real estate industry and seen far greater success.
The article does a pretty good job explaining the economics of the industry as it stands now, and it kind of feels like a racket.Not only have brokers resisted the attack by the Internet’s real estate sites but their fees remain stable. Real Trends, a research firm, reports the average commission paid to the buying and selling brokers was 5.4 percent of the price of a home in 2011, up from 5 percent in 2008. (The seller’s agent collects the commission from the seller and then splits it evenly with the buyer’s agent.) That’s considerably higher than the median rate in markets abroad, where there may only be one agent involved in the transaction, such as the U.K. (a 1 percent to 2 percent fee), Germany (3 percent to 6 percent), Israel (4 percent), and the Netherlands (1.5 percent to 2 percent), according to a 2007 report by the Organisation for Economic Co-operation and Development. “Ten years ago almost no one started their home search online. And yet none of that value has come back to the consumer,” says Glenn Kelman, Redfin’s chief executive officer.
Make sure you read the rest here: Why Redfin, Zillow, and Trulia Haven’t Killed Off Real Estate Brokers (BusinessWeek)
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