Some things are more expensive than others, especially the things you want. That’s because other people want those things too. Supply and demand, being what it is, dictates that the price goes up. A higher price sends a signal to the rest of the economy that this thing is desirable, which often increases the supply over time without the producers being explicitly told to increase the supply. That’s Adam Smith’s invisible hand at work. Until supply can increase to meet demand, the price will remain high. This is econ 101.
I’ve been seeing a curious phrase used quite a lot lately that forgets this lesson. The phrase is “priced out,” as in “I’ve been priced out of that neighborhood.” I’ve used it too. But it’s curious because “pricing someone out” is precisely the purpose of prices. They’re intended to exclude certain buyers from the market to ration the item for those who value it more and have the means to purchase it. Making “price” a verb and pairing it with passive grammar creates an avenue for blame. Priced out by whom, exactly? It tells a good story: a hero versus a villain.
The phrase “priced out” usually shows up in discussions about real estate, as in this week’s article from The Wall Street Journal. Other papers often blame hedge funds, investors, or NIMBYs for pricing people out of neighborhoods, but it’s curious that that blame is missing when discussing other goods and services like cars, TVs, or college.
Cars are famously expensive right now, leaving many younger borrowers underwater. I want a new car, perhaps a Tesla or Chevy Bolt, but if I can’t or won’t pay for it, that means I’m “priced out” of that particular market. Even if I can pay for it but choose not to because I don’t value it enough, for whatever reason, I’m still effectively priced out. That's what prices are for. The same goes for that Samsung OLED TV I want. Harvard’s tuition for the 2023 academic year is over $57,000—if I were a high school senior, I’d be priced out of that too.
The point is that it’s no one’s fault for being priced out of a market, especially one involving millions of participants. That’s how markets work. You don’t hear about people being priced out of cars and TVs because there’s no story to tell, no populist blame to be thrown at Chevrolet and its customers. It’s easier to empathize with someone being priced out of a home because there’s more emotional appeal.
The stories’ characters are often seen as victims struggling in vain against the faceless economic machine, or nameless “hedge funds,” though hedge funds are the ones that ensure those characters’ pensions will be there when they retire.
The characters are specifically chosen to showcase the plight facing average Americans. Except they’re often anything but average. The first character in the Journal’s article is in a family of six, with $160,000 in student loans and a household income of $80,000. That’s twice the average number of children per family, five times the average student debt burden, and half the median household income for someone their age. Typically, when someone incurs that much student debt, they’re a doctor or lawyer or dentist, making much more than that in annual income. But that’s not as good a story.
The second character says she was “priced out” of her ideal neighborhood. Her income is $40,000—half the median income for someone her age—and she lives in Miami, the tenth most expensive real estate market in the country. That’s something, and perhaps there’s a story in there somewhere, but it’s not the story of the average American.
The writers go on to discuss the financial difficulties facing millennials, how they’re “piling on debt.” But when you’re in your early thirties, that’s precisely the time most people—that is, average people—do pile on debt. They’re marrying, buying their first home, furnishing that home, buying cars, paying off school loans, raising children, and so on. It’s the most expensive time in your life. This is financial planning 101: Your debt goes up, but so does your income. Only later—in your fifties—do most people have a high income with declining debt.
And now that millennials are the largest demographic cohort in the country, it appears as though Americans on average are drowning in debt because journalists can look at a few charts, when in reality it’s all very normal given the circumstances. The number of people incurring debt, because of their age and demographic makeup, increases the amount of debt, which also increases the average debt load per person. This is statistics 101. But, again, that’s not a very good story.
The examples in the Journal article and many others like it are hardly representative of the average American. If we want to talk about average people being priced out, let’s be clearer about who we’re talking about and why, giving proper context to our stories. For the sake of Americans’ economic education and our shared civic discourse, please let the facts get in the way of a good story.