The General Economics Thread

Isnt there a fact sheet on economics around here somewhere?

"Money farms". The fact is I barely pay the mortgages. It is more expensive to rent than buy in the long term, in the same way that leasing a car is more expensive than buying one, but people do it anyway, for a variety of reasons. It's a convenience.

Nope. Government’s never retire and government loans can’t be called in, it very much doesn’t have to be paid off.

The rate of interest on the debt can be a problem for a government if it eats up to much of the budget (especially if that interest going abroad instead of to domestic banks who should then use the interest payments to invest in the economy), but the actual amount owed doesn’t matter beyond appearances as long as the government in question can make the interest payments.

Crisis debts tend to get paid off eventually, but with a friendly interest rate that can take decades, the UK avoided paying off its last WW 2 debts until 2006 and as of 2014 still had some debts from both WW 1 and the South Sea Bubble of 1720.

Government debt isn’t really debt, it’s more like a standing government subsidy to the financial sector, its existence often has positives and ending it would be bad.

Printing money to pay it off can also be done, though that would likely result in inflation, but that can be useful if inflation is under what you want it to be. Inflation will also effectively shrink debt over time, as the top line number of the debt becomes worth less due to remaining stable while everything else inflates.

For some people it’s a convenience, for others it’s a poverty trap accurately described by Discworld Captain Samuel Vimes 'Boots' theory of socioeconomic unfairness.

The big problem with homes being treated as money making assets is that existing owners will often resist attempts to increase supply, because it would reduce the value of their own property. Housing is a basic necessity, people can’t opt out of having somewhere to sleep, so when access to it it limited by high prices people can’t simply walk away, they become a captive market.

Edited by Silasw on Mar 11th 2021 at 6:53:08 PM

Renting is a poverty trap? How so? People of all socio-economic backgrounds rent. I've rented myself (while owning rentals).

Of course, poverty is a poverty trap, and basic services can be a much larger proportion of income, even exceeding it. That's what rental assistance is for.

It takes up an enormous portion of your income with no payoff in the end.

Silasw did a pretty good job explaining the problems with rent in his last little paragraph.

Edited by LeGarcon on Mar 11th 2021 at 2:05:21 PM

Suing China over the pandemic would be very bad politically, and morally questionable. China did not cause the pandemic, and they likely could not have prevented its spread. And this could have happened anywhere in the world, as coronaviruses throughout history have come from pretty much all major livestock species, from cows to pigs to chickens.

Laying the costs of the pandemic at China's feet would be wildly unfair.

Step one:

Therefore, that means that whoever is renting is paying the cost of the mortgage and more, whenever they're renting a property (unless the property is completely paid for and the owner has decided to lower the rent), which becomes equity for the landlord but nothing for the tenant. Now, this is money that obviously can't be saved for anything else, and with property prices only ever increasing the mere act of renting makes it less likely that anyone could actually buy their way out.

When you aren't renting because of a choice to rent—which, let's be honest, is probably far more common in many countries than a conscious decision; for many people ownership is completely infeasible—then you're forever forced to pay as much as if you were owning or more and that money can't be saved. When forced into the private rental market in this way, tenants have to pay all the costs indirectly but accrue none of the tangible or intangible benefits, whilst having the whole credit score risk of missed payments, which would then make renting harder and make saving even less likely. With, of course, nothing to fall back on when this does happen.

It's a large, perpetual expenditure where most people involved in it have no choice and many are forced to accept below-standard accommodation because they can't afford anything else. Any profit margin added onto an essential commodity is then a tax on being too poor to avoid it. At least supermarkets have loss leaders.

(Of course, that's why social housing etc. is a good idea, because it can rent at a loss)

Speaking of Landlords, Adam Smith had some choice words for their class.

Edited by Fourthspartan56 on Mar 11th 2021 at 11:12:52 AM

@ Redmess

Well, in the COVID thread an article was posted mentioning that the PRC has been investigating various bat strains of coronavirus, possibly incluiding the one that is relevant to us, since 2018.

So, in the case the PRC did have info on COVID-19 before the outbreak, then the pandemic becomes less of an unpredictable event and more of a preventable disaster, not to mention that the PRC did some shady stuff at the beginning of 2020 such as destroying samples of the virus or silencing the doctors that were warning about something happening in Wuhan.

Making China pay for the virus is just some stupid Trumpist shit, to be blunt.

If the rest of the world had acted as they say china should've acted, we wouldn't have had a pandemic.

We had warning, governments did nothing. China's possible guilt doesn't make that less true.

The pandemic would've existed regardless simply because our governments were negligent.

Edited by Fourthspartan56 on Mar 11th 2021 at 11:43:42 AM

Nothing China could have done would have stopped Trump and Republicans from destroying the country.

Yeah no one is qualified to throw stones here.

"Adam Smith spoke of landlords as cruel parasites who didn't deserve their profits & were so "indolent" that they were "not only ignorant but incapable of the application of mind."

My. I generally agree in broad terms with the analysis. Renting is more expensive than buying, but buying requires greater up front costs, to the point of borrowing the money to cover the price, which many people can't afford. Many people started renting housing after they lost their homes in the 2008 financial crisis, which is tragic, but demonstrates that renting can provide people with an option they wouldn't have otherwise.

It's true that the price of a house reflects the future value of the house, including any appreciation one could expect, as well as the possibility of collecting rent. But this isn't just true of housing, it's true of anything that can be expected to appreciate in value, in other words anything that can be considered an investment. Home owners face the same disincentive to support expanding the housing supply that landlords do, as do the owners of stocks, gold, and collectibles. All home owners benefit when the price goes up, but this is counter-balanced by the fact that all homebuyers benefit when the prices go down, and by and large, these are the same people. Landlords not only rent out their houses, they also buy them, and so have an equal incentive to see the supply rise and prices fall.

I'm not sure how one would go about reversing this aspect of human psychology—when somebody buys something, they will desire to buy it at a price that reflects it's future value, and since different people have different budgets available to them for purchasing such things, it seems to me that this will inevitably price someone out of the market. Government assistance would seem to be the main solution here—a housing voucher good for so much money applied to rent has been shown to reduce homelessness, and provides an incentive to build more affordable housing.

What solution do you suggest?

Some sort of solution that would provide a disincentive anyone from owning a house with the purpose of renting it out.

Rent seeking is one of the most dangerous things that can happen to an economy.

Given that housing is considered a fundamental human right, renting after losing your house shouldn't be framed as an option you might not have, unless we're going to completely give up on society.

I'm not an expert so you should preemptively lower your expectations

But I'm of the view that housing should be a human right. If we move away from a commodified view of it and instead put the onus on society to maintain and distribute housing then rent-seeking behavior could be minimized if not erased.

I realize this is an objective not a solution but I did warn you that I'm not an expert

Edited by Fourthspartan56 on Mar 11th 2021 at 11:54:24 AM

You could make it illegal to rent housing, but I don't see how that would help poor people.

By the way, in economics the term "Rent Seeking" generally refers to "when an entity seeks to gain added wealth without any reciprocal contribution of productivity."

"The term rent in rent seeking is based on the economic definition of “rent,” which is defined as economic wealth obtained through shrewd or potentially manipulative use of resources. An example of rent seeking is when a company lobbies the government for grants, subsidies, or tariff protection."

I would argue that this does not apply to people offering homes for rent: we offer a home for rent. This is a service that many people want.

But it's not a service that many people want. It's something that happens to be required because your choices are: A) homelessness (which is undesirable to the overwhelming majority of people), B) home ownership, which has costs that many people can't afford, especially due to ever-escalating housing costs and wage stagnation, or C) renting. Phrasing it like it's something most people who rent choose to do is pretending that they have a choice.

And when vagrancy is criminalised, it's not even a choice of renting or homelessness.

Edited by RainehDaze on Mar 11th 2021 at 8:05:07 PM

It's like saying people choose to pay $800 for a doctor's visit.

Nobody wants to do that, they pay that because they have no choice. Just like they have no choice but to put a roof over their head.

Making China pay reparations for COVID-19 is blitheringly stupid for a variety of reasons including the aforementioned one of apportioning true responsibility. A pandemic was inevitable given enough time — we've had them before and we'll have them again — and the political unpreparedness of most world governments was equally inevitable. Maybe some day we'll breed a species of politician that has more respect for facts and logic than being reelected... but then they wouldn't get reelected and we'd be back to square one.

On this rent thing. It's not as simple as "landlords BAD". That's a gross strawman that doesn't pass any kind of logic test. I've been a landlord — involuntarily. I had a house that I couldn't sell when I moved for work. It had negative equity because I refinanced in 2006 at the height of the market, only to have it collapse out from under me. It took me fourteen years to recover enough equity that I could sell and not lose money. In the meantime, I rented it out... at a significant discount compared to what I could have.

The idea that landlords are predatory "rent-seekers" misses the point that home ownership is not desirable for a great number of people for one simple reason: labor mobility. There is evidence that owning a home makes an economy less resilient to sudden shifts in employment because workers can't easily uproot themselves and move to where the jobs are.

Also, many people can't pass the necessary credit checks and other requirements, so if there were literally nothing to rent, they'd be SOL.

Rent controls, while useful, create market distortions where the price of a housing unit wants to go up dramatically but can't. This always leads to black markets (like subletting) and various other forms of illegal/unethical behavior.

Home ownership is not the universal good, the American Dream, that culture has made it seem like.

Solutions? Well, we need more housing, that's for sure. By basic market principles, if there's enough supply for everyone, prices should adjust so that all demand can be fulfilled. The biggest obstacle to that is... homeowners, who don't want their investments to lose value.

I should also add that being a homeowner is its own kind of trap because unless you're willing to pay mortgage interest for 30 years, you don't "own" it at all. The big thing is equity, but why are we forcing every consumer to become a real-estate investor to have any hope of saving money?

Edited by Fighteer on Mar 11th 2021 at 3:21:52 PM

I know, my word choice was based on the idea that landlords do not provide a useful service. They do not create houses, construction companies do that, they don't pay for maintenance, the tenants do that.

The purpose of a landlord is to do nothing and soak up money from their tenants.

That doesn't mean they're all bad people, it just means that their role is at best unnecessary at worst harmful.

I don't think anyone misses anything, just because people have good reasons to want to rent a home for themselves doesn't mean the act of being a landlord is beneficial.

Edited by Fourthspartan56 on Mar 11th 2021 at 12:31:24 PM

Let me be clear: People need a house, yet they often can't afford to buy one, so they rent instead. Take rentals away without providing an alternative, and you will end up denying people housing, not providing more.

What is the alternative, when basic necessities like food, medical care or housing are commodities that have a price tag attached? Sure, no one want to pay out of pocket for medical care, but making that practice illegal without passing universal healthcare first would deprive people of needed care, not increase access to it.

So I ask again, what is the solution? I offered rental vouchers. Anyone got a better one?

Obviously, that's a bad situation, but it doesn't help when the way the private rental market normally works is that the tenants have to pay as if they're going to be saving up in this manner, but instead they just lose the money.

Social housing. Or, in general, anything that would result in sufficient housing being owned without a mortgage attached so the costs passed to tenants don't include mortgage payments too.

Edited by RainehDaze on Mar 11th 2021 at 8:34:31 PM

"Social Housing" Can you explain how that works?

"Or, in general, anything that would result in sufficient housing being owned without a mortgage attached so the costs passed to tenants don't include mortgage payments too."

How would that work? Simply making mortgages illegal would reduce housing not increase it. Do you want to subsidize home ownership? Or provide free housing?

Edited by DeMarquis on Mar 11th 2021 at 3:36:39 PM