More than half of America's population has settled within an hour's drive of the shore, perhaps less (given no traffic and a straight highway). These areas have high property costs, high property taxes, and higher insurance premiums (the improvements, the actual structure, might also cost more because of higher wages for construction labor in these areas).
If you have been reading my blog you know I have posted endlessly on the damage high property taxes will do to a property owner over the long term. I used to live in Sleepy Hollow, NY, just north of New York City. I have friends living there now. The taxes on my house there (I sold it in 1998) are about $25,000 per year. Ergo, if I wanted to retire there and expected to live 20 years I would have to fork out $500,000 (plus annual increases, but let's just call this constant dollars) over my retirement for the privilege of paying New York State's outrageous income taxes on my income. What do I get for my money? More than half of that money goes to pay the pensions of retired municipal employees... so not very much.
(So, take a mid-level, working Wall Street schlep with $15 in life time earnings will have paid 45% or so to Federal, State, and City income taxes, taking home $8.25 million over the course of a career. If he was a great saver, and retired with a net worth of $3 million, $2 million in a 401k and a $1 million mortgage free house he can't sell - this would be less than the gross income a retired police officer could expect! Over his remaining lifespan: 25% of his cash savings, $500k, goes to pay the property taxes! $500k is the expected health care costs for he and his wife post-65. He has to pay taxes on the withdrawal from his 401k... and viola! He and his wife are eating human dog food in order to make ends meet... after life time earnings of $15 MILLION??!! Yep.)
Meanwhile, all of the land/property from 30 miles east of the Atlantic to 30 miles west of the Pacific (fly-over-land) is going begging and can be had for roughly nothing (compared to NY or San Fran prices). Seems to me that if I were a young person I would not put my mouth into the Lion's Jaws... financial security is to be had by having low overhead. Somehow, I think a bright, ambitious, non addict could do very well in flyover land - especially when compared to the absolute guaranteed outcome of living in New York, California, or Taxachusetts.
(You just gotta love the Big, True Blue states. They have all manner of natural benefits from their position at the water's edge and yet they absolutely destroy the well being of their citizens at every step.)
The migration to these coastal cities is ooooovverrrrrr. Demographics and confiscatory property tax policy have combined to end it (do they have property taxes in China? If so, I think I could work up a formula for when the migration from the country to the city ends). Peak FICA (Social Security & Medicare) taxes already happened (that's what Obama is fighting for - the extension of the "Bush Tax Cuts"... the tax policy of the guy that the Left gnashes its teeth over). Peak property taxes/municipal services in the Blue State Coastal Cities has already happened. The people there do not make enough new babies to replace themselves, and neither do the people from the hinterlands. The GDP growth is not there for it, and the population growth is not there for it. Worse, for the people living in those places and depending on the continued destruction of their fellow man via financialization of the economy and increasing The People's debt levels the pay back is going to be a biach.
Automation and digital information is wreaking havoc with the Legal Business, Healthcare, Finance, etc... the "industries" that drive the economies on the coasts.
And just wait... one day soon the market is not going to let Amazon trade at 100x earnings (for a low margin retail business) or let any other "technology" business trade for 100X earnings, for that matter. Ford, GM, Kodak, were all cutting edge "technology" companies in their day. Eventually, today's winners will crash and burn, too. The Ocean of liquidity these valuations are floating on is not going to be here forever. I have been to this movie - the Butler Did It!
James H. Kuntsler often longs for a resettling of the landscape (see the last paragraph in this week's post. I wish I had writing talent like that instead of having been born so darned good looking). Me thinks that this will happen in due time. First movers will benefit here as they have with every major development in the history of the Industrial Revolution. The intricacies of money creation in a fractional reserve system, capital, labor, demand, and politics will make this inevitable. We may not like it. We may wish the flow would remain in the same direction and pace. NAFC.
Peaks in financial markets happen when the market runs out of net buyers (well, sort of). Bottoms occur when things look their bleakest and there is little left to sell. The same principal applies here, me thinks. National Geographic et al have been running stories about "the city solution". To me, that means we have reached peak city. Also peak Progressiveism/Liberalism. Our society simply cannot tolerate the level of abortions given the demographics. Knuckleheads on the Left blame births for overpopulation. They should look under the hood. That may have been true a generation or 2 ago. Population is soaring because of increased life expectancy - not increased fertility. Let me ask you a simple question: Is the U.S. (and the rest of the OECD) average age going down - or up? If population gain was from fertility, the average age would be going down; if population gain is from life increased life expectancy, the average age would be going up - and with it come terms like "the greying of America (Japan/Europe)" and "the 4-2-1 problem" (4 grandparents, 2 parents, supported by 1 working adult offspring). This is not up for debate. The demographic time bomb is going off and nothing can stop it.
In the middle of all of this the absolute worst thing an individual could possibly do (in addition to enslaving themselves with a high property tax bill) would be to take on debt that cannot be discharged in bankruptcy - student loans. There is simply nothing worse that you could possibly do to your self financially; well, with the possible exception of a felony conviction or some sort of really nasty addiction.
The best thing, to my mind, would be to live in a low tax/cost of living environment, enter into commerce, and acquire productive assets and property with judicious use of savings and debt - in short, get rich slow. If possible, do it in a community (remember that concept?) of like minded folks. After all, I have already shown you that making millions of $$ in New York or San Fran won't cut it below, say, the $30 million mark (counterintuitively, it does work out for those poor police officers, teachers, firemen, etc...), and making that kind of money is rare - to do it you will have to sell your soul, unless you are incredibly lucky, and even then it is very hard on your family; harder by far, I think, than being working class (something I know a thing or 2 about). I know so few genuinely rich people whose kids are not a complete mess. Seems hardly worth it.
Millions and millions of Americans are responding to these inputs and stimuli by not doing much of anything - and this makes a tremendous amount of sense.
People are not stupid. Bloggers and media know-it-all's use the term "sheople"to describe a sheep like acquiescence of the population. I don't think so. Ever read Sun Tzu? The people on the receiving end of all those social programs and War-on Poverty distributions are simply following Tsu's admonition:
"The supreme art of war is to subdue the enemy without fighting".
Or in this case, working.
Since we are all going to wind up broke in any event, why go through all of the ageda? Sleepless nights, missed parties, foregone sexual dalliances, etc... do not make a great deal of sense if you are stuck in a crumbling city with no way out and a sh#!tty ending is in the offing. If life hands you a lemon, make lemonade.
Staying put in the Big-True-Blue States and collecting from the government while working the black market market is an entirely reasonable (if unethical) plan. So is moving to a low cost, low tax environment and trying to get ahead by engaging in commerce and building a lifestyle that can be sustained throughout your entire lifetime.
One cannot "age in place" without a great deal of money in the Big Blues. Take one look at the retirement mecca's of Florida and Arizona - these did not come into existence in a vacuum. The tax and pension policies of the Big Blue States absolutely guarantee continued migration patterns that demolish family continuity and any transfer of intergenerational wealth.
Just thinking out loud on some alternatives to waiting around in the slaughter pen. I am sure there are many more.
Millions and millions of Americans are responding to these inputs and stimuli by not doing much of anything - and this makes a tremendous amount of sense.
People are not stupid. Bloggers and media know-it-all's use the term "sheople"to describe a sheep like acquiescence of the population. I don't think so. Ever read Sun Tzu? The people on the receiving end of all those social programs and War-on Poverty distributions are simply following Tsu's admonition:
"The supreme art of war is to subdue the enemy without fighting".
Or in this case, working.
Since we are all going to wind up broke in any event, why go through all of the ageda? Sleepless nights, missed parties, foregone sexual dalliances, etc... do not make a great deal of sense if you are stuck in a crumbling city with no way out and a sh#!tty ending is in the offing. If life hands you a lemon, make lemonade.
Staying put in the Big-True-Blue States and collecting from the government while working the black market market is an entirely reasonable (if unethical) plan. So is moving to a low cost, low tax environment and trying to get ahead by engaging in commerce and building a lifestyle that can be sustained throughout your entire lifetime.
One cannot "age in place" without a great deal of money in the Big Blues. Take one look at the retirement mecca's of Florida and Arizona - these did not come into existence in a vacuum. The tax and pension policies of the Big Blue States absolutely guarantee continued migration patterns that demolish family continuity and any transfer of intergenerational wealth.
Just thinking out loud on some alternatives to waiting around in the slaughter pen. I am sure there are many more.
10 comments:
Always enjoy reading your blog. There is so much crap out there on both sides. I feel like you are really trying to hit close to the truth and not an ideology.
Anyway, if a man was in his early 40's and doing OK, was debt free and not living in a city where would you recommend he put his investments?
I'm really confused right now about where to put what money I do have. I know you don't do investment advice and I won't hate you forever if you're wrong. Heck, I may even ignore it! Just curious what you think wise investments are nowadays.
Bill:
I am, at heart, a capitalist pig and an unrepentant salesman. I look forward to getting back at it... I have been a bit under the weather.
I like residential income properties. A LOT.
City dwelling can be very acceptable IF you can keep your overhead very low.
No car, small living space, not paying for any kind of status in a neighborhood (until you are genuinely rich)... are all reasonable strategies.
But it depends on which city... many Blue State Cities are going to confiscate all of your gains in any real estate investment, or the decline in population will kill you (just ask investors in CT and RI).
When you say residential income properties do you mean rental properties?
I'm in a Red State rural area. Actually, just to the south of your state in the mountains.
What would I look for in these properties or is there a good resource out there I could coach myself up with?
Read about your C.Diff. My wife has fought that twice and won but it hangs over our heads everytime a doc recommends anti-biotics.
The fecal enema is interesting. I found out about that during her last bout.
We seem to be really good at creating new health problems for ourselves.....Modern medicine isn't all it's cracked up to be.
I am slowly recovering... and I don't think I will ever again be able to take antibiotics without risking my life.
For years, the medical community believed that Irritable Bowel Syndrome was mostly in your head. Now, many are coming around to a chronic infection concept.
Several decades ago, the medical establishment believed that ulcers were caused by stress... now we know they are primarily caused by infectious bacteria.
I have lost any enthusiasm for any type of travel, I can tell you. I am on long term Falgyl therapy and TONS of probiotics. I feel me strength returning, but I am even close to being me yet.
SHould have read "not even close".
I can live with this... the big thing is that I cannot conceive of being on the road traveling and then have an "episode".
So I spend my time home on the farm.
Thank goodness for the internet as I have met many other people online that have gone through this. Most seem to get through, but it takes several years from an accurate diagnosis - and I had been misdiagnosed for several years, giving the infection time to lodge itself in my system.
But it beats the snot out of cancer!
As usual Greg, all good advice or at least the best available under the current circumstances. Those circumstances changing is what scares me the most but of course I pretty much followed the plan you laid out ever since I was forced out of the army because there wasn't an up slot open.
Life is a gamble though and for the first time in my life I am beginning to worry my little piece of Rural Red State low tax heaven may be invaded and turned into a Blue Tax land.
Greg,
Great series of posts.
Your plan for the unhindered young, though, can also apply to us Gen-Xers who are struggling with some debt, but have some skills and abilities. In fact, I've been considering applying your plan in the medium term.
What do you think of this plan? As I increase my tech/computer skills, I am considering moving "up north" (as we say in Minnesota), and working remotely in the software/IT industry. It is one of the things, along with writing and perhaps your field, that is very easy to do remotely, as long as you have an Internet connection.
Benefits: much fresher air (city pollution bothers my wife's sensitive lungs, but not mine), allowing my kid to experience the wonders of nature and small-town life, and lower cost of living.
Drawbacks: further from museums and cultural amenities, and our current stock of friends and contacts.
I am up for it, though. Alternatively, I am seriously considering emigration. I have been told that in Scandinavia, in particular, there is a deficit of working IT people of exactly my generation, due to the extreme downturn there in the early 90's. They actively are looking for "bridge" employees, who can effectively work with the old guys and the young kids.
Why would I consider emigration? My grandparents all came from Scandinavia, and I still have family there. I almost moved to Sweden and married a Swede in the 90's, and I understand the culture. The biggest reason? To escape the big D.
Regarding the Blue states/cities, you are so right.
I was amused to see the headline this morning about how, despite supposedly expecting a surplus this year, Minnesota is expected to have a $1 billion deficit overall by this summer, due to the budget games they played during the crisis last year: moving debt around, "borrowing" from the school systems, etc.
Even more amusing: of all the things that got approved last year, the most yelling and crying occurred over the need for a new, $1 billion Vikings stadium. The team got their new stadium, in a public-private "partnership". Isn't that called fascism?
Anyway, everyone is now surprised that there is not yet enough money to build the stadium, despite all the new tax levies, bargaining, and screaming last year. What a joke.
Meanwhile, the schools and roads are continuing to decay.
Be well.
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