bostonbubble.com

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[balor123]

I didn't mention those reasons earlier but those are very good points. I think we are in agreement that buying when rates are low and prices are high is a bad idea. If I were in San Antonio as I mentioned before, though, I would buy a house anyway because I would like to live in it and the cost would be small relative to my income. I guess that's why there is no recession there - they know how to keep costs down (the flip side is no one gets rich from their houses).

Regarding John's statement, I agree that this country lacks problem solvers. There's just too many alternative lucrative careers and furthermore, less skilled careers often pay comparably. The free market will eventually solve this problem but not in a desirable way and it will be a long hard road. We should strive for efficiency in all fields, something that has been ignored for the last decade.

[Boston ITer]

[balor123]

Some would argue that medicine in this country is better off because doctors are highly regulated to the point that no doctor in this country has to worry about finances, thus providing the best care for the patient and not the most profitable.

One could make the same argument for engineers. It doesn't make sense for an individual company to raise the pay for engineers but it might make sense for the country as a whole to raise their value of engineering, through higher base pay or at least favorable terms to bring back things like stock options. Perhaps if the supply of engineers were tightly controlled like medicine, then the salary for engineers would start to rise. The rise would start to attract talent again and bring business back to this country, at which point the constraints could be slowly relaxed again. This strategy would only work if we do it while US schools still produce top talent. It would work because engineers aren't factory workers - the BLS classifies it as a career where invention is part of the job description and creativity is required. Thus, higher pay does not necessarily mean that more jobs will be shipped overseas. In the short run, this will hurt American business as companies will have to adjust their pay structures to account for higher engineer costs. Basically, other workers will have to make less (like executive compensation). The government might even add some temporary subsidies to income to speed up the process.

Unfortunately, we get a very small piece of the pie in this country, unless you start your own company or sell the product directly, because we're used to low pay and the only workers left are those who don't care about it as much, and there aren't many people in this pool. As a result, gains are generally sent to those closer to the money, management and sales.

[john p]

Do you guys think that we'll find some old creative retirees that start tinkering with stuff and doing some problem solving?

Most young people in a high cost of living area are financially bonded and in most Enlightenment periods you had a combination of wealth and free time. I wonder if the retirees still have a few tricks up their sleeves?

[Boston ITer]

[Boston ITer]

[balor123]

The problem with engineering is it requires a lot of people and it is hard to quantify the contribution of an individual, unlike with sales or traders. However, when you put a large number of such people together the profits can be enormous. Companies like Broadcom pull in profits of like ~$400k per engineer, of which only about 25% goes to that engineer in the form of compensation and benefits on average. Since profits can generally only be realized in large groups, investors have come to the conclusion that management is making the difference and not the individual contributors. There is never incentive to give compensation to a large group and when there is it is often easy to take it away in a time of distress and never give it back. It works because engineers rarely job hunt and even if they did their skills are often difficult to transfer.

I work for a multinational company and am a little familiar with outsourcing. An article that I once read claimed that outsourcing doesn't eliminate jobs because it doesn't make financial sense. You can make $100k off the engineer in India and $50k off the higher paid engineer in the US. A wise employer would hire both and then make $150k. The problem with this example is that in practice companies can't make use infinite resources but there's also finite resources which can be outsourced to. The analogy correctly shows that given a choice and finite opportunities, engineering jobs will migrate overseas though. Most of the time companies don't have a choice though. They can find someone in the US with the right skill set or someone in India but not both. They tend to hire wherever they can find the most qualified person.

Income from products in a global economy is fixed, though, so possible salaries are also constrained. That income buys a lot more in India than it does in the US, especially in a place like Boston. We're losing engineers, especially in the Northeast, as a result and if it keeps up then the best qualified people for positions will no longer be in the US. When those positions are no longer in the US, then companies tend also not to be in the US. When companies move overseas, many more jobs go with it. Everything from secretaries, janitors, salespeople, HR, bankers, mortgage brokers, real estate agents, etc.

The US has a huge trade deficit and you have to wonder why we can keep it up. The 30% of goods and services that we export are highly valued. We no longer manufacture and I don't think that this country can live off of tourism or selling commodities. Financial services used to be a big plus for this country but that's clearly disappearing. London is now considered the financial capital of the world. The American economy is strong because Americans are innovative and a significant portion of that innovation comes from engineers.

We do have a guild for engineers and it's called IEEE, though historically it hasn't acted like much of a union. Perhaps what IEEE needs to do is publish a report titled: "What America will look like in 10 years without engineers". They could followup with another report: "Why Americans don't become engineers". Presumably in that report will be two factors: they go into other more lucrative professions and our education system is no longer producing students interested or capable of entering the profession.

You may think of IEEE as an organization for only electrical engineers by the way but it will not remain that way for long. It is the world's largest professional organization and has branched out into many other fields of engineering and wants to be the spokesperson for the engineering profession. Unfortunately, branding is a precious resource and they don't want to give up that name recognition so they'd rather be IEEE: stands for nothing than something like Association for Engineers.

[balor123]

Most engineers, by the way, work late into their careers if possible and if not are usually disenchanted with it. Unless the stock market improves significantly, I don't think we'll see a lot of retired motivated engineers with lots of free time and money.

[Boston ITer]

[Boston ITer]

[balor123]

I think we're getting closer to understanding how interest rates affect affordability

[john p]

I know some of the younger guys are hammering on the drum beat to have lower prices of homes. I think you've got to be careful what you wish for. At the lowest price level you most likely have the highest interest rate, you most likely have the highest interest rate during the worst economies.

I think what you guys are talking about is related to affordabiity and mortgage rates because when a person decides to make a long term investment they need to weigh the other side of the scale, their earning potential in a certain region. You guys are talking about the prospects of earning. We did have wage inflation in the early 2000's so the pump was primed and people were pumped up and thought they were going to be rock stars. Then they lowered interest rates and the bubble inflated.

In my career I have observed that when things are slow high level people do work that junior levels typically do. Younger people often don't get opportunities to take on responsibilities and get the chance to build something. The problem is that because we don't build anything, we have lost a generation that doesn't know how to pull together and make an idea a reality. People don't know how to work with others, build tools, plan a process and supply chain. Most importantly, we lose the industrious values, the values that help companies keep score and reward those that help bear fruit. I agree that the most aggressive and greedy clog the ranks of management and they intoxicate themselves with delusions that they are laying the golden eggs. It's like a layer of asphalt covering our crops.

When they do this infrastructure program they need to make sure that only licensed professionals should have leadership positions. More capital projects get screwed up because they allow non professionals to steer the ship.

[Brian C]

[john p]

I think the two main reasons why those engineers haven't retired are:

1. as you infer, the shrinking of their 401k's in the past year.

2. they have to pay for their kid's college tuition.

College tuitions have skyrocketted because financial aid was tied to property values. You couldn't cry poor if you lived in a half a million dollar house. Colleges required families to drain the equity of their homes. Nobody is talking about it, but it is clear that colleges in areas that experienced high property bubbles have also had high college tuition bubbles. Thats not a coincidence. Now, you have young graduates with a ton of student loans that can't buy a place and older families that have refinanced to pay for their kids colleges now needing to stay longer in the workforce.

Here's the problem, if we get inflation, the elderly that are on a fixed income might be in trouble. I am trying to get my mind around how to land this baby boom safely into retirement. I still like my idea of developing new planned cities starting from low density to high density from the outside in to the high density. These planned cities could start as retirement communities and have golf courses, public gardens and hospitals, etc. It would provide a place for retirees to go if they wanted to sell their home in Medford to a young family who otherwise would have to buy in Carver or NH. Additionally, they ought to promote over 55 communities in the outskirts of 495 so it would add more supply to where the workers want to live.

The last boom was great to be young. People would hand you the keys to run a project and you either sank or swam. If you got a taste of success there is nothing like it; I can only imagine Putting your dreams into play is awesome and believe me, you want to live in a healthy economy for that to happen.