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My gripe with all schools of economics is how real estate/land market is completely abstracted away. Even though it is the largest financial market of them all,

My gripe with all schools of economics is how real estate/land market is completely abstracted away. Even though it is the largest financial market of them all, with everyone except homeless involved. In mainstream economics it is treated as just another good, such as break or milk, but somehow it behaves differently. The dynamics of the market are driven by monopoly pricing and mortgage and rent are paid more like a tax than a payment for a yoghurt that you can choose not to buy or buy an alternative. You can't choose not to be housed. Since its monopolistic nature the house/land market works like a gravity for excess money and endless bubble which keeps inflating and bursting forming a housing cycle, which many confuse with a business cycle. Real estate is literally where money go to die. Excess money or surplus and corrupt money gets parked in it and unless additional money is used for repairs it actually loses value. It acts as a sink of money flow in the economy. Classical economists in the 19th century were actually aeare of this. Ricardo and his law of rent actually really describes what is going on with the economy. It explains what wages even mean, instead of just payments for work, based on margin of production. It's actually one of the few law of economics which actually behaves like a law of gravity in physics, being consistent globally, unlike the rest of them resembling the theory of epicycles. Since the marginal revolution housing, land and rents were abstracted away and economics started resembling some mathematical system for an imaginary game world with researchers being drowned in neverending epicycles. If the theory doesn't model land and house speculation then it will fall into the same traps and will be chasing parameter tuning to ever more complex equations forever since it will never understand the actual money flows in the economy.

nabla9 5y ago
> My gripe with all schools of economics i Then you don't know much about mainstream economics. Don't learn economics from news, pundits or other shallow sources. (1) Mainstream Economists strongly agree with you with large consensus. Yes there is consensus among mainstream economists about land/property. (2) They have a solution and they agree even on that. Property tax is considered the least harmful tax because it taxes rentier. Adam Smith would also strongly agree. He made this tax proposal to solve the issue already in 1776. (3) Urban economics has even more nuanced view. When mainstream economists agree on something, there is little talk about it. The real issue is the people. Either they own property and don't accept tax, or they can't understand simple reasoning with 2 or 3 steps. If the first step is to increase property/land tax they stop thinking and react with statements like: "It would increase rents" or "Price of food would increase."
- imtringued 5y ago
  Yes, those pesky people. They love their counterproductive systems, they love it when things are unfair. Americans deny climate change for the benefit of special interests, after all, investing into fighting climate change would raise the total investment rate and help every single citizen and this isn't even counting the economic damage that climate change causes, just the macroeconomic benefits of having an intact economy. You don't even need an ideological reason. Republicans are against Biden's infrastructure bill, even though it would raise the total investment rate and thus help every American citizen, including Republican voters. Californians introduced Prop 13 statewide meaning every Californian city will become dysfunctional over decades. It's a government mandated prisoners dilemma. Rent control also has a prisoners dilemma effect. Rent control favors existing residents that don't move over existing and future residents that do move. People leave tier 1 cities because market rate housing is now market rate + lost revenue from rent control. Some immigrant families don't mind living in tiny apartments, highly skilled workers don't mind sharing an apartment with room mates so they keep coming anyway. What happens is that everyone goes to tier 2 cities, who then promptly instate rent control and then the whole thing repeats with tier 3, tier 4, etc until the entire state is expensive. The truth is that if you had let the tier 1 cities become expensive and let them build high rises everywhere they could have absorbed all the rich people. Yes, tier 1 city might be considered "undesirable" by former residents, but tier 2 city would still be affordable. Over time things would have fixed themselves. As it is right now, people who are being kicked out of tier 1 cities don't even have a tier 2 city to go to anymore, they just leave California for good.
notahacker 5y ago
> My gripe with all schools of economics is how real estate/land market is completely abstracted away Your gripe with "all schools" of economics is a straw man then. Land (and the wider concept of rent) features in an enormous number of economic models, from externalities to explicitly location-based theories like Hotelling's Location Model to Keynes' desire for macroeconomic policy to "euthanize the rentier". Ricardo didn't propose a "housing cycle"; claims (good and bad) made about real estate markets and the economy are all the work of economists writing a very long time afterwards. And Ricardo's concept of economic rent is one of the first things you learn as an undergraduate. It's just it's applied to non-land factors of production and products with inelastic supply curves now too. Since we're no longer living in an primarily agricultural/mining society, the Ricardian notion that most of the fruits of all economic progress accrue to large scale landowners isn't a particularly realistic one. You could have made a lot of money investing in Bay Area real estate in the nineties, but an order of magnitude or three more investing in the tech companies whose growth made Bay Area real estate more valuable.
jonwachob91 5y ago
>>>The dynamics of the market are driven by monopoly pricing and mortgage and rent are paid more like a tax than a payment for a yoghurt that you can choose not to buy or buy an alternative. You can't choose not to be housed. You also can't choose[0] to starve to death, and yet your use of the choice to buy, or not buy, yogurt isn't counted as a monopoly of the food industry. Housing isn't a monopoly. We have plenty of choices, from buying a house to renting a house, or we can build our own mansion or vanlife van. We can live in a hight Cost of Living environment like NYC or Singapore, or we can live in a Low Cost of Living environment like the middle of Alabama or Bali. Shelter is a necessity for live, just like food. And just like food, we have lots of choices to choose from. [0] *choose may be a poor choice of words for both our arguments, as lots of people choose every years to be homeless, and some people choose to starve to death. But that's semantics and not the spirit of either of our statements. :)

nabla9 5y ago

> My gripe with all schools of economics i Then you don't know much about mainstream economics. Don't learn economics from news, pundits or other shallow sources. (1) Mainstream Economists strongly agree with you with large consensus. Yes there is consensus among mainstream economists about land/property. (2) They have a solution and they agree even on that. Property tax is considered the least harmful tax because it taxes rentier. Adam Smith would also strongly agree. He made this tax proposal to solve the issue already in 1776. (3) Urban economics has even more nuanced view. When mainstream economists agree on something, there is little talk about it. The real issue is the people. Either they own property and don't accept tax, or they can't understand simple reasoning with 2 or 3 steps. If the first step is to increase property/land tax they stop thinking and react with statements like: "It would increase rents" or "Price of food would increase."

imtringued 5y ago
Yes, those pesky people. They love their counterproductive systems, they love it when things are unfair. Americans deny climate change for the benefit of special interests, after all, investing into fighting climate change would raise the total investment rate and help every single citizen and this isn't even counting the economic damage that climate change causes, just the macroeconomic benefits of having an intact economy. You don't even need an ideological reason. Republicans are against Biden's infrastructure bill, even though it would raise the total investment rate and thus help every American citizen, including Republican voters. Californians introduced Prop 13 statewide meaning every Californian city will become dysfunctional over decades. It's a government mandated prisoners dilemma. Rent control also has a prisoners dilemma effect. Rent control favors existing residents that don't move over existing and future residents that do move. People leave tier 1 cities because market rate housing is now market rate + lost revenue from rent control. Some immigrant families don't mind living in tiny apartments, highly skilled workers don't mind sharing an apartment with room mates so they keep coming anyway. What happens is that everyone goes to tier 2 cities, who then promptly instate rent control and then the whole thing repeats with tier 3, tier 4, etc until the entire state is expensive. The truth is that if you had let the tier 1 cities become expensive and let them build high rises everywhere they could have absorbed all the rich people. Yes, tier 1 city might be considered "undesirable" by former residents, but tier 2 city would still be affordable. Over time things would have fixed themselves. As it is right now, people who are being kicked out of tier 1 cities don't even have a tier 2 city to go to anymore, they just leave California for good.

notahacker 5y ago

> My gripe with all schools of economics is how real estate/land market is completely abstracted away Your gripe with "all schools" of economics is a straw man then. Land (and the wider concept of rent) features in an enormous number of economic models, from externalities to explicitly location-based theories like Hotelling's Location Model to Keynes' desire for macroeconomic policy to "euthanize the rentier". Ricardo didn't propose a "housing cycle"; claims (good and bad) made about real estate markets and the economy are all the work of economists writing a very long time afterwards. And Ricardo's concept of economic rent is one of the first things you learn as an undergraduate. It's just it's applied to non-land factors of production and products with inelastic supply curves now too. Since we're no longer living in an primarily agricultural/mining society, the Ricardian notion that most of the fruits of all economic progress accrue to large scale landowners isn't a particularly realistic one. You could have made a lot of money investing in Bay Area real estate in the nineties, but an order of magnitude or three more investing in the tech companies whose growth made Bay Area real estate more valuable.

jonwachob91 5y ago

>>>The dynamics of the market are driven by monopoly pricing and mortgage and rent are paid more like a tax than a payment for a yoghurt that you can choose not to buy or buy an alternative. You can't choose not to be housed. You also can't choose[0] to starve to death, and yet your use of the choice to buy, or not buy, yogurt isn't counted as a monopoly of the food industry. Housing isn't a monopoly. We have plenty of choices, from buying a house to renting a house, or we can build our own mansion or vanlife van. We can live in a hight Cost of Living environment like NYC or Singapore, or we can live in a Low Cost of Living environment like the middle of Alabama or Bali. Shelter is a necessity for live, just like food. And just like food, we have lots of choices to choose from. [0] *choose may be a poor choice of words for both our arguments, as lots of people choose every years to be homeless, and some people choose to starve to death. But that's semantics and not the spirit of either of our statements. :)