CURRENT AFFAIRS: On Bailouts and Bubbles

While I’ve never really thought along the same lines as anyone else I knew or anything I’d read, it wasn’t just a spirit of rebellion or a  stubborn streak I don’t think. I’d like to say it’s just a different angle. For example, I don’t really believe this whole “housing bubble” term.

It’s true that real estate sort of simmered and then suddenly boiled over like spaghetti sauce just when you think you’ve turned the flame down to a point where you can walk away, but I don’t believe that prices exploded out of sync with the rest of commodities. Forty years ago (approximately), my sister and her husband bought a house for $40,000 and just before this crisis it was valued at $400,000. That’s in keeping with the price of a ’69 VW Beetle which was $1,800 (I went for the convertible which was $2,500) and the new one is $18,920.  A sandwich roll was $.05, now I’m paying $.59. A quart of milk was $.25. Chicken was $.19/lb and hamburger $.29. I used jumbo shrimp (now called ‘super colossal’ at 6-8 per pound) for my stuffed shrimp at $1.69/lb. vs. current  price of $17.99/lb.

Do you notice a trend here? Prices on all items have all gone up approximately 10 times. So how is the cost of real estate any more ridiculous than the cost of anything else?

Well there lies the problem. My first job in an office as a order clerk typist paid $60/week. That’s $1.50 per hour and minimum wage was $1.25.  Minimum wage will be raised to $7.25 in July of this year, but that’s a far cry from a 10-times rate of $12.50. Even with this obvious lack of cost of living increase in salary to keep up, many workers are indeed beyond that barrier to be bringing in salaries of  $25,000 to $65,000 that are well in keeping with the times, coupled with the fact that there are more two-earner households than there were forty, fifty years ago.

The problem then appears to be the failure of the minimum wage to keep up.  That, and the acceptance of illegal workers which keeps earnings even below that point. I think that if government is to have any say in how businesses operate, that should be a priority. The next step, of course, would be to penalize companies who attempt to avoid paying workers reasonably (though I do see labor union jobs often out of control earnings-wise) by moving production to foreign soil.

So were the housing costs out of sight? I don’t think so. Were mortgages given out indiscriminately to unqualified buyers? Yes. Under pressure from government good intent to help lower income earners to afford housing, and to cater to promising up and comers who bought mansions they worked too long hours to spend much time enjoying,  the housing market was brought down. But was it a problem of overevaluation? I don’t think so.

But then, I always have seen things from a different angle.

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