Comment by bluecalm | Hacker News Reader

Comment by bluecalm | Hacker News Reader

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You need more money when there is potential for more economic activity. Think about money as centralised IOUs. If 10 farmers want to borrow to buy seeds and fertilizer you need 10 units. If 100 farmers want to do it you need 100 units. Same with the rest economy. You just need some institution which assumes the risk the IOUs are not paid back (cause that would destabilize the system). Those institutions are banks. Limiting amount of money in circulation is just limiting economic activity for no reason and allows rent seeking behaviour of sitting on top of money pile selling to the highest desperate bidder.

And yes, system is such that it penalise anyone who tries to preserve wealth in actual cash and that is for very good reason! If you want to preserve wealth - it's easy just buy wealth (stocks, real estate, land). If you want preserving wealth without exposure to asset class fluctuations then you want insurance and in any rational market insurance costs you money. Keeping cash is safe and it costs you - exactly as it should be.

The problem with that is that it creates an incentive to hoard real estate for the purpose of wealth preservation, which can have major detrimental effects. Even using stocks for this purpose may cause or exacerbate problems, such as asset bubbles.

Why is it preferable for people to hoard land than money? Land is a tangible and productive asset; if I had to choose between the two, I'd rather that it be efficiently allocated than that money were. Only those people who desperately need land, in order to make productive use of it, should have any financial incentive to own it.

And this can be solved with real estate taxes - a disincentive from just holding land.

For real estates, but not for other assets classes. Unless you tax the ownership of every asset.

That begs the question, is even more regulation really the best solution?

> For real estates, but not for other assets classes. Unless you tax the ownership of every asset.

Other assets are (supposedly) productive - investing in companies lets them do research, pay employees, etc, investing in property improvement (as opposed to land) gives more people nicer homes.

> That begs the question, is even more regulation really the best solution?

Even more than what? These regulations would improve things. Which particular regulation do you feel is harmful?

To summarize the thread so far, we need to create more money in circulation in order allow for more economy activity, and penalize preserving wealth in the form of capital.

Allegedly, "if you want to preserve wealth - it's easy just buy wealth (stocks, real estate, land)."

In other words, this is intentional to push people towards preserving wealth in the form of assets. But this creates issues where assets become over-valued - and some assets (real estate and land) are necessary to survive.

Your proposal is to tax the ownership of assets (i.e. the preservation of wealth) in order to ... push people back towards capital (i.e. for the preservation of wealth)?

This doesn't really compute.

You've phrased it well, especially because taxes are (to first order) deflationary, as the negative of government spending; tax revenue is effectively taken out of circulation and deleted from the economy, while government spending is (effectively) money that is printed anew.

The point is to push people towards productive assets - investments in people building things - and to generally limit wealth preservation. Unlimited wealth preservation = dynasties, which is not a goal.

Inflation is a sort of (not very effective) flat wealth tax. But inflation is necessary because in a deflationary system the best investment is holding cash, which makes everything freeze up.

Wealth should be (minimally, progressively) taxed, mainly to prevent serious distortions when someone has $1B in the bank and most have $10K.

Taxes, regulations, and subsidies on assets needed to survive (shelter, utilities, food, medicine) are necessary to keep these items available to everyone, because the market tends to break down in these situations.

One of the difficulties with this is the question of how you tax an asset whose value you don't necessarily know for certain, because real estate is not fungible and its market price is only really known when that specific parcel is changing hands between unaffiliated parties. Perhaps you could apply the tax as a lien, set as a percentage of an unknown value, and deferred until it is next sold, and have the government take back ownership of the land if that percentage reaches 100%. But even this might only encourage people to trade land between agents at suppressed prices, just to pay off the tax, and then flip it at its "real" price shortly thereafter.

Every local government in America has basically figured out how to value real estate for taxation, although it's not perfect - I think that loans against a property should be limited to it's tax value as a first step, and ultimately land-value rather than improvement value should be taxed based on who else is trying to purchase the land.

Taxes and depreciation eat at that wealth. Better to invest in a going concern.

> that it creates an incentive to hoard real estate for the purpose of wealth preservation

It creates an incentive to create and hoarde value. Western real estate as a market being broken is orthogonal to the system. (Case in point: Japan.)

Japan has had three decades of deflation. So it does seem that when cash holds its value, people don't need to speculate on real estate. In the '80s, when it had high inflation, it grew a real estate bubble well beyond the 2008 US bubble (despite plenty of construction). China has rampant overconstruction and a plummeting birth rate, and yet it has built a real estate bubble perhaps even beyond '80s Japan, because its population saw real estate as a safe place to store and grow their wealth.

> Japan has had three decades of deflation

It’s had three decades of flirting with deflation. Its price levels have been rising for at least the last decade [1]. (Albeit, not steadily.)

[1] https://www.stat.go.jp/english/data/cpi/158c.html

At least prior to the pandemic, that price growth can be almost entirely attributed to the Abenomics policy of a rising sales tax (which went from 5 to 8 percent in 2014, and then to 10% in 2019). This was deliberately implemented to cause consumer price inflation and accelerate consumption (due to the expectation that prices would rise in the future). Consumption tax is included in the CPI. If you look at base prices before sales tax, they're almost perfectly flat between 2010 and 2020. Anyway, the CPI is flat enough over the decades that the Japanese yen has largely held its value, at least on domestic products, and this supports the thesis that Japanese citizens haven't felt it necessary to accumulate real estate to protect their wealth.

As an aside, the fact that the purchasing power of the US dollar has fallen substantially over that time, while the exchange rate of JPY to USD has risen, is something quite fascinating to me. I don't see it discussed nearly enough.

> CPI is flat enough over the decades that the Japanese yen has largely held its value, at least on domestic products

Not contesting—this makes sense—but do you have a source?

> the fact that the purchasing power of the US dollar has fallen substantially over that time, while the exchange rate of JPY to USD has risen, is something quite fascinating to me. I don't see it discussed nearly enough

It’s the widowmaker carry trade. FX traders and macro funds love talking about it.

It comes down to the difference in international versus domestic demand for dollars per se, not dollars in any form (e.g. Treasuries).

I'm not sure what you want a source for in particular, as it's a subjective statement; you can look here (https://www.stat.go.jp/english/data/cpi/1585.html) where the statistics bureau explains that prices are after-tax, and eg. here (https://tradingeconomics.com/japan/sales-tax-rate) for the tax rate over time. You can do the math to find the pre-tax CPI. You can look eg. here (https://www.rateinflation.com/consumer-price-index/japan-his...) for CPI figures going back farther, in particular 1992 being the end of the real estate bubble, where CPI was 94.2, basically identical with 2011's, where your source begins.

The widowmaker carry trade reflects the currency side, but what fascinates me is that for example, a tube of toothpaste (random example) has gone to $3~$4 in the US, while it's still $1 in Japan. Go to a dollar store in Japan (except for Daiso) and it's full of cheap, high-quality goods that are made-in-Japan, from plastic organizers and pencil cases to measuring tapes and bicycle stickers. Those are now cheaper than similar made-in-China products being sold in the USA. The cost of container shipping is still quite low. So you'd think Americans would be hungrily importing Japanese goods until the arbitrage opportunity disappeared, but they're just... not. And perhaps that reflects that the most significant and long-lasting component of inflation in the US is shelter, which can't be imported.

To be fair, bubble Japan had ridiculous property bubble valuations. At the peak, the grounds of the Imperial Palace had a valuation more than the entire state of California.

What about inflation indexed bonds? As far as I can see you can't lose money with those, and they don't cost anything (even earn a bit, after adjusting for inflation).

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