Becoming Poor in Italy

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Clarice
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Becoming Poor in Italy

Post by Clarice » Mon Jul 29, 2019 5:02 pm

It's an interesting perspective, a first-hand account of a generational decline and lifestyle change. Definitely not just Italy - same in the US for many people.

https://cassandralegacy.blogspot.com/20 ... or-in.html

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Bankai
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Re: Becoming Poor in Italy

Post by Bankai » Mon Jul 29, 2019 5:48 pm

No numbers given certainly doesn't help in analysis. However, I assume bad money management. I admit I don't know how high property taxes and utilities are in Italy, but I find it highly unlikely not to be able to afford these from two very good salaries, even on 300 sq meter house. My guess is professor's salary and second good salary put them in the top 5% of Italian households by income and the house is paid off since it's inherited. So, if they couldn't afford it, almost no one could. Money must be leaking somewhere else. Still, downsizing is a good idea regardless.

Edit: quick Google suggests €77k annual base pay. This puts him in the top 0.09% in the world. So he was wrong by two orders of magnitude and that's not including the partners income. So yeah, definitely poor management.

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Re: Becoming Poor in Italy

Post by jacob » Mon Jul 29, 2019 6:00 pm

The two postwar decades are practically unique in history as being a period where primary energy production briefly outpaced population growth by a rather large factor (like an extra few percent/year). This is what led to the perception of wealth because it translated into all levels of the economy(*) Otherwise, growth in energy production has happened slowly enough for people to expand their families and for population to keep track, thus keeping the energy/capita near constant.

(*) Unlike recent growth which is mainly financial and only works for those of us who hold a lot of stock. And at least around here, this ownership have mainly come about due to being unusually good at handling money.

Subsequent financial gains/improvements have come mostly from advances in efficiency (doing more with less); and [energy] resources have NOT been set aside for maintenance of the "stuff" that was built back then, 50-70 years ago.

What we're seeing now is essentially the consequences of that. The children (younger than boomers) have access to iPhones, but many can not afford the rent on the existing housing stock and their roads are full of potholes. Whereas back then most everybody could afford it.

For example, we paid 95k for our house back in 2014, but when we insured it, the insurance company put a 250k value on just the house in terms of replacement cost should it burn to the ground. Much of that is essentially unsustainable and ultimately unsupportable capital. (I was surprised to see the claim that A/C is now considered essential in Italy? Ditto here; I often wonder how people made it through the summers w/o A/C around here. Then I'm reminded that average temperatures are already up 2-3F around here since the house was built---nights are worse.)

So yeah, the 1950s/1960s were characterized by a tide of cheap energy that lifted all boats; whereas today, doing well usually comes as someone else's expense (figuratively and literally) in the sense that there is not much of any tide present.

Laura Ingalls
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Re: Becoming Poor in Italy

Post by Laura Ingalls » Mon Jul 29, 2019 7:52 pm

I don’t know. My parents were both public schools teachers and didn’t own a home til they were 45 and 50 and used an inheritance to fund a portion of the project. DH and I bought our first home just ten years later in a much more expensive city at 29 with no parental help. I was also a k12 educator and my DH/partner had an entirely different line of work but similar pay.

I’m not sure this isn’t more of a story about trying to preserve a parental legacy (a big ass house) and finding the dream didn’t fit the current reality (both on a macro and micro level).

@Jacob We have a similar disconnect between purchase price insurance replacement cost. In our case it has very little to do with any fantastic appreciation/real estate bubble but that we have masonry construction and it just isn’t done anymore.

Also as a fire survivor a substantial fire has a lot of clean up people tend to forget about. Also anything rebuilt would be subject to current building code. You live in a highly regulated city and would have extensive permitting requirements. It would cost more to fix your house than merely buying a new one. In my market Zillow would tell you way more than replacement cost

Seppia
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Re: Becoming Poor in Italy

Post by Seppia » Tue Jul 30, 2019 12:00 am

Two people with two salaries (one being a university professor) can definitely survive comfortably with two cars and a large suburban home here in Italy.
It is true that Italy is becoming poorer though, if you look at GDP data since 2000, only Greece has fared worse than us in Europe.

IlliniDave
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Re: Becoming Poor in Italy

Post by IlliniDave » Tue Jul 30, 2019 7:19 am

RE AC in N. Illinois, I think people have just become softer. I know it's the case with me anyway. Grew up* w/out air conditioning not so far from Chicago. Being in the southeast got me habituated to it. Now even "back home" I feel like I need it. But it seems my grandparents and great grandparents had it just as bad, before a/c was a thing. https://www.weather.gov/lot/Chicago_Temperature_Records

I did some experimenting one recent summer here in the southeast and found that I could adapt to ~no a/c pretty readily (it was "on" but the thermostat was set to 85F). It wasn't pleasant necessarily, mostly because I worked all day in ac then came home to none, so the adaptation wasn't complete. It was also a summer that was among the milder of those I've had here. And true to form, once I learned I wouldn't die without it, I promptly turned it back on the next summer. Did save a lot of mony that experimental summer though. :D

Poor is a relative thing (though) still real. Agree with Jacob's point that a few extraordinary decades last century still skew our "expectations" going forward.



*We got a single window A/C unit when I was a teenager.

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Re: Becoming Poor in Italy

Post by FIRE 2018 » Tue Jul 30, 2019 8:26 am

Becoming poor in my opinion is also a personal choice for some people. Questionable financial decisions, living above our means, not taking good care of our health, are just some items. Why live in NYC when one can live in upstate NY, NJ or PA. It is for sure a longer commute to work but it is up to the individual. Simplify your life, sell all your junk , work a part time job , save and invest in the stock market.

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Re: Becoming Poor in Italy

Post by Jason » Tue Jul 30, 2019 11:15 am

I have a cursory understanding of Italy because of family and I am sympathetic to what's going on there. But at the heart of post is a bad decision - throwing money into an depreciating asset. Plus you got the whole 1000 books of no commercial value thing. So I think you couldn't actually write the same blog post from a micro angle. Instead of "Italy is experience problems" it could just as well being "I made some some poor financial decisions" as both are true in this case. It's very similar to that Atlantic Article by the guy who didn't have $400 but owned a house in the Hamptons and sent his kids to college. It's a "yes, but" scenario.

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Re: Becoming Poor in Italy

Post by 2Birds1Stone » Tue Jul 30, 2019 4:13 pm

Never had AC in my adult life. Doing just fine over here, and it's been 90+ most days.

The article sounds more like a bitchfest based on poor life choices than a macro explanation of a whole population being "poorer".

The "poor" have a higher standard of living now than 50 years ago, and what they lack in money, they make up in free time, as most of the Mediterranean nations have a history of very low labor participation. Having visited/family friends in Greece, they chose not to work as much as possible, and then bitch about the EU and subsequent politics around bailouts.

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Sclass
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Re: Becoming Poor in Italy

Post by Sclass » Tue Jul 30, 2019 5:03 pm

Are middle class children getting ground down? Perhaps.

My parents and their contemporaries seemed to have it easier. They certainly got to live in a place where their current equivalents can no longer afford. Blame housing costs. Inflation? Maybe inflation without salary increases to keep pace with housing.

I guess that’s really what the Italian story is about right? I’m not sure how energy prices all work into this. Fuel, natural gas, electricity seem pretty cheap compared to what they were when I was a kid. I mean gasoline costs 3x as much per gallon now but teachers earn over 4x as much salary in my folk’s area as their peers in 1979. Even big SUVs get better mpg than the gas guzzlers of the 70s. I have trouble with his energy prices are to blame explanation.

And teachers can not afford the $2,000,000 homes in my childhood neighborhood...which cost about 10x what they used to. The teachers could buy them when I was a kid. Many of my teachers lived in my neighborhood.

It seems like the cost of housing is the real issue. Which makes me wonder, the Italian professor got his house for free from his parents and somehow he still couldn’t swing it. :|

I could be wrong but there seem to be a lot less good paying jobs for average people now. My BIL was competing to get a job with department of water and power. He said it was an easy job with great compensation. He couldn’t get it. Too many applicants. He’s a pretty average contender. Maybe there was more of this stuff.

I remember family friends who were executives at big businesses in Los Angeles who’d worked their way up from customer service. That kind of thing used to happen. Now it sounds alien.

It’s sucks to be a worker bee now. Maybe the deal has changed.

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jennypenny
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Re: Becoming Poor in Italy

Post by jennypenny » Sat Aug 03, 2019 11:18 am

CHS's take on the article in the OP ... http://charleshughsmith.blogspot.com/20 ... -many.html

anesde
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Re: Becoming Poor in Italy

Post by anesde » Sun Aug 04, 2019 4:27 am

Not Italy but similarly in the US:

https://apple.news/A8j_dOrqVQgeyh08jtFIEKQ

Or

https://www.wsj.com/articles/families-g ... 1564673734

Hope one of those links work.

I don’t have a lot of sympathy for consumer and auto debt, but the student loans are ridiculous.

“Unadjusted for inflation, home prices rose 188% from 1987 to 2017, average tuition at public four-year colleges rose 549% and health-care expenditures rose 276% from 1990 to 2017.”

shemp
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Re: Becoming Poor in Italy

Post by shemp » Fri Aug 09, 2019 6:43 am

What that Italian guy doesn't note is that, in the 1960's, there was still real poverty in Italy. School teacher implied education, which was rare then, and the social-cultural system was set up to pay educated people very well compared to the proletariat. In other words, the underlying issue is the loss of cheap Italian labor, not loss of cheap energy.

Suppose Italy imported millions of poor Africans and south Asians willing to work for $5/day, denied these immigrants all social services, made them live in crowded tenements with shared baths or maybe outdoor plumbing. Then it would be easy to affordably renovate and maintain or even rebuild that house, because most of the costs are labor costs. Energy and material costs are small in comparison, especially when talking about renovation rather than new construction.

His argument that cars are more expensive now is also misleading. Cars now are much fancier than standard model Italian home market Fiats from the 1960's. It would be possible to produce a tiny car similar to those Fiats for $5000 today. Many other costs associated with cars, such as taxes, licensing, insurance would have been much lower in the 1960's for social-cultural reasons. Ruling class didn't want to tax cars then for whatever reason whereas now they do. Insurance dominated by repair costs, which are again mostly blue collar labor, which was relatively cheap then compared to teacher salaries.

The 1960's Italian experience can be replicated in current developing countries, if you substitute English fluent software developer for school teacher. Such developers are relatively scarce and able to tap into world markets, so very highly paid relative to blue collar workers, and so able to live a life of luxury that their counterparts in developed countries can only dream of. In 1960's Italy, high pay of teachers relative to blue collar workers was because the ruling class dictated that, whereas in high pay of software developers right now relative to blue collar workers is driven by the market, but results are similar. Long term, English fluent software developers will not be able to maintain their lead over the blue collar workers. As happened in Italy, skills currently in short supply, such as software developer, are attracting hordes of young trainees, while slowing population growth will limit supply of less skilled workers eventually in most countries.

In general, contrary to the view that we have a surplus of cheap low skill labor, we actually have artificial shortages in the developed world, because of immigration controls plus welfare and regulatory systems which put a floor under wages. Suppose we get rid of all welfare, so that we again had literal starvation in developed counties, and allow unlimited immigration of billions of people from Africa and south Asia. Result would be that many middle class people in developed counties would suddenly have a much higher standard of living, at least for labor intensive services like household servants and restaurants, plus renovating houses built in the 1960's. Provided these middle class people could somehow shield themselves from competing with all those immigrants, of course. Owners of urban land and buildings would benefit the most from massive immigration.

Another factor is the huge amount of government spending that didn't exist in the 1960's, especially old age pensions and medical care. Ultimately, that has to be paid for by reducing spending power of the rest of society, such as the author of the article. There has also been lots of added regulation. Building and maintaining houses in the 1960's probably involved much less regulation than nowadays. Also much less regulation of automobiles. Possibly offsetting those regulation costs are benefits, such as less pollution. Author doesn't mention how much pollution his parents had to put up with in the 1960's

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Sclass
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Re: Becoming Poor in Italy

Post by Sclass » Fri Aug 09, 2019 11:08 pm

Thanks for sharing the WSJ link. Interesting article.

I wonder why median people think they can afford a $37,000 vehicle. I still drive a car that costs less than 1% of my net worth. A habit from my poor past.

After reading those stories I get the same feelings I always get with these pieces. First I feel worried for the average Joe. Then I think they’re getting what they deserve. They’re not middle class, stop acting like it and save some dough.

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unemployable
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Re: Becoming Poor in Italy

Post by unemployable » Fri Aug 09, 2019 11:25 pm

Sclass wrote:
Fri Aug 09, 2019 11:08 pm
After reading those stories I get the same feelings I always get with these pieces. First I feel worried for the average Joe. Then I think they’re getting what they deserve. They’re not middle class, stop acting like it and save some dough.
The rich own assets. The middle class thinks it owns assets, but in fact owns liabilities.

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Sclass
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Re: Becoming Poor in Italy

Post by Sclass » Fri Aug 09, 2019 11:27 pm

Kiyosaki. +1

Seppia
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Re: Becoming Poor in Italy

Post by Seppia » Sat Aug 10, 2019 1:28 am

@shemp, great post. You know the Italian situation well for sure.
I wasn’t around in the 60s-70s, but that is exactly what my parents and grandparents told me

GandK
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Re: Becoming Poor in Italy

Post by GandK » Tue Aug 13, 2019 3:54 pm

My husband is eligible for Italian citizenship based on his ancestry. We've been to Italy multiple times (love it) and each time we comes back we rehash the "do we get dual citizenship or don't we" debate. He waxes lyrical about it, for himself and our young son. I'm in the "no" camp simply because I don't want to end up responsible for two sets of unreasonably large national debt.

I wonder now, though, how we would be perceived by Italians. Especially if we arrived early-retired and poverty is becoming more of a (perceived?) problem.

CS
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Re: Becoming Poor in Italy

Post by CS » Tue Aug 13, 2019 6:14 pm

@Gandk
It is a long process if you do decide to do it. 18 months for him at least, and then maybe another two or three years for you through marriage.

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Ego
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Re: Becoming Poor in Italy

Post by Ego » Thu Aug 15, 2019 12:18 am

Tyler Cowen on why this is happening...
https://www.bloomberg.com/opinion/artic ... roblem-too

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