The issue of liquidity is important. One aspect that affects all of us is the borrowing of money. The easy borrowing of money drives the price up for that which it is borrowed.
Housing would be more affordable if one needed to save a greater portion of the purchase price. Being able to borrow hundreds of thousands of dollars causes an artificial bidding war.
The same happened with education. When it became possible to borrow for education, the prices for education rose as well. This also degraded the quality of education in many fields, as the barrier to entry (not finances!) was removed. Institutions enrolled students in many worthless classes only for the income stream.
This affects the poor because the price of everything is inflated through borrowing and debt (even the extra few percent the merchants charge to cover credit card fees).
I've never taken out a loan in my life, and I am comfortably liquid. But my liquidity is always eaten away when someone borrows beyond their means.
Note that I am not against borrowing, and see the value of it in certain circumstances. But when borrowing is easy for the consumer, and consequences for borrowing are removed, it affects all of us.
I agree with you that borrowing when needed is good, but excessive borrowing can create crisis. Karl Marx did foresee this:
Owners of capital will stimulate the working class to buy more and more of expensive goods, houses and technology, pushing them to take more and more expensive credits, until their debt becomes unbearable. The unpaid debt will lead to bankruptcy of banks, which will have to be nationalised, and the State will have to take the road which will eventually lead to communism.
From your link:
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Laura of 11D says this quote is making the rounds of Wall Street.
...
And indeed, searching all three volumes for "houses" and "homes", which are a pretty straight one-to-one translation, yields nothing that sounds remotely like this.
Every time I see one of these things, I wonder. Who the hell makes them up? And why? What do you get from passing your mediocre musings off as the work of a long-dead revolutionary?"
Yeah, because technology did not exist before the internet... The word may not have been used that way back then, but the 1867 equivalent of an expensive smartphone bought as a status symbol rather than for its actual utility would have been a pocket watch.
You make an interesting point about borrowing, but anther one to consider is the fact that borrowing (loans) can cause macro inflation.
The problem with inflation is it hurts the poor the most, and helps the rich. Anyone who owns assets, and especially income producing assets benefits from inflation. It's the rich who own companies, land, commodities, real estate, all things that raise in price when inflation occurs. However, the poor family who owns nothing, rents, and lives paycheck to paycheck deals with the rise in prices by simply going further into debt.
Agreed on all points. US domestic policy does not encourage fiscal responsibility at a personal level and subsidizes a lot of functionally useless activity.
Off-Topic: Most stories about politics, or crime, or sports, unless they're evidence of some interesting new phenomenon
The political left and right have been arguing about the causes of poverty and the distribution of wealth for the last fifty years. This is not hacker news.
Replace "poor" with "startup", "poverty" with "solvency", and this post becomes very germane.
"[The problem is] that startups are proverbially illiquid and can't cope with disruption of their finances and lack the spare resources to cover anything. That's what causes disaster and prevents ascent to solvency."
I don't know if the cultural, legal, educational, and mental health issues that define the poor will ever permit widespread savings, but entrepreneurs fortunate to have avoided a critical mass of afflictions can take this lesson to heart.
Neither is personal finance, and this has more to do with that than policy.
The point that people should be taking away for their personal use is not to leap into home ownership without seriously considering their circumstances and rationale for doing so.
Saying anything about programming tends to cause more fractious conversations than musing on economics.
I care only what HN thinks about the subject in this case anyway. If an off-topic HN existed, I'd leap to it.
A lot of what this community is about is seeking an approach to managing their lives and goals in a way that may not be popular.
Like running their own business/startup.
This is just another side to the same coin, about reconsidering home ownership from a different point of view.
Both have an impact on your career and finances.
I chose to focus on poverty because I needed a way to drive the point home.
It's difficult for me to summarize all of my opinions into something more concise for this page.
Businesses tend to shun poor people, while businesses that cater to poor people are usually out to screw them as well. (payday lenders, banks that nickel and dime - especially if you are low on savings)
Some poor people could be in better positions if they had more time to pursue better opportunities, but they cannot, as they are working 2-3 jobs just to make ends meet (at least this is the case, one of my friends claims).. and I happen to know this person spends way too much on clothing - more than I do, not to mention my rent is 1/3rd of theirs.
I do fine, I live way below my means, I'm happy, I don't need fancy labels or a top neighborhood, which this person has all of.
I'm not saying all poor are the same in that regard. Some just really I don't know how they can escape their position.
Also I could easily own a home but I choose not to because I like my freedom. Right now I can move anywhere in the country, I can quit my job if I want to, etc.. I remember looking at homes this past spring and the idea of having a commitment or being in a vulnerable position (if I lose my job or get really sick I'm SCREWED) just did not appeal to me at ALL. How anyone does this is beyond me.
What about Wal-Mart? It hires the poor and caters to them as well.
You escape poverty by working your ass off and being extremely smart with your money. This is why rags to riches stories are so endearing because they are so exceptional. The difficulty with escaping poverty is not going to mc donalds when you have a little extra and want to treat yourself. It's buying one thing in bulk instead of a variety of foods. Its saving all that money and then buying one really nice piece of clothing so that people think you have money.
Basically it's all the tricks you need to know in life. My advice, ask any Japanese American / Canadian who lived during ww2 who was stripped of their assets and interned and then built all that back in the next decade.
The last paragraph of what you said tells me you already figured out what I was expressing in the post.
There are myriad reasons people may be poor. Some are circumstantial and should be considered with compassion, some are banal and essentially due to character flaws (such as silly spending).
I too live below my means (my income to rent ratio is ~220x, per NYC-style measurement) and will be leaving the country for an extended trip come Jan 7. I can only do this because I was aggressively saving my money and have very low expenses.
"What we need to be encouraging isn't equity, home ownership, or income in any traditional sense. We spend too much time chasing silly things like SBA loans and home ownership/net worth pumping.
Social welfare isn't necessarily the answer, instead we need to encourage savings and stop incentivizing actions that increase their risk profile."
I think he is missing his own point. He says people are to fixated on "net worth pumping" but then advocates "savings" as the appropriate metric. Increasing savings is equal to increasing net worth by definition.
What he is really arguing against is crappy investment advice, which is what buying a house with an interest only loan is. It's speculating on housing prices and probably the only way a poor person could invest with such extreme leverage. In other words this post could be boiled down to saving, not gambling is the surest way to increase ones net worth.
Home ownership doesn't assist in establishing fiscal stability. It's a symptom of financial health, not a cause. At best, it's an affectation in the absence of investment properties.
Savings for the purpose of establishing flexibility and stability is more important. The fact that it happens to increase net worth is immaterial. Giving them a CD they couldn't touch would increase their net worth without improving their circumstances.
You can't leap to telling people that buying a house is gambling. They won't understand it and they'll reject the statement out of hand because you didn't build them up to that conclusion.
That's what my post was doing.
You write/live/travel/socialize/eat/drive/ride/swim/bike/code/dream/learn/read/play for the journey, not for the pithy conclusion.
I don't disagree with you but I think you are jumping around a lot and your ideas don't flow well as presented. This reads more like an outline or rough draft than a finished piece IMO.
Housing would be more affordable if one needed to save a greater portion of the purchase price. Being able to borrow hundreds of thousands of dollars causes an artificial bidding war.
The same happened with education. When it became possible to borrow for education, the prices for education rose as well. This also degraded the quality of education in many fields, as the barrier to entry (not finances!) was removed. Institutions enrolled students in many worthless classes only for the income stream.
This affects the poor because the price of everything is inflated through borrowing and debt (even the extra few percent the merchants charge to cover credit card fees).
I've never taken out a loan in my life, and I am comfortably liquid. But my liquidity is always eaten away when someone borrows beyond their means.
Note that I am not against borrowing, and see the value of it in certain circumstances. But when borrowing is easy for the consumer, and consequences for borrowing are removed, it affects all of us.