Well, now you're saying that, sure. By definition of profit within your now explicitly referenced classical economic definition, an efficient market doesn't allow for economic profit = true. I think you don't actually understand what that means though, because you've used it as though it has anything to do with this ongoing discussion.
What "in an efficient market no one makes economic profit" means is that if you don't have [capital investments, training time, startup costs, market vulnerabilities, changing customer preferences, barriers to entry, TAXES, all other real world things that demonstrably do exist and always will] to deal with real world situations, economic profits attract competition that reduces your prices until there is no economic profits.
If that is what you actually meant, then your arguments involving this statement cease to be incorrect because of ignorance, they become arguments against your stated position.
And I agree, if you don't have to consider things like opportunity cost and capital risk, which will always exist and must be considered, your ideas have merit. However since the hypothetical on which your argument rests is demonstrably not the case, and has never been the case, the ideas won't work.
If I hire a carpenter, a plumber, and an electrician to build me a house, and I pay for materials up front, their incentive to build the house is that I am paying them a salary.
There are no investors involved in this transaction.
There is no profit, just a mutually beneficial exchange of services for cash.
There is no relevant opportunity cost or capital risk.
The only reason that would become involved would be if they were trying to expand, and I'm suggesting businesses don't need to constantly expand in order to be "successful", they just need to provide a service, pay a salary, and be stable.
Um, I guess we just disagree on the definition of middle class.
You disagree that "median" constitutes middle class? I mean, we could argue over whether we should count the entire middle 3rd, the middle fifth, or only the middle percentile, but either way "median" is by definition the exact middle of the middle class.
I also don't see how other countries catching up to us, after us leading them for decades, is indicative of our situation getting worse? Once we've been thoroughly passed maybe that's a logical argument, but we're not there yet. Those graphs do not show what your post seems to be trying to imply.
It sounds like you looked at the first graph on that link. The first graph is showing PER CAPITA incomes. I never disputed that America has the most overall wealth per person.
What I was referring to was the
second graph, further down the page, a little more than 1/2 way.
The first one averages out all income divided by the population, but doesn't factor distribution, which is what this discussion has been focused on.
The second one divides the population into percentiles, and it is clear how the extremely rich skew the entire graph of per capita and give a misleading idea: other nations have just caught up to us right at the median income (the middle 1/10th), but at every single point below that we HAVE been passed already.
I posted this in response to your claim that: "
[/size]Our middle and lower class people are better off than theirs[/size] " and that is simply not accurate.
It is somewhat understandable why so many people think that, because that was true at one time, but it hasn't been since at least 1980.
My point was that the existence of a 100% inheritance tax fundamentally alters the motivation to continue to earn a wage past what you'll need to live.
So then why do people who don't have children not subsist on bread and water and live in a shack? In fact, why does anyone, kids or not, buy anything but food and shelter? A tiny percentage of what is bought and sold is really
needed to live. Most purchases are for making life more enjoyable. You don't have kids, but you are still paying for an internet connection, which is in no way a basic life necessity.
Now, if what you mean is people would not be motivated to try to earn more income than they could possibly spend in a lifetime, that people would slow down once the marginal utility of additional dollars was insignificant, that is a change I would welcome.
So it doesn't necessarily follow that implementing such a tax would in any way shape or form generate long-term revenues.
Some people never save anything in a lifetime. Whatever they earn gets spent (and recycled back into the economy, taxed as sales taxes and/or someone else's income tax). Some people (a lot of us here) try to save enough to be able to stop working at some point - either from passive income (4% safe withdrawal rate), or possibly just saving enough to live on directly for a lifetime (at a 90% savings rate, the savings itself matters more than investment returns).
If we set up a system whereby 100 billionaires only make 100 million dollars in a lifetime (loss of 90 billion potential inheritance tax dollars)
but 100 million people are able to save up 1000 dollars more than they would have otherwise, and that 1000 each is taxed at the same 100% rate upon death, the total tax income is greater over all. Remember, I'm suggesting the estate tax apply to everyone, not just the rich.
Spending money on living and enjoying life is a "waste"?
What are the kids supposed to do with it, if spending = wasting? Do they just keep it in savings to give to their kids someday, and etc infinity, but nobody every spends it, since that is wasting a good fortune?
Spending capital in such a way is absolutely a waste. If they keep it in savings then inflation will eventually tax it into nothingness, thus the system encourages investment.
I think you are misunderstanding my question. I'm asking if going to the movies, buying ice-cream, vacations, and music are all wastes of money. Do you think that money is actually the end goal, for its own sake? What is the point of investing and maximizing returns if there is no point at which you are going to withdraw any of it and actually spend it?
You could cover basic life necessities for a whole lot less time and effort, if all you want is enough food to live.
If you just eat soylent and live in a one room studio, while you have millions of dollars of dividends coming in each year, I think that qualifies as some sort of mental condition.
The SF Bay Area and the Manhattan metropolitan areas are no more surrounded by water than any other major metropolitan area with a border.
Now you are changing the context completely! The Bay Area and NY metro areas are not any one municipality. The Bay Area comprises 9 separate counties, and the NY metro area includes 3 different states. And the majority of those areas don't have rent control.
The Bay Area is constantly expanding - when I was a child, Brentwood was all farmland. Now it is almost all developer built identical looking suburbs filled with people who wanted a 4 bedroom house with a big yard and 3 car garage who commute 100 miles a day into SF and back.
But you first mentioned SF specifically, which is bound by water, has rent control, and has dramatically higher population density than the average in the other 8 counties surrounding it.
Even if that were a factor (which is isn't) the demand is not infinite nor was it unforeseen. As the cost of living in these areas grew because of it's popularity, liberals instituted price controls on housing. As always happens with price controls on any commodity, this created a shortage of housing once the true cost of providing it exceeded the cost. Now they're caught in a death spiral where the lack of growth in housing due to their imposition of price controls has caused a crisis. The demand for housing is not infinite, it was just unable to be met with natural market forces because of the high costs of increasing the housing density of a developed area vs. undeveloped land.
Have you ever been to SF? There is major construction going on their constantly! SF added 3,514 housing units last year. In what was already one of the most densely populated cities in the country, and by far the most dense in the region.
It costs far more to tear down an existing apartment building to build one with more units, and there's no reason to do that if you can't charge reasonable rents to get a reasonable return on your capital.
Can't charge "reasonable" rents? SF and Manhattan are 2 of the top 3 most expensive rents in the country!?
Besides, rent control doesn't even apply to new construction, (nor to major remodeling), so what you are saying doesn't even make sense.
I'm saying that the money you borrow from a bank comes from somewhere. Capital markets provide...about 100% of it. That's why the mortgage crisis precipitated the whole financial sector meltdown?
And mortgages are not owned by the super wealthy. They are owned by ordinary middle class people with 9-5s, and not much to pass on other than the house (if they pay it off before they die).
100 million people with $100 each in a bank account gives the bank just as much capital to loan out as a 10 billionaires.
That you say "price" in quotes is telling.
I put it in quotes because many people (esp. in markets like SF), end up paying 2-3 times the amount of the purchase price of the home in interest. Which makes the real price (in practice, from the perspective of the buyer) 2-3 times higher than what was listed on the MLS
The price isn't some vehicle by which sellers rip-off buyers. The price is the rational end result of the market negotiation. It is a critical piece of information, which informs the greater economy of the value of the transaction. It isn't perfect, but it is irreplaceable.
agreed.
Without capitalist economies providing "price" feedback, regulated economies collapse.
The terms "capitalist" and "free market" are not interchangeable.
http://biodieselhauling.blogspot.com/2014/04/free-market-vs-capitalism.html
I don't know how you can reconcile the loss of 25% of their customers with the supposed increase in price of less than 10% per sq. ft.
My point was the sale price of the average home is not a direct reflection of what it costs to build a house. I'm pointing out the average house sell for
more than the average cost to build a house.
Using your numbers (which are...suspect)
looked it up. didn't figure anyone wanted to follow every single link I research, and if anyone really cared they could google it themselves.
the price of the commodity they are selling would drop no more than $11.00 per sq. ft.,
I was not meaning to imply any direct relationship - quite the opposite in fact
and they would sell 25% fewer homes,
No, because in my world there is a much bigger market of owner-occupant buyers.
and this wouldn't cause them to build less overall homes? That isn't right. At $112 per sq. ft. they would already start building fewer homes,
I'm saying that's what the average cost of new construction IS currently.
They'd build fewer homes until the price went back up.
who is "they" exactly? If a home builder makes 10 homes a year, and makes X dollars on each one, and then the market slows and he only makes y dollars on each, how is it in his best interests to then start making 8 houses per year? If anything, in order to make the same annual income, he has to make even more houses. He would make less only if he could not sell them at a price that covered the cost of materials plus his salary.
If all residential units were owner-occupied, this would require no new construction: regardless of the rate that homes wear out, it is obvious that renters are living in some house currently, and that house is in acceptable condition. So, for the sake of simplicity, lets say every renter buys the house they currently live in. As far as construction is concerned, it is a wash. The rate homes need to be replaced is no higher or lower than before. The rate of need for brand new spaces for new adults and immigrants to live in is the same as before. Investor buyers have slowed, but owner-occupy buyers increases - by the exact same amount, because these are the same people the investors would have rented to.
Now, one thing that would be different is some of the new buyers couldn't afford as large or as fancy a house. The builder's first choice is to build the largest most fancy house possible, because they don't just make more in labor, they can sell at a higher
mark-up, on top of costs, with a fancier house. Not because of any market rule, but because of human psychology. People are willing to pay higher amounts above cost the higher the total cost is.
People who have custom homes built tend to make them larger and nicer than average.
On the other hand, developers who make those identical suburban "communities" tend to cut as many corners as they can while staying up to code - they want them to
look premium, but cost minimum.
$112 is just the average. The average built house today is much fancier, and much larger, than the average house which exists and is lived in (and was made anywhere from 100 to 10 years ago). It is still possible today to build a house for much less than $112 per square foot. Maybe it has formica countertops instead of granite, and a wall heater instead of a central furnace. It is still a home that someone can live in.
Home builders will build whatever there is a market for. If no one but investors can afford premium houses, people will make more affordable houses.
My only guess is you mean to imply that if the amount of revenue a contractor could make per house were to drop, he would quit being a contractor and find another profession that paid better.
Except, if the world really worked that way, then everyone would be computer engineers, and no one would do anything else.
Plumbers make more than HVAC specialists, even though they do fairly similar work. So why are there HVAC specialists? Because, just like an ecosystem, in a market economy every niche gets filled. As long as a particular line of business doesn't
lose money, there is incentive for someone to fill it. The average cost to build a house is not the minimum cost to build a house. Only once there are no people who can afford even the minimum cost to build a house does all house buliding stop.
When I was in Mexico there were a lot of houses with rebar sticking up out of the roof along the perimeter. This was because there was limited credit available, and people paid for construction costs of their homes in cash. If you couldn't afford a 2 story house, you just had the first story built, with provisions for adding on to it if and when you could afford it in the future.
Like I've been saying all along, economic
growth would slow down if we restricted capitalism in favor of a free market, but you still haven't shown why it would
reverse as you believe it would.
