The General Economics Thread

Yeah what is needed isn’t a crash of the market, it’s a couple decades of wage growth outstripping house price growth. A world of 3% wage growth, 2% inflation and (within that inflation) 1% house price growth would avoid putting existing home owners underwater while moving us towards a more affordable housing situation.

The problem is that government has basically one leaver for each of those things. Housing construction approval for house prices (which means fighting the NIMBY lot) interest rates for inflation and most controversially government wages for wage growth.

If governments want to push wage growth up (or down) they have tremendous power to do that as they are normally the biggest single employer in their country (or several of the biggest across different areas), but it’s very hard to increase public sector wages from a political perspective.

The minimum wage is the other way to push up wages, but that runs into similar cultural/political issues with the added problem of tending to just clump people at the minimum with minimal trickle up for the wage growth.

Edited by Silasw on Mar 22nd 2024 at 8:21:13 AM

Housing price growth of 1% per year? In Canada, it’s risen by 60% at least in the past decade. That’s 6% per year - and much faster than that during the pandemic. In my city it grew by 39% from 2020-2024, which is an average of nearly 10% per year. And we are far from the worst-affected city.

It’s going to take more than loosened zoning to make that kind of difference. And the constant rises make rich people want to buy more, which only drives up prices further.

The problem is that it is not possible to grow wages fast enough to keep up with that level of housing price growth. We don’t need a total crash, but we do need prices to fall - and it’s very hard to make that happen when everyone expects them to keep rising.

Some provinces have tried taxes on foreign-owned properties and empty properties - British Columbia in particular - and they’ve now banned short-term rentals like Air B&B, so people who own a place in a city at least have to live in it, rent it, or pay the tax. It’s helped. But not enough. And zoning for more density has helped, but not enough.

(Also, I don’t think you can raise wages by 3% while keeping inflation at 2%, not without bringing in wage and price controls like we had during WWII. It’s not how inflation works. And when wages go up? That includes wages in the construction sector, which means building housing gets more expensive too. That’s what makes it hard to solve.)

Edited by Galadriel on Mar 23rd 2024 at 7:53:01 AM

You bring prices down by building a lot more middle income housing—you do that by raising wages for the middle class. You do that through a combination of minimum wages, keeping interest rates down, construction subsidies, and tax reform. Not a quick fix.

Then you go for government owner construction and put contractual clauses in place that even once the government sells the properties those people (and anyone they sell it to in the future) must use the house as their primary residence or sell it back to the government.

If house prices are growing at 6% there’s literally 6% of room for change without causing prices to fall.

Inflation is the combined impact of the price change of a basket of ecneomic indicators, which includes wages, food, domestic goods, foreign goods, raw goods, housing and more. You can absolutely have one element be the inflation leader while other elements rise at a rate beneath the headline figure. We’ve all just seen that happen with fuel prices going up due to Ukraine while wage rises remain beneath headline inflation.

Yes you probably can’t do it as cleanly as my 1%, 2%, 3% example comes out. But the basic idea of housing inflation being under the headline rate while wage growth is above the headline rate is completely doable if the right ecneomic leavers are pulled. The leavers for wage growth are pretty simple for the government, they’re the minimum wage and the wage for government workers.

Edited by Silasw on Mar 23rd 2024 at 7:45:52 PM

Perhaps it might help to restrict people from having unused homes. That might discourage housing speculation. In Switzerland we have a de facto ban on foreigners having homes they don't use, as well as a broad restriction against second homes.

Yes, going beyond the empty homes tax to a total ban on them would increase supply somewhat.

It.. really is simpler than that. Zone more or denser housing. Aggressive zoning policies will in themselves chase speculative investors out of the housing market.

Denser zoning can also potentially get existing homeowners out of their bank loans while actively crashing housing prices. If you just flat out rezone single family housing to "However many stories of condominiums the ground can take + commercial use of the ground floor" that will greatly increase the housing supply.. and the people owning the single family homes can sell to developers who don't mind buying the house just to tear it down.

Every extra floor costs more than the previous one, so you don't actually want as many as the ground can physically take if you want affordable housing. 6-10 floors is plenty enough to build pretty densely, especially with shops sprinkled (which cuts the parking needs drastically).

Slight problem with that. The value of existing stock is highly inflated right now, and that inflated value is predicated on a shortage of supply and there being no affordable alternative - which leads to affordable housing getting NIMBY'd. If we force affordable housing through, we will still damage the housing market. Which probably has to be done, but there'll still be economic blowback from it.

The trick is going to be managing that blowback and ensuring that real estate as an investment doesn't make a comeback afterward.

There could also be a crack down on short term rentals. There are thousands of empty apartments out there that rich assholes have bought and marked up to rent out on airbnb. I am a bit skeptical that there actually is a shortage of available housing

The U.K. is actually bringing about such a change, going forward if you want to do an new Airbnb for more than 90 days a year you’ll need to get planning permission.

It’s worth noting that the U.K. doesn’t do zoning, each property gets planning permission individually, though large building projects will obviously do bulk applications.

A lot of places in the US are banning Airbnb style short-term rentals on the municipal level — particularly smaller tourist-y towns where investment properties can make up a significant fraction of the market.

Using data from the seven largest US grocers, a FTC report claims large grocers pressured grocery suppliers to prioritize them over smaller rivals during the pandemic and used the ensuing supply constraints to raise prices to massively increase prices to gain lots of money after.

If you had been paying attention, this was obvious, but glad the info gained from the large grocers checks out.

Edited by tclittle on Apr 2nd 2024 at 12:00:33 PM

Oh goodie. I assume that this means those corporations will be significantly punished under the laws regarding uncompetitive practices? And that the prices of groceries will go down soon?

Maybe I'm just in a real cynical mood lately, but I can't even muster the energy to be outraged by this news.

Random musing about economists.

So recently I bought and tried to read Time for Socialism: Dispatches from a World on Fire, 2016-2021 by Thomas Piketty, one of the most well known European economists in my country.

Unfortunately after reading for about a dozen pages, I have to shelve the book for the time being. Not that there was anything wrong with the book itself, but it kept referring to his previous works such as Capital and Ideology and a lot of his examples seem to base on European economies.

I think I should pick Time of Socialism back up after reading Piketty's other books and getting basic grasps of 20th century European history and economics. XP

Heh, well you should be aware that his previous books are doorstoppers. You could work out by lifting one in each hand. Still worth it, though, if you are interested in this topic.

Oh, tell me about it.

Including the one I mentioned above, I also own Capital in the Twenty-First Century and L'économie des inégalités/The Economics of Inequality.

While the latter clocks at surprisingly short length of 230 pages (in my country's translation version, at least), but the former is over 700 pages...and as far as I know Capital and Ideology is somewhere over 1,200 pages.

Speaking of thicc books, holy cow, Adam Smith's The Wealth of Nations is also massive and easily go beyond 1,000 pages in my country. Hell, many versions of split in two parts due to the length.

And then there is Marx's Das Kapital...a book that I intend to read eventually, but probably not this year. I want to tackel that one only after building up sufficient philsophical and economic knowledge base.

The FTC has banned most noncompete agreements in the US.

The exceptions seem to be limited to those for senior executives that were already in place.

Getting rid of non-competes is a great way to open up job mobility for workers. Good on the FTC, although I'm a little surprised it has the power to do that without supporting legislation.

Next, work on non-disclosure agreements.

Started reading: Does the Richness of the Few Benefit Us All?, by Zygmunt Bauman. I bought the book just because I found it with a dirt cheap price in an used bookstore near me...and that it was really short. XP

I read around one third of it and so far it doesn't reveal any particular bits about wealth inequality that I don't already know, although it is rather distressing how things not only didn't improve but only gotten much, much worse since 2013.

However, the book quoting this quote by Adam Smith - from his work Theory of Moral Sentiments - was a bit surprising:

"This disposition to admire, and almost to worship, the rich and the powerful, and to despise, or, at least, to neglect persons of poor and mean condition, though necessary both to establish and to maintain the distinction of ranks and the order of society, is, at the same time, the great and most universal cause of the corruption of our moral sentiments."

Okay, wow. I didn't know Smith accurately predicted the billionaire simps centuries ago.

Despite more or less being the foundation of capitalism, Adam Smith himself was aware of its potential problems.

I mean, yeah, it's kinda obvious at this point in 2020s. After all, The Wealth of Nations even inlcude quotes like this:

"No society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable. It is but equity, besides, that they who feed, clothe, and lodge the whole body of the people, should have such a share of the produce of their own labour as to be themselves tolerably well fed, clothed, and lodged."

It's just that I never read and thus know pretty much nothing about Theory of Moral Sentiments, aside from the fact that it's a really important companion piece to the other more famous book.

America’s Economy Is No. 1. in the world, having been on a mostly growth path since 2011 while China's growth has abruptly stopped in 2021, just short of reaching EU+UK.

_vThis image mostly drew my attention.

Edited by SeptimusHeap on Apr 26th 2024 at 12:02:06 PM

Got a non-paywalled link? Also, the WSJ is not what I would call "a reliable source", especially when the linked article starts with talk about projections.

No, it's still pretty reliable. Though note that the WSJ frames this as a bad sign.

It's less "USA hell yeah" and more "last time this happened we had a financial crisis soon after".

Edited by M84 on Apr 26th 2024 at 6:09:21 PM