undefined | Better HN

0 pointsnotahacker1d ago0 comments

> One fundamental difference is that inflationary systems incentivize the hoarding of 'things', like housing, as a means of escaping inflation. This is because the price of 'things' will always increase with inflation. But in stable or deflationary systems there's no inflation to hide from and the price of 'things' is stable or can even decrease over time, so there's no longer a hoarding incentivization for 'things.'

It would incentivise the hoarding of currency instead. Holding or investing in anything else is, on average, a losing bet in a sustained deflation.

By definition, deflation is people choosing not to contribute to production obtaining increasing returns on doing and risking absolutely nothing at the expense of those who do contribute to production working harder or taking more risks to serve them. You're accusing me of "engaging with a pretty common fallacy" whilst arguing against a tautology.

> So you can see a visible impact of this in housing prices. In the 50s a typical house used to cost about 2 median salaries. [1] Go further back in time and you're down to 1 median salary. In modern times, we're at historic highs of a median home costing 5x a median salary, and in desirable locations like western California it even gets up to 12x local median salary for a median home. [2] That's median, not Beverley Hills.

That's the supply and demand of housing, as well evidenced by the large disparity of house price changes. Deflation does not incentivise building more houses (quite the opposite actually). In practice, it just means you pay higher mortgage rates and end up with a house that isn't worth anywhere near as much as your mortgage repayments, or you rent - both of which involve more of your lifetime income being transferred to richer people.

> Real wages are up 14% over the past 47 years [3], and we now have a trillionaire.

The trillionaire is arguing the same position as you on currency. I'm sure he and the other billionaire funded think tanks attacking "fiat money" almost as strongly as they attack tax and regulation on billionaires and services for the poor do so because they care about giving the little guy more...

0 comments

3 comments · 1 top-level

somenameforme1d ago· 2 in thread

> By definition, deflation is people choosing not to contribute to production obtaining increasing returns on doing and risking absolutely nothing

Deflation results from not printing money. When the growth in the amount of stuff in the economy exceeds the growth in the amount of money in the economy - each dollar becomes worth more over time. That is deflation. Yeah you can sit on it and take it as passive gains. You can also use those gains in your spending power to achieve even greater things. It's up to the person.

As for the past having higher mortgages, this provides data on such from 1950. [1] "...the typical monthly mortgage payment [of] $54.31 for principal, interest, FHA mortgage insurance premium, hazard insurance, taxes and special assessments, and any miscellaneous items such as ground rent." 1950 median personal was $3300, so a house mortgage cost 20% of that. Current median personal income is $45k, so that'd be a mortgage on a new house of about $750 with tax/insurance/assessment/etc included in that. We can safely reject the claim that mortgages were higher.

However, your critique that your house would not be worth as much as you paid is 100% true. When things do not endlessly increase in value, going into debt to purchase them comes with a real cost. That is one of the many reasons prices were able to be kept in check. Housing becoming a vessel for speculation just inevitably drives their prices endlessly up while people actually trying to find a place to live and raise a family suffer for it all. This is all only magnified when you add the surplus of funny money. It being speculation or supply and demand are not somehow different things as you seem to be implying.

---

Basically I find most of all arguments about the past tend to be false or exaggerated, and not at all intentionally. We're all taught that economic policy in the past primitive and misguided, as true as the sky is blue and grass is green. Yet when you look at what people could buy in the past on a typical median salary, or the lifestyle it could provide - it almost sounds like make believe, and is way more than enough to make one wonder what went wrong? And I think currency policy is largely the answer to that question.

[1] - https://www.huduser.gov/portal/sites/default/files/pdf/Housi...

notahackerOP1d ago

> Deflation results from not printing money. When the growth in the amount of stuff in the economy exceeds the growth in the amount of money in the economy - each dollar becomes worth more over time. That is deflation. Yeah you can sit on it and take it as passive gains. You can also use those gains in your spending power to achieve even greater things. It's up to the person.

It is, indeed up to the person. But if you offer billionaires risk free gains from turning their billions into cash and burying it in the ground (quite literally at the expense of everyone else having to work harder to make up for it), even the ones that are willing to invest or lend need to extract more out of the poor to make it worth their while.

Again, when it's tautological the policy you are advocating gives the idle rich risk free real gains at the expense of the working poor, it is impossible to argue with a straight face that the implications are beneficial for equity and growth...

> As for the past having higher mortgages, this provides data on such from 1950. [1] "...the typical monthly mortgage payment [of] $54.31 for principal, interest, FHA mortgage insurance premium, hazard insurance, taxes and special assessments, and any miscellaneous items such as ground rent." 1950 median personal was $3300, so a house mortgage cost 20% of that. Current median personal income is $45k, so that'd be a mortgage on a new house of about $750 with tax/insurance/assessment/etc included in that. We can safely reject the claim that mortgages were higher.\

I am not sure why you are pretending that this was a period of sustained deflation though. Au contraire, the large increase to housing supply in the 1940s coincided with CPI being much higher than recent averages, driven in part by a relaxation in monetary policy to support war financing and full recovery from the Great Depression.[1]

We're not interested in reinventing the 1950s though, we're interested in how to achieve deflation. Since monetary base growth has an inverse relationship with interest rates, eliminating it implies structurally higher base interest rates, which implies homebuyers pay more money to the bank for the same house (which is almost guaranteed to be worth significantly less than its financing costs). No amount of inaccurate historical claims is going to dress that up as a progressive move that will make housing more affordable.

> Yet when you look at what people could buy in the past on a typical median salary, or the lifestyle it could provide - it almost sounds like make believe, and is way more than enough to make one wonder what went wrong?

Seriously, you'd rather live in the 1950s where according to the report there's a 5% chance you don't have a toilet, never mind extreme luxuries like a toilet or television. Well I guess at least aspiring to that lifestyle is consistent with your enthusiasm for policies that enrich the haves at the expense of the have nots...

[1]A Great Depression which is the last period to actually sees sustained price falls for more than a quarter or two, which was also the last period to see free convertibility of the USD to gold. It was a period of 25% unemployment...

somenameforme1d ago

In deflation you're not fighting against the system, like you are with inflation. If you earn 0.001% on your money, you're seeing a net increase in your wealth. Your comment implies you were equating it with inflationary systems where you need to beat inflation just to stop losing money. So both the rich and poor constantly see their spending power increase. If a billionaire wants to bury all his money, he's only hurting himself.

By contrast inflation is very different. Ostensibly everybody has their spending power reduced, but the wealthy can sidestep this by hoarding assets, whereas lower income individuals lack the resources to do so. In both systems the rich get richer. The major difference is what happens to the non-rich. In deflationary systems, they see their spending power increase over time. In inflationary systems, they see it decrease.

The thing I think you're not appreciating is self-feedback within systems. Consider education. Why are education costs inflating far ahead of already high inflation rates? It's because education is/was perceived as relatively priceless, and the government passed various laws mandating and enabling the ease of access to debt. So you take something that was perceived as priceless and give people vast sums of debt to purchase it. The exact same is true of housing. The endless inflation-driven price increases make it seem like a priceless asset. Now insert debt and away we go.

---

The reason I've focused on data from 1950 is because that's the final decade before we entered the full-on money printing era. Such had already commenced by then, but it was relatively modest. The reason I think they did some things much better is because of the median standard of life. Somebody could go to university, buy a car, and graduate with enough squirreled away for the downpayment on their first home - on the back of a part time job. This is not a trope - I can cite the exact figures if you fancy.

This is a large part of the reason that the boomers were largely completely out of touch with modern economics, and wondered why people didn't just work harder, like they did. In any case, all of the arguments I'm making are even more pronounced if you go further back than the 50s (sans catastrophes of course), but then we get to economic eras that are more and more alien. The 50s still feels at least kind of 'real', though when you look at what they could afford on the median, it already feels a bit like make believe.

1 more reply

j / k navigate · click thread line to collapse