A Century of Prosperity and Reasons for Hope

In 1963, the average price of a new home in America was $18,000. Last year, an average home sold for $212,000.

What does this tell us? Almost nothing useful.

Yes, it shows that there has been inflation. But inflation measured against what? The average worker earned just more than $2 an hour in 1963. Last year, the average wage was nearly $20 an hour. And the average home in 1963 was 1,450 square feet, versus 2,169 square feet last year. Adjust for both, and an average American could buy more property per hour of labor last year than he or she could in 1963.

This is the practical way to think about inflation -- how it has affected not just the prices you pay, but the prices you pay in the context of how you live.

For more than a century, the Bureau of Labor Statistics has published a list of how an average American consumer spends his or her annual budget. Rather than the raw numbers of inflation we tend to obsess over, it highlights the impact certain goods have on people's budgets in relation to their incomes.

What it shows is often astonishing.

Take, for example, how much of an average consumer's annual budget is devoted to food:

Source: Bureau of Labor Statistics. Note: Because of unavailable data, X axis is not scaled evenly.

There has been rapid food inflation over the last century. But as a percentage of an average consumer's budget, food's importance has dropped like a rock. An upswing in agriculture technology meant food prices grew more slowly than wages. We became richer not because of inflation, of course, but despite it.

Look through the Consumer Expenditure Survey, and you see this again and again. Compared with a quarter-century prior, a smaller percentage of our budget today goes to transportation, appliances, postage, furniture, cleaning supplies, insurance, and many others. One of the biggest slides is in apparel:

Source: Bureau of Labor Statistics.

In 1960, typical consumers devoted 36.3% of their budget to food and apparel (combined). Today, 16.5% of an average budget goes to those two categories. That's a difference of 20 percentage points. And since we aren't eating less or wandering around less clothed; it truly does mean that one-fifth of an average consumer's budget was freed up within with 50 years. And that's just looking at food and apparel alone.

What happened to that 20% of our budget? That's where things get interesting. Spending 20 percentage points less on food and apparel means we get to spend more on other categories. And a lot of those other categories include products and services that have made our lives demonstrably better.

For example, the percentage of our budgets devoted to health care has more than doubled since 1901.

Some will say that's a bad thing. Healthcare, after all, has seen inflation well beyond the rate of wage growth in recent decades. But there's another, deeply positive side to it. The quality of the medical care grew exponentially in the last century. And we can afford to spend more on health care today in part because large parts of our budgets have been freed up thanks to the relative decline in expenses like food and apparel. We've traded expensive pants for penicillin. That's a wonderful thing. And it has helped push average life expectancy up from 48 years in 1901 to 78 years today.

What else are we spending more of our budgets on today? Education:

Source: Bureau of Labor Statistics.

Here, too, there has been inflation beyond wage growth in recent decades. But there's more to it than that. A far greater percentage of the population attends college today than in previous years -- a trend owing in part to the rise in discretionary incomes driven by the relative decline in other categories like food and apparel. We've traded expensive pants for an expensive bachelor's degree. And for most, it's well worth it. As David Leonhardt of The New York Times points out, "Relative to everyone else, college graduates have never done better than they are doing right now."

There are many other gains. On Wednesday, The Wall Street Journal studied the latest Consumer Expenditure Survey and lamented that cell phone bills now eat up a larger portion of consumer spending compared with years past. But of course they are. Ten years ago a cell phone could (sometimes) make a phone call, had a crude calendar function, and included a game called Snake. Today, Apple's (Nasdaq: AAPL  ) iPhone can play high-definition videos, store all your music, file your taxes, and help you find a job. We're paying more because we're getting so much more. And part of the reason we can afford to pay more for things like cell phones is because less of our budget is devoted to necessities like apparel.

Real middle-class income has stagnated (at best) in recent years, but we're still a powerfully productive country. New innovations and more efficient methods of production will reduce the relative cost of certain goods over the next 50 years, just as they did over the previous 50 years. That will free up part of average consumers' budgets, allowing them to spend more of their income on...what, exactly?

No one knows. A hundred years ago we couldn't imagine that we'd be spending as much of our budgets on health care as we are today. Thirty years ago we couldn't fathom we'd be spending as much on cell phones as we are today. Yet both have made our lives better. What new services will we be lucky enough to spend money on 30 years from now as more of our budgets are freed up? I don't know. But it's sure fun to think about.

Check back every Tuesday and Friday for Morgan Housel's columns on finance and economics.

Fool contributor Morgan Housel doesn't own shares in any of the companies mentioned in this article. Follow him on Twitter @TMFHousel. The Motley Fool owns shares of Apple. Motley Fool newsletter services have recommended buying shares of Apple. Motley Fool newsletter services have recommended creating a bull call spread position in Apple. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


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  • Report this Comment On September 28, 2012, at 12:36 PM, DrDeVito wrote:

    If people spent more money on REAL food rather than processed garbage, we wouldn't be spending so much on healthcare. So I'd argue that spending more on healthcare isn't exactly a good thing, but more just because of American's lack of knowledge about diet/exercise.

  • Report this Comment On September 28, 2012, at 1:24 PM, nberube wrote:

    Great story.

    I think one of the reasons food is so cheap now is that we started subsidizing it 40 years ago with the first Farm bill.

    Our subsidized grain is now massively sold to Mexico (thanks to NAFTA), and it's so cheap that farmers there can't compete (and many choose to close shop and come work here illegally, but I digress.)

    Sorry to go all Noam Chomsky on you this morning but that's the reality.

  • Report this Comment On September 28, 2012, at 3:03 PM, jpanspac wrote:

    Personal jet packs.

  • Report this Comment On September 28, 2012, at 5:20 PM, EnigmaDude wrote:

    All that money that people used to spend on food and clothing they now spend on gadgets like the iPhone 5!!

  • Report this Comment On September 28, 2012, at 5:20 PM, EnigmaDude wrote:

    (and personal jet packs?)

  • Report this Comment On September 28, 2012, at 5:27 PM, CrankyTexan wrote:

    You might want to mention the devaluation of the dollar from the Fed printing money. Having extra spending money will not be very useful if money is almost worthless.

    You also might want to mention the $16 trillion national debt. While you're at it, I would love for you to predict what the national debt will be in 2016, since you love to calculate numbers.

    If food is so cheap, why are more people on Food Stamps than ever before thanks to Obama?

  • Report this Comment On September 28, 2012, at 5:30 PM, CrankyTexan wrote:

    DrDeVito, cheap food does not cause illness. Overeating and lack of exercise causes illness. It is very cheap to eat healthy. Beans, rice, and milk are cheap.

  • Report this Comment On September 28, 2012, at 5:44 PM, EnigmaDude wrote:

    No wonder you're Cranky! Living off beans, rice, and milk must give you serious gas ...

  • Report this Comment On September 28, 2012, at 5:48 PM, CrankyTexan wrote:

    EnemaDude, I don't live off beans, rice, and milk. I eat unhealthy foods, and exercise like crazy.

  • Report this Comment On September 28, 2012, at 6:14 PM, bonsaibean wrote:

    Actually, a pretty good article, even though not everyone will agree. I've often talked of this idea when people talk about the "required" expenses like food, rent, and utilities. It has evolved to the point where cable, internet, and cell phone are "required" utilities to most people, but none of those things even existed 30+ years ago. They may all make our lives better, (even that is debatable!), but they DO take up dollars that could be used elsewhere. I'm sure these dollars are some of those that should be saved/invested, but most folks don't seem to see it that way. I have all of the above bills too, but it's a basic cable, internet, home phone bundle for $75/mo, and a $30/month WalMart phone plan. Right around $100 for all 3, and I'm thinking that's quite a bit lower than the averages, yet I don't feel cheated. You really CAN buy more with many of your dollars today, but you don't HAVE to!

  • Report this Comment On September 28, 2012, at 6:22 PM, xetn wrote:

    According to the CPI Inflation Calculator:

    $2.00 in 1963 would be about equal to $15.06 in 2012.

    An $18000 1963 home would be about $135.517 now.

    That home was about $12.41 / sq ft.

    The current home is about $97.75

    One other thing that is very telling is that in 1963, many families only had one parent working (lots of stay at home moms).

    So, I would have to say that a great deal of the current amounts are due to the Fed's actions at creating monetary inflation and producing price inflation. Definitively not fulfilling the Fed's mandate of a stable currency.

    Then there is this chart that shows home prices in ounces of gold (1963-2011):

    http://www.caseyresearch.com/sites/default/files/US%20Home%2...

  • Report this Comment On September 28, 2012, at 6:24 PM, Darwood11 wrote:

    My major single expense is for the category called "insurance." That includes health, automobile, home, life, and long term care.

    Of course, it could be argued that some of that is optional. So I suppose I should only include that required by law. But as so many drive uninsured, have no home insurance, no health insurance I suppose it could be argued that I'm flushing my money on personal expenditures.

  • Report this Comment On September 28, 2012, at 11:19 PM, JungleGains wrote:

    Directed cryo-regeneration:

    Your adult cells will be reverted into pluripotent stem cells (better still, you may have stored some of your placental cells). Your own stems cell will then multiplied many times over prior to these sames cells being infused back to the donor. Using sophisticated software, microprobes, and temperature and chemicals to direct the cells and the chemicals to the right place and to do the right thing, the body will be allowed to renew itself while you are cryo-preserved.

    You will be awakened to your new self. A new wo/man.

    You have just bought extended life from 78yrs to 78+ X (where X depends on how deep your wallet is and how many times you have had the treatment.

    Fortunately, your can't buy eternity yet.....at least not in the next 50 years.

  • Report this Comment On September 29, 2012, at 12:55 AM, wolfman225 wrote:

    I'd like to add to the mentions above that kind of slewed into an often unappreciated aspect of these type of calculations, meant (with all good intent, I'm sure) to help us "put things into proper perspective".

    The question is: How does the quality of the goods/services we are so fortunate as to be able to buy now with a lower percentage of our supposedly increased buying power compare to that of those bought 30, 40, 50 years ago?

    Just to take education, I don't think there's any real argument that the quality of the education provided today is anywhere close to that of the past. The "dumbing down of America" isn't just a slogan, the lowering of the standards and quality of education has had a direct effect on the potential lifestyles of future generations of Americans. Not to mention the quality of life that these same future Americans will be able to provide to future retirees.

    In other areas, from clothes to appliances to cars to the ubiquitous electronic toys everyone has decided are the new necessities, the watchword has become planned obsolescence. Where before the term "durable good" actually meant something, now we have become conditioned to be unsatisfied with what we have, no matter how suitable it may be. As soon as the next "latest and greatest" comes out, we have to have it, lest we be considered somehow less. Our grandparents bought things that were expected to serve their intended purpose(s) for years, if not decades. Now.......?

    I truly think we've made a poor bargain. I'll take the reliability of the tried and true, high quality products made to last and give years-long service, over the flash-in-the-pan fad of the moment. Our civilization was promised a miracle of increased time available for leisure pursuits, thanks to the increased productivity made possible by technological advances. What we got (and are getting still), was wage slavery & the dissolution of the traditional family unit, thanks to the need for a two wage-earner household to simply provide "the basics" of modern life.

    A poor bargain, indeed.

  • Report this Comment On September 29, 2012, at 7:47 AM, MNGPHR wrote:

    Wolfman the quality of education has not dropped. You get what you put into it. My parents pushed me to push myself. I was in high performance science and math classes that prepared me very well for college. I spent more time reading than watching tv, and when I did watch tv it was discovery channel more often than not. Personal choices to push myself, which all other Americans COULD make.

    You say cars are planned for obsolesence, but short of catastrophic accidents my wife and I and our families have had no trouble keeping our cars for 10+ years. I would argue that our cars are more reliable now than ever, and getting better gas mileage than ever. That's a good deal.

    As for cheap clothing if Americans bought better quality clothing the demand would be there for manufacturers to make more. I buy high quality clothing when it is on sale and might spend more than I would at Walmart, but I don't need to buy clothes very often because it lasts.

    It's all personal choice with cheaper vs. quality products. I take the time to think about why something costs more. Is it a fad that drives the price higher or is there better craftsmanship involved that demands a higher price?

    This brings us back to whether Americans are dumber or not. Is it our education systems mandate to teach americans how to be better consumers? No. Is it our education systems mandate to push kids to want a quality education? No. Parents must push their kids. I know plenty of people from different income level households that all pushed themselves in high school with personal choices to put in the effort required, and they are all successful intelligent people.

    I would say more of the problem in this country is some people have an idea that they "deserve" things. My wife works in HR and at her last job she had qualified candidates for an entry level position, $30,000+ per year, asking for $50,000 because they thought that's what they deserved. No college education was required for that entry level position. I have a bachelors degree in engineering, and I started in the low $30K range not that long ago. I now make more because I have busted my butt at work and at home to improve myself, become more valuable to my employers, and to continually learn as much as possible about my chosen field.

    It's all about personal choice.

  • Report this Comment On September 29, 2012, at 11:30 AM, wolfman225 wrote:

    ^I can't decide if you're disagreeing with me, or agreeing in an odd way.

    My point was that we're not necessarily better off simply because we happen to be spending a smaller percentage of our income on certain things than we did previously.

    As for education, I stand by my statement. It's true that "you get out of it what you put into it.", but look at what the standard curriculum has become compared to what it was years ago. I've seen examples of a "final exam" given to 8th graders in the late 1800's that would confound many currently in college.

    The standards demanded of even middle school students of that day were much, much greater than those expected from our high school graduates today. Even so, as many as half of students in American schools today test at well under grade level, much less exceptional.

    You comment on clothing reinforces my point exactly: "I.......might spend more than I would at Walmart, but I don't need to buy clothes very often because it lasts."

    If we calculated the amount(s) needed to purchase goods of the same quality as were produced in the past, it is my contention that the percentages would be more in line with the past than with those reported in the article.

    When your talking about quality of life, which seems to be the main thrust of the article, you can't ignore the impact on the quality of life for families where both parents have to work outside the home simply to provide necessities.

    Again, Morgan, it's a great article. I always enjoy your writing for the different perspective it brings. I just think that this subject is better examined from the standpoint of quality received as opposed to percentages of income spent.

  • Report this Comment On September 29, 2012, at 11:32 AM, wolfman225 wrote:

    ^When your talking about..... should be you're. Ugh, I need a context & grammar editor.

  • Report this Comment On September 29, 2012, at 12:30 PM, PeakOilBill wrote:

    So what made it possible?

    A few things come to mind. Economies of scale achieved by using far larger, and thus more efficient, farming and mining equipment. Cheap ammonium nitrate based mining explosives. Access to very low cost foreign labor and goods, after the invention of the shipping container carried on giant container ships. The invention of the integrated circuit that enabled digital computer control of communication and industrial processes of every type. The Internet that connected them all together. Lasers that transfer vast amounts of data at near the speed of light and do thousands of other things.The jet engine that is far cheaper to operate than piston ones. Horizontal drilling that has unlocked oil and gas previously uneconomic to produce. The Interstate highway network and the 18-wheeler with radial ply tires. Antibiotics. Non-toxic refrigerants. Cell phones. Insulated windows. Satellite communication and navigation. Tunnel boring machines.

    They all combined to lower costs and increase efficiency a lot.

    The next big thing will probably be 3-D manufacturing. I can't see it, but many big thinkers claim it might be the next industrial revolution.

  • Report this Comment On September 29, 2012, at 1:37 PM, reliapete wrote:

    @xetn

    I do not understand anyone's preoccupation with what anything costs in terms of gold? Why we want to base any economic comparisons on a substance that has little utilitarian value is definitely uneconomic!

  • Report this Comment On September 29, 2012, at 1:44 PM, wrenchbender57 wrote:

    Have to agree with reliapete: The price of gold is arbitrary. It tends to follow inflationary trends but at any point in time can move far away from that trend. For those that think the gold standard was a good thing you should look at history a bit more.

  • Report this Comment On September 29, 2012, at 1:54 PM, wrenchbender57 wrote:

    Some scientists are actually building artificial organs using 3D printer technology. These organs are made from the patients own cells to eliminate rejection issues. So, yeah, I would have to agree that 3D printing might be a great new manufacturing trent, in many areas. Not just in medicine but other areas as well. If they can build organs with these machines my guess is they could build almost anything.

  • Report this Comment On September 29, 2012, at 3:45 PM, comissar wrote:

    We tend to think of the quality of goods as having dropped over time for everything but technology. I'm not so sure this is as true as many believe, but where it is true, I think it's by our own choice.

    For instance, I think many of my clothing purchases now are as good or better than when I was a kid. There are exceptions - shoes come to mind - but that is largely because people treat them as short term fashion accessory decisions and won't pay for high quality manufacturing the way they would when people only owned one or two pair and they were expected to last for years. We treat most clothing as throw-away items.

    White cars were the original example of planned obsolecsence, a phrase that dates to the fifties, cars are higher quality in virtually every way that I can think of to use the term. Safety, reliability, durability, gas mileage, maintenance requirements, comfort, features - you name it. Our family is pretty well off, yet the four drivers in our family have an average vehicle age of 12 years and 175k miles. Mine is the youngest at 9 years and 150k miles. No rust, nothing broken, nothing worn out, never a major repair and it still looks good; I expect to keep it for years, even though I could afford a new one. The oldest has 210k miles on it and approaching beater status (a college car) and we'll be happy if it makes it through the school year. But I still remember my dad's '57 Chevy wagon in 1968 where the tail fins could have been knocked off with a good kick and one door would no longer open due to rust, water came up through the floorboards, and at 100k miles he didn't trust it to drive more than 10 miles from home. Cars from the seventies weren't much better. I love classic cars, but they were not "better" in any meaningful way.

    The same goes for houses. Even for the same size, an inexpensive modern home is safer, more energy efficient, has better plumbing and wiring, a roof that will go longer without leaking, fewer repairs needed in general. Most of the quality complaints are really subjective statements about materials, i.e. solid wood vs. particleboard or plastic.

    Education is debatable. Can you believe that there are kids getting out of school today that don't even know how to ride a horse? How do you compare the average high school education today with that of fifty or a hundred years ago? Things have changed, both in what it means to be educated and what you need to know in order to be successful in the world. Unfortunately, the best predictor of the quality of education in a given area is the amount of money spent on it, and in many communities, that number is low. Studying the cost of primary and secondary education per capita over time vs incomes, GDP, etc. would make an interesting article all by itself.

    I think that a significant part of the change is in what we perceive to be of value. If a smaller part of our budget goes to food/clothing/cars/education/etc., but that food/clothes/car/education is of lower quality than before, what we are really saying is that we don't value the quality of that item, at least not as much as we value whatever else we spend money on.

    Stan

  • Report this Comment On September 29, 2012, at 6:07 PM, bordereiver wrote:

    Excellent, thanks for the info summary. Most of us would have guessed the direction, but under estimated how much of a change.

  • Report this Comment On September 29, 2012, at 6:32 PM, NickD wrote:

    WMT XOM AND MCD pay all my bills I can sleep and pay my bills Mr.Market is so nice

  • Report this Comment On September 29, 2012, at 6:52 PM, NOTvuffett wrote:

    Why wouldn't we expect technological innovations make goods cheaper, and therefore raise our standard of living?

    Why should we have inflation in the first place? If you understand natural logarithms, you will realize that inflation is like compound interest in reverse. Long term gains, capital gains, are taxed at a lower rate than ordinary income. However, these profits have already been subjected to corporate taxes. If you decide to sell, the tax on your gains is not indexed to inflation.

  • Report this Comment On September 29, 2012, at 7:43 PM, NOTvuffett wrote:

    Oh, P.S.

    If you do have the misfortune of building up a pile of assets but you die before you can use them, the democrats want to take 55% of those. Your heirs didn't need that money anyway, lol. Obama will give them food stamps and a phone.

  • Report this Comment On September 30, 2012, at 8:33 AM, devoish wrote:

    I think you missed again.

    The median income in the USA is $16.00/hour not $20. which shows less than half of our country has shared in any gains.

    A century is long term, I guess the falling median income of the last decade is something more than half of Americans feel pretty harshly and might be considered the end of a trend.

    Maybe the "average American's" lifestyle has improved since the depression and unions and SSI, but it has declined since freedom and Reaganomics and trickle down has ruled the Government.

    The BLS also says that the median individual income in the USA,- $25k - is within striking distance of the poverty level for a household of 4, ($22k). How does that compare to a single earner household in 1960's with the ability to mitigate risk by sending two earners to work at lower incomes if need be? Seems to me every household is experiencing the need to mitigate today what might have happened to some 30 years ago. That is a significant loss in lifestyle. People are not wrong that they are losing the financial equality that their grandparents fought and died for.

    They are also correct when they recognize that with a vast majority falling behind a select few it is a systemic theft, not a personal responsibility issue.

    If you divide US household income by quintiles, as is commonly done, today's one or two earner household has income up to $35,000 in the bottom two quintiles or 40% of American households. For each of these two groups housing represents more than 35% of their income, almost 40% for the lower quintile and there is no single earner margin of error to fall back against in the case of sickness or job loss or outright "good for nothing laziness".

    The average balance per open credit card -- including both retail and bank cards -- was $1,157 at the end of 2008. That's up from $1,033 at the end of 2006, a growth of nearly 11 percent in two years. - creditcards.com

    As of March 2009, U.S. revolving consumer debt, made up almost entirely of credit card debt, was about $950 Billion. In the fourth quarter of 2008, 13.9 percent of consumer disposable income went to service this debt. - creditcards.com

    If you really want to predict the future, look at the future.

    Undergraduates are carrying record-high credit card balances. The average (mean) balance grew to $3,173, the highest in the years the study has been conducted. Median debt grew from 2004’s $946 to $1,645. Twenty-one percent of undergraduates had balances of between $3,000 and $7,000, also up from the last study - creditcard.com

    http://www.creditcards.com/credit-card-news/credit-card-indu...

    Best wishes,

    Steven

  • Report this Comment On September 30, 2012, at 9:43 PM, NCalifornia101 wrote:

    xetn - very interesting chart on gold and housing.

    So if given the option, would you infer that housing is a better option than gold? Housing is very tempting right now especially with the extremely low interest rates.

    (Does anyone have other ideas on how to benefit from the low rates and pending high inflation?)

    Cheers,

    Nick

  • Report this Comment On October 01, 2012, at 9:43 AM, maximusdesimus wrote:

    Snake > Angry Birds

  • Report this Comment On October 01, 2012, at 11:58 AM, Johny205 wrote:

    It's funny how a lot of these things are considered a necessity, such as a cell phone, cable, ect. I have rental houses that are rented out to sec 8 tenants. The county might pay like $1,021for rent on a 3 bedroom house and the tenants portion every month is $200 for a total of $1,221. It's kind of funny they always have a problem trying to come up with $200 a month but yet they have a 55 inch big screen tv, a better cable package than I do, and a smart phone-- it's nice to see they have their priorities straight! They shouldn't even have a cell phone or cable if the county is paying for their rent, food, medical bill and even their auto insurance (I didn't even know they would do this untill recently). God bless America-- or at least the ones that are to lazy to work.

  • Report this Comment On October 01, 2012, at 12:57 PM, Melaschasm wrote:

    "if given the option, would you infer that housing is a better option than gold? "

    IMO housing is currently a much better option than gold. Housing prices are down significantly from the peak, and have fallen below the average price based upon several metrics. Gold prices are up significantly from their bottom, and while it appears positioned to continue to increase in price, the time to sell is uncertain, and likely to be much sooner than housing.

  • Report this Comment On October 01, 2012, at 4:33 PM, hbofbyu wrote:

    @Johny205,

    Same thing here. I have a tenant who struggles every month to meet rent and ends up paying late fees of over $50-100 every month, yet on a recent walk-through I saw 2 MAC laptops, a 54" LCD TV, highspeed internet and a state of the art gaming PC. Judging from the trash, they live on fast food and ordering up Chinese.

    Who raises the financially retarded and what do they (not) teach their children?

  • Report this Comment On October 01, 2012, at 5:24 PM, CrankyTexan wrote:

    "yet on a recent walk-through"

    That's the one thing I hated about renting..... landlords entering the apartment when I am at work.

  • Report this Comment On October 01, 2012, at 6:21 PM, devoish wrote:

    yet on a recent walk-through I saw 2 MAC laptops, a 54" LCD TV, highspeed internet and a state of the art gaming PC.

    Excellent point! here's another. My boss expects to reach me on my cell phone, and to get my current job I was told to apply online.

    You are lucky the Government pays your rent or house would be empty. You should be kissing our tax paying a**ess.

    Steven

  • Report this Comment On October 02, 2012, at 3:35 PM, Borbality wrote:

    haha have to agree with Steven on that last point. Pretty funny considering you guys are the ones profiting from this arrangement.

    But it's also funny that these slackers are the types thinking they're pulling a fast one on everybody by buying up useless toys with whatever cash they can scrounge up.

    It's all pretty sad when you think about it.

  • Report this Comment On October 02, 2012, at 10:44 PM, NOTvuffett wrote:

    Obmabots, UNITE!!!!!

  • Report this Comment On October 02, 2012, at 11:06 PM, devoish wrote:

    Borbality,

    Actually I am going on a lot of assumptions that we do not know.

    How do i know the tenant wasted money on a flat screen? Maybe he stole it. Maybe he got to keep it in the divorce. Maybe he won it on Price is Right. Maybe he had it from before he got sick and lost his high paying easily afford a flatscreen job. Maybe his brother gave it to him when he bought anew one?

    I should be more thoughtful.

    Best wishes,

    Steven

  • Report this Comment On October 03, 2012, at 9:03 PM, NickD wrote:

    So what this tenants rent is all your income you can't wait for a extra $100.00 a month.

  • Report this Comment On October 05, 2012, at 12:46 PM, xetn wrote:

    Reliapete: Gold is/has been real money for over 6000 years. There has never been a fiat currency that has survived and all ultimately reach their intrinsic value (zero). What you see in any gold chart is the fiat price of gold. All currencies have a price in commodities. If this were not so, all goods would cost the same. The biggest factor regarding gold or silver is there is no counter-party risk if you have physical ownership. Not true of ETFs.

    ncalifornia101: I think housing could be a good investment if purchased for rentals. It may even be a good time to purchase for a place to live (it may even be cheaper than renting).

  • Report this Comment On October 05, 2012, at 4:43 PM, Sunny7039 wrote:

    IF we had a real mathematics education, everyone would know that this smattering of statistics is meaningless. Averages are not only uninformative, but misleading for any data that do not fall under a normal curve. They create the illusion of knowledge, and the false impression that real thinking is going on, when nothing of the sort is going on. (So is it any wonder that even most "sophisticated" investors have been left holding the bag at least once when the latest bubble burst? Nope. It's not. Look at your balance sheet and tell me how many of those hits you can still take.)

    The other problem, of course, is that of the "rubber yardstick." It takes a LOT of careful thinking to avoid measuring things with a changing metric. It's not a simple matter at all. I know already what the reply will be, if there is one. "We're using constant dollars, blah blah." Well, what I'm saying is that it is the phrase "constant dollars" that needs to be closely scrutinized.

    Of course, you may believe that it's in your best personal interest (if not in anyone else's) to shill for the inflation of another bubble. In this, you may be right. You may get in and out before the next one inflates, and then pops. That is certainly possible, perhaps moreso than it was in 1999 or 2007. You may indeed be well prepared, this time. You may come out of it in better shape than you are now.

    But then, let's just call this what it is.

    Ultimately, it also depends on what you value. In 1960, my father graduated from a prestigious private college (night school division -- he worked his way through) with no debt. He could walk down the street and collect job offers (plural) and then ponder them. He could collect several in a few days. He could have collected even more, and knew it. If you think electronic toys (which are now the epitome of planned obsolescence) and a bigger car and house (for some) have increased your quality of life so much that what my father could easily do in 1960 has been surpassed in value, well . . . let's just say we don't value the same things.

    I'm not a big fan of creature comforts. They tend to make people physically and intellectually lazy -- and to dupe them into thinking they're doing well. Real opportunities for doing real things are more my style. But then, that's me.

    (Small P.S.: Most people aren't aware that the typical "modern home" will burn down at a rate several times that of the homes built 50 years ago, and produce more toxic smoke. If that's an improvement, well, give me that smaller, more solid home.)

  • Report this Comment On October 05, 2012, at 4:53 PM, Sunny7039 wrote:

    BTW, Steve, who used medians, not averages, clearly knows what I'm talking about.

    And we haven't even touched on David Hume's problem of induction! Even if all of these things were true about the past, they provide no guarantee whatever about the future, and for all we know, no guidance. Steve noticed that, too, when he said that if we are going to talk about the future, then let's talk about the future. Great point!

  • Report this Comment On October 05, 2012, at 8:08 PM, xetn wrote:
  • Report this Comment On October 27, 2012, at 5:05 PM, fooldyadidnti wrote:

    "IF we had a real mathematics education, everyone would know that this smattering of statistics is meaningless. Averages are not only uninformative, but misleading for any data that do not fall under a normal curve. They create the illusion of knowledge, and the false impression that real thinking is going on, when nothing of the sort is going on."

    Exactly.

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