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The fundamental issue with this article is that the inflation number is a lie. Housing costs are the key cost for every consumer but are excluded from CPI. Wes

The fundamental issue with this article is that the inflation number is a lie. Housing costs are the key cost for every consumer but are excluded from CPI. Western countries have been running fiscal deficits consistently for decades, QE and low interest rates for 10 years. Yet for academics and central bankers the only answer to growth is more debt. Low interest rates benefit only the asset rich. They deprive everyone else of investment income. They also prevent essential restructuring as zombie companies stay alive instead of going bust. High housing costs, caused by low interest rates, are causing a demographic crisis in the west. People literally can’t afford to start a family. Our economies and culture have a skills crisis not a growth crisis. --- Edit: To provide some clarity on the comments below highlighting that housing costs are included in CPI. Each country calculates inflation statistics to various methodologies. CPI in the US includes a rent equivalent value which is independent of the actual cost of purchasing a home. The weighting allocated to housing is also unrepresentative as those entering the job market in cities now are facing housing costs representing 50% of income when most inflation metrics have it at 50%.

newdude116 6y ago
" Yet for academics and central bankers the only answer to growth is more debt." The uttermost definition of capitalism. "Our economies and culture have a skills crisis not a growth crisis." Capitalism can't survive without growth by definition. https://ourfiniteworld.com/2011/02/21/there-is-no-steady-state-economy-except-at-a-very-basic-level/ https://ourfiniteworld.com/2011/02/21/there-is-no-steady-sta...
- JumpCrisscross 6y ago
  > Capitalism can't survive without growth by definition Capitalism prefers growth. It causes growth, which is good. (Growth does not have to mean resource intensity.) It does not require growth. Zero-grow and shrinking economies can allocate resources well through markets.
  - atmosx 6y ago
    You mean intellectual growth then? Because for everything else someone somewhere will need very tangible resources e.g. raw materials to build that phone you are using do X or Y.
    - goatinaboat 6y ago
      Because for everything else someone somewhere will need very tangible resources e.g. raw materials to build that phone you are using do X or Y. The price of a CPU is unrelated to the price of sand. CPUs are 10000x faster over the last couple of decades. So there’s little or no correlation required between raw materials consumption and growth.
      - atmosx 6y ago
        A CPU is one of the few dozens of components that you need to get a tangible result out of a CPU. You need hard disks, screens, antennas, batteries and so on and so forth. So you need, copper, lithium and God knows what else. All these materials get transformed and many of them in the process get transformed to toxic material for humans. Do you really believe that computing comes cheap and is unrelated to climate change? I find that line of thinking extremely naive. Let me share a few links: https://www.nature.com/articles/s41558-018-0321-8 https://www.nature.com/articles/s41558-018-0321-8 https://www.theguardian.com/environment/2010/apr/30/cloud-computing-carbon-emissions https://www.theguardian.com/environment/2010/apr/30/cloud-co... etc.
        goatinaboat 6y ago
        Do you really believe that computing comes cheap and is unrelated to climate change? I find that line of thinking extremely naive. No I believe something more subtle than that: that the same raw materials that make a computer of speed X can be used to make a computer of speed 1000X with the input of better design. So we have economic growth there purely through intellect with no correlation to raw materials consumed.
netfl0 6y ago
Excellent summary of reality. Why do you think people seem to ignore or not understand these basic facts?
- a3camero 6y ago
  Because everyone in charge owns a house.
- kqvamxurcagg 6y ago
  It's easy to develop conspiracy theories around why this madness continues. I think the real truth is ignorance and an element of cognitive dissonance from policymakers. Manipulating the cost of debt is the only instrument debt they really have so they just keep pushing that button. Asset bubbles are now so inflated that they can't really unwind the monster they have created. I would observe central banks are now guided more by capital markets fluctuations that economic fundamentals. Something I never see mentioned is the rise of China. I think Western countries would have the confidence to accept a reduction in growth (higher/normal interest rates) if the US and European economies were still preeminent. A major recession in the US would require reductions in military expenditure which would change power dynamics in Asia and the pacific.
anthony_r 6y ago
Housing prices are long term "bound" by CPI, not the other way around. More specifically they have always mean reverted to CPI if you look few hundred years back. Robert Shiller wrote a lot on this topic. Also, the current level of divergence between housing prices and CPI is nothing out of the ordinary. It will correct itself over time (either houses will become cheap or CPI will catch up). If you want a simple explanation as to why it is that CPI bounds houses and not the other way around - just look at the recent post-covid deurbanization trend (and the carnage that's going on in San Francisco or New York real estate markets). There's so much land that can be utilised once you understand that you really don't have to be in downtown New York. Then, homebuilding costs are basically CPI.
- clairity 6y ago
  > “It will correct itself over time...” by saying this, you’re implying that there is some underlying “truth” to cpi and housing prices, but it misses the underlying critique that these measures are not representing the truth on the ground at all, as experienced by americans. cpi and housing prices may be correlated, but that says nothing about whether they each measure anything of societal relevance (similar to the critique of IQ, for example). we should expect housing prices to correlate to some combination of gdp (or some near equivalent, since that’s also a measure that’s gamed politically) attenuated by population and wages, as those would be underlying ingredients in the supply and demand functions. then when the correlation falters, we could potentially diagnose how the economy might be failing a core function of providing shelter to the populace.
- nostrademons 6y ago
  The direction of causality matters though. "Houses will become cheap" and "CPI will catch up" mean very different things for the average new family trying to afford a house. The first is cause for celebration; the second just means that instead of struggling to afford a home, they'll struggle to afford anything. It wouldn't surprise me if the second is closer to the truth. Homebuying is close to where money is injected into the economy: when the Fed drops interest rates, mortgage rates drop, the home price you can afford for a given income goes up, and housing prices go up to compensate (particularly in land-constrained areas like Vancouver or the SF Bay). Other industries like food don't go up until that money has had a chance to circulate through the economy and make it to the average food buyer. I'd expect to see large increases in the CPI over the next decade, with housing last decade being a harbinger.
JumpCrisscross 6y ago
> the inflation number is a lie It is also a lie to say there is a single inflation number. There are CPIs calculated including regional food, energy and real estate prices [1]. For policy makers, varying interest rates according to Syrian politics and Midwestern crop yields is too fine-grained. But to suggest the data are hidden is false. [1] https://www.bls.gov/regions/new-york-new-jersey/news-release/ConsumerPriceIndex_NewYorkArea.htm https://www.bls.gov/regions/new-york-new-jersey/news-release...
- lotsofpulp 6y ago
  What none of the inflation statistics capture is volatility, or the feeling of volatility. Wages can go up 5% per year, but if you think you have a decent chance of losing your income and not being able to get it back in your working years, you will need to act more conservatively. Americans especially should be worried about their income security at 45+ years of age, when health insurance premiums become $12k to $14k per year per person plus $15k oop max, in today’s money (who knows what it will be 20 years in the future). If you lose your source of income that comes with employer subsidized health insurance in that 45 to 65 year range before you get to Medicare, and you have a medical problem, all of your assets might be in play since the sky is the limit when it comes to healthcare costs. Not to mention you will have lost ability to learn income if you are having to take care of yourself or your spouse.
  - JumpCrisscross 6y ago
    > What none of the inflation statistics capture is volatility Because that’s a totally different thing? It’s not like nobody measures it. We don’t criticise the kilogram for not telling us if it’s going to rain tomorrow.
    - lotsofpulp 6y ago
      I agree, I’m trying to explain why people don’t feel like inflation statistics are legitimate. For example, I don’t care about housing in 90% of the country if I think only 10% is going to provide economic growth and opportunities sufficient to make me feel secure. Or if you think you need more retirement savings than generations before because you think money will be worth less or returns will be lower, perhaps due to lower population growth, environmental concerns, etc.
atmosx 6y ago
> They deprive everyone else of investment income. Who that “everyone else” might be and what percentage of the population does “everyone else” represent in this context? Keep in mind that there are other reasons they economy works the way it does. The end goal of a central bank or a government is not (contrary to popular belief) make investors rich, the end goal is stability and possibly prosperity for the society at large.
- bsanr2 6y ago
  Ostensibly.
- burlesona 6y ago
  That may be the stated goal, but the metrics relied upon to measure economic health do a good job measuring top line wealth and a poor job capturing the true quality of life for ordinary people.
alexmingoia 6y ago
Housing is included in CPI. Housing is included as rent, and owner-adjusted rent (what rent would be if a house was rented). Housing purchase prices aren’t included because a house isn’t consumed within a year. The price of a house represents both current and future housing consumption. It’s not some conspiracy to hide inflation.
- francisofascii 6y ago
  Sure, it is included, but underrepresented. When people with six figure salaries are paying 30-50% of their income on rent, the rent figure should be the primary driver of the CPI.
  - alexmingoia 6y ago
    Underrepresented how? The percentage of income paid towards rent isn’t a measure of a change in rental cost. In other words, prices can change at a different rate than the percentage of income paid to rent.
  - jlmorton 6y ago
    CPI is calculated nationally. The San Francisco, Los Angeles, Seattle, Washington DC-Baltimore, New York and Boston markets are not the only places in the United States. There are lots of places in this country where you can get a 1 bedroom apartment for $500/month, or a 2,000 square foot house for $100k. Meanwhile, wage growth in these high-cost coastal markets has kept pace with the housing cost increases, which is part and parcel with housing cost growths in these regions. There's no doubt that there's been significant housing inflation in this country, but someone in Chicago making six figures is not paying 50% of their income on rent.
YPCrumble 6y ago
Why do you say that housing costs are not part of CPI? They make up 25%+ of CPI, don't they? See https://www.bls.gov/cpi/factsheets/owners-equivalent-rent-and-rent.pdf https://www.bls.gov/cpi/factsheets/owners-equivalent-rent-an... Are you saying that the Owner's Equivalent Rent calculation is not the same as housing costs? That sounds like a stretch. Would someone help me understand what I'm missing here?
- alexmingoia 6y ago
  You’re not missing anything. Housing is included in CPI as rent. Housing purchase prices aren’t included because they represent both current and future housing consumption (people don’t consume a house within a year).
  - petra 6y ago
    Don't rent and housing purchase prices follow each other, roughly ?
    - stevehawk 6y ago
      Nope. They can go inverse when, say, an economy collapses and everyone is forced out of their homes as they go underwater on their mortgages and but they still need somewhere to live. Kind of like 2008/09
      - vonmoltke 6y ago
        > an economy collapses and everyone is forced out of their homes as they go underwater on their mortgages People are not forced out of their homes when their mortgages go underwater, they're forced out when they can't afford to pay the mortgage (underwater or not).
        stevehawk 6y ago
        or if the bank calls in the note because the asset/collateral becomes devalued.
auston 6y ago
Yeah this part had me baffled: “ In other words, while it’s possible for an individual bank to boost its reserves by selling assets to raise capital, it’s mechanically impossible for the entire banking industry to collectively raise its reserves industry-wide.” Why not? I have confidence people would rally together to buy distressed bank assets at rock bottom prices.
- fuoqi 6y ago
  It means that all banks will be distressed, thus destabilizing the whole system. Regulatory change plays here a role of an artificial shock (since banks have to increase their reserves), which gets smoothed by the QE. I guess an alternative could've been a gradual raise of the legal requirements, but probably such measure was too slow for the crisis conditions.
  - auston 6y ago
    I understood that part, what I'm saying is that why can't market forces correct that?
pkphilip 6y ago
This is true. Low interest only helps if someone is buying up assets using cheaper credit or if companies are accessing cheaper credit for expansion, production etc. It does not help the people who are saving up in the bank. The common person is forced to move their money to riskier and riskier financial instruments putting more and more money into the equity market - which again benefits companies and puts more money into the pockets of the rich. If not equity, the ordinary person could try and buy assets such as houses which will become marginally cheaper - but risk going into even greater debt.
donmcronald 6y ago
It definitely seems like BS to me. At 3% it's 258% over 32 years (1.03^32). Most people are barely getting 1% annual raises which means income increases by 138% over the same period. From 1984 to 2016 housing prices in the Greater Vancouver area have gone up 800% [1]. Assuming I got the math right, it doesn't take much to see current young people are getting screwed. In the last 4 decades wages have barely increased, but major assets like cars and houses are 8-10x what they used to be. Add in the cost of schooling for 2 people, which in my mind roughly translates to the cost of 2 brand new cars for my parent's generation, and it's easy to see why young people can't afford anything. Then consider that "household" income is coming from 2 income earners now vs 1 income earner 40 years ago and you really start to get a picture of how tough it is. How is anyone supposed to start a family when they can't afford to start thinking about buying a house until they're 35. Frugal people from my parent's generation could have their house paid off by the time they were 35. 1. https://www.huffingtonpost.ca/ypnexthome/canadas-housing-performance_b_9266608.html?guccounter=1&guce_referrer=aHR0cHM6Ly93d3cuYmluZy5jb20v&guce_referrer_sig=AQAAANvVCZvx9fgRgx1AGvmavlU0NjRdAt0TQBlCpmu79odBxO7CebVqMp0Eoe1AUD0OkNqVKd9O6HIzmE5UsXxVm_VMmWh4-E5ipEA-yfnMKyMBHUX9ZwYKHjM2oY-Bep1a4h9iQRtH8qc--vdLW4zJf_FhUxDtO4MI21W-uskyrhPc https://www.huffingtonpost.ca/ypnexthome/canadas-housing-per...
- beamatronic 6y ago
  You can escape from this trap by learning in-demand tech skills at a community college.
  - burlesona 6y ago
    It is not that simple. I crashed out of my first career (with student loans in a STEM field), then learned to program at age 27. I’ve been tremendously lucky and successful in the decade since then, lived in a tiny place in SF for years (with a growing family) while working big tech, and I’m only just now at a point I can get my family into a house. I’m one of the lucky ones. Learning the skills is not enough, you have to get a very good job and work your ass off for a decade for it to amount to enough to comfortably afford the housing, education, and healthcare for a family. A generation ago getting that kind of quality job was much easier and just having the job put you in the family-supporting income range.
afrojack123 6y ago
Spot on. The inflation number is based on a basket of goods and apparently they count an iPad as a necessary good. Then there are things like packaging staying the same size and less food in each package. If the old counting methodology was used inflation would be 10%. Its more important how the numbers are generated than numbers itself.
afrojack123 6y ago
If you want a more accurate CPI, this is it. He even states some problems like not counting prices in cities. https://chapwoodindex.com/ https://chapwoodindex.com/
api 6y ago
It also depends a lot on where you live. Inflation in housing is far higher in “hot” markets. IMHO it makes no rational economic sense to live in a place like SF or NYC unless you are doing it for a while for experience or can land a very high salary job. For SF I would say bail if you are not making $300k by age 30. The only exception is those with no interest in starting a family and don’t mind living in a very small place forever. If you need space and don’t make bank, you will never build equity or significant savings. Real estate will eat everything.
HashThis 6y ago
I agree. Here is the critical damage to American workers from money printing: * Hourly pay rates are locked in when people are hired. Workers completely lose their negotiating power after being hired. "Sticky prices" in economic terms applies to workers salaries also. * In an ideal world, workers would job hop aggressively to move up their hourly pay rate. They don't for good reasons (for their company, for the economy, for other non-tangible reasons). * Having the M0 and M1 never grow is the ONE critical factor that MUST be there for workers to get their fair share of GDP growth. The economy growing and having a fixed M0 and M1 means workers get more buying power. Their negotiated locked in hourly rate when starting at the company can give them more buying power. In capitalism today, this is the ONLY way workers get their share of GDP growth. * When M0 and M1 grow, then workers (except the top 20% in demand) are robbed of getting their share part of GDP growth. * Workers are on a hamster wheel. Central Banks think they need to speed up/slow down inflation (compared to a frozen M0 and M1) causes the hamster wheel to speed up for workers to work harder for less and less. * 1801 to 1899. There was zero to -6% inflation across those ~99 years. Salaries doubled. This is how the working class gets their fair share of GDP growth. Today they are robbed by central banks. * Workers are robbed when banks get to "recapitalize" banks paid for by robbing workers (the bottom 80% of workers have nearly zero ability to demand their salary go up)
- rmah 6y ago
  to pick a nit, inflation between 1800 and 1899 varied from as high as +25% (around 1865) to as low as -14% (about 1805). The 1800's were a time of extreme economic volatility in the USA: a few dozen financial panics; crazy economic bubbles; waves of bank failures every few years; astounding opportunities for enrichment, etc. It was the best of times and the worst of times.
speeder 6y ago
Another thing that bugs me: many countries are taking "tech improvements" in inflation. For example: suppose a TV costs 2x now than what it did 10 years ago, but it is also twice the size, for many countries this means 0% of inflation. Problem is, you can't buy the old stuff. For example, are cars now much faster, safer, etc... than cars of 1950? Yes. But, if you are buying your first car, you can't buy one from 1950, you either buy a car, or you don't, you either spend the 2020 price for the car, or you don't, thus this "correction" for technology development is bogus. Or a personal anecdote: My phone broke. A phone now is ludicrously more expensive than it was years ago, but doesn't count in inflation because it also became a computer, that can do a ton of things. Problem is, I don't need a computer, I need a phone, I want to do phone calls! But nobody sells those here, they only sell computers that happen to make calls, for the price of a computer.
- scatters 6y ago
  A 24" TV is $100 on Amazon. A Nokia 106 (unlocked) is $22. What did you pay for a TV 10 years ago, or for the phone that just broke?
- JMTQp8lwXL 6y ago
  Does the fact you can typically find 5 year old technical gadgets (phones/computers) or 10/15 year old cars for cheaper than new via marketplaces impact the assertion here? There's tons of old tech, much of it going to landfills. If everyone wanted old tech, they could have it -- there is so much of it.
- akvadrako 6y ago
  Your examples are wrong. If you want a 10 year old TV you can get one for a few bucks at most second hand stores – there are tons of them. Phones are not that expensive. You can get a new decent Nokia dumbphone for about $20.
- sershe 6y ago
  Hmm... The situation is quite the opposite I think. You can buy a car now for, inflation adjusted, 50ies car prices, that will be vastly superior to the 50ies car, especially if you buy used. Ditto for phones. Call-only phones (I have one for travel) are dirt cheap, they cost less than a decent steak.
jazzyk 6y ago
Health-"care" costs are rising even faster - premiums are rising 13-15% EVERY year. And the only way you see it in full is when you are self-employed. If you have employer-sponsored health insurance, some part of the increase is covered by the company - at the expense of your salary increase or bonus, of course.
- marketingPro 6y ago
  There needs to be outrage at the Physician cartel, the hospital cartel, the pharmacist cartel, the pharmacy cartel, the pharma manufacturer cartel, and insurance cartel. These government granted monopolies make unnaturally high incomes due to regulatory capture. My best solution is to legalize a science based healthcare. Although the cartels would never allow it, they have spent billions establishing Authority based healthcare.
  - frockington1 6y ago
    Sadly the public outrage seems to be demanding more authoritarian based healthcare
    - lotsofpulp 6y ago
      Insurance companies routinely approve and deny claims based on efficacy data from experiments, and they get vilified for it.
- lotsofpulp 6y ago
  That's because health insurance premiums are actually a tax. You're not paying for your healthcare, you're paying for your healthcare plus the healthcare of someone who can't afford it, such as poorer people or older people. The ACA limited how health insurance companies could determine premiums by restricting it to just someone's age, which means they can't take into account pre existing conditions or whether or not they're about to have a baby. ACA also forced insurers to not charge older, unhealthy people more than 3x what they charge 21 year olds who aren't expected to use any healthcare. This means the premiums for younger, healthier people are going towards paying for older, unhealthier people. AKA a tax. Additionally, the nation is getting older and there are fewer and fewer younger people to divvy up these healthcare costs. See this pdf from NJ showing how the age rating factors work: https://www.state.nj.us/dobi/division_insurance/ihcseh/ihcrates_2020.pdf https://www.state.nj.us/dobi/division_insurance/ihcseh/ihcra... The ACA requirement for an out of pocket maximum for in network health care also made it so insurance companies have no ceiling per person healthcare spending, so if someone needs $5M of healthcare in a year, then that insurance company is going to have to pay for it, and it's going to have to come from everyone's premiums. Bottom line is the amount and quality of healthcare people expect to receive is very costly. So if people want health insurance premiums to not go up so fast or go down, they need to consume less healthcare, lower quality healthcare, or they need to increase the amount of healthcare available so prices of the healthcare go down.
baq 6y ago
the free market will sort this out. oh wait. no it won't because you can't manufacture more land to build on.
- hiram112 6y ago
  Housing prices are going up regardless of land availability. In a smaller Midwestern city I visited this summer, there is essentially unlimited land in all directions from the city center - it is just farm fields. Regardless, the new construction they build is still priced 50% more than the exact same homes would have cost just 8 years ago, or about triple what they would cost in late 90's. You can verify this on sites like Zillow. $8 / hour was the 'retail' wage back in the 90's in this area, and now maybe it has gone up to $14. I would imagine the professional salary has gone up even less - it has certainly not tripled from 1998. Housing has far surpassed the rate of wage increases even in areas where land is not constrained. It has far more to do with interest rates and the monthly payment.
frankfrankfrank 6y ago
"Low interest rates benefit only the asset rich" it is too complex to fully unpack why, but what you said there is not correct. Low interests actually allow the asset "poor" to acquire assets by borrowing at low rates that allow them to afford assets. But you are very much correct about the ""skills crisis", and unfortunately, the short term solution that has been used by politicians and corporations to evade responsibility, accountability, and having to reveal their failure … immigration … the syphoning off of skills from other societies; has only fueled the deepening of the damaging crisis. I like foreign cultures and people off all of the world very much, but there has been a vast con job pulled on people for many years now … far longer than any of us are old … that simply replaced spending and having to solve difficult questions by simply extracting talent from foreign societies and cultures and countries. The impact has been vast on both the origin and destination side. It has both immensely sabotaged the growth and potential of other countries that were deprived of the skilled talent, and it has also allowed corrupt politicians and corrupt corporate institutions to obscure their utter failure and incompetence and mask the immoral and evil damage they have done to people. It may not be a popular opinion here, but at the core of it, immigration is an evil concept that only serves the billionaire strata. You've never asked yourself why the millionaires and billionaires love nothing more than immigration, i.e., cheap labor that allows them to profit more? Immigration is a sabotage of the origin countries too that are drained of their human energy and potential.
- pembrook 6y ago
  > Low interests actually allow the asset "poor" to acquire assets by borrowing at low rates It's counterintuitive, but this is not true. Low interest rates actually inflate the prices of risk assets (stocks, bonds, real estate), greatly benefitting those who already own them. New entrants have to buy houses at higher prices, which net net washes away the gains made from lower interest. Early movers during the transition may get lucky, but in aggregate, this is true. Think of how a bond works. Interest rates and bond prices are inversely correlated. Lower interest rates = higher bond prices = lower future returns. Its the same for Real Estate. Also Re: your points about immigration--again, its counterintuitive, but you are also mistaken here. The market for talent is not a zero sum game. Immigration allows for increased productivity in the global economy because talent is able to go where it can be best utilized. That talented engineer would be wasted in Albania, because Albania lacks the capital, talent, and opportunities to best utilize the engineer’s knowledge. Albania loses nothing, but benefits greatly when that engineer moves abroad and contributes to making wireless networking accessible for all. The global economy is not a zero sum game where somebody wins and somebody loses. This is often the hardest thing for people to understand about how the economy works. And even if that weren't true, yearly immigration as a percentage of population growth/decline in most countries is extremely low. To attribute any of the social ills of a given country to it is foolish. The world could become more productive and efficient if immigration happened more not less. Everybody wins when talent goes where it can best be utilized.
james1071 6y ago
I see - you want the CPI to reflect your personal situation.
rayiner 6y ago
> Edit: To provide some clarity on the comments below highlighting that housing costs are included in CPI. Each country calculates inflation statistics to various methodologies. CPI in the US includes a rent equivalent value which is independent of the actual cost of purchasing a home. Real monthly mortgage payments have actually been going down relative to inflation: http://mjperry.blogspot.com/2011/12/payments-for-new-house-have-never-been.html http://mjperry.blogspot.com/2011/12/payments-for-new-house-h....
- ivanche 6y ago
  Real monthly mortgage payments can be very misleading. It's quite different if one pays 15 year mortgage VS 30 year mortgage. Of course, for 30 yr monthly rate is lower but total costs are way higher.
  - rayiner 6y ago
    The chart is assuming a 30-year fixed mortgage on whatever happened to be a median-priced house in a particular year with prevailing mortgage interest rates.
anm89 6y ago
The cpi is not a foundational premise of any argument in this article so I find this to be a strange critique. Lyn Alden frequently makes the same arguments against CPI, in fact, most economists do. So this is a bit of a non statement.
lkrubner 6y ago
"Low interest rates benefit only the asset rich." If you want to get more speed out of an engine, you need both more gasoline and also more oxygen. If you change the amount of gasoline, without changing the amount of oxygen, you'll end up running too lean or too rich, and both conditions have negative consequences. To boost economic growth it would be great to have both an increase in final consumption by the government, combined with moderation of interest rates. A combination of financial policy with monetary policy. But in the USA the Republicans have been sabotaging this simple process for decades. Final consumption by the government has stagnated, which has put the USA into a situation where it has had to lean much too much on monetary policy (low interest rates) to try pump the economy. This inevitably leads to distortions. The obvious way to fix the problem is to have the government increase the amount of final consumption that it is engaged in. Tax cuts do not help, what would help is an increase in final consumption, to directly drive economic growth and directly create jobs.
csomar 6y ago
The issue is, housing is not just houses. Maybe it was 100 years ago when it made no difference whether you live near a plain or a river (just easier access to water?). The problem is, housing become linked to economic opportunity in a particular region. For example, people who might have lived in Long Island might not have a much different life/income than those who lived in ElPaso. It was just different weather. But the mighty Manhattan changed this. The people who were born to Long Island's households now have access to this city. This is an economic opportunity that is not available to anybody else's in the entire world. Would it be fair to incorporate this economic opportunity in the value of this home? I think so. The market thinks so. This is a result of the winner take all economies will live in. Whether you are a person, a city or a country. The same logic still applies.
antb123 6y ago
Interest rates cost has been going down. And the monthly amount paid into mortgages is capped by lending ratios. This leads to more debt but not higher rents. The main deflationary pressure is that more than 50% of the workforce has seen declining income since the 70s (men). https://www.theatlantic.com/business/archive/2012/09/mens-earnings-havent-grown-since-the-1970s-why/262296/ https://www.theatlantic.com/business/archive/2012/09/mens-ea... There are many causes, outsourcing, different groups joining the workforce, shrinking unions, more income for capitalists and less for workers. In my mind the biggest killer has been the decline in productivity growth.

newdude116 6y ago

" Yet for academics and central bankers the only answer to growth is more debt." The uttermost definition of capitalism. "Our economies and culture have a skills crisis not a growth crisis." Capitalism can't survive without growth by definition. https://ourfiniteworld.com/2011/02/21/there-is-no-steady-state-economy-except-at-a-very-basic-level/ https://ourfiniteworld.com/2011/02/21/there-is-no-steady-sta...

JumpCrisscross 6y ago
> Capitalism can't survive without growth by definition Capitalism prefers growth. It causes growth, which is good. (Growth does not have to mean resource intensity.) It does not require growth. Zero-grow and shrinking economies can allocate resources well through markets.
- atmosx 6y ago
  You mean intellectual growth then? Because for everything else someone somewhere will need very tangible resources e.g. raw materials to build that phone you are using do X or Y.
  - goatinaboat 6y ago
    Because for everything else someone somewhere will need very tangible resources e.g. raw materials to build that phone you are using do X or Y. The price of a CPU is unrelated to the price of sand. CPUs are 10000x faster over the last couple of decades. So there’s little or no correlation required between raw materials consumption and growth.
    - atmosx 6y ago
      A CPU is one of the few dozens of components that you need to get a tangible result out of a CPU. You need hard disks, screens, antennas, batteries and so on and so forth. So you need, copper, lithium and God knows what else. All these materials get transformed and many of them in the process get transformed to toxic material for humans. Do you really believe that computing comes cheap and is unrelated to climate change? I find that line of thinking extremely naive. Let me share a few links: https://www.nature.com/articles/s41558-018-0321-8 https://www.nature.com/articles/s41558-018-0321-8 https://www.theguardian.com/environment/2010/apr/30/cloud-computing-carbon-emissions https://www.theguardian.com/environment/2010/apr/30/cloud-co... etc.
      - goatinaboat 6y ago
        Do you really believe that computing comes cheap and is unrelated to climate change? I find that line of thinking extremely naive. No I believe something more subtle than that: that the same raw materials that make a computer of speed X can be used to make a computer of speed 1000X with the input of better design. So we have economic growth there purely through intellect with no correlation to raw materials consumed.

netfl0 6y ago

Excellent summary of reality. Why do you think people seem to ignore or not understand these basic facts?

a3camero 6y ago
Because everyone in charge owns a house.
kqvamxurcagg 6y ago
It's easy to develop conspiracy theories around why this madness continues. I think the real truth is ignorance and an element of cognitive dissonance from policymakers. Manipulating the cost of debt is the only instrument debt they really have so they just keep pushing that button. Asset bubbles are now so inflated that they can't really unwind the monster they have created. I would observe central banks are now guided more by capital markets fluctuations that economic fundamentals. Something I never see mentioned is the rise of China. I think Western countries would have the confidence to accept a reduction in growth (higher/normal interest rates) if the US and European economies were still preeminent. A major recession in the US would require reductions in military expenditure which would change power dynamics in Asia and the pacific.

anthony_r 6y ago

Housing prices are long term "bound" by CPI, not the other way around. More specifically they have always mean reverted to CPI if you look few hundred years back. Robert Shiller wrote a lot on this topic. Also, the current level of divergence between housing prices and CPI is nothing out of the ordinary. It will correct itself over time (either houses will become cheap or CPI will catch up). If you want a simple explanation as to why it is that CPI bounds houses and not the other way around - just look at the recent post-covid deurbanization trend (and the carnage that's going on in San Francisco or New York real estate markets). There's so much land that can be utilised once you understand that you really don't have to be in downtown New York. Then, homebuilding costs are basically CPI.

clairity 6y ago
> “It will correct itself over time...” by saying this, you’re implying that there is some underlying “truth” to cpi and housing prices, but it misses the underlying critique that these measures are not representing the truth on the ground at all, as experienced by americans. cpi and housing prices may be correlated, but that says nothing about whether they each measure anything of societal relevance (similar to the critique of IQ, for example). we should expect housing prices to correlate to some combination of gdp (or some near equivalent, since that’s also a measure that’s gamed politically) attenuated by population and wages, as those would be underlying ingredients in the supply and demand functions. then when the correlation falters, we could potentially diagnose how the economy might be failing a core function of providing shelter to the populace.
nostrademons 6y ago
The direction of causality matters though. "Houses will become cheap" and "CPI will catch up" mean very different things for the average new family trying to afford a house. The first is cause for celebration; the second just means that instead of struggling to afford a home, they'll struggle to afford anything. It wouldn't surprise me if the second is closer to the truth. Homebuying is close to where money is injected into the economy: when the Fed drops interest rates, mortgage rates drop, the home price you can afford for a given income goes up, and housing prices go up to compensate (particularly in land-constrained areas like Vancouver or the SF Bay). Other industries like food don't go up until that money has had a chance to circulate through the economy and make it to the average food buyer. I'd expect to see large increases in the CPI over the next decade, with housing last decade being a harbinger.

JumpCrisscross 6y ago

> the inflation number is a lie It is also a lie to say there is a single inflation number. There are CPIs calculated including regional food, energy and real estate prices [1]. For policy makers, varying interest rates according to Syrian politics and Midwestern crop yields is too fine-grained. But to suggest the data are hidden is false. [1] https://www.bls.gov/regions/new-york-new-jersey/news-release/ConsumerPriceIndex_NewYorkArea.htm https://www.bls.gov/regions/new-york-new-jersey/news-release...

lotsofpulp 6y ago
What none of the inflation statistics capture is volatility, or the feeling of volatility. Wages can go up 5% per year, but if you think you have a decent chance of losing your income and not being able to get it back in your working years, you will need to act more conservatively. Americans especially should be worried about their income security at 45+ years of age, when health insurance premiums become $12k to $14k per year per person plus $15k oop max, in today’s money (who knows what it will be 20 years in the future). If you lose your source of income that comes with employer subsidized health insurance in that 45 to 65 year range before you get to Medicare, and you have a medical problem, all of your assets might be in play since the sky is the limit when it comes to healthcare costs. Not to mention you will have lost ability to learn income if you are having to take care of yourself or your spouse.
- JumpCrisscross 6y ago
  > What none of the inflation statistics capture is volatility Because that’s a totally different thing? It’s not like nobody measures it. We don’t criticise the kilogram for not telling us if it’s going to rain tomorrow.
  - lotsofpulp 6y ago
    I agree, I’m trying to explain why people don’t feel like inflation statistics are legitimate. For example, I don’t care about housing in 90% of the country if I think only 10% is going to provide economic growth and opportunities sufficient to make me feel secure. Or if you think you need more retirement savings than generations before because you think money will be worth less or returns will be lower, perhaps due to lower population growth, environmental concerns, etc.

atmosx 6y ago

> They deprive everyone else of investment income. Who that “everyone else” might be and what percentage of the population does “everyone else” represent in this context? Keep in mind that there are other reasons they economy works the way it does. The end goal of a central bank or a government is not (contrary to popular belief) make investors rich, the end goal is stability and possibly prosperity for the society at large.

bsanr2 6y ago
Ostensibly.
burlesona 6y ago
That may be the stated goal, but the metrics relied upon to measure economic health do a good job measuring top line wealth and a poor job capturing the true quality of life for ordinary people.

alexmingoia 6y ago

Housing is included in CPI. Housing is included as rent, and owner-adjusted rent (what rent would be if a house was rented). Housing purchase prices aren’t included because a house isn’t consumed within a year. The price of a house represents both current and future housing consumption. It’s not some conspiracy to hide inflation.

francisofascii 6y ago
Sure, it is included, but underrepresented. When people with six figure salaries are paying 30-50% of their income on rent, the rent figure should be the primary driver of the CPI.
- alexmingoia 6y ago
  Underrepresented how? The percentage of income paid towards rent isn’t a measure of a change in rental cost. In other words, prices can change at a different rate than the percentage of income paid to rent.
- jlmorton 6y ago
  CPI is calculated nationally. The San Francisco, Los Angeles, Seattle, Washington DC-Baltimore, New York and Boston markets are not the only places in the United States. There are lots of places in this country where you can get a 1 bedroom apartment for $500/month, or a 2,000 square foot house for $100k. Meanwhile, wage growth in these high-cost coastal markets has kept pace with the housing cost increases, which is part and parcel with housing cost growths in these regions. There's no doubt that there's been significant housing inflation in this country, but someone in Chicago making six figures is not paying 50% of their income on rent.

YPCrumble 6y ago

Why do you say that housing costs are not part of CPI? They make up 25%+ of CPI, don't they? See https://www.bls.gov/cpi/factsheets/owners-equivalent-rent-and-rent.pdf https://www.bls.gov/cpi/factsheets/owners-equivalent-rent-an... Are you saying that the Owner's Equivalent Rent calculation is not the same as housing costs? That sounds like a stretch. Would someone help me understand what I'm missing here?

alexmingoia 6y ago
You’re not missing anything. Housing is included in CPI as rent. Housing purchase prices aren’t included because they represent both current and future housing consumption (people don’t consume a house within a year).
- petra 6y ago
  Don't rent and housing purchase prices follow each other, roughly ?
  - stevehawk 6y ago
    Nope. They can go inverse when, say, an economy collapses and everyone is forced out of their homes as they go underwater on their mortgages and but they still need somewhere to live. Kind of like 2008/09
    - vonmoltke 6y ago
      > an economy collapses and everyone is forced out of their homes as they go underwater on their mortgages People are not forced out of their homes when their mortgages go underwater, they're forced out when they can't afford to pay the mortgage (underwater or not).
      - stevehawk 6y ago
        or if the bank calls in the note because the asset/collateral becomes devalued.

auston 6y ago

Yeah this part had me baffled: “ In other words, while it’s possible for an individual bank to boost its reserves by selling assets to raise capital, it’s mechanically impossible for the entire banking industry to collectively raise its reserves industry-wide.” Why not? I have confidence people would rally together to buy distressed bank assets at rock bottom prices.

fuoqi 6y ago
It means that all banks will be distressed, thus destabilizing the whole system. Regulatory change plays here a role of an artificial shock (since banks have to increase their reserves), which gets smoothed by the QE. I guess an alternative could've been a gradual raise of the legal requirements, but probably such measure was too slow for the crisis conditions.
- auston 6y ago
  I understood that part, what I'm saying is that why can't market forces correct that?

pkphilip 6y ago

This is true. Low interest only helps if someone is buying up assets using cheaper credit or if companies are accessing cheaper credit for expansion, production etc. It does not help the people who are saving up in the bank. The common person is forced to move their money to riskier and riskier financial instruments putting more and more money into the equity market - which again benefits companies and puts more money into the pockets of the rich. If not equity, the ordinary person could try and buy assets such as houses which will become marginally cheaper - but risk going into even greater debt.

donmcronald 6y ago

It definitely seems like BS to me. At 3% it's 258% over 32 years (1.03^32). Most people are barely getting 1% annual raises which means income increases by 138% over the same period. From 1984 to 2016 housing prices in the Greater Vancouver area have gone up 800% [1]. Assuming I got the math right, it doesn't take much to see current young people are getting screwed. In the last 4 decades wages have barely increased, but major assets like cars and houses are 8-10x what they used to be. Add in the cost of schooling for 2 people, which in my mind roughly translates to the cost of 2 brand new cars for my parent's generation, and it's easy to see why young people can't afford anything. Then consider that "household" income is coming from 2 income earners now vs 1 income earner 40 years ago and you really start to get a picture of how tough it is. How is anyone supposed to start a family when they can't afford to start thinking about buying a house until they're 35. Frugal people from my parent's generation could have their house paid off by the time they were 35. 1. https://www.huffingtonpost.ca/ypnexthome/canadas-housing-performance_b_9266608.html?guccounter=1&guce_referrer=aHR0cHM6Ly93d3cuYmluZy5jb20v&guce_referrer_sig=AQAAANvVCZvx9fgRgx1AGvmavlU0NjRdAt0TQBlCpmu79odBxO7CebVqMp0Eoe1AUD0OkNqVKd9O6HIzmE5UsXxVm_VMmWh4-E5ipEA-yfnMKyMBHUX9ZwYKHjM2oY-Bep1a4h9iQRtH8qc--vdLW4zJf_FhUxDtO4MI21W-uskyrhPc https://www.huffingtonpost.ca/ypnexthome/canadas-housing-per...

beamatronic 6y ago
You can escape from this trap by learning in-demand tech skills at a community college.
- burlesona 6y ago
  It is not that simple. I crashed out of my first career (with student loans in a STEM field), then learned to program at age 27. I’ve been tremendously lucky and successful in the decade since then, lived in a tiny place in SF for years (with a growing family) while working big tech, and I’m only just now at a point I can get my family into a house. I’m one of the lucky ones. Learning the skills is not enough, you have to get a very good job and work your ass off for a decade for it to amount to enough to comfortably afford the housing, education, and healthcare for a family. A generation ago getting that kind of quality job was much easier and just having the job put you in the family-supporting income range.

afrojack123 6y ago

Spot on. The inflation number is based on a basket of goods and apparently they count an iPad as a necessary good. Then there are things like packaging staying the same size and less food in each package. If the old counting methodology was used inflation would be 10%. Its more important how the numbers are generated than numbers itself.

afrojack123 6y ago

If you want a more accurate CPI, this is it. He even states some problems like not counting prices in cities. https://chapwoodindex.com/ https://chapwoodindex.com/

api 6y ago

It also depends a lot on where you live. Inflation in housing is far higher in “hot” markets. IMHO it makes no rational economic sense to live in a place like SF or NYC unless you are doing it for a while for experience or can land a very high salary job. For SF I would say bail if you are not making $300k by age 30. The only exception is those with no interest in starting a family and don’t mind living in a very small place forever. If you need space and don’t make bank, you will never build equity or significant savings. Real estate will eat everything.

HashThis 6y ago

I agree. Here is the critical damage to American workers from money printing: * Hourly pay rates are locked in when people are hired. Workers completely lose their negotiating power after being hired. "Sticky prices" in economic terms applies to workers salaries also. * In an ideal world, workers would job hop aggressively to move up their hourly pay rate. They don't for good reasons (for their company, for the economy, for other non-tangible reasons). * Having the M0 and M1 never grow is the ONE critical factor that MUST be there for workers to get their fair share of GDP growth. The economy growing and having a fixed M0 and M1 means workers get more buying power. Their negotiated locked in hourly rate when starting at the company can give them more buying power. In capitalism today, this is the ONLY way workers get their share of GDP growth. * When M0 and M1 grow, then workers (except the top 20% in demand) are robbed of getting their share part of GDP growth. * Workers are on a hamster wheel. Central Banks think they need to speed up/slow down inflation (compared to a frozen M0 and M1) causes the hamster wheel to speed up for workers to work harder for less and less. * 1801 to 1899. There was zero to -6% inflation across those ~99 years. Salaries doubled. This is how the working class gets their fair share of GDP growth. Today they are robbed by central banks. * Workers are robbed when banks get to "recapitalize" banks paid for by robbing workers (the bottom 80% of workers have nearly zero ability to demand their salary go up)

rmah 6y ago
to pick a nit, inflation between 1800 and 1899 varied from as high as +25% (around 1865) to as low as -14% (about 1805). The 1800's were a time of extreme economic volatility in the USA: a few dozen financial panics; crazy economic bubbles; waves of bank failures every few years; astounding opportunities for enrichment, etc. It was the best of times and the worst of times.

speeder 6y ago

Another thing that bugs me: many countries are taking "tech improvements" in inflation. For example: suppose a TV costs 2x now than what it did 10 years ago, but it is also twice the size, for many countries this means 0% of inflation. Problem is, you can't buy the old stuff. For example, are cars now much faster, safer, etc... than cars of 1950? Yes. But, if you are buying your first car, you can't buy one from 1950, you either buy a car, or you don't, you either spend the 2020 price for the car, or you don't, thus this "correction" for technology development is bogus. Or a personal anecdote: My phone broke. A phone now is ludicrously more expensive than it was years ago, but doesn't count in inflation because it also became a computer, that can do a ton of things. Problem is, I don't need a computer, I need a phone, I want to do phone calls! But nobody sells those here, they only sell computers that happen to make calls, for the price of a computer.

scatters 6y ago
A 24" TV is $100 on Amazon. A Nokia 106 (unlocked) is $22. What did you pay for a TV 10 years ago, or for the phone that just broke?
JMTQp8lwXL 6y ago
Does the fact you can typically find 5 year old technical gadgets (phones/computers) or 10/15 year old cars for cheaper than new via marketplaces impact the assertion here? There's tons of old tech, much of it going to landfills. If everyone wanted old tech, they could have it -- there is so much of it.
akvadrako 6y ago
Your examples are wrong. If you want a 10 year old TV you can get one for a few bucks at most second hand stores – there are tons of them. Phones are not that expensive. You can get a new decent Nokia dumbphone for about $20.
sershe 6y ago
Hmm... The situation is quite the opposite I think. You can buy a car now for, inflation adjusted, 50ies car prices, that will be vastly superior to the 50ies car, especially if you buy used. Ditto for phones. Call-only phones (I have one for travel) are dirt cheap, they cost less than a decent steak.

jazzyk 6y ago

Health-"care" costs are rising even faster - premiums are rising 13-15% EVERY year. And the only way you see it in full is when you are self-employed. If you have employer-sponsored health insurance, some part of the increase is covered by the company - at the expense of your salary increase or bonus, of course.

marketingPro 6y ago
There needs to be outrage at the Physician cartel, the hospital cartel, the pharmacist cartel, the pharmacy cartel, the pharma manufacturer cartel, and insurance cartel. These government granted monopolies make unnaturally high incomes due to regulatory capture. My best solution is to legalize a science based healthcare. Although the cartels would never allow it, they have spent billions establishing Authority based healthcare.
- frockington1 6y ago
  Sadly the public outrage seems to be demanding more authoritarian based healthcare
  - lotsofpulp 6y ago
    Insurance companies routinely approve and deny claims based on efficacy data from experiments, and they get vilified for it.
lotsofpulp 6y ago
That's because health insurance premiums are actually a tax. You're not paying for your healthcare, you're paying for your healthcare plus the healthcare of someone who can't afford it, such as poorer people or older people. The ACA limited how health insurance companies could determine premiums by restricting it to just someone's age, which means they can't take into account pre existing conditions or whether or not they're about to have a baby. ACA also forced insurers to not charge older, unhealthy people more than 3x what they charge 21 year olds who aren't expected to use any healthcare. This means the premiums for younger, healthier people are going towards paying for older, unhealthier people. AKA a tax. Additionally, the nation is getting older and there are fewer and fewer younger people to divvy up these healthcare costs. See this pdf from NJ showing how the age rating factors work: https://www.state.nj.us/dobi/division_insurance/ihcseh/ihcrates_2020.pdf https://www.state.nj.us/dobi/division_insurance/ihcseh/ihcra... The ACA requirement for an out of pocket maximum for in network health care also made it so insurance companies have no ceiling per person healthcare spending, so if someone needs $5M of healthcare in a year, then that insurance company is going to have to pay for it, and it's going to have to come from everyone's premiums. Bottom line is the amount and quality of healthcare people expect to receive is very costly. So if people want health insurance premiums to not go up so fast or go down, they need to consume less healthcare, lower quality healthcare, or they need to increase the amount of healthcare available so prices of the healthcare go down.

baq 6y ago

the free market will sort this out. oh wait. no it won't because you can't manufacture more land to build on.

hiram112 6y ago
Housing prices are going up regardless of land availability. In a smaller Midwestern city I visited this summer, there is essentially unlimited land in all directions from the city center - it is just farm fields. Regardless, the new construction they build is still priced 50% more than the exact same homes would have cost just 8 years ago, or about triple what they would cost in late 90's. You can verify this on sites like Zillow. $8 / hour was the 'retail' wage back in the 90's in this area, and now maybe it has gone up to $14. I would imagine the professional salary has gone up even less - it has certainly not tripled from 1998. Housing has far surpassed the rate of wage increases even in areas where land is not constrained. It has far more to do with interest rates and the monthly payment.

frankfrankfrank 6y ago

"Low interest rates benefit only the asset rich" it is too complex to fully unpack why, but what you said there is not correct. Low interests actually allow the asset "poor" to acquire assets by borrowing at low rates that allow them to afford assets. But you are very much correct about the ""skills crisis", and unfortunately, the short term solution that has been used by politicians and corporations to evade responsibility, accountability, and having to reveal their failure … immigration … the syphoning off of skills from other societies; has only fueled the deepening of the damaging crisis. I like foreign cultures and people off all of the world very much, but there has been a vast con job pulled on people for many years now … far longer than any of us are old … that simply replaced spending and having to solve difficult questions by simply extracting talent from foreign societies and cultures and countries. The impact has been vast on both the origin and destination side. It has both immensely sabotaged the growth and potential of other countries that were deprived of the skilled talent, and it has also allowed corrupt politicians and corrupt corporate institutions to obscure their utter failure and incompetence and mask the immoral and evil damage they have done to people. It may not be a popular opinion here, but at the core of it, immigration is an evil concept that only serves the billionaire strata. You've never asked yourself why the millionaires and billionaires love nothing more than immigration, i.e., cheap labor that allows them to profit more? Immigration is a sabotage of the origin countries too that are drained of their human energy and potential.

pembrook 6y ago
> Low interests actually allow the asset "poor" to acquire assets by borrowing at low rates It's counterintuitive, but this is not true. Low interest rates actually inflate the prices of risk assets (stocks, bonds, real estate), greatly benefitting those who already own them. New entrants have to buy houses at higher prices, which net net washes away the gains made from lower interest. Early movers during the transition may get lucky, but in aggregate, this is true. Think of how a bond works. Interest rates and bond prices are inversely correlated. Lower interest rates = higher bond prices = lower future returns. Its the same for Real Estate. Also Re: your points about immigration--again, its counterintuitive, but you are also mistaken here. The market for talent is not a zero sum game. Immigration allows for increased productivity in the global economy because talent is able to go where it can be best utilized. That talented engineer would be wasted in Albania, because Albania lacks the capital, talent, and opportunities to best utilize the engineer’s knowledge. Albania loses nothing, but benefits greatly when that engineer moves abroad and contributes to making wireless networking accessible for all. The global economy is not a zero sum game where somebody wins and somebody loses. This is often the hardest thing for people to understand about how the economy works. And even if that weren't true, yearly immigration as a percentage of population growth/decline in most countries is extremely low. To attribute any of the social ills of a given country to it is foolish. The world could become more productive and efficient if immigration happened more not less. Everybody wins when talent goes where it can best be utilized.

james1071 6y ago

I see - you want the CPI to reflect your personal situation.

rayiner 6y ago

> Edit: To provide some clarity on the comments below highlighting that housing costs are included in CPI. Each country calculates inflation statistics to various methodologies. CPI in the US includes a rent equivalent value which is independent of the actual cost of purchasing a home. Real monthly mortgage payments have actually been going down relative to inflation: http://mjperry.blogspot.com/2011/12/payments-for-new-house-have-never-been.html http://mjperry.blogspot.com/2011/12/payments-for-new-house-h....

ivanche 6y ago
Real monthly mortgage payments can be very misleading. It's quite different if one pays 15 year mortgage VS 30 year mortgage. Of course, for 30 yr monthly rate is lower but total costs are way higher.
- rayiner 6y ago
  The chart is assuming a 30-year fixed mortgage on whatever happened to be a median-priced house in a particular year with prevailing mortgage interest rates.

anm89 6y ago

The cpi is not a foundational premise of any argument in this article so I find this to be a strange critique. Lyn Alden frequently makes the same arguments against CPI, in fact, most economists do. So this is a bit of a non statement.

lkrubner 6y ago

"Low interest rates benefit only the asset rich." If you want to get more speed out of an engine, you need both more gasoline and also more oxygen. If you change the amount of gasoline, without changing the amount of oxygen, you'll end up running too lean or too rich, and both conditions have negative consequences. To boost economic growth it would be great to have both an increase in final consumption by the government, combined with moderation of interest rates. A combination of financial policy with monetary policy. But in the USA the Republicans have been sabotaging this simple process for decades. Final consumption by the government has stagnated, which has put the USA into a situation where it has had to lean much too much on monetary policy (low interest rates) to try pump the economy. This inevitably leads to distortions. The obvious way to fix the problem is to have the government increase the amount of final consumption that it is engaged in. Tax cuts do not help, what would help is an increase in final consumption, to directly drive economic growth and directly create jobs.

csomar 6y ago

The issue is, housing is not just houses. Maybe it was 100 years ago when it made no difference whether you live near a plain or a river (just easier access to water?). The problem is, housing become linked to economic opportunity in a particular region. For example, people who might have lived in Long Island might not have a much different life/income than those who lived in ElPaso. It was just different weather. But the mighty Manhattan changed this. The people who were born to Long Island's households now have access to this city. This is an economic opportunity that is not available to anybody else's in the entire world. Would it be fair to incorporate this economic opportunity in the value of this home? I think so. The market thinks so. This is a result of the winner take all economies will live in. Whether you are a person, a city or a country. The same logic still applies.

antb123 6y ago

Interest rates cost has been going down. And the monthly amount paid into mortgages is capped by lending ratios. This leads to more debt but not higher rents. The main deflationary pressure is that more than 50% of the workforce has seen declining income since the 70s (men). https://www.theatlantic.com/business/archive/2012/09/mens-earnings-havent-grown-since-the-1970s-why/262296/ https://www.theatlantic.com/business/archive/2012/09/mens-ea... There are many causes, outsourcing, different groups joining the workforce, shrinking unions, more income for capitalists and less for workers. In my mind the biggest killer has been the decline in productivity growth.