There is definitely a higher cost of living in certain areas of the United States. This can be because an area is geographically desirable, the beauty and climate of the California coast or the cosmopolitan setting of Manhattan; it can be because an area is economically desirable, Silicon Valley or Cambridge, MA.
Everyone has their own marginal utility function. How much would you sacrifice in lifestyle to live in one of these areas of the country?
Salaries are essentially prices, determined by supply and demand. If an area of the country is desirable you will probably have a high supply of labor. There is much competition for a job as an emergency room doctor in Steamboat Springs, CO, thus the salary is likely lower relative to the cost of living compared to somewhere like say, Pueblo, CO.
So why have per capita incomes risen in our nations capital (yellow line) so disproportionately to the rest of the country?
Is DC not a desirable place to live? Must you pay more to entice people to move their?
Is DC producing massive innovation? Is there a high demand for sophisticated, educated workers with particular skills?
Is there a huge supply of jobs, so much job creation that there is a scarcity of labor resources?
These are the economic possibilities.
My guess is that there has been a disproportionate supply of jobs created, combined with some manipulation. In economics these are rent seeking opportunities. Rent seeking is (from wikipeadia) “manipulating the social or political environment in which economic activities occur, rather than creating new wealth.”
This, my friends, is the path followed by Greece and Italy. It is not sound economics. It is wasteful. It leads no where good.
You want to talk about the moral state of the nation? Look right at the economics and at the central leadership in this country. Rent seeking leads to passivity not innovation; obesity not fitness; envious greed not service; vain pride not humility.
Click here to sign up for our free weekly e-newsletter.
For information on Alhambra Investment Partners’ money management services and global portfolio approach to capital preservation, Douglas R. Terry, CFA is reachable at email@example.com