[HN Gopher] Inflation propagates unevenly
___________________________________________________________________
Inflation propagates unevenly
Author : luu
Score : 188 points
Date : 2022-03-08 16:47 UTC (2 days ago)
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(TXT) w3m dump (devonzuegel.com)
| fleddr wrote:
| It becomes even more complex when you include shrinkflation and
| quality reduction of products.
| sbelskie wrote:
| For what it's worth, the BLS does have methods to account for
| both of these. How well they work I don't know, but the numbers
| you see reported contain adjustments for these.
| warpspin wrote:
| Clicked on it, wholeheartedly expecting something about cosmic
| inflation. Ah those were the times.
| zalebz wrote:
| I had the same expectation, maybe adding "Economic" to the
| start of the title would help.
| layer8 wrote:
| Right, today's inflation is really nothing compared to cosmic
| inflation. And people didn't complain in the primordial
| universe!
| marcosdumay wrote:
| To be fair, any complaint was guaranteed not to reach anybody
| else.
| plainnoodles wrote:
| Within the past few weeks, what with the JWST coming online and
| more radioastronomy happening than ever, and also economic
| inflation coming into the news for the first time in a while,
| this is unfortunately not the first time I've had to play
| "spacetime or finance?" with an inflation headline recently.
| nemo44x wrote:
| I spat out my coffee this morning when a CNN news reader
| commented that because of the 5 trillion that was handed out to
| people last year, people will be able to fight through this
| inflationary period. I think we aren't too far away from "thank
| goodness that the regime printed trillions of dollars for
| everyone so we can fight through the Putin price hike!"
| ajsnigrutin wrote:
| Yep... putins relatively fresh war is guilty for a year of
| price increases due to massive printings of money... CNN!
|
| Otherwise, what i find most sad is, that people are cheering
| the printing of money (because they get handouts), but "in the
| end" (which is very soon after the handouts), they lose the
| same amount of money in price hikes everywhere due to
| inflation, and large corporations (so the ones that get the
| "free money" from the people to sell them stuff) profit in the
| end.
|
| Also the propaganda machine is helping the pumping-up the
| prices... first they talk about the higher prices of
| _everything_ because of this and that (covid, putin, war,...),
| people then expect higher prices, and even if the current
| wholesale prices are still low, the sellers will raise them,
| because the media told the people that the prices will go up,
| people blame putin (and not the stores), and why not take
| advantage of the situation?
| uoaei wrote:
| > they lose the same amount of money in price hikes
| everywhere due to inflation
|
| This point only makes sense if you assume that the price
| hikes wouldn't happen without the handouts, and that those
| people would have been able to stay in a dignified life
| (food, housing) without that buffer.
|
| Big assumption!
|
| Your point about the rhetoric around prices is exactly right.
| Pretty obvious, only looking at corporate profits vs price
| increases.
| mgolawala wrote:
| I am not an economist, but here is my theory on the whole
| thing (would love to hear if there is a flaw with this
| reasoning!):
|
| The fundamental problem is that a wealth of a society is
| determined by its productive capacity. A society with more
| homes, more cars, more phones, more food, more clothes,
| more university classrooms, more hospitals and doctors,
| more medicine, (you get the picture)... more good and
| services is wealthier.
|
| A society with more dollars but without the corresponding
| increase in all of those things is no wealthier.
|
| You can magic up trillions of dollars and hand them out to
| each and every individual currently alive in the US or for
| that matter the planet. Give each person a billion dollars.
| You still would not suddenly end poverty, or hard ship or
| hunger or anything else.. that money is still used to buy
| the goods and services which are being produced at the same
| rate as before.
|
| When we distributed trillions of dollars over the last
| couple of years while simultaneously having lockdowns for
| covid, we not only added money to a system without adding
| corresponding productive capacity. We did the opposite.. we
| reduced the number of homes being built and maintained, we
| reduced the number of clothes being manufactured, we
| reduced the amount of education we provided, we reduced the
| amount of health care provided, we reduced the number of
| vacations and restaurant meals that were provided, we
| reduced the number of cars being made (you get the
| picture)... we created a backlog of unmet demand.
|
| The prices would likely have gone up even without the money
| printing due to this backlog of unmet demand, the
| additional money in the system just made the price rises
| bigger.
| nemo44x wrote:
| You might get some gauging and people taking advantage of
| things, but I do believe that it will correct in relatively
| short order. The entire beauty of the free market system is
| that anyone making "too much" will have that margin taken
| away by someone willing to do it for less profit.
|
| I just wish economists like Krugmen would revisit some of
| their previous articles about how printing trillions of
| dollars and passing it out won't cause inflation. Those
| articles were parroted by so many people and for the party
| that demands "accountability" they certainly know how to bury
| things and move on to another problem they have the best
| solution to.
| spupe wrote:
| If we are about to enter a period of sustained inflation,
| contracts may start including automatic monthly/quarterly raises
| to offset it.
| mym1990 wrote:
| I think this is where inflation really hurts in the long run:
| the ability to somewhat accurately forecast based on the
| current state of the world. Ultimately a lot of companies will
| get it wrong, have too much/too little inventory, and some
| companies will struggle or go bankrupt due to this.
| hammock wrote:
| Further reading
|
| Cantillon effect https://mattstoller.substack.com/p/the-
| cantillon-effect-why-...
|
| Biflation
| https://www.investopedia.com/terms/b/biflation.asp#:~:text=B....
| MontyCarloHall wrote:
| Here is a good chart illustrating the heterogeneity of
| goods/services inflation[0] over the last 20 years. I would love
| to see it extended into 2022.
|
| Technological progress is often deflationary in ways we can't
| easily quantify, even after hedonic adjustments[1]. A $500
| smartphone today would have cost tens of thousands of dollars
| only a few years ago, if it were even possible to manufacture
| then. Some people estimate that a smartphone's total computing
| power would have been worth several million dollars in the
| 1990s[2]. Yet someone with a $500 smartphone today doesn't
| consider themselves a millionaire relative to someone from the
| 90s; we simply cannot quantify the monetary effect of having
| millions of dollars of 1990s computing power in our pockets[*].
|
| Similarly, a new $40,000 Honda Accord is superior in every way
| (power, amenities, ride quality, etc.) to a $200,000 Rolls Royce
| from the 90s. Conversely, if a car identical to a 90s Rolls were
| manufactured in modern factories, it would probably cost far less
| to manufacture than the Accord, owing to its relative
| technological simplicity. Yet we don't typically consider middle
| class Accord owners in 2022 as driving around in cars only
| attainable to millionaires 30 years ago, even though this is
| objectively the case.
|
| [0] https://www.aei.org/wp-content/uploads/2021/07/cpi2021.png
|
| [1] https://www.bls.gov/cpi/quality-adjustment/questions-and-
| ans...
|
| [2] https://www.aei.org/technology-and-
| innovation/innovation/the...
|
| [*] I guess the "realistic" 1990s equivalent to a smartphone
| would be a team of personal assistants who could immediately look
| up any fact from reference materials, simultaneously call
| multiple businesses for information about their stock or hours,
| give real-time driving directions via carphone while reading a
| map, etc. Definitely more realistic than magically stuffing
| mainframes worth of compute in your pocket, but still only
| something that the extremely wealthy could afford.
| eli_gottlieb wrote:
| >Some people estimate that a smartphone's total computing power
| would have been worth several million dollars in the 1990s[2].
| Yet someone with a $500 smartphone today doesn't consider
| themselves a millionaire relative to someone from the 90s; we
| simply cannot quantify the monetary effect of having millions
| of dollars of 1990s computing power in our pockets[*].
|
| The thing is that if you have millions of dollars of computing
| power in the 1990s, you have something extremely scarce, so you
| can trade it for an abundant supply of other things you need.
| If you have computing power today, it's abundant, while the
| other things you need are much more scarce. Dollar values here
| are just illusions hiding the disparity in productivity
| improvements between industries, as well as the disparities in
| market concentration, regulatory capture, etc.
| [deleted]
| Aunche wrote:
| >Similarly, a new $40,000 Honda Accord is superior in every way
| (power, amenities, ride quality, etc.) to a $200,000 Rolls
| Royce from the 90s.
|
| To be pendantic, the ride quality of the Rolls Royce is still
| superior. We've had hydropneumatic suspension since the 50s,
| and that's not a feature anyone thought to include in an
| economy car. They don't compare to the electronic dampening we
| have today, but even vintage Rolls Royces are incredibly smooth
| and quiet.
| mym1990 wrote:
| Just curious(and don't mean to be smug in any way here): have
| you driven a 90s RR vs a Honda Accord or a similar
| competition?
| MontyCarloHall wrote:
| The adaptive damping suspension available in modern Accords
| provides a pretty dang smooth ride. I'd love to see someone
| compare its ride quality head-to-head with a 90s Rolls. I
| think it would be much closer than you'd think.
| AdamN wrote:
| I'd watch this - seems like solid YouTube content
| Wildgoose wrote:
| Citroen used their fantastic hydractive suspension in their
| saloon cars - my first two Citroen C5 cars had it, and it was
| absolutely fantastic. I loved it, but sadly they've now
| dropped its use.
| [deleted]
| jbay808 wrote:
| > $500 smartphone today would have cost tens of thousands of
| dollars only a few years ago, if it were even possible to
| manufacture then
|
| Would you _have spent_ ten thousand dollars on such a phone a
| few years ago? I wouldn 't have. I'd have put that money
| towards renting a nice place to live.
|
| Are you spending, today, ten thousand dollars to buy pre-
| production builds of next year's smartphone? Is it worth it to
| you?
|
| The reason people buy smartphones today is _because_ they 're a
| few hundred dollars. That's the point where the cost of the
| thing falls far enough below the value it delivers to make it
| worth buying. You can buy one and use it to access your bank
| account and stress about how to pay back your credit bill next
| month. So even if that phone would have cost a million dollars
| decades ago, you don't feel like a millionaire _because you
| aren 't one_. If you were a millionaire in the 1990s, you'd
| probably have a house with a swimming pool. If you were poor in
| the 1990s, you would be stressed about your credit card bill,
| but maybe doing it on paper.
|
| If someone gave a million dollars to a poor person in the
| 1990s, they'd probably have spent it to pay off debt, get a
| roof over their head and feed their family, not blow it all on
| a prototype palm pilot, a portable TV, and a Cray. In other
| words, they wouldn't have spent $1,000,000 on smartphone-
| equivalent functionality, because that functionality would
| still only have been worth about $500 to them.
|
| The technological deflation gave you a $500 phone, it didn't
| give you a million dollars of value.
| [deleted]
| bcrosby95 wrote:
| > but still only something that the extremely wealthy could
| afford.
|
| Something only the extremely wealthy could afford, but also
| something the extremely wealthy never bothered with.
|
| If you think a modern, middle class lifestyle is in any way
| comparable to the rich in the past 60, 70 years then you have
| no clue what it means to be rich. It isn't the gadgets they can
| buy, its the people they buy that completely removes the need
| to even think about all those things you listed.
|
| The rich don't do self service. This is why the whole
| discussion makes no sense.
| dan-robertson wrote:
| Regarding the notion of inflation not capturing improvements to
| goods, I think the following is interesting.
| https://www.lesswrong.com/posts/FcRt3xAF4ynojfj6G/what-do-gd...
| karpierz wrote:
| If I'm interpreting [0] correctly, it's saying that wage growth
| has outstripped the growth in housing prices?
| MontyCarloHall wrote:
| The chart is misleading because it plots nominal wages[0]
| against CPI-adjusted cost of goods. So really, the baseline
| is at 0%, not the line they denote "average hourly wages."
|
| (The chart is still valuable for contrasting inflation
| adjusted costs, but its deceptive inclusion of nominal wages
| alongside adjusted costs clearly belies the AEI's agenda.
| FWIW, the chart used to not include that line.)
|
| [0] taken from https://fred.stlouisfed.org/series/AHETPI
| [deleted]
| UweSchmidt wrote:
| On the other hand in 1990 the smartphone was no necessity to
| take part in normal society, so the 500$ and monthly data fee
| is an additional cost weighing on people, if wages and the
| price for a bag of potatoes remained equal. It's complicated.
| (Predictably the bias is to downplay inflation, to allow
| "printing" more money.)
| gruez wrote:
| >On the other hand in 1990 the smartphone was no necessity to
| take part in normal society, so the 500$ and monthly data fee
| is an additional cost weighing on people
|
| That's only if you don't consider the cost savings from that.
| Today you would use your smartphone to handle your online
| banking. In the 90s you would do what? Drive to the bank and
| talk to the teller? That costs a non-negligible amount of
| time, and money for the bank which presumably gets passed on
| to you.
|
| Also, there's no reason you need to spend $500 on a phone, if
| all you need is "take part in normal society". That can be
| done with a $200 android phone, or a $180 iphone SE[1]. I
| would wager that even with the purchase cost + monthly fee
| (of a reasonable plan), you'd still be coming out ahead in
| terms of time savings.
|
| [1] https://slickdeals.net/f/15272707-cricket-64gb-apple-
| iphone-...
| IncRnd wrote:
| You're looking at this entirely wrong. People are concerned
| with the price of a phone they can purchase today, not at the
| what it would have taken to purchase that phone 10 years ago.
|
| For example, a new iphone costs a little more than last year's
| model cost. You can claim the exact same goods weren't
| involved, but the available goods have increased in price year
| over year.
| MontyCarloHall wrote:
| The increase in the quality of available goods often greatly
| outpaces the increase in price (the opposite of
| shrinkflation). People don't mind this because they are
| ultimately concerned about their overall quality-of-life.
| Take cars as an example. Both build quality and available
| features have dramatically outpaced the increase in prices
| over the years. If there were a significant demand for crappy
| cars with 90s-era quality (and commensurately low pricing),
| they would be available for sale. The fact that they're not
| means nobody wants to buy them. It would be extremely cheap
| to manufacture a basic car with few features (thus requiring
| fewer overall parts) and low build quality (thus requiring a
| less sophisticated factory), but nobody wants a new car with
| no air conditioning, minimal sound deadening, low horsepower,
| crude construction, and 5 digit odometer reliability.
| kansface wrote:
| 90s era cars aren't close to meeting current requirements.
| The new requirements may in fact explain all of the price
| increases. I imagine there would be a market for a "new
| 2005" civic at say 7k$, because one exists for the old ones
| at 2k.
| MontyCarloHall wrote:
| New safety and emissions standards are part of it, but
| don't explain everything. Engines have gotten more
| powerful _and_ more efficient, and the extra power isn't
| just to keep up with additional weight due to all the new
| required safety features (which are a good thing, BTW!).
| Compare 0-60 times and handling between old and new cars.
| A new Accord Sport does 0-60 in 5.5 seconds, which was
| firmly in serious sports car territory in the 90s, and
| was borderline supercar territory in the 80s.
|
| Materials and fit and finish of new cars are also way
| better than they used to be. Reliability has greatly
| improved too over the last few decades, though that's
| plateaued somewhat in the last decade or two, likely due
| to increased complexity. Remember, in the 80s and even
| into the mid-90s, cars often came with 5 digit odometers
| because they weren't expected to last more than 100,000
| miles.
|
| If there were a robust market for brand new 2005 Civics,
| automakers would capitalize on it. The Mitsubishi
| Mirage[0] is the closest thing on the market I can think
| of to this. It has the feel of an economy car from around
| 2005, and sells brand new for $14,000, which
| coincidentally is almost exactly the non-inflation
| adjusted MSRP of a 2005 Civic. It sells poorly. Most
| people don't want to buy a new car that feels like it's
| 15 years out of date.
|
| [0] https://www.youtube.com/watch?v=5aCsNs3eYTE
| IncRnd wrote:
| It's odd that you are even creating these arguments that
| prices don't increase.
|
| Not everyone cares about Price/component cost/feature
| set/quality. The truth is that the actual real-world cost
| for what people view as the same item, in this case an
| iphone, has increased year-over-year.
|
| > People don't mind this because they are ultimately
| concerned about their overall quality-of-life.
|
| Of course people mind paying more and more each year.
|
| > nobody wants a new car with no air conditioning, minimal
| sound deadening, low horsepower, crude construction, and 5
| digit odometer reliability.
|
| Those portions essentially cost nothing in the overall
| build cost of a car. Every car has had A/C for years. An
| odometer, seriously? Again, the truth for buyers is that
| the cost of a car goes up year over year. If we set your
| hyperbole to the side, people do purchase entry-level
| vehicles when they are introduced to the market. Many times
| the demand outstrips the supply, because of price.
| [deleted]
| [deleted]
| brimble wrote:
| You could have leased time on a ten million dollar
| supercomputer in 1990. It was serious capital. Try leasing time
| on your iPhone.
| RhysU wrote:
| > A $500 smartphone today would have cost tens of thousands of
| dollars only a few years ago, if it were even possible to
| manufacture then.
|
| People love smartphones in inflation discussions. Look at all
| them new features!
|
| I remember a time when no one had them and no one needed them
| to be a high-functioning, successful adult. So, they're a
| modern tax at any price point.
| MontyCarloHall wrote:
| By that logic, 200 years ago we didn't need cars or trains or
| modern medicine to be a high-functioning, successful adult.
| 1000 years ago most people didn't need any formal schooling
| to be a high-functioning, successful adult. 50,000 years ago
| we didn't need buildings or agriculture or anything at all
| from modern society to be a high-functioning, successful
| adult. So any costs associated with a post-hunter/gatherer
| society are a modern tax at any price point.
| BirAdam wrote:
| This isn't entirely accurate. A hunter-gatherer society is
| not a civilization, and life-expectancy was low. We can
| also assume that due to injury, disease, and periodic
| starvation that the hunter-gatherer society didn't have a
| surplus of adults, much less high-functioning ones. This is
| precisely why, over time, the hunter-gatherers of the Earth
| voluntarily chose to settle, to farm, and to organize into
| civilizations. The car or the horse is, generally speaking,
| not a tax on the individual as these allow higher rates of
| productivity than an individual would otherwise have. The
| smart phone, however, does not offer sizable gains in
| productivity, and conversely actually steals attention from
| the individual and therefore is a net tax on the
| individual.
| manmal wrote:
| Some indigenous tribes (not necessarily hunter-gatherer,
| but no civilization either) are among the healthiest
| populations ever observed, eg
| https://en.m.wikipedia.org/wiki/Tsimane
|
| Whereas the ancient Egyptians, a civilization, documented
| Type 2 Diabetes and coronary disease / heart failure.
| Settling down and forming civilizations had advantages,
| but improved health probably wasn't one.
| adolph wrote:
| _In hunter-gatherer groups, life was, and is, undeniably
| hard, but their lifespan was not as short as the numbers
| press us to think. If you were a hunter-gatherer and you
| made it to adolescence, there was a strong likelihood
| that you would live a long and healthy life - not so
| different from modern humans._
|
| [...]
|
| _Modern life does have many benefits, but when it
| persuades us to use transport, sit in a chair at work, or
| watch TV for extended periods, we increasingly have to
| turn to medicine for solutions because these habits are
| killing hundreds of millions of us each year._
|
| https://theconversation.com/hunter-gatherers-live-nearly-
| as-...
| willcipriano wrote:
| You have dollars and you have cheeseburgers. People exchange
| dollars for cheeseburgers. If you suddenly increase the number of
| available cheeseburgers, eventually the market will correct and
| you'll get more cheeseburger per dollar. Most people accept this,
| but tell them if you increase the number of dollars but leave
| cheeseburger production the same, you'll need more dollars to get
| the same amount of cheeseburgers as you did previously, and they
| insist this isn't true. As a bonus you can replace cheeseburgers
| with labor and they will say "lump of labor fallacy".
|
| Inflation would probably happen more evenly if we got over these
| economic myths we have invented for ourselves.
| pyrale wrote:
| The article is about models not faithfully showing the reality
| of inflation and, by extension, the flawed use of inflation
| models outside of their useful applications.
|
| I'm not sure that using an oversimplified model to make your
| point about inflation will help clarify the article here.
| [deleted]
| simula67 wrote:
| > Most people accept this, but tell them if you increase the
| number of dollars but leave cheeseburger production the same,
| you'll need more dollars to get the same amount of
| cheeseburgers as you did previously, and they insist this isn't
| true.
|
| The "leave cheeseburger production the same" is doing much of
| the heavy lifting here. There are many studies that show that
| prices tend to be sticky[1]. However, when prices do go up,
| more production does come online to capture those higher
| prices[2]. However, this can fail to materialize due to a
| number of reasons.
|
| [1] https://en.wikipedia.org/wiki/Nominal_rigidity
|
| [2] https://en.wikipedia.org/wiki/2010s_oil_glut#Causes
| [deleted]
| RobertoG wrote:
| You forget to mention that if you diminish the number of
| available burgers you'll need, also, more dollars to the get
| the same amount of cheeseburgers.
|
| And if you diminish the quantity of some essential product used
| for everything, as, for instance, energy, you will get the same
| effect.
|
| Also, people confuse a one time increase of prices with
| inflation (that is a constant increase in time), and inflation
| with hyperinflation (two different phenomena).
|
| Increasing the number of dollars spent beyond the economy
| capacity will cause inflation (at least if the spending is not
| done in investments that increase capacity) but that's almost
| never (never?) the cause of hyperinflation. See (1) for
| hyperinflation examples.
|
| (1) - http://bilbo.economicoutlook.net/blog/?p=3773
| GlennS wrote:
| > As a bonus you can replace cheeseburgers with labor and they
| will say "lump of labor fallacy".
|
| The trouble with this simple and seeming obvious hypothesis and
| labour (by which I assume you mean immigration) is that labour
| sits on both sides of the equation.
|
| If you increase the supply of labour, then you're also
| increasing demand of all the things the immigrants consume,
| which means you're increasing the demand for labour.
|
| (How much you're increasing each side of the equation - and how
| long each side takes to adjust - left as an exercise for the
| reader.)
| jameshart wrote:
| > labour (by which I assume you mean immigration)
|
| Why would that be the assumption? Labor supply varies due to
| all sorts of things - childcare availability; education and
| skills; internal migration, which ties into things like
| housing markets; population growth and demographics;
| productivity and availability of capital; with remote
| working, even things like access to high speed internet
| affects the available labor pool... it's not just 'how many
| warm bodies are inside the border?'
| willcipriano wrote:
| > then you're also increasing demand of all the things the
| immigrants consume, which means you're increasing the demand
| for labour.
|
| How much of what you consume is even produced domesticly
| anymore? Take a look around the room you are in. The
| immigrant now with more money may decide to buy themselves a
| iPhone and that probably helps someone in China who would
| like a job assembling them but it still drives down the cost
| of labor locally. Much of the services immigrants use
| domesticly will be low margin, like grocery stores and
| restaurants adding little to the domestic economy.
| notahacker wrote:
| Exactly the same arguments apply against claims that low-
| skilled migrants have much impact on wages though. They
| tend to work in low margin industries which compete
| internationally against imports from countries which pay
| lower wages, the existing domestic workforce has little
| negotiating power or ability, and often the jobs they take
| are either already at a minimum wage level so their
| existence literally can't depress it any further, or can't
| be filled at any reasonable wage level.
|
| Not all their additional consumption goes to the US economy
| and they only pay a little bit of tax, but they don't need
| to have very much impact on consumption and production to
| offset the impact of their slightly lower wage demands.
| mrtranscendence wrote:
| Plenty of people in the US were involved in getting that
| iPhone to the person who bought it. Hardware and software
| engineers at Apple, distribution center employees, truck
| drivers, customer service reps at the AT&T or Verizon store
| where many people still buy their phones. Even some of the
| internal parts of an iPhone are manufactured in the US.
|
| Just because many goods are assembled internationally does
| not mean that buying those goods does not stimulate the US
| economy in any way.
| lupire wrote:
| The high margin that Apple makes is domestic (if you are
| talking US. Europe is a different matter). Foxconn isn't
| getting that margin.
| reedf1 wrote:
| For every complex problem there is a simple, easily explainable
| and wrong solution.
|
| You are flying in the face of decades of empirical economic
| research, you are performing the epistemological equivalent of
| saying "and then they'll say that everything is made of atoms!"
| The-Bus wrote:
| For a tech-focused discussion, it's interesting (and incorrect)
| to focus on labor vs. the outputs of labor: productivity.
| Productivity has outpaced the minimum wage over the last few
| decades, thanks to technology and other advances.
|
| As someone else said in response, the first chapter of a HS
| economics textbook is not sufficient to explain the modern
| economy.
| lupire wrote:
| "Labor" is a shorthand for business outputs. Allocation of
| profits within the business (shareholders, managers,
| employees, externalities) is a related but different issue.
| dataflow wrote:
| Not to argue against the ultimate conclusion, but I think
| you've oversimplified the situation. To make a stronger
| argument, I think you would need to factor in the fact that
| dollars can be exchanged for almost anything, whereas
| cheeseburgers can only be exchanged for dollars. And perhaps
| other facts, like the fact that cheeseburgers have a much lower
| value being left in long-term storage than cash.
| willcipriano wrote:
| If you think about a economy it has some amount of productive
| capacity. You can sort of use GDP to see it, but that is
| denominated in dollars so it can hide the effect to a large
| degree. When people shift to alternative goods, productive
| capacity can shift to producing those new goods, however if
| the total capacity remains the same those dollars still
| purchase less productive effort than they did previously. As
| dollars are the reward for productive effort in the economy,
| if your wages remain the same your proportion of the efforts
| of the economy has gotten smaller, but your contributions
| remained static. I imagine this has contributed to income
| inequality to some degree.
| lupire wrote:
| "Durable good" is the economic term you are looking for. Also
| "barter", an imefficient form of exchange that avoids
| _purely_ social constructs.
| jameshart wrote:
| It might be a surprise to you, but Economics 101 supply/demand
| models for a single good actually don't capture all the
| complexity of actual market behavior.
|
| Where you say 'you increase the number of dollars but leave
| cheeseburger production the same' - how exactly do you do that?
|
| I mean, there certainly are institutions that can increase the
| number of dollars. But those institutions can't constrain
| cheeseburger production to make sure it stays the same, can
| they? Cheeseburger makers are free to adjust their production.
|
| So nobody's doing what you suggested - increasing dollars while
| holding cheeseburger production steady. Instead, they're
| expecting cheeseburger production to change (maybe it's
| changing all on its own, as people develop new cheeseburger
| recipes and tastes in cheeseburgers change), and they are
| adjusting the number of dollars to compensate.
|
| Which, yes, suggests you are committing the lump of
| cheeseburger fallacy.
| lupire wrote:
| Bold comment after 2 years of mailing out money to mass
| population of people who weren't working or running their
| businesses, resulting in 7% inflation.
|
| Neither Kenyes nor Hayek were idiots. Yes giving money (even
| more than a govt actually has on hand -- printing) can
| stimulate labor by market-making to enable barter across
| space and time. And yes printing more money doesn't magically
| create more productivity forever.
| long_time_gone wrote:
| Nonfarm business sector labor productivity increased 6.6
| percent in the fourth quarter of 2021, the U.S. Bureau of
| Labor Statistics reported today (March 3, 2022), as output
| increased 9.1 percent and hours worked increased 2.4
| percent.
|
| https://www.bls.gov/news.release/pdf/prod2.pdf
| IshKebab wrote:
| I agree basic supply/demand models are almost hilariously
| simplistic, but I don't think you can really invalidate his
| point about what happens if money supply goes up but product
| supply doesn't just by saying "well product supply does go
| up".
| bko wrote:
| There's a difference between supply and quantity supplied.
| The OG is referring to "cheeseburger production" as supply
| and you're reading it as quantity supplied.
|
| Yes, a cheeseburger becomes more expensive will attract new
| producers and the aggregate amount of cheeseburgers sold will
| be higher. But the marginal cheeseburger being sold is at a
| higher cost to produce (otherwise it would have been produced
| to fulfill the original demand).
|
| I think the supply/demand model is useful. I think when
| people claim "its more complicated", they are trying to get
| around inconvenient truths and basic axioms. You print more
| money out of thin air, the price of goods is going to go up
| since its more money chasing the same goods. Creating wealth
| by printing money is kind of a perpetual motion machine. You
| need a lot of mental gymnastics to deny the fact that
| printing money doesn't cause prices to go up. Everyone knows
| this. Keynes knew this, as did Lenin. Keynes wrote the
| following:
|
| > Lenin is said to have declared that the best way to destroy
| the capitalist system was to debauch the currency. By a
| continuing process of inflation, governments can confiscate,
| secretly and unobserved, an important part of the wealth of
| their citizens. By this method they not only confiscate, but
| they confiscate arbitrarily; and, while the process
| impoverishes many, it actually enriches some. ... Lenin was
| certainly right. There is no subtler, no surer means of
| overturning the existing basis of society than to debauch the
| currency. The process engages all the hidden forces of
| economic law on the side of destruction, and does it in a
| manner which not one man in a million is able to diagnose.
|
| [0] https://www.pbs.org/wgbh/commandingheights/shared/minitex
| t/e...
| lend000 wrote:
| This isn't relevant in the case of broad increases in the
| macroeconomic supply of dollars, since they affect the
| supply/demand curves of everything in the economy
| simultaneously (albeit more at the source of injection as
| described by the article, e.g. stocks).
|
| For example, you can't really "ramp up" production of burgers
| in response to higher dollar supply without ramping down the
| production of salads, unless there were people doing nothing
| to start with (which is why inflation is related to
| unemployment, to a degree). But by the same token, those
| dollars used to incentivize higher production can at best
| drive a short-term boost in production, as the costs to
| produce the burgers quickly rise as inflation propagates
| throughout the rest of their supply chain and the real value
| returns to where it was. Meanwhile, the expenses for everyone
| have increased and people who save money or don't want to hop
| jobs to get an inflation raise have been punished.
| jameshart wrote:
| What's "not relevant" in the case of macroeconomic money
| supply changes are _models that try to imagine the whole
| economic system as if it's a barter economy containing just
| dollars and cheeseburgers_.
|
| As you rightly point out, you have to have other goods,
| like salads; a labor force; and concepts like supply chains
| from which cheeseburger suppliers get their resources,
| before you can even begin to think about what will happen
| in an economy when you add more dollars.
|
| And then you need a better way to measure the effects than
| just _using dollars_. They're one of your variables.
|
| I'm not remotely denying that adding dollars to the economy
| is inflationary, by the way! I'm just unimpressed by simple
| models that have little explanatory value and lead to bad
| thinking.
| stdbrouw wrote:
| Who is this mythical "they" you talk about?
| willcipriano wrote:
| The current administration in the US as well as those who
| preach modern monetary theory.
| onlyrealcuzzo wrote:
| I'm extremely against MMT - but that are compelling
| arguments versions of it would not cause CPI. Haven't seen
| any compelling arguments it wouldn't cause asset price
| inflation, though.
| uoaei wrote:
| MMT is not a practice, it is a theory. I am confused by
| your objection.
| RobertoG wrote:
| So, you have some guys that predict inflation for 30 years
| and are always wrong, after a global pandemic and an
| energetic crisis, inflation happen and they feel vindicate.
|
| It has to be great to have a model that's never wrong
| because you just have to wait enough. Not very scientific
| but great.
| marcosdumay wrote:
| > and are always wrong
|
| Hum... There are plenty of threads about housing here on
| HN and conversations about people becoming homeless after
| a disease, or bankrupt due to education costs.
|
| If you want to claim the US hasn't have a large amount of
| inflation on the last 30 years, you'll need some data
| that doesn't ignore those.
| RobertoG wrote:
| I didn't say anything about the USA, and, maybe I'm
| wrong, but somehow I doubt there was not people becoming
| homeless, after a disease, in the USA, 30 years ago.
|
| Anyway, if you are not going to use the official
| indicators of inflation there is not point in discussing
| anything. I could tell you that my indicator is computing
| process per dollar and claim a terrible deflation.
| marcosdumay wrote:
| > I didn't say anything about the USA
|
| On nearly any other country, you won't find people
| claiming "you have some guys that predict inflation for
| 30 years and are always wrong", because their non-
| misleading numbers almost always have some period of high
| inflation on the last 30 years. But if you have some
| other one in mind, it will be interesting to look at it.
|
| > somehow I doubt there was not people becoming homeless,
| after a disease, in the USA, 30 years ago
|
| Take a look of healthcare expenses there compared to
| personal income going back those 30 years. If you still
| think it was as easy for a person to get bankrupt by them
| back there as it is now, well, I'm curious about your
| analysis.
| eli_gottlieb wrote:
| A rise in economic rents isn't the same thing as monetary
| inflation. You can't actually erase blockages in the real
| economy by changing monetary policy. Neither inflation
| nor deflation will fund public higher education to keep
| tuition low, break up health insurance oligopolies, or
| legalize building more housing. Those are political-
| economic problems, not monetary ones.
| carnitine wrote:
| "Most people" as they say.
| lucumo wrote:
| You're disregarding the fact that both cheeseburgers and
| dollars can increase, counterbalancing each other. And that if
| there aren't more dollars while the number of cheeseburgers
| increases, well, cheaper cheeseburgers. Deflation in a simple
| world where only cheeseburgers are sold.
|
| Same with labour. Increase the number of people making
| cheeseburgers, and you get more cheeseburgers and more people
| buying cheeseburgers. There is no fixed amount of labour to be
| done. It depends on the number of people.
| WalterBright wrote:
| Living through 1970s inflation permanently deterred me from
| investing in anything dollar-denominated.
| cryptica wrote:
| Financial assets which are close to the money printers are the
| most affected by inflation. In the case of financial assets such
| as stocks, the effects appear to be positive initially, but the
| increase in stock price adds fragility which means that when
| people start selling their stocks (e.g. employees start retiring
| and selling their shares), it will crash very quickly if reserve
| banks don't step in to bail out the markets.
| [deleted]
| naveen99 wrote:
| Half glass full / empty : so many things deflating all the time:
| moore's law, internet information, open source software,
| incompetent people getting fired, cheaters getting caught, brain
| drain from poorly managed states.
| danuker wrote:
| > It can take years for an inflation shock to propagate through
| the economy and reach a stable equilibrium
|
| Markets are never in equilibrium, but always changing. So the
| author's point is even stronger.
| bannedbybros wrote:
| jonathan-adly wrote:
| One thing that inflation does that is rarely talked about is how
| it affects time preference (long-term orientation) of the
| population as a whole. As inflation rises, low time-preference
| folks are punished, and high time-preference are rewarded. high-
| debt w/ little savings is smart, YOLOs are natural.
|
| A 22 years old now that saved 10% of his salary toward an index
| fund with 4-5% expected returns over a decade is disadvantaged
| versus someone who just spending his money for material rewards
| now (in 7%+ inflation long-term environment.)
|
| It infects everything in society and absolutely not some benign
| monetary problem that the markets will adjust too.
|
| "Low time preference generations produce prosperity, which
| produces high time preference generations, who bring ruin, which
| produces low time preference generations."
| lupire wrote:
| This is working as intended. See "the paradox of thrift". You
| can't eat money. Inflation means money is less valuable than
| presupposed, because productivity is lower than presupposed,
| and people need to create more value now.
|
| Losing savings to inflation means you sod your labor in a
| market that was oversupplied with labor, and spent it in market
| that is under supplied.
|
| Economicaly, to optimize returns, you should have taken time
| off from selling labor when inflation was low, instead of
| hoarding cash.
|
| If you have a good use for your money, you can invest it to
| beat inflation. Otherwise, you are just seeing the correction
| for your inflated (ha!) estimate of the value of money.
|
| Inflation isn't bad, it is merely the messenger of the
| previously hidden misallocation of resources -- either
| "printing money" (not your fault, but blame the printer, not
| inflation, or accept it as a wealth tax), or real economic
| destruction like a natural disaster (Covid) and arguably the
| political respite to it, or war.
| eli_gottlieb wrote:
| Notably, right now we have both the natural disaster _and_ a
| war.
| ska wrote:
| > One thing that inflation does that is rarely talked about is
| how it affects time preference
|
| I don't really understand how you got there - it may be left
| implicit in some conversations, but essentially the entire
| discussion about monetary policy wrt inflation rates is _about_
| managing this preference trade off. The general consensus seems
| to be that swinging too hard in either direction is a bad
| thing, hence targeting nominal 2%-ish.
| Siira wrote:
| Bad for whom? By whose standards?
|
| I am reminded of a recent US official who said people not
| commuting to work and thus not needing a whole suit of
| services such as restaurants are "bad for the economy."
| jonathan-adly wrote:
| Yea, that's the conversation among academic economic paper,
| but not among normal people. It's unfortunate that the
| accepted dogma is that the economy can be managed optimally
| by making savings unattractive.
|
| There is down-stream effects from the population becoming
| high-time preference. Spending might go up (thus stimulating
| the economy), but so would be a lot of undesirable behaviors.
| BenoitEssiambre wrote:
| Monetary inflation is a nominal phenomenon. It's not the
| returns to investment that are changing (that is determined by
| the free market) it's just the returns to holding cash. It's
| the measuring stick for value that is changing.
|
| You can still save and get real market returns through owning
| real private assets like stocks.
| jbay808 wrote:
| > It's not the returns to investment that are changing
|
| How so? Quantitative easing controls the yield on bonds, and
| stock prices adjust accordingly to keep their yields
| consistent with the bond yield + risk premium. We've seen the
| earnings yields on stocks plummet as a result. After a short-
| term rapid climb (caused by the _step change_ in interest
| rates), low interest rates can cause the long term growth of
| stocks and other assets to also remain depressed, even while
| consumer prices climb. This is the "stagflation" scenario
| and is a very real possibility.
| MiguelVieira wrote:
| Expected investment returns are already inflation-adjusted
|
| https://www.csun.edu/~vcovrig/Asset_Aloc.pdf
|
| Edit: I think your point still stands though. In situations
| where inflation is out of control or where you don't have
| access to stable investments, then spending your income as soon
| as you get it could be more rational than saving it.
| SilasX wrote:
| Then why do risk-free interest rates not compensate for
| inflation (let alone taxes), and haven't since like the 90s?
| hinkley wrote:
| And in periods when investment returns are especially low, it
| can be better to invest some of that money in yourself, to
| improve future prospects. Anything from taking classes to
| going to conventions to paying down debt.
| yellowstuff wrote:
| Good point. Related- stocks are traditionally considered a
| good inflation hedge. Even this article partially debunking
| that idea shows positive real returns in all inflation
| regimes, and suggests that inflation up to 5% doesn't hurt
| stock real returns. Long term inflation over 5% has happened
| and could happen again, but it would be very surprising to
| most economists.
|
| https://blogs.cfainstitute.org/investor/2021/07/19/myth-
| bust...
| jnwatson wrote:
| That's a great resource. I'd argue that inflation isn't
| "real" until it gets to around the 5% mark.
|
| High inflation attracts Fed interest rate increases which
| attracts bond investment over equity investment.
|
| In the US, we now have a triple whopper of post-pandemic
| supply chain adjustment, tight labor market due to early
| Boomer retirement, and now war-related energy cost
| increases. I don't think the economists have updated their
| model fast enough. I'm thinking we're going to have "real"
| inflation for a while now.
| WalterBright wrote:
| > it would be very surprising to most economists.
|
| If the Progressives get their way with the budget, it will
| be inevitable.
|
| You can't have trillions in deficits without massive
| inflation.
| SilasX wrote:
| Slight nitpick -- I think that's only true as long as interest
| and investment returns don't rise to keep up with inflation +
| real return + tax levels on investment income. But, not
| relevant here, since they're definitely not keeping up.
| nostromo wrote:
| Similarly it rewards debtors and punishes savers.
|
| For example, I know people that were scared to take out massive
| mortgages in past years and instead saved. That turned out to
| be the wrong move. In our money printing world, it has been
| much better for folks to buy as much house as they can. The
| house appreciates and the debt is wiped away by inflation.
|
| This kind of environment isn't sustainable.
| nemothekid wrote:
| Yes if you saved in a savings account, you were screwed. If
| they instead bought the S&P 500, over the last 5 years they
| would be up 80%. Still having the bigger house is better than
| not buying anything at all, but there are many assets that
| are effectively as liquid as cash, which the government has
| bent over backwards to protect.
| nostromo wrote:
| You're forgetting about how leveraged housing is though.
|
| If you bought a 500k house five years ago with 100k down,
| and now it's worth 1m -- you've effectively gained a 500%
| return on your 100k, maintained your principle, and you
| could live in your investment to boot. A house with 20%
| down (or less) in many housing markets would have blown the
| S&P out of the water in the past several years.
|
| Yes, you can leverage in the stock market too -- but rarely
| at a 4:1 ratio -- and if you did leverage up too much, you
| would have been wiped out by a margin call in 2020.
| nonameiguess wrote:
| People need to live somewhere. You're either gradually buying
| yourself property or you're gradually buying your landlord
| property. Your scared friends weren't saving that money. They
| were just paying rent instead of making mortgage payments. If
| you're referring to the down payment, the only economic
| difference between holding $X in cash versus holding $X in
| home equity is home equity is going to appreciate faster in
| most decades. They're certainly punished even more by
| inflation, but they were already being punished.
| YZF wrote:
| An index fund isn't going to return 4%-5% over a decade in a 7%
| inflation environment. Stocks offer a degree of protection
| against inflation (obviously if prices are going up then
| revenue is going up). There's other vehicles that can offer
| some degree of inflation protection.
|
| The other thing is that as inflation goes up you'd expect
| interest rates to go up. Going into something like bonds at the
| height of that cycle can get you higher real rates than at any
| other time.
|
| So what matters isn't inflation but rather real rates and
| valuations (P/E), certainly there are times where people are
| more motivated to save and there are times where they're more
| motivated to spend but I don't think it's as simple as saying
| that you shouldn't save at a 7% inflation environment.
|
| What inflation does do is it motivates you to buy sooner. If
| you know the price of something is going higher, and you have
| no options to get a good return in the short term, and you want
| it, then you want to buy it sooner.
|
| Not an expert but lived through hyperinflation ;)
| [deleted]
| hinkley wrote:
| The value of saving 10% of your income isn't only about what
| rate of return you can get for it. It's also about normalizing
| your expected standard of living to 90% of your salary, instead
| of >105% as most people do.
|
| If you get to old age having spent every penny you earned, your
| standard of living will fall off a cliff when you can't or
| won't work anymore. Someone who saved has both a larger budget
| and lower expectations of burn rate.
|
| People who can't fathom having a 6 month emergency fund are
| somewhat self perpetuating. People with 3 months will find
| they've moved the goalposts closer, and they just need time to
| get there, but less than they expected when they had 1 month in
| the bank.
| fdgsdfogijq wrote:
| Honestly thinking you will save your way to a great lifestyle
| is a middle class and very flawed concept. Nickel and diming
| your life by not going to starbucks and living in a cheaper
| apartment does nothing.
| WhompingWindows wrote:
| You're mathematically incorrect, unless you consider a
| typical worker saving 25% of their take-home "doing
| nothing".
|
| A typical take-home for a month's work in US might be
| $3000. Cheaper rent could net you $300-$600 more, which is
| between 10-20% of your take-home. Not going to Starbucks
| every day, saving $5 a day let's say, works out to 5*30 =
| $150 bucks a month, a full 5% of the take-home pay.
|
| Is 25% really nothing? Maybe you make so much money that
| $450 bucks a month isn't a big deal, but most people don't
| see the insidious nature of costly habits and how they're
| spending thousands per year on their quality of living.
| SketchySeaBeast wrote:
| Sure, Starbucks is negligible, but that much rent
| (assuming you're not in San Fran) makes the difference
| between a nice apartment in a nice location or a bad one
| in a bad location (or some such mix) in many place.
| There's all sorts of other implications that come with a
| better place that we can't necessarily chalk as simply
| extravagant unneeded spending.
| hinkley wrote:
| I think where people get into trouble with fractions and
| especially where money is concerned, is in not realizing
| that lowering an expense by 1/4 means that the same money
| lasts 1/3 longer.
|
| I can't count the number of times I've had to explain to
| someone, especially in project roadmap discussions, that
| +-20% doesn't cancel out. 1.2 x 0.8 != 1.0. +-5% almost
| does, and people extrapolate to larger numbers and make
| strategy based on it.
| mensetmanusman wrote:
| Would you consider not eating at a restaurant once a week
| for 18 years in order to save for a kid's college fund
| 'nickel and diming'?
| alexashka wrote:
| Yes.
|
| Not to mention college funds are a bad idea.
|
| If your kid isn't a dummy, they don't need a college
| fund. If the kid _is_ a dummy, they also, don 't need a
| college fund, because they shouldn't be going.
| logical_proof wrote:
| Are you insinuating that kids that can't get scholarships
| are dummies? Who are all of these idiots that pay for
| college in your statement?
| gunfighthacksaw wrote:
| I had no idea scholarships were a thing until I was well
| into university. No one ever mentioned them to me and I
| had no idea of the concept so I didn't ask.
|
| That said I wouldn't have got one anyway because my life
| started falling apart in the last couple years of high
| school. Still got a physics degree though.
| dlp211 wrote:
| What an asinine take. I was only able to afford college
| because of the post-9/11 GI Bill, and even then I still
| walked away with student loan debt.
|
| I'd be in a much better position today if I didn't have
| to spend time in the military and income today to pay for
| college. So I'm ensuring that my kids won't have to do
| the same. Why would I ever want to burden my kids like
| that.
| hinkley wrote:
| I got a job in college that opened a lot of doors for me
| later in life, but at the time what mattered the most is
| that I could work fewer hours and still pay my bills,
| allowing me to pay more attention to school work and the
| other life skills that going away to college are supposed
| to teach you.
|
| I had friends who made it all work far better than I did,
| juggling a job and studies and extracurriculars, but only
| a fool couldn't see that they were walking around with a
| handicap in the form of having to pay as they went.
|
| Not working at all in school ends up being a liability
| when you graduate, but if the alternative is being forced
| by necessity to work to graduate, I'm not sure how much
| better the cure is than the disease.
| hinkley wrote:
| In our demographic there are a lot of people who struggle
| far longer and harder than they need to. But there are also
| a lot of people struggling to stay in the middle class, and
| some of the same advice applies.
|
| The watershed moment for me was when I realized I could pay
| for a burst pipe or a dead transmission or a spontaneous
| road trip without reaching for credit cards. Not just
| financially but emotionally. Money stress leads to more
| money stress, on and on in a loop. Had front row seats for
| that my entire childhood. That thread runs through my
| entire life. I'd rather find a way to improvise around not
| owning a specific tool than buying a cheap one. The "best"
| one is often the third most expensive, but occasionally
| it's the third least expensive. Making the time to think it
| over saves me at least as often as not.
|
| $5 on Starbucks has different connotations for different
| people and in different contexts. If you can't pay your
| bills and have a daily Starbucks habit, then the Starbucks
| is a sign of a real problem you need to look at. But if
| it's the glue that maintains important social rituals, then
| maybe you keep it. If you have white coat syndrome, and
| that $5 Starbucks is your reward for getting that thing on
| your arm checked out, then spend it. Get a scone too.
| Because that could be the best $10 you spend in your entire
| life. Same for your favorite ice cream or perfume or steak
| after asking for a raise, or doing an interview that
| intimidates you.
|
| Hedonism is not your undoing. It's the treadmill that
| undoes many people.
|
| Counting pennies doesn't save anyone, no. In fact it's my
| r/unpopularopinion that counting calories doesn't make you
| lose weight either. It's the mindfulness about calories or
| money that works, if in fact anything dues. Treating food
| or spending as an emotional bandaid doesn't work and
| creates a greater need in the future. Fad, elimination
| diets suck all the fun and pageantry out of consuming food.
| Which is why so many impossible ones seem to work for some
| people. Food and money aren't fun. They're fuel. Where can
| you get with them?
| verve_rat wrote:
| > white coat syndrome
|
| I'm not familiar with this turn of phrase, would someone
| mind explaining it please?
|
| Edit: never mind, I googled it. I thought it was a
| colloquial phrase, but it turns out it is a real thing.
|
| https://www.bloodpressureuk.org/your-blood-
| pressure/getting-....
| caeril wrote:
| This is only true if you consider financial savings the only
| type of savings.
|
| Preppers, for example, are very low-time-preference people who
| have chosen food storage, energy capture and storage, machines,
| tools, land, structures, raw materials, cabling, conduit,
| lumber, etc as their mode of savings. They will tend to do
| very, very well in high-inflation environments.
|
| This also ignores the fact that many assets owned by low-time-
| preference people (and/or the funds they hold) are leveraged,
| whether it be real estate leveraged by long-term mortgages, or
| 4% dividend-paying equities leveraged by 2% margin accounts.
| Inflation helps these people quite a bit.
| stevenally wrote:
| The 22 yr is just playing the wrong game. He needs to take out
| a fixed rate mortgage, as large as possible. Then rent the
| property.
| pharmakom wrote:
| Why is high leverage on an illiquid and non-diverse asset
| considered by so many to be a prudent move?
| [deleted]
| jxidjhdhdhdhfhf wrote:
| Right now, you can borrow a large amount of money (larger
| than pretty much any other loan type) at a low fixed
| interest rate and pay the bank back less than what they
| loaned you in inflation-adjusted terms. It's basically free
| money at this point, and one if the reasons I don't sweat
| my rapidly deflating salary as much as I otherwise would
| be.
| [deleted]
| [deleted]
| adventured wrote:
| Why would asset diversity be considered prudent rather than
| being an incompetent means to chase mediocre returns?
|
| It's not necessarily high leverage, since you don't know
| anything about the person's balance sheet. It matters a lot
| more how much (and what type of) debt the person has, not
| so much how much debt the real-estate has. Their monthly
| debt payment to income ratio may be low for example, such
| that the mortgage isn't a problem at all (and it's an
| inexpensive way to borrow while inflation is high and
| mortgage rates are well below that rate of inflation, which
| is a historical oddity for the US).
|
| Diversification-as-mantra is for people that don't know
| what they're doing and don't know where to focus. This is
| what morons on television preach, and other pop investment
| experts, because they too have no idea what they're doing,
| they just know that spewing out "diversify" won't get them
| fired and it seems safe (mediocre returns are anything but
| safe).
|
| The typical person is incapable of being an expert at many
| asset categories. It is possible, over time, to become an
| expert at one or a few however, including real-estate. If
| you acquire competency at real-estate investing, it will
| pay off handsomely over time (as with equity investing).
| Unless you're born wealthy or acquire a lot of money in
| some other way, you're going to start off buying one
| property. Certainly one can reasonably debate the amount of
| down-payment to start with on that first property,
| depending on personal finances.
|
| The most prudent investment path is to focus on an area
| narrowly, concentrate at becoming good at a thing, develop
| as much skill at something as possible. That competency is
| your safety, not diversification (which is primarily useful
| when you have little to no skill and need to spread your
| investments around widely because you don't know what to
| focus on to generate superior returns for yourself; this is
| why someone like Warren Buffett advises the average person
| to just buy a low cost index fund, it's because they're
| incompetent investors ill suited to managing anything on
| their own - they simply do not have the skill to do so -
| and the index fund provides relatively safe generic
| diversification in the stock market, and the matching
| returns for that as well).
| pharmakom wrote:
| Asset diversification is important because we don't get
| the average expected return from a portfolio, we get the
| actual returns from only one roll of the dice.
| Supermancho wrote:
| > It's not necessarily high leverage, since you don't
| know anything about the person's balance sheet
|
| The OP was 2 short sentences. "As large as possible"
| implies a high leverage to me.
| vkou wrote:
| Because in the long term, property values can only go up,
| given the political power of NIMBYs, all levels of
| government bending over backwards to protect paper wealth
| of boomers, and low interest rates.
| nemo44x wrote:
| Because you can live in it. It's not only an investment.
| Saying that, people often take on more than they should and
| get into trouble because of it.
| pharmakom wrote:
| Poster is talking about buy-to-let.
| nemo44x wrote:
| Oh yeah - that's generally a horrible investment compared
| to the market as a whole. In essence, you end up losing
| so much of your profit through taxes and you've managed
| to take on a business now that requires your time. Land
| lording is generally a terrible investment unless it's
| done at a scale and professionally. Not saying you don't
| make money on it - but that same money is probably better
| in an index fund for 30 years.
| rory wrote:
| Since you can be foreclosed upon and walk away, your
| downside is capped at the money you put into the property
| (and however much you value your credit rating for the
| following seven years). Your upside isn't strictly capped.
| So for certain high-earning, low-net-worth individuals
| (say, a 22yo programmer), the expected value for such a
| risk is high enough that there's a good argument for
| rolling the dice.
| leetcrew wrote:
| > Since you can be foreclosed upon and walk away
|
| only in non-recourse states, of which there are twelve.
| if you don't live in one of those, the downside is still
| capped, but it's the full purchase price of the house.
|
| it's not a good idea to yolo invest like this unless you
| really know what you're doing.
| rory wrote:
| True, but those twelve comprise a large portion of the
| country (mainly since they include Texas and California).
|
| Honestly, in most states your greater risk is likely that
| a renter just stops paying and you have limited or slow
| recourse options. But like most undiversified
| investments, it's possible everything could go to zero
| (see Detroit).
| mindslight wrote:
| To answer your question directly: because it's the only way
| the plebs get access to the trough of monetary creation.
| nly wrote:
| Gross rent yields on residential property are as low as 3% in
| major cities here in the UK with average prices at 8x median
| earnings.
|
| Mortgages rates are fixed for 2-5 years on average, with
| lifetime (25-35 year) fixes non-existent, if not so in the
| BTL sector.
|
| Central bank rates are rising.
|
| Buy to let as an investment is history. Landlords are leaving
| the game rather than joining it.
| anotherman554 wrote:
| This would be a very risky move.
| oneoff786 wrote:
| Renting is frequently a losing activity
| ejb999 wrote:
| especially now where in all likelihood you are going to
| overpay for the property, and at anytime the government
| just decides that your tenants can stop paying rent for a
| year or more, but you still need to make your mortgage
| payments, property tax payments and keep insurance and the
| heat on etc.
|
| Some people do well with rental properties over the long
| haul, I wouldn't touch it with a ten foot pool these days -
| especially if you live in a state where tenants have more
| rights than the owners of the property.
| vkou wrote:
| But owning property is not. And renting offsets some of the
| costs, while in the long-term, you pocket all the capital
| gains.
| thallium205 wrote:
| Ah yes, taking a big loan to speculate on investments. This
| kind of risky behavior is exactly what is wrong with high
| inflation environments.
| ephbit wrote:
| Also, it's quite a risky assumption as an individual that
| one's able to make a long-term profitable bet against an
| army of professional investors that dedicate lots of
| resources towards making profitable bets in the same
| market.
|
| As an individual, one is most likely to outperform other
| non-commercial individuals. It's rather likely in a complex
| investment environment that money will flow upward from the
| less well informed and less well equipped investors towards
| the big players.
|
| Which is why individuals should be extremely cautious where
| they invest .. lots of options can probably be summed up
| as: individual lends big player their money gets negligible
| real return, while big player makes orders of magnitude
| bigger return.
| [deleted]
| BitwiseFool wrote:
| How reasonable is it to expect a 22 year old to be able to
| take out a mortgage, given their age and likely lack of any
| meaningful down payment?
|
| When I was 22 all I had was about $5K in savings, less than a
| year of experience at my first full-time salaried position
| and student loan debt to pay off. I imagine any reasonable
| loan officer would deny me on the spot for a mortgage given
| my liabilities and lack of proven ability to make payments.
| CyanBird wrote:
| > How reasonable is it to expect a 22 year old to be able
| to take out a mortgage, given their age and likely lack of
| any meaningful down payment?
|
| In the 60s when the wages were high and inflation high as
| well?
|
| Very expectable, it was common place for people in their
| early 20 to be able to afford homes, and it was seen as
| very good that was the case
| Domenic_S wrote:
| Do you have a citation for that claim? I searched for it
| but didn't find a great source - the one I found put
| homeownership at ~22yo in 1960 at less than 20%.
| themaninthedark wrote:
| Let me preface this by saying that housing prices are
| ridiculous.
|
| That said, a new house from the 60's is very different
| from a new house today.
|
| The things that come to mind:
|
| Much larger kitchen space.
|
| Shared bathroom vs every bedroom has a bathroom plus half
| bath for guests.
|
| Major code differences for electrical.
| chiefofgxbxl wrote:
| I see similar arguments with vehicle prices, where
| vehicles are more expensive, but they are higher build
| quality, have more features (heated seats, blind-spot
| warning, etc.), so it's not technically correct to use
| the term "inflation" since the product is different.
|
| But it still feels wrong to say that this isn't a concern
| and to dismiss it with that argument, since people still
| need entry-level options, even if we tout the new bells
| and whistles we've added to the houses or vehicles over
| the past few decades.
|
| Saying "housing prices are ridiculous" followed by, "but
| you get more features!" is no consolation to the family
| looking to get their foot in the door of the housing
| market.
| jbay808 wrote:
| For most of the '60s, inflation was below 2%, while
| interest rates were 3 to 5%. Inflation started picking up
| north of 3% in 1967, and interest rates climbed along
| with it, to 8%.
|
| High interest rates (especially above inflation) create
| an incentive to save money, and keep property prices low.
| The higher borrowing costs keep the bid prices of
| property down, and the positive real interest rate means
| people don't need to speculate on assets like real estate
| to save their money.
|
| https://www.longtermtrends.net/real-interest-rate/
| ska wrote:
| You aren't wrong, but that is a symptom of how screwed up
| things are.
| klodolph wrote:
| The assumptions of 4-5% market returns and 7% inflation seem a
| bit suspect to me.
| hammock wrote:
| Isn't it the exact scenario we are in today?
| sokoloff wrote:
| The trailing 12 month return for the S&P500 is a little
| over 16%. Other broad-based equity indices are also
| substantially higher than 5%.
| deathanatos wrote:
| The S&P500 is currently at ~4250. 12 months ago, it was
| at ~3898. That's a 9% return, is it not?
| sokoloff wrote:
| You have to add dividends to that. TTM is commonly
| calculated on full months:
|
| https://ycharts.com/indicators/sp_500_12_month_total_retu
| rn
|
| Whole month returns, excluding dividends:
| https://ycharts.com/indicators/sp_500_1_year_return
| missedthecue wrote:
| What were they in the 1970s?
| nostrademons wrote:
| _During_ the 1970s real returns were negative. Inflation-
| adjusted S &P 500 was 632 in 1970; it was 395 in 1980.
| _After_ the 1970s it shot up; it was 788 in 1990, and then
| 2322 in 2000.
|
| https://www.macrotrends.net/2324/sp-500-historical-chart-
| dat...
|
| I've seen some academic papers remark that investors tend
| to undervalue the earnings side of inflation. They will
| discount future earnings by the high interest rates that go
| along with inflation, but they will fail to account for
| earnings _growth_ that goes along with having a profitable
| business in a high-inflation environment, and for the
| changes in competitive dynamics that follows inflation.
| (When rates and expenses rise, it tends to flush out the
| more marginal and unprofitable firms, which means dominant
| firms have less competition.) Warren Buffett made a large
| portion of his fortune by investing in businesses with
| little competition during times of high inflation.
|
| Basically, it's good to be a stock _buyer_ in times of
| inflation _, and bad to be a stock_ seller*.
| YZF wrote:
| That makes intuitive sense because stock valuations
| depend on interest rates. Long periods of low interest
| rates -> high P/E. Long periods of high interest rates ->
| low P/E.
| keltex wrote:
| That's pretty accurate. Vanguard estimates US equities 10
| year returns in the range of 2.3%-4.3%. And inflation is at
| 7% right now.
|
| https://advisors.vanguard.com/insights/article/marketperspec.
| ..
| ska wrote:
| > 10 year returns in the range of 2.3%-4.3%. And inflation
| is at 7% right now.
|
| Usually those sorts of estimates are on real returns, so
| factor in inflation (i.e. 2.3%-4.3% above inflation). That
| is about right in historical data over most 10 year
| periods.
|
| That said there have been periods of negative real return,
| but are you sure this is what Vanguard is predicting?
| anotherman554 wrote:
| Vanguard's estimate of returns is not independent of their
| estimate of inflation.
|
| Vanguard estimates returns will be higher than inflation.
| sokoloff wrote:
| It seems pretty unreasonable to take Vanguard's equities
| return projections over the next 10 years _and
| simultaneously ignore their inflation projection_ from that
| same source.
|
| Equity returns and inflation are not independent and the
| assumptions that led to their equities prediction are
| embodied in their inflation prediction.
| MontyCarloHall wrote:
| It's only accurate if 7% inflation also persists for 10
| years, which seems unlikely.
| jmarbach wrote:
| High inflation persisted in America in the 1970s. Why
| wouldn't it happen again?
| anotherman554 wrote:
| Because we have different Federal Reserve policy than we
| did in the 1970s, for one thing.
| thallium205 wrote:
| The fed in the 70s slowed inflation by raising interest
| rates to 20%. The current fed will never do that.
| sfe22 wrote:
| Correct. And there is a reason, at 10% interest rate, the
| federal government is bankrupt.
| vkou wrote:
| It could happen again, but equity returns wouldn't be
| sub-inflation for 10 years, because the real economy
| isn't shrinking by 4% a year.
| apatters wrote:
| That estimate seems wildly low given that the S&P 500 has
| returned about 10% a year since its inception 65 years ago.
|
| Also from your link, Vanguard estimates about 2% annualized
| inflation over the next 10 years.
| marcusverus wrote:
| Annualized returns for the S&P from 2013-2021 was ~15%
| per year. For 2019-2021 the average was 24% per year.
|
| The idea is that future returns will be lower because
| those some of those expected future "real" gains (i.e.
| gains from growth and dividends) are already reflected in
| the current price (i.e. speculative gains). That these
| recent years of high returns are due to speculation is
| clear from the abnormally high PE ratio.
|
| Of course, Bogle has been saying stuff like this for
| awhile, so who knows. He was saying that future gains
| would be lower back in '17, and look where we are now.
| the_lonely_road wrote:
| Its an example of a possible scenario so not really possible
| to be suspect. All you need understand is that if inflation
| is greater than expected return potential you are in the
| described scenario. It can come about from either lever:
| confidence in returns is lost causing no one to invest, or
| inflation outstripping expected returns for a significant
| period of time (like in Venezuela).
| klodolph wrote:
| > Its an example of a possible scenario so not really
| possible to be suspect.
|
| This doesn't follow. I would expect any financial planner
| worth their salt to consider many different scenarios and
| make decisions based on which scenarios they think are
| likely... not based on which scenarios they think are
| possible.
|
| The fact that it's _possible_ for a decision to put you in
| a disadvantageous position does not mean that you made the
| wrong decision. It may just mean that you made a reasonable
| decision but failed to predict future market behavior.
|
| The idea of using a 40-year high for inflation to do your
| long-term planning sounds like some pretty outrageous
| incompetence to me.
| mywittyname wrote:
| > A 22 years old now that saved 10% of his salary toward an
| index fund with 4-5% expected returns over a decade is
| disadvantaged versus someone who just spending his money for
| material rewards now (in 7%+ inflation long-term environment.)
|
| I would disagree here. This now 32 year old was saving their
| income during one of the longest booms in American history, and
| depending on where he invested, now has multiple years worth of
| investments producing solid returns.
|
| Also, this 22 year old was in a better position to buy a house
| or car because they also lived through a bust time where
| lending was much more restrictive in the past. No savings means
| no house.
|
| The person who went into debt still has all that debt, but now
| will be buried in a rising interest rate environment. Since
| they never saved, they are facing rising rents, plunging them
| further into debt.
|
| People with assets benefit from high inflation environments.
| People spending more than they earn aren't in a position to
| acquire assets.
| helen___keller wrote:
| What you're describing is basically the need for monetary
| policy. When the fed raises rates to combat inflation, this
| makes debt more expensive and makes yield expectations higher
| on investments (by raising the risk-free yield of bonds).
|
| > "Low time preference generations produce prosperity, which
| produces high time preference generations, who bring ruin,
| which produces low time preference generations."
|
| I don't understand
| jonathan-adly wrote:
| From my limited readings of Austrian economic theory,
| monetary policy is the thing that causes inflation in the
| first place.
|
| With a fixed money supply, wide-spread inflation is not a
| thing.
| helen___keller wrote:
| I'm sure people more educated than I can debate about this
| all day, I'm just saying that in the system we have as it
| exists today, the expectation is that the federal reserve
| will increase interest rates to combat inflation, and in
| turn this makes debt more expensive and increases the risk
| free yield rate
|
| Edit: and just to be clear where I'm going with this, the
| market adjusts along these expectations. Why has the
| housing market been so insanely hot for a year now? In part
| because money is easy, and everyone believes inflation is
| coming/here, so getting a 30 year loan on 3% interest is a
| killer deal. Consequently home values are through the roof.
| But this counterbalances: you end up with a higher
| principle and lower interest for the same monthly home
| payment, and take on the risk that you will be underwater
| on your mortgage if asset values crash when rates rise.
| BirAdam wrote:
| Inflation severely disincentivizes savings and rewards
| consumption. This affects the behaviors of entire generations
| of people. If you really want an example, look at the USA
| post '71 (up to this very day) and its ever-increasing rate
| of consumption.
| eli_gottlieb wrote:
| >Inflation severely disincentivizes savings and rewards
| consumption.
|
| Good. We've been suffering from deflationary policies that
| led to demand shortages and low productivity growth since
| the 1980s. There's a healthy balance, but ultimately
| there's no moral virtue in economic austerity.
| helen___keller wrote:
| Just to make sure I'm understanding, is the suggestion that
| people who lived through that high inflation period became
| more inclined to spend and less inclined to save,
| culturally, to this day? Do you have any links discussing
| this further?
| frostwarrior wrote:
| I don't have links but it does make sense.
|
| If you have the money to buy, e.g., an Xbox, saving it
| will not neccesarily return you the same amount of money
| to buy an Xbox in the future, because inflation raised
| the console's price more than the extra money you got in
| return of your investments.
|
| If you buy the console right away, you can be sure that
| your asset is "One Xbox" in value, no matter the amount
| of inflation.
| helen___keller wrote:
| the assertion, as I understand it, is that if you lived
| through a period of inflation your generation will be
| spending more, and not saving as much, for _the rest of
| life_, meaning even in low inflation periods like the
| 2010s
| frostwarrior wrote:
| If the period of inflation is long enough, that statement
| is true.
|
| I'm from Argentina. Inflation is deeply rooted in our
| local economics and most people treat it as a lifelong
| "companion".
| helen___keller wrote:
| Interesting. I've lived in the opposite (my entire adult
| life has been in the low inflation period following the
| 2008 recession) so I can't personally relate
| BirAdam wrote:
| That is precisely what I am saying.
|
| Generally, this is my observed understanding by study of
| both history and of economics. However, there are some
| academics starting to look at it:
|
| https://www.amazon.com/Ethics-Money-Production-Guido-
| Hulsman...
| CyanBird wrote:
| This is an horrible example given that since 71 the este of
| inflation in the US has gone down, not up, while at the
| same time during the post warn, and during the strong
| keynesian period it is considered to be a golden age where
| anyone could buy a house, while at the same time the
| inflation rates where the highest
|
| What op doesn't mention is that high inflation doesn't per
| se desincentivize saving, rather it encourages to invest in
| high returns endeavors, or in assets which don't strongly
| devaluate, as for example housing, of which most people on
| the planet being able to own their own small home is their
| biggest investment of their lifetimes, and again, part of
| what made "the American dream" what it was, sadly all of
| that is dead now, so we have millions living in tents in
| Cali
| BirAdam wrote:
| You're missing the long term. The inflation went down
| after having changed buying patterns, and that inflation
| didn't disappear. Hence, it is (in general) always better
| to operate on debt than on cash as long as your interest
| rate is low (which has been the case for 30 years now).
| This drives up consumption patterns over-all.
|
| Next, while this does drive the purchasing of investment
| class assets, those are not necessarily high-return. The
| reason the stock market keeps going up is not that
| everyone is suddenly making double the revenue. The stock
| market has turned into a ponzy-esque scheme where the
| higher and higher valuations are driven only by people
| seeing the numbers go up. The actual returns per share
| are not rising as quickly as the share prices.
|
| Funny you should mention housing, as the housing market
| predictably crashed in 2008 (Ron Paul called it quite
| well, as did those who bet against the market). It will
| happen again as many of the same mistakes have been made.
| Even without derivatives on property, or even the easy
| lending, people have been taking massive loans due to
| interest rates, and this has driven a dramatic rise in
| housing costs. As more and more people are priced out,
| and rents continue to increase the potential
| buying/renting pool shrinks which will eventually cause
| another crash even if nothing else does.
| eli_gottlieb wrote:
| >Funny you should mention housing, as the housing market
| predictably crashed in 2008 (Ron Paul called it quite
| well, as did those who bet against the market). It will
| happen again as many of the same mistakes have been made.
| Even without derivatives on property, or even the easy
| lending, people have been taking massive loans due to
| interest rates, and this has driven a dramatic rise in
| housing costs. As more and more people are priced out,
| and rents continue to increase the potential
| buying/renting pool shrinks which will eventually cause
| another crash even if nothing else does.
|
| If you want to avoid housing bubbles and crashes, you
| have to legalize building more houses.
| another_story wrote:
| Also building up. Higher density housing should be the
| norm in most places. In the US it's the exception and
| leads to poor public transport, the need for a car, long
| commutes, etc...
| matheusmoreira wrote:
| > I don't understand
|
| Why save money today when tomorrow it will be worth a
| fraction of what it's worth today? You're better off spending
| it on anything. Inflationary currency sucks by design, you're
| supposed to get rid of it as soon as possible.
| barrenko wrote:
| Rounadbout way to say the same is - Money is cheaper the closer
| you are to the source (whoever is printing it).
| danuker wrote:
| > As a result, the inflation rate each person experiences is very
| personalized. It's hard to agree on what "the inflation rate" is,
| because it depends on what you need to buy. If you drive a lot,
| fuel inflation will impact you more. If you're vegetarian, meat
| inflation isn't going to hit your pocket book.
|
| Investopedia defines inflation as "the decline of purchasing
| power of a given currency over time". [0]
|
| Prices diverging is not inflation. It's reallocation of value in
| response to a changing world and changing perspectives.
|
| [0] - https://www.investopedia.com/terms/i/inflation.asp
| anotherman554 wrote:
| I don't understand your objection or what quoting Investopedia
| is supposed to show?
|
| Here's a paper from the New York Fed that contains the sentence
| "Because the basket actually purchased by each household
| potentially differs from the CPIis basket, the inflation rate
| faced by any given household might be very different from the
| CPI-inflation rate."
|
| https://www.newyorkfed.org/medialibrary/media/research/staff...
| BirAdam wrote:
| Investopedia is using just one type of inflation there.
|
| The truth is, money printing and/or government spending beyond
| tax revenue is the source of inflation. Every loan a bank makes
| in fractional reserve systems will be inflationary, and every
| time money is printed for the government it will be
| inflationary. Due to the cartel structure of banking in the
| modern world, the inflation will first hit things like stocks,
| bonds, land, and other asset classes. It takes time for that
| inflation to leak into all other things, but it does. As
| businesses expand, as people move, they are then forced to pay
| these higher prices, and this drives up the price of goods
| produced and bought.
| danuker wrote:
| If inflation occurred constantly and smoothly, I would assume
| the relative prices stay in sync.
|
| If you see crazy swings that have occurred during the
| pandemic - real estate crashing in central business districts
| while going up for industrial areas [0] - that has nothing to
| do with government money printing and everything to do with
| pandemic restrictions.
|
| [0] - https://www.pwc.com/us/en/industries/asset-wealth-
| management...
| BirAdam wrote:
| That is true. You must keep long term in mind tho. Long
| term all real estate prices have gone up and up with short
| term crashes. This is people needing to park money, which
| will eventually backfire when no one can afford the prices
| anymore.
| layer8 wrote:
| The question is, how do you quantitatively define "purchasing
| power" when prices are diverging? Is it the number of
| cheeseburgers you can buy? The number of TVs? The number of
| houses? If you take some average, the average of which set, and
| why?
| danuker wrote:
| One idea is weigh by reported actual expenses in each
| category you're measuring. But that way, you're just
| measuring the trend in expenses, which should be proportional
| to GDP per capita.
|
| Edit: no, not all GDP is consumer spending (there is also
| investment, government expenses, and net exports).
|
| Here is what I think is a better CPI:
|
| Personal consumption divided by population, scaled to compare
| with the official CPI.
| https://fred.stlouisfed.org/graph/?g=MMdx
|
| Growth rates compared:
| https://fred.stlouisfed.org/graph/?g=MMeV
| whiddershins wrote:
| One thing I've noticed is the things that have increased way
| above inflation for the past few decades are:
|
| Medical care, Urban Housing, Education
|
| These are things that disproportionately affect middle class
| families and below, as they are so important and a much bigger
| proportion of their budget.
|
| These are also things that are sometimes referred to as a 'right'
| and are massively regulated by the government.
|
| Whatever all that adds up to.
| ahelwer wrote:
| Countries with socialized housing, healthcare, and education do
| not experience the cost increases of those things seen in the
| US. So you have it backward. The US runs these things like a
| half-assed free market so public wealth is efficiently siphoned
| to the owning class.
| anchpop wrote:
| On the contrary, US housing is incredibly socialized, which
| is why we have some of the worst affordability in the world.
| The capitalist, free market approach would be to allow
| landowners to build almost anything they want on their land,
| but US housing construction is incredibly tightly regulated
| and prevents that. Consider that despite San Francisco having
| some of the most unaffordable housing in the country, it's
| illegal to build an apartment building in 70% of the city
| [0]. Deregulating construction and renting would result in an
| increase in supply and allow the price to come down. (Imagine
| a world where cars are too expensive - would you support
| making the production of new cars illegal, because those are
| "luxury" cars only the rich can afford? No, you'd want those
| cars to be produced so the rich buy them instead of bidding
| against a poorer person on a used car.)
|
| Another commenter mentioned Denmark's housing is also
| socialized. To see how they're doing, I googled until I found
| an english version of their public housing department's
| website [1]:
|
| > We rent out our 13.500 apartments on a strictly first come
| first serve basis. Our waiting list is very long, so expect
| to wait at least five years for your first offer.
|
| As expected, there's no getting around the laws of economics.
| If there are 10,000 houses and 15,000 people who want to live
| in them, _something_ will prevent 5,000 of the people who
| want a house from getting one. If you put the houses on the
| market and ban new housing construction (apparently the
| American way), the 5,000 people with the least purchasing
| power will be the ones unable to get a house. If you instead
| use a waiting list, the people without a house will be the
| ones least able to wait on a 5-year-long waiting list.
|
| Meanwhile, Japan has a sane government and allows new
| construction, and the price of an unsubsidized Tokyo
| apartment has actually gone down in real terms even as the
| population doubled in the last few decades. Housing in Japan
| is considered a depreciating asset - it gets cheaper every
| year.
|
| The reason US housing is so dysfunctional is exactly like you
| say, only you have the mechanism backwards. The owning class,
| who are much more politically connected, are able to use the
| government to prevent new housing from being built and
| devaluing their property. When encountering a problem caused
| by too much government intervention, I find it odd to suggest
| even more government intervention. Sure, maybe there's
| something the government can do to fix it, but the American
| people can't even stop the government from ruining the
| housing market _right now_ , so why should we have any
| confidence that socializing housing further will improve
| things?
|
| [0]: https://www.sbuss.dev/post/explaining-the-broken-
| housing-pol...
|
| [1]: https://www.fsb.dk/fsb-in-english/
| whiddershins wrote:
| What is an example of a country with socialized housing?
| ahelwer wrote:
| Denmark has partially socialized housing.
| whiddershins wrote:
| The United States has public housing projects, and
| Medicare/Medicaid coverage of nursing homes.
|
| We also have government provided halfway houses.
|
| We also have government provided housing for orphans.
|
| We also have welfare, which people can use to pay for
| housing.
|
| We also have section 8, which allows low income people to
| live in normal apartments but the government pays part of
| their rent.
|
| Would that be partially socialized housing?
| standardUser wrote:
| In total, about 5 million US household receive some kind
| of housing assistance. So yes, very, extremely partial.
| nemo44x wrote:
| > "Boys' apparel is up 8.4%, while girls' apparel is down 0.4%."
|
| Rise up, Men! It is time we take to the streets wearing hats
| adorned with cocks-and-balls to demand equity in clothing prices!
| uoaei wrote:
| Off-topic, flippant, rude trivialization of the fight for
| equity. Shame.
| nemo44x wrote:
| Authoritarians hate jokes at their expense too and demand to
| be taken seriously. If you can't stand being laughed about
| then you can't expect to be taken seriously either.
| uoaei wrote:
| Show me where the joke is and I would agree.
| throwawayninja wrote:
| Off-topic, flippant, rude trivialization of the fight for
| equity. Hilarious.
| 4lb0 wrote:
| Argentinian here. I agree with almost everything in this article.
| Except for
|
| > high-inflation Argentina has almost no mortgage industry.
|
| Real state is 100% dollarized since the late 70s [1]. It is not
| just about inflation because you can have adjusted interest rates
| [2]. We don't have mortgages because of the government currency
| exchange restrictions, and also our salaries didn't adjust as
| much as the inflation rates.
|
| [1] https://www.lanacion.com.ar/propiedades/propiedades-
| cuando-s... [2] https://www.argentina.gob.ar/como-acceder-un-
| credito-hipotec...
| sdoering wrote:
| What I also find with a bit more years of experience is that
| different groups are impacted quite differently by inflation and
| price shifts like currently happening.
|
| Take my 15 year younger self. I was driving to university 35km
| (around 22 miles) and back every weekday. Additionally 4 - 5
| times per week I drove this for my job as well (I was working as
| a bartender while in university).
|
| I paid for gasoline from my tip. The rest money was for costs of
| living. I was happy when I was able to buy a book for leisure
| reading. The price for gasoline in Germany skyrocketed in the
| last few weeks. I would have been hit so hard by these prices.
|
| Nowadays, with a stable job, working from home and earning quite
| well I don't drive that much by a long shot. This gasoline price
| surge doesn't hit me so hard nowadays. Because I am in a
| privileged position to be able to WFH and earning more than
| enough, that it would not impact me so hard if I would need to
| drive to the office every day.
|
| In my opinion people with less available/spendable income are hit
| harder. Rural people are hit harder (at least in Germany gasoline
| is more expensive in my experience in rural areas). People who
| absolutely need to commute to work are hit harder.
|
| So the distribution of impact isn't even as well.
| wonderwonder wrote:
| The old saying that "its expensive to be poor" holds true in
| almost every scenario.
| djrobstep wrote:
| > I've heard multiple Americans say that "inflation is good for
| workers because it erodes debts", but they forget that wages are
| generally the last thing to adjust.
|
| This seems to completely ignore bargaining power and what the
| corresponding state of the labour market is when inflation is
| about: Typically it's a tight labour market that's really good
| for wages, particularly low-end wages! I really like Devon's
| writing usually but I think this one isn't telling the whole
| story.
| bluGill wrote:
| Even though wages are last to adjust, over the long term
| inflation is good for those with a lot of debt at fixed
| interest rates. Those large debts get smaller over time and
| eventually wages catch up.
|
| Note the qualifacations on that though. Change any and things
| change. In the US real estate often does fit the specifics.
| jbay808 wrote:
| Also, any _new_ debts being created will tend to price in the
| inflation with a higher interest rate.
| commandlinefan wrote:
| > the contractor has always denominated his prices in USD.
|
| Might want to reconsider that...
| neilwilson wrote:
| "Little or no consideration has been given to the possibility
| that higher prices may simply be the market allocating resources
| and not inflation.
|
| Prices reflect the indifference levels where buyers and sellers
| meet.
|
| If, for example, there is a freeze in Brazil, the price of coffee
| may go up. The higher price accommodates the transfer of the
| remaining supply of coffee from the sellers to the remaining
| buyers"
|
| Soft Currency Economics II, Warren Mosler, pp70
| mym1990 wrote:
| Higher prices across the board is the market trying to allocate
| resources, but not being able to do so efficiently. Higher
| prices, by definition, IS inflation...it doesn't matter what
| the cause is, whether it is a freeze in Brazil or a ship
| getting stuck in the Suez or a war. If prices go up, your
| purchasing power goes down, and it is inflation.
| frereubu wrote:
| > inflation disproportionately harms people who can't easily
| adjust their income upwards
|
| This was demonstrated quite well in a Twitter thread by Jack
| Monroe about food poverty in the UK -
| https://twitter.com/BootstrapCook/status/1483778776697909252 -
| and led to the Office For National Statistics looking into
| calculating the impact of inflation on different income groups -
| https://www.theguardian.com/business/2022/jan/26/cost-of-liv...
|
| She had initially named the idea the "Vimes Boot index" after the
| Terry Pratchett character: "The reason that the rich were so
| rich, Vimes reasoned, was because they managed to spend less
| money. Take boots, for example. He earned thirty-eight dollars a
| month plus allowances. A really good pair of leather boots cost
| fifty dollars. But an affordable pair of boots, which were sort
| of okay for a season or two and then leaked like hell when the
| cardboard gave out, cost about ten dollars. Those were the kind
| of boots Vimes always bought, and wore until the soles were so
| thin that he could tell where he was in Ankh-Morpork on a foggy
| night by the feel of the cobbles. But the thing was that good
| boots lasted for years and years. A man who could afford fifty
| dollars had a pair of boots that'd still be keeping his feet dry
| in ten years' time, while a poor man who could only afford cheap
| boots would have spent a hundred dollars on boots in the same
| time and would still have wet feet."
| https://www.theguardian.com/books/2022/jan/26/terry-pratchet...
| MrPatan wrote:
| I had the realization that economists only look at identities
| that hold in the "steady state" after a shock to a system, like
| the printer going brrr for a while, and don't consider transitory
| states because they are difficult to model and calculate.
|
| That's why you have smart people going around saying inflation
| doesn't matter and other dumb stuff like that.
|
| There's no steady state, people! The system takes longer to reach
| steady state than the time between shocks!
|
| Am I wrong?
| mrtranscendence wrote:
| You're only wrong in one respect: economists don't _only_ look
| at steady states. Keynesian macro looks at frictions, for
| example. Economists are quite aware that inflation propagates
| through the economy unevenly; they are not that naive as a
| rule.
|
| I did learn general equilibrium in grad school, but we were not
| told that it was a precise description of reality.
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