By request

While we’re off-topicking this post, and in the vein of stuff-I’d-probably-pay-you-for-if-it-was-easy, I’d be interested in Tim’s take on Chris’s ‘defence’ of globalization here (or rather on his list of alternative culprits)

Hmm, well, my arguing economics with Chris is one of those things where I’m not going to come off well. The reference is to this post.

And my problem is that I disagree with the basic premise. I don’t think real wages have fallen in the first place. I agree that inequality has increased, that certain wages have stood still over the decades. But not that real wages have fallen for any interestingly significant group.

Thus the why real wages have fallen for some groups argument doesn’t make sense to me.

For example, WhatsApp for a time there charged no fee and carried no advertising. So, we’ve three ways of measuring GDP. Production – WhatsApp appears as zero here. Consumption – zero again. Only in incomes does it appear, the whatever, $20 million a year the engineers were getting paid.

And yet 1 billion people were getting some or all of their telecoms needs from WhatsApp.

We’re not measuring GDP right in this digital age – real wages are not falling.

81 thoughts on “By request”

  1. They are perceived to be falling. As tax takes ever larger lumps from our actual pay, now up to 43.6 % across the whole country, that leaves very little to comfortably live on.

    When politicians boast the have taken X% of people right out of income tax altogether, and demand headlines for this munificence, I retch. Speaking of retching, Gordon Brown was a master at stealth taxes. He no longer needed income tax, he stole it in other ways.

  2. I find Chris Dillow curious. Clearly a very powerful empiricist, he nevertheless still occasionally indulges in leftism without stopping to ask whether that makes sense. Hence real wages have been depressed by the decline of trade unions, across the economy and not just in certain sectors. Equally, reduced welfare entitlements (is this actually true though?) mean increased labour supply and reduced real wages; they just do. At the same time immigration to high income countries has no impact at all on real wage rates; it just doesn’t.

    Overall I am heartened that there are still a few on the left that get globalisation (blimey, a lefty who understands that cheap goods benefits workers!) and no I am not convinced either by the basic premise of falling real wages.

  3. We’re not measuring GDP right in this digital age

    And it’s also intuitively obvious, to anyone who uses a computer or who has otherwise observed the evolution of the internet / its benefits over the last 20 years or more.

    So much “richer” in so many ways, and without a dime of related income showing on my tax return.

  4. Thanks Tim. You should really put a tip jar somewhere.

    The one that I most agree with (or that seems more difficult to refute, at least) is that increased productivity is biased towards the more skilled. So that ‘manual-types’ are more likely to be put out of work by technology.

    And I guess that even if it’s true that the bottom-end of the ‘on average’ hasn’t gone down, that’s cold comfort to someone who no longer has a job.

    As has been asked elsewhere: if Trump’s ‘solutions’ for rust-belters are pie in the sky, what might be some viable (let alone palatable) solutions for 40- or 50- something ‘unskilled’ or ‘mono-skilled’ labourers who live in the flyover states?

  5. So Much For Subtlety

    Ironman – “Clearly a very powerful empiricist, he nevertheless still occasionally indulges in leftism without stopping to ask whether that makes sense.”

    You and him both. Just without the powerful empiricism and a lot more vitriol. You are in no position to criticise anyone.

  6. Anyone with a brain who is 40+ can see we are infinitely wealthier as a society than we were a few decades ago. People on benefits today live lives that are better provided for than people who worked for a living then. Its just simple things – when I was a kid (not a deprived background by any means) it was just the done thing to have hand-me-down clothes for example. My cousins were all the same sort of age and clothes were passed from family to family as the children grew. Same for things like bikes – my older cousin outgrew his bike, I had it for a birthday present. No-one had new stuff all the time, everyone made do with second hand stuff and fixed up the old too.

    Also one can look at the massive growth in personal services – when I was kid there were no garden maintenance businesses, or tree surgeons, or pet groomers, and vets looked after farm animals. Now people have money to spend on what is effectively ‘staff’, and these sort of businesses are everywhere. Similarly we have outsourced our cooking to a mixture of restaurants and fast food outlets, combined with the supermarkets for virtually everything else. The idea of buying basic foodstuffs and cooking from scratch is now a luxury leisure activity (the growth of all the middle class male foodies is testament to that) and most people cook very little, some not at all. Indeed its probably the poorest who never cook, and the wealthier who do, by choice.

    You have got to be either blind, or purposely obtuse to say that we have as a society got poorer.

  7. So Much For Subtlety

    Ben S – “if Trump’s ‘solutions’ for rust-belters are pie in the sky, what might be some viable (let alone palatable) solutions for 40- or 50- something ‘unskilled’ or ‘mono-skilled’ labourers who live in the flyover states?”

    I wanted Trump to win but even I am surprised by the response of the stock market. However it is worth noting that Trump has one thing to offer these men – he is willing to spend stimulus money on them. Now I think he should not do so, but he will. Obama would not. When he set out his stimulus package, the feminists objected that too much money was going to White men. Especially working class men. So Obama spent trillions but nothing much on the sort of jobs these sort of men used to hold.

    That will change.

  8. Jim
    I agree
    But outsourcng the pool guy, the tree surgeon, vets for pets, amazon and pizza delivery should show up in GDP.
    That it doesn’t much is puzzling, and shows that GDP is a crap statistic. Economics isn’t s a science when its basic measurement is so out of whack with personal experience.

  9. I always have this trouble with economics in that everything is connected and the logic train (or rather tree) does have many (branch) lines. So chris’s factor of decline of Unions, seems reasonable on the face of it. But the bigger the factor the bigger it relies on managererialism and that the bosses will take what the workers would have had, not the owners or the consumers. Yet if you ask if trade unions did not decline would not global competition have had even more impact on the domestic unionised businesses. i.e. more of them go belly up. So you could say it decline of unions reduces the impact of globalisation. But then if that lead to reassignment of capital and migration of workers to higher growth industries then yes could yet still be true that maintaining unions status quo would have been being cruel to be kind.

  10. @”Its just simple things – when I was a kid (not a deprived background by any means) it was just the done thing to have hand-me-down clothes for example. ”
    It still is.

  11. Thanks Tim.
    We’re like a pair of barristers: I’m saying my client isn’t guilty of the crime and you’re saying there wasn’t a crime at all. You might be right; measuring inflation is tricky and it might well be overstated. But I suspect this is more true for heavy users of tech (where prices have fallen from infinitely high levels) than for others.
    But this leaves Alan’s question: why, then, do so many believe their real wages have fallen? It might be that they fell they’ve fallen relative to their aspirations; 1% growth (say) feels bad if it follows 3%. Or it might be that they’ve fallen relative to others: in the 50s and 60s low-skilled Americans were rich compared to their overseas counterparts but they aren’t so much now.
    Whatever the reason, you and I seem to agree that Trump’s victory was based upon voters’ misperceptions, even if we might differ on what those misperceptions are.
    This matters. The big division today isn’t just left vs right, but between those who want an open society and those who want a closed one. Left-libertarians and classical liberals should be on the same side here.

  12. I find it difficult to believe that an increase in the labour supply caused by people coming off benefits and looking for work depresses wages whilst an increase in the labour supply from immigration does not. Either both do or neither does.
    I doubt the decline in trade unions has any effect. That came about because ordinary workers acquired personal mobility and good access to information, so they could move to a better job rather than pay union dues and periodically strike for better conditions.

  13. A free society –not an open one.

    To leftists open means turning white natives into a despised minority in their own nation.

    There are enough people here. We need no more imported to destroy our society.

    Anyone foolish enough to be thinking themselves on the same side as the scum of the left can expect nothing save a knife in the back from their leftist ” allies”.

  14. @chris
    “But this leaves Alan’s question: why, then, do so many believe their real wages have fallen? It might be that they fell they’ve fallen relative to their aspirations; 1% growth (say) feels bad if it follows 3%.”
    I believe my real wages have fallen because when my Dad retired I was earning the same as him but could not afford the same house without any children as he could with 4!
    I hope this answers your question. (

  15. @ anon
    If you cannot afford the same house, with the same income and lower other costs, the question is why? What else are you spending your money on? Or are you demanding that you be able to buy as house without a mortgage in your 30s? 40 years ago bachelors couldn’t get mortgages so we couldn’t buy any house at all beyond the cash in our bank accounts. If you think that your not being able to buy something that previous generations couldn’t buy means that real wages have fallen, you do not understand the concept of “real wages”.
    Saturday’s FT had a graph labelled “Young breadwinners struggle” showing that average annual household disposable income *adjusted for inflation* of households headed by 20-29 year-olds had risen by 49% over the last 30 years. The sob story says that income has gone up “but so have their costs” – when the graph shows *inflation-adjusted* income is up 49%.

  16. “Similarly we have outsourced our cooking to a mixture of restaurants and fast food outlets, combined with the supermarkets for virtually everything else.”

    I’m not sure who pointed it out (Thomas Sowell?) but this generation is the first in human history which can afford to routinely pay others to prepare and cook their meals.

  17. chris said: “But this leaves Alan’s question: why, then, do so many believe their real wages have fallen? ”

    Because they are individuals not averages.

  18. Housing costs, surely? Rents have risen as a percentage of income, and as anon says above, nobody under 30 can afford a house of the same size and in the same neighbourhood as the house their parents bought at the same age. Even at age 40 they’d struggle to match their parents’ home. The average age of a first-time buyer is rising, home ownership-rates are falling.

    The government can address the size problem by granting planning permission for more homes and larger homes; but there’s nothing they can do to make e.g. Hampstead more affordable. Globalisation and a growing population mean that demand for prime locations is higher than it ever was; we see the same effect around the world, not just in the UK.

  19. Anyone who thinks we are poorer today that in past time needs to go to their local tip, and watch for a few hours at what is being thrown away. People dispose of things nowadays not because they are necessarily broken or worn out, but because they no longer want them and they aren’t worth anything to sell second hand. Ask anyone who runs a charity shop (I know someone who does) and they will tell you there’s large amounts if stuff they have to throw away because there’s just no value in it, it can’t be sold. Furniture is particularly problematic – people want shiney new, or old/antique, and out of style but functional stuff in between just clogs up space in the shop.

  20. Anecdata: my great grandmother moved in 1952 buying a house for £450 with a 3-year mortgage. I bought my place in 1992 for £40,000 and still have 16 years left on my mortgage – which still has £55,000 left to pay on it.

  21. People notice losses more than they notice gains. So in a time of change people notice what they have lost more than they notice what they have gained, even when they have gained more than they have lost.
    This is especially true when the gains and losses are difficult to measure. A man who has lost a fiver and gained a tenner can use arithmetic to overcome his instinct. A man who has lost the ability to work in one place for life but gained more flexible working hours and the internet will find the sums difficult and go with his instinct.

  22. If you cannot afford the same house, with the same income and lower other costs, the question is why?

    Because housing costs have risen considerably compared to both income and general inflation measures.

    In 1987, I paid a bit under £23k for a 2 bed flat in central Edinburgh. At the time, I was on about £6k a year (I needed a guarantor.) My daughter has just spent over 5 times that on a very slightly larger flat a couple of train stops outside Glasgow city centre. The BoE interest rate calculator only goes up to 2015 but that is roughly 2 1/2 times higher than the official inflation measure (which does include some housing costs, iirc.)

    If people are willing to stomach the pious metro elitist leftyism, the BBC have a series of videos on this sort of issue called Station Road.

  23. @”john77
    “If you cannot afford the same house, with the same income and lower other costs, the question is why? ”
    Because the mortgage would have been more than 100% of my income for my Dad it 20+ years ago it was not
    “40 years ago bachelors couldn’t get mortgages so we couldn’t buy any house at all beyond the cash in our bank accounts. ”
    I am married so that is not relevant .

  24. @”Surreptitious Evil
    “In 1987, I paid a bit under £23k for a 2 bed flat in central Edinburgh. At the time, I was on about £6k a year (I needed a guarantor.) My daughter has just spent over 5 times that on a very slightly larger flat a couple of train stops outside Glasgow city centre. The BoE interest rate calculator only goes up to 2015 but that is roughly 2 1/2 times higher than the official inflation measure (which does include some housing costs, iirc.)”
    Thank you for the support, amazingly in many places you can find far worse than this. In wonderful places like Catford prices have gone up far far more.

  25. “40 years ago bachelors couldn’t get mortgages so we couldn’t buy any house at all beyond the cash in our bank accounts. ”

    Wow, I didn’t k ow that. I can’t buy a place now either but at least the reason has changed.

    Well actually I could buy somewhere if I was willing to inhabit a matchbox in a shitpit prohibitively far away from work (and my commute is already just over an hour).

  26. Bloke in North Dorset

    Anon,

    “I believe my real wages have fallen because when my Dad retired I was earning the same as him but could not afford the same house without any children as he could with 4!”

    No doubt won’t have been allowed a mortgage ore than 2.5 x salary. House prices were always 2.5 x salary of the people who lived there. When those restrictions were lifted lo and behold people couldn’t afford bigger houses, they just had to pay 4x salary for the same house.

    This is driven in no small by the middle classes who value the green belt more than they value affordable housing for their children.

    John77,

    “40 years ago bachelors couldn’t get mortgages so we couldn’t buy any house at all beyond the cash in our bank accounts. ”

    Really? I took out my first mortgage in ’77 (OK that’s 39 years but I applied in ’76) as a single man so that my recently widowed father could more out of the pub he was running. The building society didn’t bat an eyelid about my marital status, they just insisted that I saved with them for 6 months and wouldn’t lend more than 2.5 x current salary, even though I had excellent promotion prospects.

  27. Bloke in North Dorset

    “I find Chris Dillow curious. Clearly a very powerful empiricist, he nevertheless still occasionally indulges in leftism without stopping to ask whether that makes sense. ”

    I’ve been reading him for a very long time, along with here its on top of my RSS feed. I’d say in the past couple of years its more a case of him letting his tribal loyalties for Labour and the usual Labour position of hating Tories cloud his otherwise excellent objectiveness. It seems that the election of Cameron really wound him up, even more so that the coalition.

  28. IIRC it wasn’t until the mid to late 90s that it became commonplace for single people in their 20s to buy property. Mainly because far higher interest rates in the 70s and 80s precluded it being affordable, and financial institutions were more conservative in their lending habits. The idea that you could come straight out of uni, get a job, and immediately buy a house on a 95% or 100% mortgage didn’t enter the national psyche until the late 90s and early 00s. The concept probably lasted about 10 years or so until the crash of ’07. It was however the anomaly not the norm.

  29. @ BiND
    May be 40+ by now – but 41 years ago *I* couldn’t. Things gradually changed after one of the sex equality acts: enough middle-aged spinsters had got mortgages after complaining how unfair it was that mortgages were only given to married men that after the sex equality act was passed bachelors could argue that it was sex discrimination that we couldn’t get mortgages while spinsters could.

  30. @ anon
    If you are married then your numbers do not add up unless your Dad retired at the peak of the Blair/Brown house price bubble and/or your wife is a stay-at-home housewife.
    Normal inter-generational span is deemed to be 30 years.
    Halifax house price index for 2014 was a horrifying 6 times (“5 times higher than”) that for 1984, but mortgage rates had slumped from 12% to 2% so mortgage interest costs were the same *before* adjusting for inflation and total costs higher by less than inflation. And that is ignoring your wife’s earnings.
    RPI inflation for the 30 years was 187% (i.e. the index in 2014 was 287% of that in 1984), so house prices had a bit more than doubled in “real terms” *because* interest rates had dropped so monthly repayment rates still look affordable.

  31. @ SE
    Yes, but, as a pendant, I thought it might be worth poking fun at the nonsensical comment which said that – at one particular point in time, anon could not afford something that his father with the same income and higher outgoings could afford.

  32. Jim,

    “when I was kid there were no garden maintenance businesses, or tree surgeons, or pet groomers, and vets looked after farm animals.”

    When I was a kid I was the garden maintenance, tree surgeon, and pet groomer. I can’t speak to the vets as I didn’t spend much time on farms.

  33. Paying off a mortgage in a high-inflation environment is very different than in a low-inflation one. If you start off paying 50% of your salary every month, after ten years of moderate wage inflation (just 7%) your salary has doubled and now your mortgage is only 25% of your salary. After twenty years it’s pocket change. But in a zero inflation environment, you’re paying 50% of your salary to the bitter end.

  34. @ Andrew M
    Quite true and I should have respected any post saying that – but that is *not* what anon claimed.
    For what it’s worth (i) the only mortgage I had that lasted 10 years was for £10k to pay for the repairs needed to the house, not to buy it (the previous had MS and just physically could not do any maintenance, so I got zilch benefit from that (ii) #1 son is living in a far larger *and* nicer flat than I had at his age – despite being underpaid.
    We do have a horrendous housing shortage in the South-East with a massive distortion to house prices but that is *not* the same as a decline in real incomes. Read Jim’s posts! Hand-me-downs were partly a result of WWII patriotism and rationing, but partly also of the general level of income: sixty years ago, as a kid, I was recruited to help with Jumble Sales run by the local Conservative Party (that is *not* a typo). I have not seen a Jumble Sale in decades because people are so much better off that they don’t need jumble sales.
    As an OAP I can afford to buy steak! The reason why I don’t eat steak several times a week is that I cannot help thinking of it as a rare treat. The JRF “living wage” assumes that a lower working-class household with a single breadwinner should be able to go out to a restaurant at least once a month – my upper-middle-class parents started to go out for meals once a week when the last child became (temporarily) self-supporting.

  35. “The big division today isn’t just left vs right, but between those who want an open society and those who want a closed one.”
    Chris has a deceptively clever writing style. Most of his comment is couched in vagueness, wrapped in caveats, peppered with ‘mights’ and ‘maybes’. This is how a scientist writes. Then he goes for the assertive flourish at the end. Classic lefty writing.
    My assertion is that Great Britain is not divided along these lines, just along there are those who object to the piss being taken, and those who haven’t noticed it yet.
    The Afghan benefit clusters in Brent/Barnet/Harrow – 3 of the most expensive boroughs in Europe – the DfiD budget – the fact we bung more in subs to foreign farm owners than to those in the UK – the 85%+ withdrawal rates in benefits for people who want to get ahead by working – malingerers who see a GP 17+ times a year for free. It gets on people’s wick in the end.
    The division of society along open/closed lines is an illusion. Gays getting it on, pot smokers, women discreetly on the game, foreign workers trying to get on – most people are really not bothered so long as the piss is not being taken. Imv, of course.

  36. @”john77″
    My numbers are true. When my Dad retired in 2006, the stamp duty to buy a home like his would have been £25-30K.
    The mortgage would have been £2.4 -2.8k pcm (as neither nor my mum nor my wife were earning a lot the figure were true).
    (Obviously it is hard to say exactly how much the same house would have cost).
    He bought in 83 and I can assure you that he did not pay a years take home salary to the government to buy a house.
    @”but mortgage rates had slumped from 12% to 2% so mortgage interest costs were the same *before* adjusting for inflation and total costs higher by less than inflation.”
    What about stamp duty?

  37. @john77
    “Why did you ignore the Surreptious evils figures?”
    “I have not seen a Jumble Sale in decades because people are so much better off that they don’t need jumble sales.”
    Names change, they are called school fairs now – and the second hand school uniforms go really fast, you can’t be late at my son’s school.
    I can’t believe no one has ever seen one for years. Where do you live Knightsbridge?
    I think somethings are cheaper now and some things (housing) are lot more expensive which makes comparison difficult.
    However in London there are many houses

    @”We do have a horrendous housing shortage in the South-East with a massive distortion to house prices but that is *not* the same as a decline in real incomes.”
    The definition of real income is
    “Real income refers to the income of an individual or group after taking into consideration the effects of inflation on purchasing power.”
    Unless like Gordon Brown you think that house price inflation is irrelevant, then house price inflation greater than wage inflation is a decline in real income.
    The only thing worth that a pendant is a pendant who ignore the correct meaning of things.

  38. Sorry I meant to say
    “However in London there are many houses, where the present occupant would not even be able to pay, if they had to buy it now”.
    Which is of course why a lot of big family homes are becoming flats, but at least steak is cheaper now.

  39. @PF
    Thank you, of course I should have written “worse”.
    However this has been educational for me, I don’t realize that there are people who think that no children wear hand me downs now days.

  40. @ anon
    i) Jumble sales were *not* the same as school fairs or bring-and-buy – I actually bought some stuff at a couple of school fairs.
    ii) I didn’t ignore SE’s figures. Adjusted for inflation his daughter’s flat cost a bit *less* than double what he paid despite being bigger.
    iii) Stamp duty is a one-off cost of about 2% so an order of magnitude smaller than the inflation-adjusted increase in house prices
    iv) I do *not* think house price inflation is irrelevant – but it only means a decline in real income if the increase in housing cost is greater than the increase in CPI-adjusted income (RPI *includes* housing costs). Are you claiming that your mortgage interest swallows up more than one-third of your after-tax income? Household income adjusted for RPI inflation has risen by over 50% in 30 years, adjusted for CPI by quite a lot more (RPI has outpaced CPI by 20% since 2000) so your disposable income after housing costs is higher unless the *increase* in housing costs are more 40% of your after-tax income.
    v) If your father retired in 2006 and bought the house in 1983, that implies that he was in his 40s trading up when he bought it and you were in your 30s when you “couldn’t afford to” so not a like-for-like comparison
    vi) At 2006 rates stamp duty of £25-30k means that the house cost £900k-£1.1m. So you think your real income has declined because you couldn’t buy a £1m house in your 30s.
    vii) If £25k is more than a year’s salary and your Dad was earning the same, adjusted for inflation, when he bought the house in 1983, that was £10k or less. So the mortgage was less than £50k, so the price of the house has gone up by a factor of 50 when general house prices have gone up by a factor of 5 or 6?!?
    viii) Pendantically housing cost inflation greater in absolute terms, not just as a percentage, than increases in CPI-adjusted income means a decline in real income.
    ix) If the price of your father’s house jumped by a multiple of 40 or 50 and you had no other choice than to buy it then you would have suffered a fall in real income. However there are thousands of houses on sale in the London area whose prices have only risen by a multiple of 5 or 6, so you could choose one of those.

  41. Sorry – misread my own writing
    vii) it should read 20 not 50 – so not utterly ridiculous, but still highly implausible.

  42. @john77
    How is a Jumble sale different from a school fair?
    This is fascinating.
    @”Stamp duty is a one-off cost of about 2% so an order of magnitude smaller than the inflation-adjusted increase in house prices”
    For a home which costs more than 250K it is 5% over the threshold. In many parts of London a home can easily cost £700K (i.e £25k) and it costs a lot more than 2%. It is of course only one off if you never move. My parents moved 3 times in 70s and 80s and certainly did not have to spend the equivalent of 2 years take home pay on taxes to do so. It is also of course a tax you have to pay at the hardest time to do so-when buying a home.
    ” At 2006 rates stamp duty of £25-30k means that the house cost £900k-£1.1m. So you think your real income has declined because you couldn’t buy a £1m house in your 30s.”
    Sorry my mistake I mis remembered the rate it was 4% so it was worth £500-600k. I thought that my real income has declined because a house which a couple on slightly above average income now needed an income of about £100k p.a. to buy. I thought that it was quite simple to understand, unlike the difference between Jumble sales and school fairs.
    Here is another example of how real wages have fallen (and unlike my parents I know all the figures as opposing to partly guessing)
    The first flat I bought in 2001 cost £96k and cost about £450 pcm, stamp duty £960, legal costs £1K, mortgage fee £450 (a lot more now) and I needed a deposit of £12K. The same flat now costs £270 k, do you really think that the two are comparable for people on average wages? Please show your workings if you do

  43. BTW saying “things are better because I can afford steak”, is like saying “things are more expensive because I can’t afford to buy a season ticket to see Arsenal anymore”.
    One thing is hardly representative.

  44. john77,

    Not sure what point you’re trying to make. House prices are undeniably much higher than they used to be. Low interest rates haven’t completely balanced that out – hence the oft-heard lament that “X can’t afford the same house that his/her parents could afford at their age”. Surreptitious Evil’s link to the BBC news item Station Road [video, 3 mins] is a nice summary. Home-ownership rates amongst people born in 1980 are 30% less than amongst those born in 1970 or before (some nice graphs at that link). In fact plenty of them are still living with their parents.

    In addition to all that, people are handing over more of their hard-earned money for longer: the average new mortgage length is rising, and 35- and 40-year mortgages are now available. Inflation doesn’t erode the value of the debt the way it did in the past either, as explained earlier.

    People who bought more than 15 years ago should be laughing all the way to the bank; unless they need to up-size, in which case the next step up the ladder is even further: to upsize from three bedrooms to four costs an average of £145,000.

    Whether all that is an answer to Timmy/Chris’s original point about falling real wages is less clear. But the facts are indisputable. Eating a steak dinner at Wetherspoons once a month only goes part-way to making up for the fact that your flat is too small to throw a dinner party.

  45. @ Andrew M
    The point I am trying to make is that we, in general and in the overwhelming number of particular cases, have a significantly higher standard of living than when I was young *despite* the rise in housing costs resulting from the housing shortage.

    I was answering, in line with Tim, Chris Dillow’s original claim that real wages have fallen.

    I should not choose to eat a steak dinner at Wetherspoons – I prefer steaks from my local butcher – but the once a month ismisplaced: maybe you misread what I wrote “The reason why I don’t eat steak *several times a week* …”

    If someone can afford to regularly host dinner parties that are too big for his/her flat, are you sure that he/she cannot afford a bigger flat?

  46. @ anon
    Food is the most important element of living costs, more important than clothing or housing. So giving an instance in the dramatic fall in food prices relative to incomes is far more representative than your example of a rise in the price of one house

  47. @Andrew M
    I think John77 realizes he is on a sticky wicket (which is why he has given up trying to explain why school fairs are different from jumble sales).
    @John77″
    Food is the most important element of living costs, more important than clothing or housing. So giving an instance in the dramatic fall in food prices relative to incomes is far more representative than your example of a rise in the price of one house”
    Well a) it is not just one house
    b) So if Steak cost 10 p, but most people had to sleep in their car everything would be ok?
    Or rather it would be great for you because you bought in the 70s and screw the rest?

  48. @john77
    “If someone can afford to regularly host dinner parties that are too big for his/her flat, are you sure that he/she cannot afford a bigger flat?”
    In many parts of the South East it could cost £10k in tax to move to a different flat, so yes.

  49. Tim, your site just lost a long post dealing with anon’s amended numbers – in summary the buyer would have more than 50% more left after paying tax, NI and mortgage interest while CPIinflation has only been 35% so his special case (with house price inflation far above the national average) fails to support, let alone prove his assertion.

  50. @ anon
    You presumably have never been to a Jumble Sale. I had thought that it would be clear from my comment “I actually bought some stuff at a couple of school fairs.”
    School sales-of-work were partly items made by schoolchildren, partly items donated, good quality. Jumble sales were for “the poor” – entrance fee 3d, items were auctioned, most went for a few pence.

  51. @ anon
    I didn’t buy in the 1970s because when I wanted to buy bachelors couldn’t get mortgages. Next time, try reading my previous comment before making a palpably false sneer.

  52. @ anon
    In your example it *was* *just one house* because you quoted the wrong numbers and suggested that your Dad’s house had risen in price by 20x when housing in general had gone up by 5-6x – doubled in real terms.
    So your figure was unrepresentative of *anything*
    I presume that you think all will be well if house prices get down to one year’s salary but everyone starves.
    New Labour ceated a housing crisis from a moderate shortage and I do *not* think that is OK, but that does *not* mean that real wages have fallen.

  53. john77,
    Basically we’re each cherry-picking from the basket of goods to make our point. You’ve picked food prices, I’ve picked housing costs. Plenty of other costs have changed too: dearer childcare but cheaper kids clothes, etc. Let’s agree to disagree.

    Rather than looking at inputs (prices), we could look at outcomes instead. The most visible evidence for the ever-more-expensive-world theory is people choosing to delay family formation. This graph suggests that the cost of family formation was lowest in the early 1970s; and that it has been rising ever since. Obviously there are more variables than just prices; but it’s certainly a factor. You can reduce most other arguments to price too: e.g. you might say people are delaying families because they’re going to university first, I’d reply yes but they’re only going to uni because they need to earn more money to cover the higher cost of living in the first place. But this could drag on for ages, so let’s call it a draw.

  54. @john77
    My apologies I forgot that unlike other batchelors you were not allowed to buy.
    You did not answer this question
    “So if Steak cost 10 p, but most people had to sleep in their car everything would be ok?”
    Do you believe that? You seem to be implying that.

    The really scary thing is that, I bought in 2001 and upgraded in 2006, and only 15 years later, the same places look unaffordable. The same flat costs has gone from 96K to 270k!!! (Despite base rate collapsing, mortgage rates are only 1.5% less than before) Can you not see why young people think they are worse off than before?

  55. “School sales-of-work were partly items made by schoolchildren, partly items donated, good quality. Jumble sales were for “the poor” – entrance fee 3d, items were auctioned, most went for a few pence.”

    Two statements made; both false. Good show, John.

  56. @ David/anon
    I took your question to rhetorical: my answer, if you think it deserves one, is “of course not”.
    Your ignorance of building society practice prior to the passing of equality legislation is presumably because you weren’t old enough to read at the time. You have got it totally wrong when you put “un” in front of like. If I has been able to buy a house or even a flat in 1971 I should be a millionnaire by now. By the time equality legislation made I possible I was happily settled and didn’t want to move so I didn’t buy anything until the 1980s. Now that you are able to read you might like to read any of the histories of the building society movement so that you may learn that the purpose was to provide homes for families.
    Your grasp of numbers continues to leave much to be desired. Bank rate in mid-2001 was 5.25% – the best current rate for a 90% LTV mortgage is 2.39%. Are you claiming that in 2001 your morgage rate was 1.36% *lower* than Bank Rate? Or is this another of your memory failures?

  57. @ Diogenes
    Two factual statements regarding 1950s in an industrial town. Where were you in the 1950s that you can claim superior knowledge of my home town?

  58. @ Andrew M
    I was trying *not* to cherrypick but to look at how much disposable income after housing costs would buy. I quoted food because food is *the most* important item. The next most important item is clothing and that is also far more plentiful and far cheaper, relative to incomes, than in my youth.
    I agree that the cost of housing in the south-east is horrendous and will accept that it is one of the reasons for delay in family formation. It also results in people commuting farther from home to work which creates a non-monetary penalty of less “free time” not covered by my statistics.
    However I continue to believe that the general standard of living is significantly higher than a generation ago and unrecognisably higher than when I was a child. If you have reasons to think otherwise then I shall agree to peaceably and respectfully differ.

  59. john77,

    I think you and I are looking at different timeframes.

    I’ll agree we’re a lot richer than the 1950s and 1960s; but I don’t see any material difference between today’s standard of living and that of the mid-1990s. Again, some things are cheaper/better and some things are dearer/worse, but overall it’s at best zero gain.

  60. @ anon
    One consolation for Tim’s site losing my post is that I paused to think that you were making a false comparison – a guy on average earnings in 2001 could not have got a £84k mortgage to buy the flat because £84k was more than 5x after-tax earnings. A couple each of whom was on average earnings could do so.
    Secondly – why has *your* flat gone up in price so much more than general house prices? They have risen by less than 150% while yours has gone up by 181%.
    Average earnings £27,500 vs £19,608 in 2001 – after tax & NI £21,517 vs £15,010. Mortgage interest (2.39% with no fee for a 90% LTV) on £243k is £484 pcm. Repayment mortgage would be just under £1k pcm. For a single-earner on average earnings the rise in cost of the repayment mortgage would leave him/her with a small increase in nominal income but a decline in inflation-adjusted income – BUT he couldn’t be in this position anyway. For a couple on average earnings (ignoring the fact that you are on well-above average earnings if your story about earning as much as your father is true), income after housing costs goes up from £24,620 to £31,000. CPI inflation 36.5%, so “real income” marginally lower but only because you claim that your flat has gone up in price much faster than the average. For an average guy buying an average flat/house net income after housing costs has still risen faster than CPI over the the last thirty years.
    Housing costs have risen because we have a housing shortage, but what the average guy has left over is still more than enough to provide a higher standard of living.

  61. I was not born then, John. However, unlike you, I accept that things change. So unmarried men could get mortgages in the 1970s. Jumble sales were not auctions for poor people in London, they were held by stately homes. They still exist in Hertfordshire. School sales are a prime way of raising funds for schools round here and uniforms are top things to buy. As with a lot of your contributions, it seems that you have not set foot outside your house for about 15 years

  62. @john77
    “Secondly – why has *your* flat gone up in price so much more than general house prices? They have risen by less than 150% while yours has gone up by 181%.

    It was a cheap flat in a cheap area of London. As more expensive areas become affordable, cheaper areas shoot up more. I also got a good deal and present vendors are being a bit greedy IMHO. No great mystery. You seem to
    If I had paid £100K and it was on the market now for £260 K the percentages would be very different.
    BTW I hate to repeat myself but
    “So if Steak cost 10 p, but most people had to sleep in their car everything would be ok?”
    Do you believe that? You seem to be implying that.
    I agree with Andrew you seem to comparing to the 70s. Do you think that is relevant? When people talk about relative incomes falling they normally mean compared to the last few years. Do you think someone looking to buy my £270K flat should say
    “I have got a smartphone and a TV, I have nothing to complain about”.
    Or perhaps they should say “In the middle ages people didn’t have electricity New + Blue Labour have done an excellent job as we still have electricity”.
    @John77
    This
    “a guy on average earnings in 2001 could not have got a £84k mortgage to buy the flat because £84k was more than 5x after-tax earnings”
    Is rubbish, I was earning after travel costs £16k p.a. and it was easy to get a mortgage for £84k with that.
    (Not that easy to pay…)
    Have you heard of lax lending?

  63. @ anon
    I hate to repeat myself butyou kepp requiring meto do so – READ MY EARLIER POST. “I took your question to rhetorical: my answer, if you think it deserves one, is “of course not””
    Secondly ” I was earning after travel costs £16k p.a” – i.e. you’re trying to mislead us – the building societies ignored travel costs which made Brighton a popular place for youngsters struggling to buy when many city firms gave a travel allowance which was reported as part of gross pay.
    “Have you heard of lax lending?” The guys who commuted from Brighton so that their travel costs added 5xcost to the lending limit was a notorious example, Bank of Scotland’s propery lending in Ireland was another, but if really want an exytreme case, look at state-owned banks in communist countries. In some of them *all* the banks were bankrupt when someone competent got to look at the details.
    So you are saying that you, on above-average income couldn’t really afford to buy the flat at a bargain price but real incomes have fallen because anyone on average income paying over the odds would now be struggling. How can you fail to see that it as non sequitur?

    I wonder why I am comparing with the 70s – maybe it is because *I* can read and Chris Dillow is arguing that the working class has been pauperised over the last forty years? Why don’t you actually look at the subject of debate before imputing that discussing that subject is irrelevant?

    FYI Jumble Sales were for the poor; those run by the local Conservative Party also benefited the Conservative Party but not by any vast sum; those run by churches likewise benefited those churches (by rather more because they didn’t need to rent a school hall).

    “The sad thing is that politicians could make housing cheaper if they desired.” For once I agree with you – but no one politician on his own as Cameron as PM tried to ease planning constraints and his plans were gutted by oposition politicians for the sake of it and vested interests (council planning officers)

  64. @ Diogenes
    So you admit that your insults are based on total ignorance of the facts.
    And yet you choose to add further inaccurate insults. Why don’t you grow up?

  65. @ Andrew M
    Yes.
    I am looking at the longer term because (i) Chris Dillow has carefully chosen 40 years so as to get his base date when miners’ pay had nearly doubled in two years (so we get pictures of kids scavenging coal from waste heaps *because coal was so expensive that they made good money from it*) and returns on capital on replacement cost accounting were negative for vast swaps of UK industry (ii) I remember what it was like 50 and 60 years ago (and the massive changes in living standards from 1951 to 1964) (iii) I regard the New Labour period as a blip because it is clearly unsustainable – the fall (by two-thirds) from 6% to 2% in the share of national wealth (excluding owner-occupied houses since these should be valued by use and inheritable council house tenancies are not included) owned by the lower 50% is unrepeatable as a repeat would make it -2% and the near-trebling (+193.6%) of house prices in Blair’s first ten years totally distorts any national comparison between council tenants, those who bought before 1974, and the rest, and (iv) I lack a grasp of what things were like for normal guys twenty years ago when I was an international consultant on an hourly rate varying from £62.5 to £110 and supporting a family of four on my erratic earnings.
    Between 1997 and 2010 we saw a massive transfer from workers in the private sector to public sector workers (especially MPs and their staff who are not recorded in statistics for the public sector) and non-workers so many private sector workers feel worse off while the country as a whole is better off.
    One generation is almost certainly a better yardstick for comparison but Chris Dillow carefully selected forty years and I have no “feel” for the change over twenty years – I can only look at the statistics.

  66. Beg pardon – it was Chakrabortty who said 40 years, Chris Dillow just said 70s. Doesn’t change my reasoning,

  67. @john77
    “For once I agree with you”
    Probably one reason why politicians don’t build more housing, is because there are people like you saying things like
    “Batchelors couldn’t buy in the 70s” don’t complain.
    Or the even more weird
    “Food is the most important element of living costs, more important than clothing or housing. So giving an instance in the dramatic fall in food prices relative to incomes is far more representative than your example of a rise in the price of one house

    By the way I am not trying to mislead you, my salary was below average for London at the time and the same flat is unaffordable for someone above wages for London.
    BTW it was not a bargain, it was a good deal. I maybe paid £2-3k less than it was worth – not a massive amount but a little bit.
    The current vendors are a bit greedy buy only £2-5 k as I said before ”
    It was a cheap flat in a cheap area of London. As more expensive areas become affordable, cheaper areas shoot up more. ”
    That is why prices have gone up so much, do you not understand this?
    It is quite a well known effect.
    For someone who attacks others for insulting and being ignorant. You accused me for lying

  68. BTW I would really like documentary evidence about Bachelors not being able to buy. I have distant relatives who bought in the 60s – I doubt it was 100% cash.

  69. @ anon
    I said “If you are married then your numbers do not add up unless…”
    You then said they were true and a bit later changed the £1m house to a £0.5m one. You just made a mistake and I pointed out that your numbers were wrong. I didn’t call you a liar.
    If you were not trying to mislead you cannot have known what you were talking about. Talking about the impact on someone on national average earnings and then suddenly a day-and-a-half later saying “Below average for London” is misleading whether or not you intended it.
    Do you enjoy starving to death? Most of us choose to stay alive by eating. The hierarchy of needs goes food, clothing, housing in that order.
    I told you to read any history of building society movement. Do so.

  70. @john77
    “I didn’t call you a liar.
    If you were not trying to mislead ”
    That is implying that I am a liar.
    I had just misrembered the stamp duty that is why is the values changed (the £1 m) was your figure not mine. I never changed.
    What I think is really weird is your nit picking of my figures, it is like you have never heard of houses being expensive before.
    Then again as you seem to think that if house prices go up by x percent then all houses go by exactly x percent so maybe you haven’t. Or do you now understand that some areas rise quicker than others over a time period?

    @”Do you enjoy starving to death? Most of us choose to stay alive by eating. The hierarchy of needs goes food, clothing, housing in that order.”
    That is not relevant as we are not comparing today to a time when there was widespread starvation but cheap housing are we? (or was there mass starvation in the 70s?) In reality the most important one of those, is the one you can’t afford.
    If you have a house and plentiful food but no clothing then clothing is most important. Surely even you can see the flaw in your analogy?

  71. @john77
    “Why don’t you grow up?”
    @john77
    “Now just shut up,”
    Perhaps you should take your advice.
    This has been an interesting thread, though. I did not know before hand that
    1) Some people didn’t know children still use second hand clothes
    2) Some people think that all prices of all houses rise by the same percentage and are confused by some rising by a different percentage (I knew that when I was 18).

  72. @ anon
    When your reading skills improve you will discover that the debate was whether real wages for the population as a whole have increased, not whether *your* real wages have increased. So what is relevant is the rise in average wages and average housing costs.
    I had not realised that anyone had failed to notice that some children do not wear second-hand clothes. Jim did not say that no-one today has second-hand clothes – he said that “it was the done thing” to wear hand-me-downs.
    Your persistent misquoting of yourself and a range of other people is thoroughly irritating and seems to have no other purpose which is why I want you to shut up..

  73. @john77
    “When your reading skills improve you will discover that the debate was whether real wages for the population as a whole have increased, not whether *your* real wages have increased. So what is relevant is the rise in average wages and average housing costs.”
    For someone who objects to others insults, you seem to insult a others a lot.
    Your reading skills leave a lot to be desired as I said.

    I am sorry I should have said
    “I didn’t realize that people don’t think it is still the done thing to wear hand me downs anymore”
    not
    “Some people didn’t know children still use second hand clothes”
    “BTW if you don’t believe my figures, here is a street in London (not where I have ever lived)”
    Nothing to do with me but an example.
    Also if we should not mention personal anecdotes, why did you do so? Another example of double standards.

    However, the really weird thing about your attacks on me, is that I am not really talking about something new – there is quite a lot of press about the lack of affordable housing. However you are acting as if I was claiming to have invented cold fusion.

    BTW this statement of yours
    “have a significantly higher standard of living ”
    is true
    if you change to
    “have a significantly higher standard of living, assuming you can afford decent housing, for those who can’t then it is different”.

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