America Needs Higher, Longer-Lasting Inflation | Hacker News Reader

America Needs Higher, Longer-Lasting Inflation

bloomberg.com

12 pointshncurious34 comments

I'm skeptical of this author's claim: that inflation will make housing more affordable.

The core problem of housing is limited supply, mainly driven by zoning, parking requirements, and NIMBY actions.

Inflation by printing money is a tax. In recent times, this tax was used for things like giant unemployment programs and PPP loans. You can argue whether or not those were good things, but all things being equal more taxes are bad. (for example, if the fed printed trillions and gave them to politicians, nobody would purport that it was good).

> Inflation by printing money is a tax.

Inflation is tax on lazy money. As it should be. Money should be put into work or lose value.

For most of human history, a fine gentleman’s suit cost 1troy oz of gold. It’s still the same today. I don’t agree that savers must take on risk in order to maintain value. Take on Risk for treading water?

I feel like this is financial engineering to ensure the continuous capital injection into equities markets.

I don't know if there is, but if there is also a "foreign real estate investment sops up housing supply" and/or "makes prices slow down supply churn" then inflation might making housing LESS affordable, by making it nominally cheaper for foreign investment participate in the market.

Those supply issues you mention are true but ultimately not the key.

Cities are expensive, but we have endless amounts of cheaper suburbs. Yet people still want to live in cities despite the price. Why is that? Because they get a value from that, and that value is reflected in higher land values

Adding more supply of buildings doesn't make the land any cheaper. In fact it would make it more expensive via agglomeration effects.

So the issue for affordability is land value. And the way to reduce it without destroying the underlying desirability is to clamp down on land speculation.

This can be done by shifting taxes off of buildings and onto land.

By George I think you might be on to something there…

> Yet people still want to live in cities despite the price. Why is that? Because they get a value from that, and that value is reflected in higher land values

Yep agreed.

> Adding more supply of buildings doesn't make the land any cheaper.

We don't need land to be any cheaper - we need more dwellings (apartments). Nobody cares about land prices in the middle of large cities (but developers), they care about apartment prices/rent.

> In fact it would make it more expensive via agglomeration effects.

If by agglomeration effects you mean zoning for allowing more buildings - yes, relaxed zoning laws increase land prices AND increase supply of apartments. This is a good thing for housing affordability!

> So the issue for affordability is land value.

This does not follow as I believe the previous points are incorrect.

> This can be done by shifting taxes off of buildings and onto land.

Land taxes are an excellent idea - because they encourage building the maximum number of apartments allowed (more housing => more supply => cheaper housing), rather that sitting on an empty block of land speculating (which does greater society no good).

Feel free to correct me if I've missed something!

Inflation eats the interest rate right? If your mortgage is less than inflation that's basically free money, assuming your wages increase.

Real interest rates are more useful when trying to decide to leverage or delever. Will real interest rates stay negative ? I think they will. Inflation can be more easily contained with globalization than with higher interest rates.

This is basically gaslighting so people don’t realize how much they are being robbed. The inflation rate is closer to 15%… Good luck buying any kind of house with static wages and vastly inflating prices.

It's so hard to make people to think in the terms of real wages, that politician saying his aloud would be a political suicide.

All you get is unintelligent comments like:

- fed conspiracy against working man, and

- money printing brrr.

I think the arguments are much more complex than that. Some primary reasons:

- High inflation destroys savings. If someone is saving to buy a house or saving for their children's schooling, inflation destroys it if it's not invested in something.

- High inflation is rarely if ever matched by wages going up. Just look at the minimum wage, it hasn't matched inflation at all.

- Inflation penalizes anyone who isn't invested in things that hold their value versus the value of the money. Namely if you're rich enough to invest in stocks and bonds your money holds better value than if you live day to day or keep your money in a savings account. It's a form of regressive taxation.

- Inflation isn't bad at all for people who are in the financial system itself, namely the people who actually control the inflation rate.

- It frees the government to spend even more wastefully as they can use the inflation to erase the federal debt

>High inflation destroys savings

This is not true. When the inflation is high, normal savings accounts pay interest rate that protects from inflation. Besides if you are saving a lots of money you should invest it for something. Like government bonds at least.

> High inflation is rarely if ever matched by wages going up.

This is not true. Inflation and real wages are not connected. Why would they? See for example: https://en.wikipedia.org/wiki/Real_wages#/media/File:United_...

What high inflation does in some jobs, it allows employers not to lay off people by not increasing their wages (when their productivity is not increasing).

> Inflation penalizes anyone who isn't invested in things that hold their value versus the value of the money

And this is how it should be. Money should not be good store of value in long term.

And as I said before, savings account interest rates are not zero when inflation gets going. https://www.finder.com/history-of-savings-account-interest-r...

https://www.bankrate.com/banking/cds/historical-cd-interest-...

We have lived in a time of very low interest rates for a long time, if they ramp it up; the leveraged real estate market will collapse. Repeat the money printing to bail them out. A hole cannot be escaped by digging deeper.

This comment is spot on.

Interest rates are not in line with inflation, therefore, savers are being eaten alive. Those on fixed income (retirees, disabled) are getting absolutely screwed.

I dont think economics works that way. You absolutely can escape a hole by digging deeper. "Escaping" including mechanisms such as trigger a revolution, pogroms, world wars etc.

> normal savings accounts pay interest rate that protects from inflation

Pray tell which banks are you banking with?

> What high inflation does in some jobs, it allows employers not to lay off people by not increasing their wages

shorter: "Let's screw the labor class over so that their managers don't have to fire themselves."

> Money should not be good store of value in long term.

"it is important to encourage consumption at all cost in the long term"

It's definitely not a bank in Canada.

A TD High Interest bank account has a 0.050% interest rate after $5,000. Before that the interest rate is 0.000%.

Don't worry, as long as you have $25,000 dollars in there, they'll waive the transaction fees every month ($5 per transaction).

I might as well stick it under the mattress and pretend I don't have it at those rates.

Inflation and wages are in fact connected.

real wages and inflation are not (this is what I said)

Wages follow inflation, of course.

Not entirely true..

https://www.investopedia.com/terms/w/wage-push-inflation.asp

THIS IS WHAT THEY BELIEVE

https://youtu.be/QsAnssN1cxM

Is it wrong?

In short, yes. The part where the professor says "jobs will catch up" is naive at best, dangerous in reality.

You are discussing a theoretical world. In the real world, interest rates are 0.

I can't find a SINGLE savings account over 1%, while inflation is over 5%:

https://www.bankrate.com/banking/savings/rates/

Treasury bonds are barely better -- 10yr < 2% (!)

> And this is how it should be. Money should not be good store of value in long term.

Other than the last hundred or so years (and a few historical fiat currencies) money has always been a good store of value. Or I should really say ‘specie’ instead of ‘money’.

> And this is how it should be. Money should not be good store of value in long term.

LOL. If money isn't a good store of value, the market will find something else that is.

This is absurd. Inflation destroys lives and retirement savings.

Inflation spurs economic growth. And people shouldn't save for retirement, they should have pensions.

the definition of economic growth so screwed up, by that very definition earth quakes are great. They also spur economic growth. When everything gets destroyed people have to buy new stuff. Inflation only cause top 20% or so invest in assets and people who can't, 80% unfortunately can't be part of that growth and just lose on all fronts.

Inflation does benefit people who are in debt (who are mostly in the bottom 20%), because it means that they can now pay back the money they previously borrowed with money that is now worth less. This is basically necessary for the modern economy to function, because without it (or some form of debt jubilee) the share of income allocated to repaying debts would approach 100%. On the other hand, prices tend to rise faster than wages, so too high inflation can be bad for the working class.

Inflation is a most brutal regressive tax there, completely robs people in bottom 80%, who have no assets.

It certainly helps people who currently have loans.

Most people assets are some cash in bank, even when house it's a primary residence, meaning it can appreciate all it can it won't improve their life because to utilize it they will have to sell it and then buy one around the same price, nullfying ROI from primary house. People with loans sure benefit but only if they have assets and their salary keeps up with inflation. Usually both of these condition aren't true.

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