Reducing the cost of living?

A question from Yahoo! Answers:

How can we get the cost of living in the U.S. down to manageable standards?

More and more people are relying on section housing and welfare to make ends meet, and it is only getting worse.

Do we need to reform our welfare system to drive certain taxes and costs down, or is it too late because the jobs available do not pay enough anyways.

Cost of living in and of itself is not important. What is important is the relationship between the cost of living and prevailing level of income. Generally, a more productive way of solving this problem is to concentrate on increasing incomes rather than on lowering the cost of living…

About 70% of all income in the U.S. is earned from employment. The highest-paid occupations are usually ones where the worker controls an expensive piece of machinery (a portal crane, a freight train, an airliner, etc.) So the key to higher incomes is in making sure there is a lot of expensive machinery around (in economics, this is usually referred to as “capital formation”).

Now capital formation is a fascinating phenomenon. It turns out that the primary source of capital formation is… inheritance. People tend to save and invest very little of what they earn, but a lot of what they inherit. So the number of proverbial “good jobs” turns out to depend on how much money has been passed between generations.

Now throw in the ever-increasing longevity and the fact that more and more people outlive their money, and ponder the implications for capital formation…

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