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As Adam Smith said, the true price of everything is in human labor. Inflation generally raises the cost/price of new labor at the expense of historic labor. D

As Adam Smith said, the true price of everything is in human labor. Inflation generally raises the cost/price of new labor at the expense of historic labor. Demand for labor is still high, the price will likely continue to increase. Housing is also not a great comparison metric because it was so perturbed by 2008. New unit starts dropped precipitously and still have not fully recovered: https://fred.stlouisfed.org/series/HOUST https://fred.stlouisfed.org/series/HOUST We know how to build housing quickly and now it's clear there is demand. If the current trend continues it looks like we will again have a housing surplus within the decade.

bumby 5y ago
Is there any measures of what percent of those pre-2008 builds were speculative investments vs. occupant-owners? It reminds me of the scene in The Big Short when he knew the system was on a precipice of disaster when the a stripper was telling him about the multiple homes she owns. It seems to me many bubbles are the result of speculation with easy credit and I’m not sure 2008 can be considered a “perturbation” instead of a correction.
- aeternum 5y ago
  https://fred.stlouisfed.org/series/EOWNOCCUSQ176N https://fred.stlouisfed.org/series/EOWNOCCUSQ176N
  - bumby 5y ago
    Thank you. Maybe you can help me understand this correctly. Your link shows the "owner-occupied" housing was relatively flat during the housing crises. The link below shows new housing units were still increasing during that time.[1] Does that imply most of the new builds were investment properties (i.e. not owner occupied) during this time period? [1]https://fred.stlouisfed.org/series/HOUST https://fred.stlouisfed.org/series/HOUST
    - aeternum 5y ago
      Vacancies were also (relatively) high during that time. https://fred.stlouisfed.org/series/ESALEUSQ176N https://fred.stlouisfed.org/series/ESALEUSQ176N I think this is what matters most. It's good to have some vacancies so that people have options but too many likely indicates there's some speculation/over-building going on that the market doesn't support.
      - bumby 5y ago
        That makes perfect sense, thank you.
nine_k 5y ago
I think 2008 was not about housing surplus, it was about bad loans which loaners could not possibly repay. The foreclosured realty has been selling pretty quickly.
zohch 5y ago
> As Adam Smith said, the true price of everything is in human labor. Cite? Also who died and made Adam Smith's word synonymous with fact? Last I checked the true price of anything is the price I have to pay to acquire it, which is incidentally more in line with Adam Smith's actual quote which was: "The real price of everything, what everything really costs to the man who wants to acquire it, is the toil and trouble of acquiring it.". The price I have to pay to acquire something translates to money, that I gained through "toil and trouble" so to speak. Quite far from the true price of everything being human labour.
- mebassett 5y ago
  Wealth of nations, book 1, actually. "toil and trouble" could be interpreted as "labour". I certainly take that interpretation. though Smith really didn't make much use of the labour theory of value, as he thought it would be less relevant in an advanced economy. Riccardo and especially Marx developed and used it much more. (For Marx see the first part of Capital)
  - rsj_hn 5y ago
    The idea of "value" independent of price is something treated by Marx as a normative claim that neither Adam Smith or Ricardo developed. When Ricardo or Adam smith talked of "value", they just meant "price" but in some notional unit of currency which was irrelevant to the discussion at hand. E.g. they wanted to discuss prices in a barter economy. Adam Smith explored the labor theory of value in the context of primitive societies with fixed capital. In that case, you do get prices scaled to labor inputs, as capital is constant. Ricardo tried to develop more sophisticated models than those with fixed capital, but did not have the tools to determine price setting, and finally admitted "I am not satisfied with the explanation I have given of the principles which regulate value.". It wasn't until economists started using math more seriously and included production functions and utility functions that they were able to formulate a more general theory of price setting involving marginal costs and benefits. This allowed the creation of numerical estimates for things like price elasticity that provided useful information for price setting and allowed (in some cases) for falsifiability and even laboratory experimentation. See the famous experiments of Vernon Smith, for which he won a Nobel Prize. https://www.econlib.org/library/Enc/bios/SmithV.html https://www.econlib.org/library/Enc/bios/SmithV.html Thus standard economics was able to go bit beyond the thought experiments of Ricardo and Smith whereas Marx continued the process of philosophically musing about value in a normative sense, now removed from any actually observed prices, and far off into the world of political economy rather than economics per se.
yobbo 5y ago
> Inflation generally raises the cost/price of new labor at the expense of historic labor In the case of asset inflation, it is literally the opposite.

bumby 5y ago

Is there any measures of what percent of those pre-2008 builds were speculative investments vs. occupant-owners? It reminds me of the scene in The Big Short when he knew the system was on a precipice of disaster when the a stripper was telling him about the multiple homes she owns. It seems to me many bubbles are the result of speculation with easy credit and I’m not sure 2008 can be considered a “perturbation” instead of a correction.

aeternum 5y ago
https://fred.stlouisfed.org/series/EOWNOCCUSQ176N https://fred.stlouisfed.org/series/EOWNOCCUSQ176N
- bumby 5y ago
  Thank you. Maybe you can help me understand this correctly. Your link shows the "owner-occupied" housing was relatively flat during the housing crises. The link below shows new housing units were still increasing during that time.[1] Does that imply most of the new builds were investment properties (i.e. not owner occupied) during this time period? [1]https://fred.stlouisfed.org/series/HOUST https://fred.stlouisfed.org/series/HOUST
  - aeternum 5y ago
    Vacancies were also (relatively) high during that time. https://fred.stlouisfed.org/series/ESALEUSQ176N https://fred.stlouisfed.org/series/ESALEUSQ176N I think this is what matters most. It's good to have some vacancies so that people have options but too many likely indicates there's some speculation/over-building going on that the market doesn't support.
    - bumby 5y ago
      That makes perfect sense, thank you.

nine_k 5y ago

I think 2008 was not about housing surplus, it was about bad loans which loaners could not possibly repay. The foreclosured realty has been selling pretty quickly.

zohch 5y ago

> As Adam Smith said, the true price of everything is in human labor. Cite? Also who died and made Adam Smith's word synonymous with fact? Last I checked the true price of anything is the price I have to pay to acquire it, which is incidentally more in line with Adam Smith's actual quote which was: "The real price of everything, what everything really costs to the man who wants to acquire it, is the toil and trouble of acquiring it.". The price I have to pay to acquire something translates to money, that I gained through "toil and trouble" so to speak. Quite far from the true price of everything being human labour.

mebassett 5y ago
Wealth of nations, book 1, actually. "toil and trouble" could be interpreted as "labour". I certainly take that interpretation. though Smith really didn't make much use of the labour theory of value, as he thought it would be less relevant in an advanced economy. Riccardo and especially Marx developed and used it much more. (For Marx see the first part of Capital)
- rsj_hn 5y ago
  The idea of "value" independent of price is something treated by Marx as a normative claim that neither Adam Smith or Ricardo developed. When Ricardo or Adam smith talked of "value", they just meant "price" but in some notional unit of currency which was irrelevant to the discussion at hand. E.g. they wanted to discuss prices in a barter economy. Adam Smith explored the labor theory of value in the context of primitive societies with fixed capital. In that case, you do get prices scaled to labor inputs, as capital is constant. Ricardo tried to develop more sophisticated models than those with fixed capital, but did not have the tools to determine price setting, and finally admitted "I am not satisfied with the explanation I have given of the principles which regulate value.". It wasn't until economists started using math more seriously and included production functions and utility functions that they were able to formulate a more general theory of price setting involving marginal costs and benefits. This allowed the creation of numerical estimates for things like price elasticity that provided useful information for price setting and allowed (in some cases) for falsifiability and even laboratory experimentation. See the famous experiments of Vernon Smith, for which he won a Nobel Prize. https://www.econlib.org/library/Enc/bios/SmithV.html https://www.econlib.org/library/Enc/bios/SmithV.html Thus standard economics was able to go bit beyond the thought experiments of Ricardo and Smith whereas Marx continued the process of philosophically musing about value in a normative sense, now removed from any actually observed prices, and far off into the world of political economy rather than economics per se.

yobbo 5y ago

> Inflation generally raises the cost/price of new labor at the expense of historic labor In the case of asset inflation, it is literally the opposite.