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Comment by derg | Hacker News Reader

Yep. There's a concerted effort to keep bringing up high inflation as a means of forcing more austerity. The mythical "high inflation" hasn't materialized but the cries continue to happen.

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There is a reasonable argument that we do have inflation, it’s just being shown in assets prices, not commodity prices. Things like education, housing, stocks, art, startup valuations, and more have signs of inflation even if oil and food prices don’t.

I would agree to this but this isn't necessarily a blanket monetary policy of spending too much money across the board and is a result of political capture by the wealthy where it's used to keep fueling the infinite growth machine for the already wealthy.

I mean housing policy in itself is entirely political: weaponized zoning laws and the lack of new construction to match the growth of the country are a direct result of this infinite growth machine. Housing being considered "an investment" will further perpetuate this price inflation because there is a vested interest in not allowing property values to decrease which is what happens when you can build to match demand.

The housing situation is one giant prisoners dilemma loose-loose, nobody wants to loose out. I've long believed that houses/land are overpriced but I've recently (Just prior to Covid) become a home owner because I needed somewhere to live and the mortgage repayments are cheaper than rent here. It could have been a spectacularly bad move.

Well, it's not a lose lose situation to the people that don't own property yet. They would greatly benefit from housing costs dropping, since they could afford to buy their own house or pay less in rent. The problem is that the people who don't own property tend to have less political power and influence than property owners.

I agree that the basic human need of shelter should be more affordable. I remember 10 years ago, when prices dropped after the financial crisis, people were saying "this is it" but it is politcally untenable to allow prices to drop. So those that didn't own eventually got tired of waiting and then when they have bought they don't want a drop, because who wants to burn money?

> I agree that the basic human need of shelter should be more affordable.

Affordable where? In West Texas or in Paris? Today, Paris' population is ~2M and the residential buildings cannot be taller than 50m by law. If 10M people want to live there, is it a "basic human right" to build 10M homes for them by replacing existing Parisian building by skyscrapers? What will that do to the existing fabric/culture of the city, and who gets to decide what is allowed? Existing residents or the would-be residents?

Perhaps the question isn't where but when.

40 years ago my parents were able to buy a large modern home for about 3 times times one of their salaries. For young people today it is more like 6 - 10 times the combined salaries of two people.

Where did your parents live? In mid-west or in suburbs or in Manhattan? Where are young people living today and are those similar locations as their parents?

It could be a bad move overall, but there is a floor to the loss, because you get a secure roof over your head that you can become attached to. That has value, especially with a family and community nearby.

All that extra liquidity is going straight to capital assets. People think deflationary assets are a good thing (for themselves), but they tend to promote stagnation.

Agreeing with what you have said here, but you might have to leave food prices out of the argument soon. I don’t know what numbers economists look at for this, but just as naive consumers we are noticing that food prices are going up.

This is correct based on data I've looked at. In fact if you are okay choosing non-capacity constrained housing and education, even those are not having much inflation. If you are okay with community college or even better self motivated to learn online it is very much affordable. If you are ok not living where every else is, the cost of a house is inflating by cost of lumber and local labor costs versus infinite inflation for houses which face land/NIMBY/zoning constraints.

Housing and education are both represented in the CPI. Housing alone is almost a third of it.

I haven't dug in recently to the CPI, but I wouldn't be surprised to find underlying flaws in the CPI's representation of different groups of people such as people who live in urban areas, people who are in a specific income bracket, etc. The CPI may reflect those things, but if those proportions are off it can significantly affect the inflation number it spits out.

I'm not an economic expert but it baffles me that people pay attention to a single CPI and don't look at many at once when analyzing economic policy. A single CPI optimization is inherently going to cater towards the effects on one group, but without study we don't even know what that group is.

Education, housing(rent, not the price of a house), and medical care. Are all included in the CPI. Education and medical care are going up due to reasons unrelated to inflation. Shelter is going up at 3% due to supply constraints.

The prices of houses, stocks, art, and startups are not. The reason is that assets prices are very heavily affected by interest rates.

Imagine a house that costs $100,000 but rents out for 10,000 a year in profit because interest rate are 10%. Now imagine interest rates drop to 1%. Arbitrage will mean that individuals will borrow money at 1% and buy the house and collect 10%. This drives up the price until the return on the house matches the return of other investments, or basically until the house is worth $1,000,000. Now the cost of rent hasn't changed, but the price of the house has gone up 1,000%.

Did the economy experience 1,000% inflation? No because the cost of living hasn't changed.

Assets experienced a 1,000% inflation. People can still scrape by being consumers and renters (cost-of-living), but owning assets moves farther and farther out of reach.

Since our economic system is built on assets (they appreciate, you can borrow against them, etc.), the inequality gap keeps growing.

Yes there is so much mental gymnastics involved in "basket of goods"

My dad bought a house and had a kid in London aged 27. He didn't even have a degree and was an immigrant arriving with all the money he had scrounged in his hand.

Compare that with the London of today where £200k buys you a 80sqft squat:

https://www.dailymail.co.uk/news/article-8541513/Micro-studi...

But you know, house prices and rent aren't a good so there's no inflation so there's no problem right? /s

There's a tangent on this in Carlota Perez's Technological Revolutions and Financial Capital. Basically you get this phenomena of "two moneys" - rather than the economy acting as a monolithic entity, a new socioeconomic system grows up around the new fundamental technologies, and then goods/services/assets that are connected to the new economy (tech companies, programmer & data scientist salaries, Silicon Valley real estate, SV daycare prices) inflate rapidly while everything connected to the old economy remains stagnant. This sucks if you're trying to manage daily life in the new economy - you may be making $600K/year, but a crappy house is now $3M. It's pretty awesome if you're in the new economy but buying something from the old economy though. A new TV is about an hour of compensation for a mid-level Googler; a cruise to Antarctica is about a month's worth.

The usual outcome of this situation is something far worse than high inflation. Instead, you typically get a financial crisis, then war and conquest as the new technologies are applied to weaponry.

Reminds me of the heightening contradiction, my generation is "criticized" for buying Starbucks instead of saving for a home, so sure I'll not drink a Starbucks daily for 577 years and use that money to buy a home. It's financial advice that ignores the fundamental problem.

I find myself waiting and hoping for a complete and utter financial crash just for the opportunity to be able to afford a home. My income is several times above the poverty line.

It makes me feel sad and guilty but that is the reality. Inflation is real when you look for it.

Yes, this is true. I guess I wasn't very careful with my wording as I was talking in the classical sense of "there's too much money now so your dollar is now worth 20 cents across the board" inflation and not necessarily failed political policy, which housing is absolutely apart of.

Have you considered looking for a job outside of the west coast because inflation adjusted price per square foot hasn't actually changed for a lot of the US [0]. It's mainly just the west coast where home prices have ballooned (in the US at least).

[0]: 0]: https://www.supermoney.com/inflation-adjusted-home-prices/

Looking for just one job is not enough. To feel secure leaving silicon valley, you need a wide choice of jobs and employers in the area where you go to, in case the first job doesn’t last. From here every other place looks to have more limited options.

The bay area might have the most programmers, but there are still tons of programmer jobs outside of it. 80% of programmers don't live in california [0]. Almost every fortune 500 company has some software developers so there are jobs in every decent size metropolitan area. A lot of the big companies also have satellite offices you can work at. I just moved from Seattle to Chicago and it only cost me 4% of my salary and I've already had 5 recruiters ping me on linkedin since I moved here a few weeks ago.

[0]: https://dqydj.com/number-of-developers-in-america-and-per-st...

Well, it's clearly a tradeoff. By staying in the Valley, you are prioritizing having options at many startups at the expense of home ownership.

I live in Minneapolis. Not as wide ranging options here, but many of them are at fortune 500 companies (relatively stable), and homes are affordable. I'm sure you can find examples in many other similar cities.

The Valley may have the most opportunities of anywhere, but to say that there's just no work anywhere else is a bit ridiculous.

That article doesn't account for lot size, which generally provides more value. It can be argued that a house surrounded on 3 sides by other houses with no outside area is less valuable.

It can be argued, but it isn't correct. I know of houses where the next house in any direction is several miles. They sell for cheap after being on the market for a long time.

People do like space, but the like cities as well. Suburbs are an attempt to compromise.

I suspect others are seeking the same type of freedom that I am, or maybe it's direct inverse.

I want freedom from the impact of other people; no more noise through the walls, smoke in the halls, or the unwanted scents from cleaning and cooking when the windows are opened for ventilation. Even renting a house I can't escape this and now there isn't one 'grounds-keeping day', it's every freaking weekend day that someone near me decides to mow their lawn.

Conversely people might like living far apart so they've got the freedom to make a mess, do things an HoA would hate (I argue HoA's exist due to lack of proper, and local, laws and enforcement). For that matter, HoAs are also something that others force as an anti-freedom.

I think what I would really like is a bunker, someplace with nice thick insulation and isolation and very good air filters. However I'd still like to be able to easily visit stores for food, so probably some kind of suburban bunker.

It sounds like what you'd like is living in a small town or village in the German speaking countries.

Keep in mind they may find something you do to complain about!

You didn't provide evidence. Larger lot size absolutely does provide more value.

> It's mainly just the west coast where home prices have ballooned (in the US at least).

And the Northeast, which is apparently more expensive per sq foot than the West, according to your source.

Then you better buy a home sooner. Because as soon as there is a financial crash, central banks are going to flood the economy with new money to prop up stocks/bonds/homes prices. The template was originally tried after 2008 crash (ZIRP, multiple QEs etc) all over the world and is put to test again during the COVID shutdowns. Since the sky didn't fall the first time and not falling the second time, that is going to be a go-to tool for policymakers.

So you believe that hyperinflation is coming?

You mean, current real estate prices in places like SV is not a hyperinflation yet?

In things which are supply constrained? Yes. Think bay area houses or gold or bitcoin.

In things where supply is near-infinite? No. Think digital entertainment, cheap calories or cheap clothes.

I've come to consider the official inflation figures as absolute nonsense. It's a shame, really, because the BLS does a lot of good work, and outdated metric calculation methods really put a tarnish on an otherwise great agency. I'm not sure how much of that is being held hostage to political goals.

Things that are in actual demand [1], like health care, education and housing (in desirable areas) have absolutely been outpacing inflation.

Sure, if you measure the absolute basics needed to not die in a society, the figures might make sense (as it would be mostly food and clothing, both of which are dirt cheap. So cheap in fact that most of the time they can be had for free! Thrift stores and food banks are your friend)

But if we're talking about a thriving society and population, surely our aims should be set higher than the very first step on Maslow's hierarchy of needs?

[1](it's not Smart TVs and Smartphones, although even flagship smartphones have recently ballooned in price far outstripping any sort of inflation figures)

> But if we're talking about a thriving society and population, surely our aims should be set higher than the very first step on Maslow's hierarchy of needs?

Very much agreed.

The issues with sectors that have been outpacing inflation aren't due to a blanket "we're pumping too much fiat into the economy" but are absolutely political choices.

Healthcare: The US does spend too much here for what we get in return but this is a political choice. We could institute Medicare for All and _save_ money [0]

Education: Again political here. How much funding has been stripped at the state/local level for the universities and how much can be attributed to extremely bloated administrations? Other countries can manage education just fine.

Housing: this is current housing being weaponized to increase the value of property while artificially limiting what, where, when, who, and how much can be built at any given time. See: all of California. Housing as strictly a monetary investment now dictates that nothing is ever allowed to depreciate, only ever increase.

[0]https://www.thelancet.com/journals/lancet/article/PIIS0140-6...

> Healthcare: The US does spend too much here for what we get in return but this is a political choice. We could institute Medicare for All and _save_ money.

This is absolutely true, but also exceptionally hard. Extracting the $1 Trillion/yr out of the current healthcare system is going to put a lot of people out of work. We'll need a good system to re-train them for new work too.

Surely there must be some price index that uses a basket including these additional important "goods"... does anybody know of one?

I think items like housing and transportation costs are used by some regions when calculating the cost of living that determines the "poverty line" for aid programs. So there's probably already a well-vetted process for looking up some of those price points. Then it's just a matter of aggregating them and tracking that value over time...

The change from CPI to “Chained CPI” back in the 90s (?) has been a bit of a con IMO. It was designed to reduce the amount of inflation reported. Making it the official inflation metric used for social security meant that SS cost of living adjustments went down screwing people on social security (that they had already paid for). It also then started to get used later on to set the tax brackets. Which again screws people by slowly pushing them into higher tax brackets.

I prefer the older CPI system. It’s still imperfect but it was fairer.

Inflation is a consequence of 'the average consumer' having more money to spend and thence becoming less price sensitive. The reason we haven't seen inflation is that the stupendous amounts of money printed recently have all gone to people who already have more than enough cash to spend.

Well it has in Venezuela, with the printing of money. But maybe you need a measure of scarcity to trigger high inflation.

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