Education & Workforce Development and Government

EYE ON THE PIE: Cost of living depends on how you live

December 26, 2005

"You can find warmer," I said, "but I'm not sure you'll find nicer anywhere."

"Well, if you don't want to go, I could go myself," Myrtle pouted. "I could be a muse anywhere; it's a transferable skill and I don't need a license to practice. I'd just find some nice writers or artists in another place, or even offer inspiration over the Internet."

"How much do you make a year, Myrtle?" I asked.

"None of your business," she said curtly.

"OK, have it your way. Let's postulate that you make $100,000," I said.

"Hold on, buster," Myrtle yelled. "What's this 'postulate'? Is that on my list of approved words?"

"No, it's not," I submitted, "but it is time we stopped limiting our vocabulary to avoid embarrassing or losing the reader with a deficient education. Is there something wrong with sending a reader to the dictionary from time to time?"

"I'll let it go this time," Myrtle said, "but one more 'postulate' and you won't have a column idea for the next month."

"OK," I agreed. "Now let's get back to the assumption you make $100,000 a year. Why do you make that much money? No, don't answer; let me.

"Your earnings are based on what you are worth to your clients. Your clients are here in Indiana. The writings of Hoosiers are not as highly valued by readers nationally and internationally as those in other places. For example, in New York, folks write advertisements and financial analyses. In Los Angeles, they write TV and movie scripts. If you were a muse in one of those cities, you would earn more."

"But would it really be more?" Myrtle asked. "Don't we have to take into account the cost of living in different places?"

"What, dear muse of mine, is the major difference in the cost of living in different places?" I asked.

"I'd guess," Myrtle said, "that most of it would be in the price of housing."

"Pure and complete nonsense," I replied in my usual humble fashion. "Housing prices reflect 1) the incomes of the people who live in a place, 2) the premium people will pay to live in that place (given all its advantages and disadvantages), and 3) the ability of housing producers to increase or decrease the supply of housing, given natural conditions and government regulations.

"The simple fact is that housing prices are higher in places where the product produced by workers is worth more, where people want to live because of the climate or the cultural-recreational values, and where there are limitations on construction.

"Thus," I concluded, "the so-called 'cost of living' is no more than a reflection of market forces tied together in a bundle."

"But it costs less to live in Plymouth, Logansport or Auburn than in Indianapolis or Evansville," Myrtle insisted.

"Ah, sweet muse," I smiled. "The price of housing in Plymouth, Logansport and Auburn may be less than the price of comparable housing in Indianapolis or Evansville, but what about the value of living in those places? Where do you have better access to high-quality services? Where is there more diversity in restaurant offerings? For a hermit, perhaps Kouts would be ideal, but for the majority of humanity, something more cosmopolitan is desired.

"If you live in a place where you have to drive great distances or spend many hours in the car to get to the places where you want to be, then what about your cost of living?

"Tell you what, dear muse," I concluded. "You are so stimulating and so provocative that I now have enough inspiration for next week's column. I'll continue this topic then. So, thanks. I'll see you again in the new year."



Marcus taught economics more than 30 years at Indiana University and is the former director of IU's Business Research Center. His column appears weekly. To comment on this column, go to IBJ Forum at www.ibj.comor send e-mail to mortonjmarcus@yahoo.com.
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