Inequality and wage stagnation killed the economy–and are still killing it,…

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Inequality and wage stagnation killed the economy–and are still killing it, by @DavidOAtkins

via Hullabaloo by noreply@blogger.com (thereisnospoon) on 6/23/13

Inequality and wage stagnation killed the economy–and are still killing it

by David Atkins

We still live in a horribly warped economy:

Southern California real estate agents are using reconnaissance and back-channel networks to find houses that haven’t yet hit the market. Some even offer bizarre gifts.

Southern California housing prices are rising sharply, and there’s a shortage of houses available for sale.

So agents like Mathys are resorting to reconnaissance and back-channel networks to find homes that haven’t yet hit the market. They’re cold-calling homeowners with offers and targeting specific neighborhoods with direct mail. Some come bearing bizarre gifts in return for a listing. One agent offered a seller the use of his exotic car; one of his clients offered free dogs.

And they’re chasing so-called pocket listings, homes privately marketed among those in the know. The low-profile nature of the listings makes them hard to quantify. But agents and other real estate experts say they’ve become common in the booming Southland market, where the median home price shot up nearly 25% in the last year.

Why is it warped and broken? Because of income inequality and the fact that wages have stagnated versus assets and profits.

Income inequality and wage stagnation are ultimately why the housing market boomed so dramatically: people who couldn’t get ahead by actually working hard as the American Dream promised, were given an incentive to try to get ahead by buying up assets instead. First it was stocks, then it was housing. Wall Street, of course, was only too happy to oblige.

Inequality and wage stagnation are why the housing market crashed. Yes, CDOs and CDSs and Wall Street greed were a huge part of that. But ultimately the crash occurred because housing prices were far beyond what wages could cover, and inequality was such that Wall Street tycoons were making impossible amounts of money by speculating on derivatives of artificially inflated assets.

Inequality and wage stagnation are why there wasn’t enough resiliency left in the American middle class to withstand the blow of the financial crisis. They’re why the economy still can’t get back on its feet six years after the crash, and why we’re already over halfway through an American lost decade.

Inequality and wage stagnation are why the Federal Reserve is forced to keep its pedal to the metal on interest rates, particularly since the elected government of the United States seems too obsessed with austerity to actually do anything to help create jobs.

Inequality and wage stagnation are why the stock market is artificially overvalued and everyone knows it, keeping wealthy shareholders still very wealthy, yet simultaneously nervous and looking for alternative investments.

What this leads to in the housing market is homes that are dramatically overpriced, but whose owners refuse to sell because they’re still underwater compared to the stratospheric top of the market. That low inventory combines with low interest rates and a number of shareholders looking desperately to invest in real estate, creating warped situations like a 25% rise in housing prices in some parts of the country and offers on houses not even for sale, despite a stubbornly high unemployment rate.

It’s broken. The whole system is broken. The symptoms of the damage are everywhere. It’s going to stay broken as long as income inequality remains high and wages remain stagnant. And nothing the powers that be do to try to manipulate asset prices is going to change that.

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