Instead, I’d argue that returns are going to IP holders.
The returns go to cheaper items, because there is less labour time going into each item as productivity improves.
If you redenominate in the 'labour hour' currency, then it all starts to make sense. As does the apparent increase in pay of a concert violin player. Ultimately a concert level violin player doing their thing still takes the same amount of time top produce as it always did, society still likes concerts, and they haven't yet become fond of AI violin players. They exchange those hours for products with less hours in them. So they appear to get a wage increase. Classically this is known as the Baumol effect.
This goes beyond 'real wages', to 'real stuff'. People are definitely getting more stuff than they did 40 years ago. My iPhone is testament to that. As is the lack of power cuts.
Underlying everything is essentially an exchange of labour hours.
As to returns to IP holders, those are often the pension fund, who then pay the pensions to pensioners who then spend it on stuff.
Since we have an ageing population there will definitely be an increase in the transfer to the elderly. It can't be any other way. Is that a fair transfer? Well that's the debate.
Yeah, we can get much more and much cheaper stuff than before thanks to the 'Made in China' boom, but what we can't get now is affordable real-estate. Too bad we can't go live inside our iPhones. /s
During the pandemic the price of used cars started to rise. Did we attribute that to people with more money who can then get higher credit on the now more expensive cars?
No, we attributed it to a lack of supply of cars, and worked to free up the blockages so that the market would return to its correct state where cars depreciated.
It's the same problem with housing. We need to build an awful lot more, and we need to move the work to where we build the houses.
Once we cross the rubicon and house prices start to depreciate, as they should because they wear out, then we'll see a phase shift in the market and vastly more supply. It'll be like the latent heat of condensation.
In 2015, of all renter households:
* 38% were rent burdened (defined as spending 30% or more of pretax income on rent), an increase of about 19% from 2001.
* 17% were severely rent burdened (spending 50% or more), an increase of 42% from 2001 (the 38% rent burdened includes the 17% severely burdened).
For households headed by someone 65+, 50% are rent burdened, ~20% severely rent burdened.
https://www.pewtrusts.org/-/media/assets/2018/04/rent-burden...
Real estate, education, healthcare...
And that was entirely predictable, when a country allows the free flow of capital, and goods but not people then it becomes a race to the bottom in sectors which can move to lower cost areas. There is a certain amount of price suppression for some local goods and the demand dries up, but for things which aren't optional the price will continue to inflate until the system breaks. Infant child care is in this position, the workers competing internationally can't afford to pay for the care of their infants because its local labor intensive.
Basically its broken economic policy and its just a matter of time before it explodes. And its probably not fixable because if the cost of labor ever gets equal, then capital is just going to move to the country that say has the smallest carbon tax/whatever.
Basically a prereq for free trade should be a common government, and free movement of people.
The only exception is the US because it has a structural deficit.
It's actually the opposite. Countries have tried to artificially raise interest rates above liquidiry preference via inflation targeting and stimulus for the last 40 years.
Median housing in the US has been around inflation adjusted $100/sq ft for decades.
Houses today are massively larger than in the past, making the costs look higher. And what you get today is also a lot better - more efficient, cheaper to heat and cool, safer, better electrical, water, etc.
I was talking about the European real-estate market. I don't know the US market but I heard it's much more affordable than here, at least outside of SF/NY/etc.
I don't see evidence across all of Europe any data for much difference than in the US. Dense places cost more, sparse places are amazingly cheap. Poorer countries, like poor states, have even cheaper housing.
Maybe we need more housing options
Pensions aren't distributed evenly across the population, it tends to be that the richer you are, the bigger the pension. That means that IP has the effect of making the rich richer, increasing inequality.
The rosy side of the equation happens when we look at the price of useful products that can be automated, like fridges or computers, where labourers are much richer in such products than they were 100 years ago. However, the ugly side is visible when looking at the price of products that can't be automated, like land, where labourers are much poorer then they were 100 years ago. The difference is often made up of useless products that could be automated, like cheap fashion or fast food, which marketing keeps pushing as hard as possible.
Here the Labour hour is valued only in terms of its exchange rate to the denomination that the area pays tax in.
Potentially yes, as long as the competition doesn't destroy the manufacturing landscape, e.g. by emergence of lowest-common-denominator or monopoly suppliers.
Somehow there is also a systematic economic double-standard that works for some but not others: "free markets" of dog-eat-dog inputs (i.e., suppliers), but less free markets on outputs (i.e., monopolies, mega corporations, patents, proprietary-ness, closed-source). Unregulated greed fixes all problems by the "invisible hand", right?
And to the overall economy - more stuff with less resources is growth. But that's all going to capital, look at the s&p500 vs wages over the same time period.
I agree the parent comment should be more specific, but his point stands: gains are going to a few companies that automate everyone else's processes or benefit from the huge economies of scale that automation provides.
I've recently been thinking a lot about policy changes that might help with housing affordability, and the same thing keeps happening: every time I think I've come up with something clever, I eventually realize that I've just accidentally made things even better for people that started off with a lot of capital.
It feels like aside from explicit redistribution of wealth (raise minimum wage, tax high income earners more, raise high-end property taxes), you can't change _anything_ without making the rich richer and the poor poorer.
(You can certainly have the input to one feedback loop be the output of another).
Then structural deflationary forces would manifest as UBI increases instead of interest rate decreases.
I think the positive real interest rates would ensure the UBI isn't all captured by rent increases, although it's hard to be certain unless it's tested.
We got at least two world wars out of "deflationary spirals" and every single gold standard that was attempted failed during deflation.
Also, liquidity preference is a systemic redistribution from the bottom 90% to the top 10%.
The people that benefit from inflation are the savers and bankers in the top 10% because they can live off the interest or capital yields which must be higher than interest.
Bankers and savers benefit because governments, people and companies pay debts first before they pay anyone else. If the cantillon effect exists it exists in the boring form of those who own the most get paid the most. The proximity argument is nonsense because there are banks in every city. You can "print" money yourself by getting a mortgage to buy a house and many people do.
This is pop psychology and there is ample counter-evidence for it.
World War 2 was not caused by monetary policy! A hypothesised, partial cause that Hitler certainly exploited was crippling debts. But that wasn't solvable by economists. Do you think the allied powers that defeated Germany in WW1 would have sat back and tolerated Germany inflating away its war debts?
Every single, new building puts downward pressure on the average price. The moment supply outstrips demand, prices goes down, housing market stops being reasonable asset, money outflows causing further collapse of the market and houses are dirt cheap.
At the very least, a supply-solution proponent would need to explain how China's property supply glut didn't bring prices down until the government cracked down on credit.
A lot of equity derives its value from real estate so the obvious escape into stocks won't work in practice.
That said, deflation only ends up happening in specific goods categories like TVs and computers, which are at a particularly sharp point in the technology curve, such that they deflate even faster than average. That's again because the average CPI growth is governed by a feedback loop, where the central bank adjusts interest rates to target 2% inflation, so as, say, food gets cheaper to produce, monetary stimulus is gradually added to the system to combat the falling costs and encourage more consumption. This is done to avoid the kind of deflationary cycle that you're talking about. (Central banks want to avoid deflation so that debts don't become onerous to repay, which can create a depression).
But the result is that while technology is deflationary, it does not create deflation, because that's maintained by a feedback loop; instead it manifests in gradually declining interest rates (and thus increasing valuations and real estate prices, as I mentioned).
That's what it's like to be in a feedback loop. Your computer may act as a heat source for your home but as long as the thermostat is maintaining temperature at a setpoint, the computer won't change that average temperature -- heat it produces will be offset by reduced furnace activity.
(Of course there are also long-term structurally inflationary forces as well. Environmental damage and resource scarcity, like declining fish stocks for example, are structurally inflationary forces. Demographics can go either way. Short term things like wars, debt crises, earthquakes, or pandemics can obviously have a huge impact, and irresponsible monetary policy can throw things right out the window.)
> Central banks want to avoid deflation so that debts don't become onerous to repay, which can create a depression.
Agreed. In other words I didn't realize the 19th century was so bad!
Also, since its hard to imagine technology process with out debt in a market economy, we have have an interesting interaction here.
This is still true today. Interest is at zero, people keep their money in bank accounts of banks who are so heavily overleveraged vs their demand deposits that they are unable to take the risk of lending.
Money is stuck and has to be replenished by more borrowing i.e. QE asset purchases give banks more reserve assets and let them pretend their balance sheet is clean.
Someone who is capable of cleaning a machine and loading materials and tools as well as unloading product is valued different than someone who actually knows how to make any kind of object that is within reason to be fabricated with lathes, mills and other shoptools, which is what a master machinist is. Those people are rare, they always were rare and historically they were valued as much in the past as they are today. Using them to operate a CNC machine is a complete waste of their skills. Typically those people are making one-offs that CNC jockeys would not be able to due to the difficulty of setting things up and/or the need to get it right the first time because the part is irreplaceable.
Profit isn't a reward, it is a reallocation of capital to a new sector. At some point growth stops and there are no new sectors meaning there is nothing to reallocate existing capital to.