Interesting Links for 04-11-2015

[andrewducker]

• Entire editorial staff of Elsevier journal Lingua resigns over high price, lack of open access
  • (tags: OpenAccess publishing academia viaJaneCarnall )
• How reducing inequality boosts economic growth
  • (tags: inequality growth economics )
• BBC Greenlights Series Based on Philip Pullman’s ‘His Dark Materials’
  • (tags: PhilipPullman tv bbc )
• Universal Basic

Comments

[steer]

I may have mentioned this before, but I found it interesting. Piketty does a lot of statistics analysing wealth distribution in his book. There's one thing he says which rings really true, that wealth distributions can be extremely misleading

[steer]

But yes, if I rented a flat for what I am paying on my mortgage I would expect to pay at least 2.5 times my mortgage. However, my mortgage was extremely favourable as my loan-to-value was good. If I was paying more of the value my mortgage would more than double.

[danieldwilliam]

Yes - the being able to life rent free for a long time once you've paid off the mortgage means that you are shifting consumption intertermporarly, relatively reduced when middle aged, relatively increased when old.

Another consideration is that, assuming you are able to pass on your house to your children or grandchildren you are shifting accumulated wealth to them - allowing them to consume more during their lifetime.

[drdoug]

Yup. The intertemporal shift looks a lot like a pension - and unlike a pension income, you don't have to pay tax on rent you're not paying. It's just occurred to me that the tax treatments are inverted: both are capital gains free - if it's a house you live in - but you pay in to a mortgage after income tax and a pension before.

pass on your house to your children or grandchildren

Indeed, or other cause you care about. My kids can jolly well support me in my old age. :-)

[steer]

The good old ONS have an interesting report with Lorenz curves
http://www.ons.gov.uk/ons/dcp171776_362809.pdf

Interesting reading and it seems that now "pension wealth" is actually as or more important than property wealth and more unequally distributed. (Quite weirdly for us personally the recent changes to our academic pensions drastically reduced the amount of income we expect from our pensions, in my case likely halving my pension income, assuming I continue in academia with reasonably pay rises, without actually changing my pension wealth and with no effect on my current lifestyle).

Financial wealth is the most unequal of all but is (paradoxically) the least important component. Physical wealth (stuff owned) is the most equally distributed of all...

[drdoug]

Wow, that's awesome, thanks.

Yes - does look like pension wealth has been growing faster than property wealth. Also interesting that pension wealth looks like the largest component of what makes the top decile so much wealthier than the others, but in Gini terms it comes out not as bad as financial wealth.

The physical wealth thing makes sense as the most equally distributed: most houses have roughly the same set of stuff in them, and kitting out an entire house with top-of-the-range white goods and furniture is going to be small compared to house price differentials (and between house and no house). Cars likewise - no car vs massive over-the-top luxury car is "only" £100k or so.

(Don't get me started on our pension. I am feeling extremely gloomy about that.)

[drdoug]

Most people are in the "nearly no wealth" group because they spend their income...

I'm sure that's right, all they way up the income distribution, until you get to levels at which it becomes practically difficult to spend it at the rate it comes in.

which is usually a rational thing to do.

Surely keeping a rainy day cushion of 3-6 months' income is a more rational one?

[steer]

Surely keeping a rainy day cushion of 3-6 months' income is a more rational one?

Yes, keeping a certain buffer for sure is useful... particularly if you have dependants -- but that would quickly become negligible compared with property and (as you point out) pension wealth if you pay into both of those.

[drdoug]

True indeed.

[naath]

It feels increasingly irrational to be holding onto a year's income in cash - interest rates don't even approach house-price inflation; and stuff now is more fun than stuff later.

[chess]

Wealth distribution does to some extent measure _security_ though?

If I'm on my way to owning a house, I'm more secure than someone who rents, even if they can afford more parties right now - because I have an asset I can fall back on if my income goes away.

If I'm massively over-leveraged, I'm less secure than someone who has 0 net worth, even if right now I'm rolling along just fine.

[steer]

If I understand you right you're saying that if you have liquid wealth you're really secure because you have a buffer against a temporary reduction in circumstances. That's surely true.

Not sure what you mean by "on your way to owning". If you are saving for a house you have that fluid buffer sure. If you are mortgaging a house and paying it off it seems your position is pretty precarious. If may be you could downsize to a smaller house but there's a big deadweight loss in buying and selling property. If you become unemployed you are likely to default on your mortgage which could land you in a very bad financial position.

[chess]

I suspect that having a property in an in-demand area in a buoyant housing market with an offset mortgage makes me feel more like it's a solid investment I could liquidate if necessary (first I can get the overpay back, second I can rent it out for more than the minimum payment on the mortgage, thirdly I probably wouldn't make much of a loss in selling it even with all the various fees).

[steer]

Yes -- perhaps it is best to say that it vastly changes the variability in your level of financial security. If you can rent it out for more than your mortgage (depends on area) or it is accruing value quickly then yes a big increase in security. If your property goes down in value, is in an area where it can't be rented quickly or for more than the mortgage then decrease in security. There's also the additional variability in mortgage repayments as interest rates change. Rents change but moving between rented accom has much less deadweight loss. Very often though people do get quickly into very difficult positions with houses that they wouldn't get into with renting.

My guess is that buying provides you with an initial period of greatly decreased security (you just bought sinking investment and having a deadweight loss with the sale, perhaps stretching your finances to do so) but becoming increased (you have high equity in the place and could remortgage if problems happened).

[apostle_of_eris]

The poor man complained, "Every penny I make has to go for food!"
The rich man replied, "Well there's your problem right there. I only spend 5% of my income on food."