Comment by camgunz | Hacker News Reader

Comment by camgunz | Hacker News Reader

I'm not an expert at all, but my understanding of inflation is that it's due largely to a handful of things:

- Housing prices are bonkers due to chickens coming home to roost on lots of policies (lack of tradespeople due to cultural stigma and wage inequality/social welfare state for contractors, bad zoning and NIMBY-ism, non-existent public transit, education policy creating 30% very bad schools, 65% mediocre schools, 5% good schools, and very expensive private schools).

- Supply chain shocks due to COVID.

- Oil went bananas.

A couple of things that might be undersold:

- A lot of people left major cities and have lower/zero housing costs.

- A lot of people aren't paying their student loans (heard this costs the US $4-5 billion/mo, which is quite a stimulus package).

A couple of things I think it probably isn't:

Stimulus/Rescue: I heard a stat on a podcast that said the vast majority (maybe 2/3?) was unspent, so it seems unlikely this is a major driver.

Wage growth is pretty interesting. Reading about it, it seems like a lot of people left the labor market or switched to lower-demand roles/careers. People take this fact and say "see, labor supply went down relative to demand and the price went up". But if you've got 10 employees costing you $1m/yr and three quit, leaving you with 7 employees costing you $1m/yr, sure wages went up, but not overall? I haven't seen this kind of analysis out there, so I wonder if there's some politicizing by the "we need low inflation at the cost of unemployment" people towards the "we need full employment at the cost of inflation" people.

> Housing prices are bonkers due to chickens coming home

I think low interest rates might be the largest factor here. Purchasing decisions are made based on the monthly payment.

The interest rates certainly factor into high home prices, but really it just comes down to supply and demand. We haven't been building enough houses, especially where people want to live.

Definitely, but I think that's because of the lack of tradespeople and the barriers involved in building new houses. It's hard to build multi-unit-dwellings in cities now, so if you ever get an opportunity you're building a luxury megaplex to squeeze the max profit out of it. And sure you can look further out, but then you're looking at school district problems, lack of public transit, lack of amenities like grocery stores, restaurants, theaters, shops, culture centers.

I think a lot of this probably boils down to our insistence that cars be huge parts of our lives? It's really incompatible with the 15-minute city just because of the space requirements (parking at destinations, parking at homes, street width), and let's not forget maintenance costs and noise/pollution externalities. But I guess in the face of no public transit, what are we supposed to do?

I live in flyover country, and good tradespeople have all the work they want. They're turning down jobs that aren't highly profitable/easy.

Definitely, why bust your ass to drive far out of town or build an irritating thing when you don't have to?

I... maybe think the same thing about the tradespeople shortage as I do about the nursing/teaching shortage? We super need them, wages are going up, but supply isn't, which breaks the law of supply and demand (more or less). I think the cause here is a culture one, like there's not a lot of prestige or money in this blue/pink collar kind of work (generally, not always), so people (millennials) went into white collar professions instead, so we have a glut of people with bachelor's degrees and college debt, and a shortage of people with trades credentials. I'm handwaving a lot, but it seems intuitively true to me.

At least where I live, there's no stigma to being a contractor or builder. Most of them make very good money, and while they might not know the difference between Gouda and Gruyere, they're not dumb hicks.

I do think that it's a tough field to keep "staffed up" since it can wear people out pretty quickly, so it needs a constant influx of newcomers.

Oh yeah actually I remember when I was in high school one of my friends' parents were contractors and they'd build their own beautiful house and landscaped it amazingly. Turns out they were also pretty well off. Definitely popped my bubble about construction.

I think you're probably right about attrition, also the work can be hard on people. But also I think I read somewhere there just aren't a lot of people going into the field. Something about parents encouraging their kids to go to college and become white collar professionals instead of blue collar laborers. That rang true to me too.

Consider that a speculative bubble can create excessive demand.

Ireland had a shortage of housing until the GFC, when suddenly they didn't. I'm expecting NZ to discover the same over the next year or so.

I really think it's as simple as banks lending excessively for non-productive purposes.

I think that's mostly true, but there's some other factors that are pretty significant:

- Down payments are pretty hard to come up with on a $1m property

- A lot of the time you're competing with developers willing to pay cash

Both of these things are very true here in DC's housing market, and I've heard similar things from friends in other more-or-less-urban/near-suburban places.

> Down payments are pretty hard to come up with on a $1m property

I agree, it does create some kind of ceiling.

> A lot of the time you're competing with developers willing to pay cash

I think that's a secondary effect. Low interest rates create a market of people willing to buy at high prices that the developer is hoping to resell to. A lot of their working capital is also borrowed.

> I think that's a secondary effect. Low interest rates create a market of people willing to buy at high prices that the developer is hoping to resell to. A lot of their working capital is also borrowed.

Oh yep, I totally buy this.

> Purchasing decisions are made based on the monthly payment.

Yep, this made the decision for me. Do I pay 30% more rent to move into a basement? Or 50% more mortgage for a full, freehold house outside of the city?

I like living in this urban area, but a hybrid commute from a small town with the bare amenities is not bad either if it gets me a house.

Trying to get a house built is brutal right now. That surely is high paying remodel jobs driven by interest rates, but many many tradesmen have told me they have no one to work with and no one to hire. A lot of these guys are aging out.

> Stimulus/Rescue: I heard a stat on a podcast that said the vast majority (maybe 2/3?) was unspent, so it seems unlikely this is a major driver.

What does it mean to be 'unspent'? If it's put into bank accounts and banks risk the money on mortgages or something, then it gets spent by proxy, and drives up housing costs as banks seek to create new loans

That's an interesting point: stimulus as bank subsidy. Maybe in that sense it is a major driver, not because like "this is what happens when you just give people money" but because there's basically no way to give people money without giving banks money, so it's more like "this is what happens when you give banks money". Very interesting!

> I heard a stat on a podcast that said the vast majority (maybe 2/3?) was unspent, so it seems unlikely this is a major driver.

Having unspent money ripe to be spent seems like it should be considered a significant driver. Spending a little bit more here and a little bit more there is seen as no big deal when your bank account is flush.

> Spending a little bit more here and a little bit more there is seen as no big deal when your bank account is flush.

Wouldn't this just be spending the stimulus money? What I'm saying is that most of it hasn't been spent, so it can't count as that much "extra money in the mix" as most people think.

> Wouldn't this just be spending the stimulus money?

Most likely it is being spent. Slowly. Like you said, some of it has been spent already. It is unlikely that stopped. It just hasn't been blown all at once.

> What I'm saying is that most of it hasn't been spent

Me too, more or less. If it were already spent then bank accounts would be tight and people wouldn't be able to spend more. However, if they're only dipping in a dollar or two at a time, they can both spend more and leave their bank accounts almost untouched. At least for a while. Give it enough years and it may eventually erode to nothing, but in the short term you don't have to spend much of it to pay more at the store. Inflation is a little higher than usual, but not that high in the grand scheme of things.

Oh yeah definitely. I think the thing I heard was that rather than like, functioning like a tent pole on inflation it was more like just a small contributing factor, but will be for years to come. I kind of stuck on it here because I think the politics have been "this is what happens when you give people hundreds of billions of dollars", but I don't really think the evidence supports that argument.

> "this is what happens when you give people hundreds of billions of dollars"

Well, in fairness, at the onset of the pandemic there was a looming fear of deflation and we weren't very far from that actually happening. All that stimulus money was poured into the economy by the central bank specifically to create inflation, per inflation target mandates. The idea is not unwarranted.

But also not that simple. Where the money ends up is equally important. You could 'print' trillions of dollars, but if you gave it all to Bezos, not much would change. He'd just sit on. Maybe inflate some assets like real estate, but he's not going to drive up the price of bread. Bread relies on purchases from the masses who don't have more money to spend in that scenario.

If you distributed that money out to everyone, however, then they each do have more money for bread. Then you can start to see inflation come of it as people start to compete with their extra cash in hand.

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