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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.

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Terms that OP needs some help with:

"Objective"

"Anonymous"

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.

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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.

Manhattan is only a small island on a per capita basis. You're oversimplifying this analysis. By that logic tiny communities would have sky high prices, and that just isn't remotely close to true. I definitely think CoL is highly demand driven.

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SlipperyPete wrote:

birdlaw117 wrote:Manhattan is only a small island on a per capita basis. You're oversimplifying this analysis. By that logic tiny communities would have sky high prices, and that just isn't remotely close to true. I definitely think CoL is highly demand driven.

Right, but tiny communities aren't tiny because of structural reasons. If you want to move to Kearney, you can build a house on edge of town. You can't build a house on the edge of town in Manhattan, because that's water.

When demand increases, prices and quantity should increase as well. But for structural reasons (it's an island), quantity can't really increase. On the other hand, Kearney real estate has a large elasticity of supply. When demand increases, prices don't increase much but quantity does (it's in the middle of nowhere and it's pretty easy to build an extra house at the edge of town). If demand for housing increased by the same amount in both Manhattan and Kearney, Manhattan prices would go up a lot more than in Kearney, and the quantity of housing in Kearney would go up a lot more than in Manhattan.

Again, not saying demand doesn't matter. But there's lots of markets where structural factors dictate supply, and supply influences prices too.

Not disputing that, I was just saying it was an oversimplification. I actually meant to say that the theoretical aspect of it is definitely correct, but that there are other factors that complicate it, but I guess I forgot to put that in...

The Manhattan comparison to building on the outside of town is building up, but that's way more costly.

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).

Did no one actually study this? There's a whole field (urban economics) dedicated to answering this question.

Cost of living in a city is a function of its amenities (such as nice weather, hip population, culture, etc.), which tend to make real wages lower as more people want to live there, and productivity, which tends to make wages higher.

San Francisco has high amenities because it's warm and it's a "cool" place to live, but it's also very productive because of all the technology industry. So you have a high cost, high wage city. Same with New York.

In Hickville USA, you have the opposite - low cost, low wage.

Dallas, on the other hand, has low ammenities (relatively new city / middle of the dessert) but is very productive because of the oil industry. Hence the high wages and low CoL.

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.

Actually, he's dead on. This isn't an ad hoc generalization he came up with; this is an economic theory that is thrown around quite a bit. There are obviously significant caveats to it (e.g. very high transaction costs to switch between goods) but the core theory is pretty sound.

duckmoney wrote:Did no one actually study this? There's a whole field (urban economics) dedicated to answering this question.

Cost of living in a city is a function of its amenities (such as nice weather, hip population, culture, etc.), which tend to make real wages lower as more people want to live there, and productivity, which tends to make wages higher.

San Francisco has high amenities because it's warm and it's a "cool" place to live, but it's also very productive because of all the technology industry. So you have a high cost, high wage city. Same with New York.

In Hickville USA, you have the opposite - low cost, low wage.

Dallas, on the other hand, has low ammenities (relatively new city / middle of the dessert) but is very productive because of the oil industry. Hence the high wages and low CoL.

You're basically just describing the factors that make up supply and demand. I think everyone was aware that when we said high demand it meant high amenities...