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Comment by qqqwerty | Hacker News Reader

Inflation is a non-issue. Economic growth has largely been constrained by demand, not supply. And the modern economy is saturated with replacement goods. If the demand for milk goes up, I can switch to soy milk. If soy milk goes up, I can switch to Almond. And if all of them go up, I just drink water. Once most basic needs are met, inflation looses its power with a few exceptions. The financialization of our economy has resulted in crazy high house prices, education, and to some degree health care. And that was driven by excessive monetary stimulus. Giving working class folks an extra $1k a month is not going to cause houses to go up by $1M. But giving speculators access to absurdly low interest rates will.

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> If the demand for milk goes up, I can switch to soy milk. If soy milk goes up, I can switch to Almond. And if all of them go up, I just drink water.

I don't understand how this example describes a situation where inflation is a non-issue. I used to be able to afford to drink milk; now, due to inflation, I can only afford to drink water. That sounds like inflation. What am I missing from this example?

It’s a commentary about available options meaning that beverage makers can not exploit a market without shrinking their own market. If they want to maintain revenue the suppliers will need to ensure they retain their market.

In addition if it got to the point where someone priced milk so high that customers were abandoning that segment of the beverage market, an aspiring milk empire builder could enter the market with lower prices.

The assumption being made in the allegory is that water and milk fill the same role as “something to drink,” with no qualitative difference in consideration.

There are 2 issues that I was attempting to demonstrate, but perhaps I conflated them a bit. Here is second attempt:

Inflation requires a persistent and durable increase in the price of a good. The first issue is that a large proportion of individuals in modern economies are barely making enough money to make ends meet. They are very sensitive to price. An increase in the price of milk would likely cause them to switch to alternatives, thus lowering demand for milk which would then bring the price back down. In effect, the constraint on the wages of the lower classes acts as a constraint on prices of goods. And the second factor, is that in these modern global economies, we have plenty of replacements for almost all types of goods. So if a drought in the mid-west causes soy prices to spike, people will just east less soy based products and switch to something cheaper for a while.

COVID-19 could disrupt that of course. But my hunch is that within a few months after the lockdowns are over, most supply chains will be back up and running. At that point we will be back to being demand constrained (perhaps significantly so if the economic impact is severe enough).

1) Real inflationary problems are always about money supply, not regular changes in supply/demand.

When Chavez goes nutty, people don't want his currency, it starts to crash, he prints to pay his bills, it really crashes. This is where all the inflation crisis comes.

2) The 'milk substitute' thing I think illustrates the opposite point you're trying to make. Having to give up Milk to drink water is a severely negative consequence! Projected across all of one's lifestyle and habits, it would be comparable to giving up a car to ride only the bus. Giving up Netflix for 'library books'. This implies a serious degradation in the quality of life.

If anything though, we've been concerned about deflation for a very long time, not inflation.

> Giving up Netflix for 'library books'. This implies a serious degradation in the quality of life.

If everyone gave up Netflix for library books, I think that’d be a massive societal win.

Other than that, I agree with your point.

Ah yes, shouldn't we all?

But we can choose books anytime, and we don't. So when you and I think about 'win' it must be different than what 'everyone else wants' at least in terms of how they actively chose to spend their time.

Uh, the housing market is more complex than you think. If the bottom of the market gets bid up because of an increase in purchasing power that will affect higher priced units too - if previously I was considering a shitty studio in a bad area for $500/mo vs a 1bed in a good area for $1k/mo, and now the studio is $800/mo, don’t you think the 1bed is going to cost more too?

Also everybody has low interest rates for their houses. It’s not only open to speculators- there are people getting almost 3% interest, which is quite low.

It's certainly more complicated than I understand, but I see it like this...

Case 1: With no UBI the person who works in food service has to live an hour or more out of town and commutes to work each day. This is because their pay is better in town than out of town so it's worth it financially overall. Or they simply are paying more in housing costs than they should, are feeding money up the rent chain instead of saving to say own their own house and have a tenuous living environment for a family.

Case 2: With UBI the person can just move to a place where housing costs are $300 a month and do whatever they want without worrying about how they'll support themselves in an emergency where they can't find work. They could start a business. Volunteer. Stay at home and raise kids. Take care of the neighbors kids and teach them gardening. Or work if the pay is actually high enough to justify it, which seems to push more money down to human workers over profit automatons. Hey, teachers could live and teach in cities with smaller school budgets!

Is that inflation? I suppose in the sense of rising buying power diluting the dollar some, but assuming it's paid for by a high progressive tax after a certain income amount, I think it's just wealth redistribution that levels out the overall geographical housing cost to income ratio.

I think it would reduce the power of landlords, though certainly doomsayers say it will just push up rental and house prices. I think this is possible to a point, but honestly seems too locally focused. I think a lot of people would leave where they are if they knew they could support themselves somewhere new.

$1000 a month would offset decreased pay more in an absolute sense in a lower cost of living area. This will make it feasible for a family to move safely to a new place without a job lined up. Or know that if they join a union and get fired they'll have baseline support. It's hard for me to see this as favoring anyone but lower income human workers even if it's not perfect in every way.

You make a good case why UBI might not affect rent in high-rent areas, but what makes you think there would be a place where housing costs are $300 a month when everyone has UBI? Why wouldn't the floor immediately become $1000 everywhere?

In the hypothetical case where the minimum rent in the entire US becomes $1000 (and the laws of supply/demand have not magically disappeared), then that means all of the livable areas in the country have been revitalized enough to demand such a price. Considering how poorly many rural and exurban communities have fared in the last few decades, that feels like a nice problem to have.

Its also worth mentioning that the US is very big and there are a lot of places that are just not that attractive to live in[1]. So I feel like it will be quite a while before we get to that point.

And a final point. UBI is not meant to provide free rent. It is a form of social welfare and safety net. The fact that the real estate market is so imbalanced in the US is a failure of capitalism (why aren't startups and companies moving to low-cost of living areas?) And the fact that UBI can help bring some balance to real estate markets is nice side benefit, but its main goal it to act as a counter weight to the ruthlessness of market economies.

[1] https://dimewilltell.com/free-land/

I don’t see how it would reduce the power of landlords. If more people want to live in an area than housing can support, rents will increase to whatever level they can sustain to find the equilibrium where fewer people can afford it. If fewer people want to live in an area than housing supports, rents will fall.

Right, a market where a lot of people suddenly have the ability to move to a less expensive town and not have to worry about finding a job or worry about commute times. They may do so eventually if they wish, but I think this is a huge amount of leverage over landlords and would reduce housing demand.

I'm not saying it's good for San Francisco tech workers, but I don't think rent costing two thirds of your take home pay is historically typical. Based on that history I do not think landlords could effectively collude to keep prices high if people are willing and able to walk away.

I disagree.

There are two kinds of goods. The ones like computers and phones which are steadily getting cheaper and the ones like housing whose price has got inflated enormously. Remember how we tried to fix the education problem by student loans and how we tried to alleviate the housing burden by mortgage tax deduction and subsidies of interests? I don't think the problem is people are unable to afford milk or a shiny iPhone. It is the price of housing, education, and healthcare.

> Remember how we tried to fix the education problem by student loans and how we tried to alleviate the housing burden by mortgage tax deduction and subsidies of interests?

I don't understand how anyone ever thought that making it easier to borrow money would make things with inelastic demand more affordable. People will pay what they must to get food and shelter. If you make tertiary education non-negotiable in getting a job, then people will pay what they must to get an education. If you loan them huge sums then you just reduce price insensitivity and create a massive pricing bubble.

And yet, people do fail to see this. The inflated price of college is almost entirely the result of easy credit and inelastic demand. And it creates a cycle: as college prices increase, more people need credit to access education, which puts more pressure on politicians to ease credit rules, etc.

My original comment could probably use an edit or two, but we are actually in agreement.

Some context that was left out, inflation has been stubbornly low this past decade[1]. For many of us, this feels counterintuitive based on our experience with housing, education and healthcare. But as you pointed out, globalization and industrialization has resulted in downward pressure on prices of a wide array of goods. And when you factor housing costs across the entire US population (and not just the high COL areas), the inflation math sort of pencils out[2].

And my original point was that inflation caused by UBI should not be a concern because a) the prices of iPhones and milk are constrained by forces that are beyond the impact of UBI (globalization, hyper-efficient capitalism, etc..) and because b) prices of housing, education, and healthcare have long since untethered themselves from needing to be affordable (so UBI, which largely benefits the working class and poor, will have little impact there).

[1] https://www.frbsf.org/economic-research/publications/economi...

[2] I disagree with how the Fed has handled monetary policy the past few years. Even if the inflation numbers support their moves, they seem to be willfully ignoring very large bubbles (real estate, VC) forming due to their policies.

I still don't think we can put out the fire by pouring more fuel.

For instance, rents are proportionally related to the income of the population. How can we prevent the extra cash flow from being translated into higher rent/housing prices? If I have that extra cash, I would certainly 'leverage' it to expand my real estate portfolio :)

That said, I don't object to UBI per se and I agree that the Fed's policy would lead to some undesirable consequences. But without addressing the problem systematically, UBI would go nowhere better, I am afraid.

Rents should be limited by marginal utility of living in costly city. If you can have higher wage by living in costly city compared to small town, than it make sense to accept higher rent. But if you receive extra income regardless of where you live, then it is hard to say what effect it would have on prices. It may even cause people to prefer cheaper small towns as marginal utility from wage difference would be lower.

That has to assume that most people would choose lower-paying jobs if the extra income presents. But I don't think it is necessarily true. It is also unlikely that people would right away leave their current job if rents are on the rise, at least not until the net gain gets surpassed by the alternatives. The extra income probably gives the tenants more 'tolerance' to the rent increase and that is simply how subsidies interact with market.

I think you are looking at this from SF/SV centric point of view. The correct solution to the problem to high housing costs is to build more housing, not lower everyones income.

Here is another angle to look at the issue from. We have been relying on monetary stimulus for the last decade to keep the economy chugging along. The landlord class has been benefiting from that via cheaper interest rates. What if, instead of lowering rates, we did a UBI and in your proposed scenario, most of that money just results in high rents. Well, we would be roughly in the same spot we are in (stimulus largely benefiting landlords), but with the key difference that people who are really struggling (living in their car for example) can use that cash to get back on their feet. Also, because the money passes through multiple peoples hands before eventually getting sucked up by the wealthy, it will actually result in higher measured economic activity (because GDP is basically measure the velocity of money).

So I guess, that is what I don't understand. Our current policy is to just shovel money to the wealthy. They in turn just bid up the price of stocks, real estate, art, yachts, super bowl tickets, etc.. creating an inflationary bubble for rich people things. With a UBI, the working class gets first dibs on that stimulus, and every one up the chain will benefit (including small businesses, which also don't bet much benefit from monetary stimulus).

Not sure I follow how the milk as a substitute for water analogy translates to housing. There are no substitutes for housing in desirable areas. When the entire working class suddenly has more income, it doesn't create more housing, it pushes up the price of housing. Sure we could build more, but why? After all, if the price of affordable housing goes up, so does less affordable housing, and luxury housing. And we end up in the same place, except with inflation.

UBI removes the geographical constraints that have been distorting the US housing market. There are plenty of areas in the country that would gladly absorb excess housing demand, but the lack the jobs and economic prospects of those areas make it difficult under current circumstances.

This makes no sense.

For example, even with UBI, a startup will still tend to want to locate in Silicon Valley than in, say, Amarillo Texas.

The sheer ability to grab a drink with someone who can change you life in tech does not exist in the same proportion in Amarillo as it does in Silicon Valley. Hence, housing prices will differ.

This is also why there are more oil companies in Houston than in Atlanta, despite the roughly same size metro area.

Right - UBI could be one of the best solutions to the housing issue. It would be even better combined with another libertarian idea, land value tax.

If people are moving to areas that lack jobs and economic prospects, because they can survive on UBI, you’ve just burdened a bunch of small towns with people who aren’t interested in making more money.

Towns need tax revenue, which doesn’t come in sufficient quantity from people happily volunteering on a UBI wage.

These places are already overburdened by people living off of social security and disability insurance. At least with UBI they will get a better mix of working aged and abled bodied individuals.

Yes. Also, first home owner's grants increased prices. Reduced interest rates increased house prices. Perhaps the great covid-19 WFH experiment will (partially) undermine the housing geography monopoly.

Would socialist free housing, utilities, food, medical care, education might work better than UBI? What incentives would make capitalism provide them?

Capitalism can't provide housing, utilities, food, medical care and education for free.

People would just quit their job if they got all that with no effort. Then how would the government be able to pay for the free stuff if it wasn't able to tax workers?

Edit: It occurred to me the government could lock people up in work camps in order to be able to tax them.

>Edit: It occurred to me the government could lock people up in work camps in order to be able to tax them

So people end up in a situation where they are forced to work in order to survive, the same situation they are in now.

Ah, but in Capitalism, they can choose not to work.

You could have the choice to refuse the UBI and end up in a similar position to homeless today, though most homeless did not make a choice not to work.

But, could you choose to not be one of the taxpayers to fund UBI?

I say if you want to do UBI, add a checkbox on the tax return where a person can choose to donate $1000 to the UBI program out of their tax refund. Let the UBI recipients all have an equal share of the funds collected from that checkbox.

If you don't make any income, you aren't paying for it. You can have your issues with UBI, but "the government could force you to work to pay taxes" isn't any scarier than the current situation, where not working can just kill you.

Your opt in situation couldn't be considered UBI.

Then why should I have to pay $1000 in taxes to get $1000 UBI?

> Capitalism can't provide housing, utilities, food, medical care and education for free.

> People would just quit their job if they got all that with no effort.

Citation needed. All previous experiments on ubi have shown the opposite. You are just painting a boogeyman, without evidence to back it up.

People still work in countries with free medical care and education.

I think the effect on motivation is the central issue of UBI. There might need to be an adjustment. I know for myself, it can be helpful to be compelled to do something that I've been putting off. Sometimes, people don't feel they have a reason to act, but having to go to work can help. It prevents inactivity and isolation.

Perhaps a focus on mental health and intrinsic motivation will be the answer.

But I think most will naturally aim at higher goals than survival... as they do now.

I was talking about the list of Socialistic welfare handouts the parent said should be free, not UBI.

>If the demand for milk goes up, I can switch to soy milk. If soy milk goes up, I can switch to Almond. And if all of them go up, I just drink water.

What happens when the water gets privatized and you can't afford that?

https://www.foodandwaterwatch.org/insight/water-privatizatio...

>After privatization, water rates increase at about three times the rate of inflation, with an average increase of 18 percent every other year

I think the "financialization of our economy" => higher house prices is at best a part of the story. The other part is absurd zoning laws and restrictions on the supply of housing. This couples with people's expectations that house prices should always be going up and that housing is an investment.

>Economic growth has largely been constrained by demand, not supply.

This is the most basic misunderstanding of economics that I'm 95% confident you have never taken even an introduction to macro course. Demand shocks don't lead to growth, only inflation.

We are not getting any economic growth right now.

I'm not sure what would be worse, for this to be trolling or for you thinking what you just wrote makes sense.

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