Are we all Idiots?

Watching HGTV, I can’t help but wonder at which point we (as a cumulative nationwide population) became idiots?

Sounds harsh of course, but seriously as consumers we seem to have become absolute imbeciles.

I’m currently watching an episode of House Hunters or My First Place or one of those regurgitations of the the same exact theme. in this episode someone is looking for their first “starter home” at $250,000.

At which point did we start viewing houses (much less those costing a quarter million dollars) as “starter homes”??

This whole idea of a starter home is insane. Why would you buy a home — a purchase that most people have to sign a promissory note based on 30 years of their income with the intention of treating it as a temporary asset?

OK, now this idea of buying a house and then reselling it in a few years can certainly make sense in some ways. But for me, it would be a situation like buying a house in say the Ivy League area of Alexandria for under $60k fixing it up while I lived there for a few years and then selling it for close to a hundred — an investment that also meet housing needs.

But that’s not what most of these guys I hear about are doing. They are buying a house that they can barely afford (or not afford) that they don’t necessarily like and treating it as a housing band-aid with the hopes of making just enough money a few years down the road to be able to buy another house they don’t necessarily like in a sort of odd stepping stone approach to getting the home they want.

Going into Wal-Mart tells me that it’s not just a housing thing. Everywhere you look you can find fairly crappy products whether it be furniture or electronics or what have you that people seem to be buying with the intend of throwing it away and replacing it with what they really want as soon as they can afford it.

I see this with cars too. Well I see it with a lot of things. The thing I can’t quite understand is where and when such asinine consumer mentality became the norm.

There are certainly some issues at play that I can think of. In the case of housing, home prices have risen much quicker than incomes (especially in Central Louisiana where incomes are effectively much lower than 30 years ago). Landlords generally charge exorbitant amounts for rents in our area (especially compared to real estate prices). And access to lending is nowhere near as fair and easy as it was for previous generations. So that could definitely be skewing the house-buying process, but the logic of “settling” for something that is meant to be a long term asset is still strange to say the least.

With the current average worker being a member of the first generation expected to do nowhere near as well economically as his parents, and with many young professionals unable to secure employment that even approaches the quality of life he grew up with, I can see where some of the other spending comes from.

When you simply cannot afford to live in a way that you grew up being told would be the norm for you (or even in the way that was the norm for you growing up), I can see where people would want to buy something (even if at a lower quality) that helps approximate the lifestyle they feel they are supposed to have.

Observations like this often solicit decrying descriptors such as “the entitlement generation”, but why is it that a generation expecting to be able to have a standard of living on par with their parents’ really an entitlement.

There are certainly some of every generation that do well and some who do not, but there are some strange things happening with our economy and our spending habits that beg the question of what has gone wrong in the last 20-30 years?

How did we go from the personal potential for prosperity and growing middle class of the 50’s, 60’s, and 70’s to the lack of opportunity that began to appear in the 80’s to the demand for more and more education and training in the 90’s to the 2000’s where none of that education or training seems to really matter in the grand scheme of things?

…and how did we become such idiotic consumers?

Responses

Darren

June 4, 2009

There are several reasons that we as a society have become much more nomadic with regards to our living quarters.

Many folks buying their first house may be single or newly wedded but don’t have children yet. The features that one looks for in a house when you are young and free are totally different from what you look for when you have several children under foot.

Another factor is that our housing stock is aging and doesn’t meet the environmental, safety, and comfort requirements that we value. So…you buy what you can afford when your young, and trade up as your income increases and your family grows.

People are also living much longer now due to advances in the medical front. As a result, instead of dying in the houses we spent most of our adult lives in, we stay in houses that are much to large, and to burdensome for us to keep up. This further depletes the housing stock supply and also allows these homes to fall into terrible states of dis repair.

One of the biggest factors contributing to our transient behavior is that we are spoiled. We want the latest, greatest, and newest of everything. We are willing to pack up all our crap in a truck amd move around the corner just to keep up.

Perhaps we are idiots.

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Ace Midnight

June 5, 2009

Drew,

I feel comfortable in saying that I am not an idiot. However, as to your broader more philosphical point, I can’t speak for anybody else.

Alexandria, in particular, has been refererred to by a transplant from North Louisiana, as “The ‘Keeping up with the Jonesest place’ I have ever seen.” This was a direct reference to housing choices. He lives on a modest Charles Park Home, has a good job, and at the time (nearly a decade ago), was lamenting the Charles Park expansion. We were discussing then, concepts related to Lamar’s “smart growth” crusade. Particularly, that these expansions, the Charles Park Extension (and the later Landmark extension of Tennyson Oaks) as, not necessarily being to accomodate an influx of home buyers, but to allow people who already have very nice homes to continue to engage in a housing “arms race” with each other.

I’m still not sure where the money comes from for the homes in Tennyson Oaks/Landmark. I graduated from the 19th grade, and I can’t even wrap my mind around the concept of putting $150k down, and then taking a mortgage of $4800 to $6000 for 30 years, which would be the standard financing arrangement on a $750k house.

(Of course you can always do what the doctors and high end lawyers in town do – pay cash.)

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Kent Payne

June 5, 2009

Calling us “idiots” seems too judgmental. I prefer to think that we are simply naive. Too trusting. Too easily misled.

The only readily available advice regarding home purchases, consumer purchases, and the like comes from real estate agents, loan brokers, Madison Avenue, and salesmen on commissions or quotas. The slick advertising campaigns and sales pitches make us feel oh so good about ourselves (for a minute or so). And Suze Orman is tedious on a good day, irritating on the bad ones.

Real estate agents and loan brokers make a percentage each time you “flip” your house or your loan, based on the transaction amount. So they’re telling people that they ought to buy and sell their homes more often. Buy as much house as you can afford because you get tax benefits. And the price of real estate will always go up, right?

Our federal, state, and local governments have become accomplices by offering favored tax treatment for these transactions. Interest is deductible; rent is not. If a landlord cannot take a homestead exemption on his rental property, he will pass on the extra property tax costs to his tenants if he can. This probably makes rents look even less attractive than paying a mortgage.

Keeps a lot of people working, and political expediency dictates this result. Until recently, buying all the house you could possibly pay for would have likely served you well.

Madison Avenue tells us that this new piece of electronic junk or whatever will make our lives complete and make us more attractive to the opposite sex (marketing is largely aimed at heterosexuals, methinks), so we charge up our credit cards and rent mini storage to keep all our junk. Our kids will be renting dumpsters upon our deaths to throw it all out.

The credit card companies keep on upping our limits until we cannot possibly pay back what we have borrowed. So we buy and buy and buy. Then we miss one payment and POW! Interest rate just tripled or quadrupled, and minimum payments more than doubled. All presumably legal, at least for the moment.

To make matters worse, the credit card banks have manipulated Congress and had the bankruptcy laws amended. Now, few middle class people can file a Chapter 7 and walk away from their debts. The only relief for many is a Chapter 13 plan. In effect, you have agreed to become the banks’ indentured servant for 3-5 years.

In recent years, the Republicans won over most of us high enough on the food chain to wear Sansabelts and have a cell phone in one of those awful holsters. The Republican party is, after all, the party of “winners.” You don’t want to be a loser, do you? The “free market” will solve all of our woes. Regulation of anything by government is bad, bad, bad.

But those who believe in the “free market” might as well believe in the tooth fairy. Both seem to be good things, but they have never existed.

Remember your first college macroeconomics class when you started out with the assumptions implicit in perfect competition? Why didn’t we just assume that the moon was made of green cheese while we were at it? Suspension of disbelief is not only required when reading fiction. You need it for business school also.

I wonder what they are teaching high schoolers in Civics/Free Enterprise these days? In the early 80’s we studied the tooth fairy.

When the free marketers’ ox gets gored, they get a bailout on your dime. So tell me again, where is this free market?

And never mind that workers pay income tax at up to 33% (I think), plus payroll taxes, plus whatever income taxes your state puts on top. And, oh yeah, you also pay sales taxes on your conspicuous consumption of non-real estate.

Meanwhile, the idle rich can pay only the 15% capital gains rates, plus state income taxes. And they manipulate the populace to oppose federal estate taxes, which very few of us will ever need to worry about. But no, we have identified with the “winners.”

Perhaps we are idiots, but I prefer to believe that we are being misled by some very smart, manipulative, resourceful, determined, and often amoral people.

Reply
1. Drew Ward
  
  June 5, 2009
  
  Kent I think you have some very valid points, but I have to say i think the real blame lies with the individual voters and consumers rather than with the bigwigs who are attempting to manipulate the system.
  
  Much like a certain politically active local church denomination:
  
  You can blame the guy on the pulpit espousing hatred while asking for his next car payment, but everyone in the room has to personally choose to drink the Kool-Aid.
  
  Reply
2. Ace Midnight
  
  June 6, 2009
  
  Kent,
  
  Most of your points, particularly about the real estate and financing industry driving this directionless housing ‘boom’, are dead on. I, personally, happen to believe that it is a little bit of both (the masses are “idiots” to borrow Drew’s term, AND the “powers that be” manipulate the system in their favor).
  
  However, resistence to capital gains and the estate tax is not the problem (nor is resistence to taxation, generally). In most cases, the “capital” and the “estate” were taxed at every level, both the income that paid for them and the transaction taxes to acquire them. IF the taxing authority used some common sense (like indexing capital gains to inflation, over the hold period of the asset – how hard is that?), and allowed a decent period of payment of an abrutly large estate tax (give them 60 to 180 months to pay, maybe?), then people wouldn’t revolt against these types of unfair, double and treble taxing schemes. These taxes notoriously slam the middle class, as all taxes in the U.S. do.
  
  Figure out a way to effectively tax wealth as opposed to income, I might join in the class war with you….
  
  Reply
perpetualrenovator

June 8, 2009

My dad always says “That will be Phase 2” when I ask him why in the world he bought such cheap junk to put in his house in the first place. I prefer to wait and bide my time and buy something more permanent than to trade up so often.

I think Drew is right….a lot of ‘us’ are idiots. I hate watching HGTV’s My First Place. I only watched a couple of episodes before I became disgusted. Realtors are telling the home buyers how much they can afford and then, when it is time for closing, the consumer is gasping because they did not figure in taxes, closing costs or HOA fees into their monthly note. So then, they do not close (more fees) and then start looking for a ‘cheaper’ house (you know, in the 220k range). What a waste of time! What irritates me most is, if you are about to purchase a home, which is a HUGE investment, your responsbility as a prudent consumer would be to do your HOMEWORK. Hello! I guess my legal roots come out in that aspect–Read the fine print, know the bottom line, do your homework and create lots and lots of paper (recycled paper of course) documenting the whole process. You should be in control, not the banks, lawyers or realtors. Remember, YOU hired THEM. 🙂

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