SlipperyPete wrote: kwais wrote: BruceWayne wrote:
Renzo wrote:In fact, if you believe in free markets even a little bit, then there's a good case that high cost of living is irrelevant. It's just the market price for living someplace better. If San Francisco is twice as expensive as Kearny, NE, then the average resident must think it's twice as good, because otherwise people would move and prices would come down until people felt like they were getting their money's worth.
Stick to legal reasoning, because you're screwing up the economic kind.
not that we need another NYC QoL debate on here, but renzo's analysis is spot on. There is a reason people live in SF/NYC, and it's not because they don't understand numbers.
I believe in free markets a lot of bit. But you're basically only considering the demand side of the equation. Why does milk cost $8 a gallon in Hawaii? Not because it's thrice as good as milk on the mainland, but because it's expensive to transport milk to Hawaii before it spoils (i.e., limits supply). Electricity is cheaper in the Pacific Northwest because they use hydropower (i.e., larger supply). Real estate is expensive in Manhattan because it's a tiny island WITH A LIMITED SUPPLY of property.
Yes, some of the difference in prices between San Francisco and Kearny occur because demand is greater in SF, and if the demanders weren't willing to pay the resultant price increase, they'd stop demanding as much. But supply is also a determinant of prices, and for many things that influence cost of living (housing, food, and utilities), structural differences produce inherently different supply functions between markets.
I was obviously making a grossly oversimple statement, but saying market price doesn't reflect both supply and demand isn't true. Within any given city, people pay a premium to live in "nice" neighborhoods, even if there are cheaper houses available in less desirable neighborhoods close by. The price goes up because there is finite supply of everything, and so people bid up the price on the finite supply of "nice" places to live. This same market mechanism is at work in cities, although it is admittedly a far more complicated and imperfect "market" (as Krugman's Nobel Prize would attest).
Your Hawaii example misses the point. You could point to one good in almost any location that would be cheaper than in other places, that's why we compare COL on aggregate. A better example would be to ask why the COL in Hawaii is sky-high while the cost of living in American Samoa is not. And the answer, of course is that lots more people want to live in Hawaii than want to live in American Samoa (relative to availability).