Comment by jmyeet | Hacker News Reader

Comment by jmyeet | Hacker News Reader

So I've long had the theory that the primary cause of economic malaise is high housing prices. It makes labor more expensive. It makes everything more expensive. Treating houses as investments actually kills the economy.

I recently came across an actual economist who has been saying the exact same thing, which he calls the Housting Theory of Everything [1]. He has written a number of papers on this doing the math and has a bunch of videos around this topic.

For example, this gap with Missouri actually goes away when you consider purchasing power [2].

Fudge himself is a capitalist but he points out what I think a lot of capitalism defenders don't know, and that is that Adam Smith hated "rentiers", saying they got unearned income by essentially hoarding land. That's a problem we have now.

His theory uses a term he calls the "rentier black hole" [3] and the premise is essentially that the returns on property are too good such that it sucks away any investment on productive ventures. Instead of building a factory in Manchester, you park your money in Knightsbridge property. And that's where all the money is going. It increases the returns and sucks away all money.

[1]: https://henryfudgeofficial.substack.com/p/the-housing-theory...

[2]: https://www.tiktok.com/@henryfudgeofficial/video/76490164617...

[3]: https://www.tiktok.com/@henryfudgeofficial/video/76404878354...

I'm not at all convinced that reasonable housing prices are a magic bullet for the economy. Housing in Japan is treated as a depreciating asset rather than an investment and is dirt cheap (outside of the most desirable parts of Tokyo, of course, but even then it's a pittance compared like-for-like with, say, desirable parts of NYC), and Japan's economic stagnation for decades is nonetheless well-known; it could be the dictionary illustration for "economic malaise". Of course, reasonable housing policy should still be pursued... just with basic human living standards being the justification rather than "it'll make our economy numbers go up" justification.

Japan's economic malaise is a big topic that's mostly driven now by a rapidly aging population. Why is it aging? Low fertility rates [1]. So why are fertility rates so low? It kind of started with the housing bubble in the 1980s that created a youth unemployment crisis (ie hikikomori), which has now come to the West where we now have a youth unemployment crisis (and thus NEETs). I found this [2]:

> Japan made the same discovery thirty years earlier. The hikikomori phenomenon (young men, predominantly, who withdraw from social life entirely, sometimes for decades) emerged in the 1990s, after Japan’s asset bubble burst and the lifetime employment compact dissolved. The cultural commentary at the time, both Japanese and Western, framed it as a peculiarly Japanese pathology, something about shame and conformity and the pressure-cooker school system. This was wrong. It was a structural response to the closure of the productive ladder, and it has now appeared in every developed economy that has reproduced the same structural conditions.

It's worth noting that the US fertility rate is alos below replacement levels (~1.54) but the only thing that props up our population is immigration. Japan eschews immigration as a de facto ethnostate. South Korea is further along in that crisis. China will need to find a solution too.

But there are cultural reasons here too. Japanese work culture, pay relative to work, etc.

[1]: https://www.macrotrends.net/global-metrics/countries/jpn/jap...

[2]: https://henryfudgeofficial.substack.com/p/degeneracy-is-a-sy...

While the official youth unemployment rate in Niger is something like 0.5%, that includes things that wouldn't count by western standards (e.g. sustenance farming). The youth unemployment rate there, by how we measure it, is more like 50%. To call the situation in Japan or the USA a crisis compared to that is laughable. Yet they have a fertility rate of ~6 births per woman. You've come up with a fun theory, but it clearly doesn't work.

Fertility is on the decline, particularly in the west, although increasingly spreading, quite simply because it is socially unacceptable to have children. Society says you need to focus on your career instead. It creates TV shows, like "16 and Pregnant", designed to dissuade viewers from having children. So on and so forth. Social pressure is a powerful drug.

In fact, the pocket communities where certain religions that push a 'make babies' agenda are commonly observed, where the social pressure goes in the other direction, we find many families pumping out kids like there is no tomorrow. Social pressure works both ways, but the "having kids is cool" is not the prevailing social wind.

Dismissing youth employment as a concept because some countries still plow their fields by hand isn't a good argument. You can just look at peer countries and compare them. Surely you can’t think that youth unemployment does not reflect any major difference between Spain and Germany right.

You will find no dismissal of youth employment as a concept. There would be no reasonable way to dismiss the concept as one only has to quickly look outside to see that youth are employed. What was the intended purpose of introducing this nonsensical tangent?

High housing prices will kill a good economy but having moderate rents will not somehow jumpstart a bad economy. JP's slump isn't evidence against housing theory of everything.

I disagree. It will, it just takes a while.

There are tons of cities with burgeoning artist scenes and other movements improving that city, due to the availability of extremely inexpensive space to do things. Rochester, St Louis, Baltimore, Detroit.

Making things cheap means you can take risks or spend time on activity that's directly economically unproductive but indirectly has fringe benefits for everyone around. And as more people do it, more people try to do it, with a compounding positive effect over time.

Japan makes me feel very confused about what economic statistics actually mean. People have great housing, beautiful and safe neighborhoods, ample access to the world's best transit, tons of entertainment and cultural products to access, excellent education and one of the longest life expectancies. Sure, they maybe have some minor problems. But I suspect that if an alien came down to Earth, toured all the countries and then was asked to rank which ones it thought were the richest without looking up economic stats I'd expect it would rank Japan near the top.

Japan's "malaise" is fiscal, an outcome of one way to analyze the public balance sheet. Japan's standards of living remain exceptionally high.

I do agree. I'm actually of the opinion that the economy is in generally good shape and that "number go up" should not be the end goal. It is abundantly clear that real living standards on the ground are completely divorced from the obsession with infinite growth.

Excellent post!

It's structural. A big problem is the Banks. They would rather lend for asset accumulation (rent seeking) than for production. In Canada, mortgage lending is literally zero risk as the banks are covered via CHMC against any defaults. Ultimately its the tax payer who is on the hook. Hence the massive housing-based economy.

And none of the politicians ever fix the structure because many of them are property owners.

> Treating houses as investments actually kills the economy.

Failure is always a possibility, but historically it hasn't killed the economy, it has rebalanced the economy; seeing businesses and people reduce their concentration in a specific area as they fan out into lower cost areas. Which is a rather useful function. This is why we're not all living in one giant heap somewhere in Africa.

Where do you think the term "rent-seeking" comes from? To quote Adam Smith [1]:

> “As soon as the land of any country has all become private property, the landlords, like all other men, love to reap where they never sowed and demand a rent even for its natural produce.”

In the mid 1990s, the average house price in London was under 80k. It's now pushing 700k. Are salaries 9x? No. What is this other than stealing from the next generation? Raising house prices are nother more than a massive wealth transfer from the young and working to the old and wealthy.

but here's the bigger problem. If you have essentially a guaranteed 9% return on a highly-leveraged asset with tax advantages and government guarantees, why would you invest in a factory or a business? That's the real reason manufacturing has hollowed out in the UK.

I agree with Xi: houses are for living, not speculation [2]. We should absolutely punish rampant speculation by heavily taxing land hoarding.

[1]: https://www.prosper.org.au/geoists-in-history/adam-smith-on-...

[2]: https://en.wikipedia.org/wiki/Houses_are_for_living,_not_for...

> why would you invest in a factory or a business?

Because you cannot afford to join the ranks of the investment class, so what else are you going to do with your time?

You are quite right that you are not going to build your business in London, though. You are going to take your business to places where starting a new business makes sense.

For the American audience, Detroit lived what you describe. What started as a vibrant manufacturing centre turned to property investment and soon it could no longer sustain itself. The people not benefiting from those investments there didn't throw in the towel, though. They packed their bags for what we now know as Silicon Valley and started new businesses developing the transistor. The economy wasn't killed, it moved.

> We should absolutely punish rampant speculation by heavily taxing land hoarding.

The law is to the will of the people, so this can happen on a whim, but you have to convince the people that piling everyone into a giant heap is desirable. Most people don't want to live in one giant heap. A Kowloon Walled City-esq world is a thing of nightmares for the population at large. Most people want people to move around, to make use of the entire world, not all settle in one place. These economic factors are the engine that pushes people to spread out.

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