Hacker News Reader

The orthodox theory says that, in a competitive marketplace, producers should not be able to "capture" gains in the wealth of consumers. If prices of a good rise, it's because consumers are purchasing more of the good, and the good has increasing marginal cost to produce. (I ignore some 2nd-order effects related to wages as a production cost).

That's the orthodox theory. You shouldn't buy it wholesale.

On the other hand, it would be a very heterodox environment indeed if producers were able to steal all the increases in wealth from consumers. That could only happen in an environment of no competition, not imperfect competition. Or an environment with 100% occupancy and no ability to build more units of housing.

Also, there would need to be no substitutes for the good. For instance, that people couldn't move between cities.

Surely the game is, to some extent, rigged. But can it be rigged so badly that it is possible to believe that transferring wealth from richer to poorer will not lead to an increase in the purchasing power of poorer people?

I don't have a decided opinion on guaranteed minimum income, but to deny that it would have a marked effect on purchasing power of the recipients of the wealth requires one to posit a truly exceptional economic theory. To attack minimum income on its efficacy of all things: that is either an ill-considered or truly radical view.

If minimum income can't help, what possibly could? The only option left would be the confiscation and redistribution of capital.

It depends on the elasticity of the commodity. Going to one of those contrived economics examples:

let's say you have 5 people who have the following amount available to spend on TVs:

$100

$80

$50

$30

$10

And you have 5 TVs to sell. What price do you sell them for? If you price them at $100, you sell 1x$100 and make $100

If you price them at $80, you sell 2x$80 and make $160

If you price them at $50, you sell 3x$50 and make $150

At this point you see a trend - you should price your TVs at $80 and just eat the loss on the three TVs you don't sell.

So now we have a society in with 40% of people have a TV and 60% don't. As a government, you want 100% of people to have a TV, so you intervene to try to fix it.

First, you double everyone's income.

That doesn't change anything. The new price for TVs is $160 and two people get TVs.

So instead, you give everyone $50.

If you price them at $150, you sell 1x$150 and make $150

If you price them at $130, you sell 2x$130 and make $260

If you price them at $100, you sell 3x$100 and make $300

If you price them at $80, you sell 4x$80 and make $320

If you price them at $60, you sell 5x$60 and make $300

So now 80% of society gets a TV. Better! Sure, you haven't eliminated inequality, but you've reduced it.

But let's say it isn't TVs, it's houses. And you have three of them, not five.

Everyone needs a house. So you'll bid as much money as you have to to beat the next guy trying to get one. So the first house will go for $80 to the person with $100. The next house will go for $50 to the person with $80 The final house will go for $30 to the person with $50.

If you double everyone's income? Nothing changes. We've already seen that doubling people's income does nothing.

If you give everyone an extra $50? The distribution ends up the same, except everyone pays an extra $50 for each house.

TL;DR: inelastic goods like real estate will just go up in price. Elastic goods like electronics will, but less than the amount of the wealth transfer. The most important thing is to change the wealth ratio rather than the gross amount.

If all rents rise jointly that primarily indicates that housing is not competing on price, so remedying that anti-competitive environment is a separate and more important issue IMO.

I don't understand the thinking here. Rents are set by what the market can bear. Make more money available and the price will increase.

rayiner mentions mobility in a cousin comment. In a healthy housing market, rents should roughly match the price of new construction (plus some profit) rather than being set just by the existing supply.

Rents in cheaper markets need to be less than the difference in cost of living plus the cost of moving (amortized somehow.) Sadly, improved transportation infrastructure and technology seems only to concentrate people even more in dense, expensive cities. These cities have a lot of opportunity and connections that keep people there, often rationally, but people who struggle stay as well.

Rents have nothing to do with the price of construction.

Prices are set by available credit for purchase and by wages less other essentials for rent.

I'm afraid this isn't simply supply and demand fudge factor after construction costs at all.

-------------

Reply to child post as HN hates rentier slayers and throttles.

They function in that prices are set. But they are set by credit. And supply is inelastic. Banks use land to gain unearned income through their monopoly on money creation as debt.

Yes, I agree that housing markets suck.

If demand outstrips supply.

The key difference is mobility. Basic income means people don't have to live in Philly near their job. They can move to Iowa and dramatically raise their standard of living.

Can you explain a bit more about how these people can raise their standard of living by moving?

Money is just an abstraction for real goods and services produced by the economy. Presumably we need people to live in Philly since that's where our industry is. If people moved away to some remote place, wouldn't our economy take a hit? Not to mention the transportation costs of servicing a more remote, less dense area.

If Philly is where our industry is, then we only need as many people to live in Philly as the labor market demands. However, if unemployment is high or wages are too low (relative to the cost of living) in an area, then that suggests we have an oversupply of labor there, not a shortage. Basic goods (food, clothing, materials for housing) are grown/produced in many areas (even rural ones), not just in dense cities, so no, transportation costs don't really increase the cost of living in rural areas. To the contrary, in most cases it's far, far cheaper to live outside of dense cities.

Youre talking about a shotrage of labor.

The creates upward pressure on wages, as businesses need to attract more workers.

Dont see how this is a bad thing, given that wages have been stagnant for decades

I fail to see by what mechanism what you describes occurs. Do you constantly query your occupant of pay raises? Why would every raise be siphoned by rent? Poor people have problem making ends meet for clothes, food, etc. Sure, more money put inflationary pressure, but it's not a magic direct correlation and instant feedback. If the government is serious and declares that it will adjust basic income to match the market price for basic goods and regulate their prices, including building low-rent lodging, then the inflationary pressure will have to subsides into only unregulated items.

I certainly don't "constantly query", but somehow there's always a feedback of what is a successful economic model.

I have so many examples of this. For instance due to terrible public schools - private schools cost roughly what it would cost you to move to a good neighborhood with good public school.

Day care - costs around what the government contributes as day care assistance.

Etc...

Housing is, to a certain extent, a positional good. People want to live in safe, friendly neighborhoods, surrounded by well educated, middle to upper class people. Even if everyone got more money, it's not easy for more people to live in desirable neighborhoods (at least without changing the character of those neighborhoods).

Why would rent go up? Some homeless people would rent apartments, sure, but they're a very small percentage of the population, and a good portion of homeless people have other issues that makes that unlikely. In other words, demand would not increase substantially. And supply wouldn't change. If neither supply nor demand changes, why would prices?

There would be some movement. The prices of the worst shit-holes would probably go down because people would gain the ability to move into a nicer place. That might cause a little increase in the price of low end apartments.

And any city that is currently supply-constrained would probably see upward movement on prices. But most cities that aren't San Francisco have vacancy rates around 3%, they aren't supply constrained. If one landlord raises prices, people can and will move to an cheaper apartment elsewhere. And if prices do rise, people will build more apartments, driving prices down. (again, assuming not San Francisco).

Because even though anybody relying on Basic Income may not be starving, they'll still be really poor, and really cost sensitive. If BI is $10,000 a year, a $100/month price increase is a huge chunk of their income, and worth the huge hassle of a move to avoid.

Even if nothing changed, it would have been worth it for the simple fact that it simplifies the bureaucracy of it all. That's basic income's most important feature

> If suddenly the poor had some money to spare - the rents will simply go up. The water bill will go up. Electricity, gas. Etc.. until there's no extra income left. And then the poor will be in exactly the same situation as they are now.

Remember that these "costs" are seen as revenue to providers of goods and services. What follows can be thought of as the opposite of trickle-down economics.

You might be right. But it's not just about the income level. The important bit is that it's guaranteed. This theoretically will give the poor more leverage in negotiating the salaries etc., and they'll be able to get higher quality jobs.

> This theoretically will give the poor more leverage in negotiating the salaries etc., and they'll be able to get higher quality jobs.

How will it help them to get higher paying jobs?

Because they are not forced to take whatever they can get to eat.

So how many of these higher paying jobs exist? And now who is completing for them? Or are the low paying jobs going to suddenly start paying more?

I'd say they have less leverage.

The lower paying get jobs will have to start paying more.

If, all of a sudden I don't need your $4 per hour job, I quit. If everyone else also doesn't need it they quit.

Then you as an employer need to pay more to get people to work for you, or use self driving mopeds to deliver the pizzas.

Because rents will rise to consume the slack leaving them back where they started.

According to your view, you cannot change anything ever. Take a look at microcredits. Give women in Africa $50 or $100 to start up their own business. They know exactly what to do, and it really helps. Isn't this something similar?

I recall a recent article about that. I really can't recall much of the detail - but it was about how after an immediate success from the monetary infusion, most of the bushiness folded shortly after because owners fell victims to corruption, extortion and crime. So yes, it is similar, but not in a good way. :)

I think what the parent was referring to was that a universal increase of money supply basically leads to inflation.

I think. I'd welcome any clarification to my attempted summary.

Yes, but i don't know whether what i observer is your standard "typical economic inflation" or some very particular phenomenon targeting the poor.

A disabled relative of mine is considering signing with Uber to lease their car (did you know Uber leases?) to make some money. After paying for gas and insurance - he is literally working slave wage. I thought this is relevant somehow.

If the prices of goods and services rise, and their quality does not change, then yes that's inflation. But the quality of goods/services delivered should go up. (That's the point.)

It sounds like you have a point, but sometimes intuition and/or anecdotal evidence can be wrong. It would be nice to see some economic models that (dis)prove this.

> In poor neighborhoods the rents cost as much as people are able to pay, no more, no less.

This is a bit of a tautology. Low-rent housing is usually pretty bad, so when people can afford to pay more they just move to a nicer place.

As far as I know, the first-time home buyer credit made a tiny ripple in the low-end housing market - where did prices "balloon"? College education is quite different because the "market" has a massive barrier to entry (in terms of creating a new university).

I am speaking of subprime mortgages. There was this period of time when you could get a mortgage while on disability (which is truly your "basic income" in poor neighborhoods, btw. Everyone has it. There are even specialized law firms that exist around that consumer demand.). The magic price of the house was about 40K - because that's that a person on SSI can get a mortgage for.

spot on. One group are ready: landlords.

People do not understand how prices are set and this is a major barrier to stopping rentier activity.

Rents are set by what the market can bear. I hope we get land value tax and stop the leeches.

Exactly - thank you. It's somewhat depressing to see the number of people who either don't understand this concept, or think that somehow it doesn't apply in this case.

It reminds me of Tobias Fünke in Arrested Development, when asked if open relationships ever work, saying "No, it never does. I mean, these people somehow delude themselves into thinking it might, but ... But it might work for us."