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On the macro scale, this results in deflation, which the central bank attempts to cancel out by implementing interest rate cuts, which pulls money into stock ma

On the macro scale, this results in deflation, which the central bank attempts to cancel out by implementing interest rate cuts, which pulls money into stock market valuations and mortgages, so ultimately the beneficiary of CNC mills are real estate and stock owners.

jeffparsons 5y ago
Gosh, that's bleak. I've recently been thinking a lot about policy changes that might help with housing affordability, and the same thing keeps happening: every time I think I've come up with something clever, I eventually realize that I've just accidentally made things even better for people that started off with a lot of capital. It feels like aside from explicit redistribution of wealth (raise minimum wage, tax high income earners more, raise high-end property taxes), you can't change _anything_ without making the rich richer and the poor poorer.
- imtringued 5y ago
  You can introduce negative interest rates to pay off debt and reduce the money supply. Do the same to land via a land value tax. A lot of equity derives its value from real estate so the obvious escape into stocks won't work in practice.
  - jbay808 5y ago
    Negative interest rates increase the money supply though, and explode the valuations of real estate and other assets.
- jbay808 5y ago
  My preferred policy would be to have central banks adjust rates to maintain inflation at 2% average, and more gradually have governments adjust UBI to maintain a central bank interest rate average at 5%. (You can certainly have the input to one feedback loop be the output of another). Then structural deflationary forces would manifest as UBI increases instead of interest rate decreases. I think the positive real interest rates would ensure the UBI isn't all captured by rent increases, although it's hard to be certain unless it's tested.
  - native_samples 5y ago
    The 2% figure is arbitrary though. The correct thing to do is just stop printing money entirely. The idea of a 'deflationary spiral' is one of the many not very well founded bits of economics that's really more like psychology, but inflation is always and everywhere a redistribution of wealth away from savers and people at the bottom, towards those who print money at the top. There's a deep lack of justice in that.
    - jbay808 5y ago
      It's arbitrary but I got those numbers from economist John Taylor, who knows more than I do. Maybe zero inflation would be better.
    - imtringued 5y ago
      The "savers" don't stop saving just because the money supply stays the same. They will actually save more until there is mass unemployment and they are structurally unable to save because of the aforementioned unemployment. We got at least two world wars out of "deflationary spirals" and every single gold standard that was attempted failed during deflation. Also, liquidity preference is a systemic redistribution from the bottom 90% to the top 10%. The people that benefit from inflation are the savers and bankers in the top 10% because they can live off the interest or capital yields which must be higher than interest. Bankers and savers benefit because governments, people and companies pay debts first before they pay anyone else. If the cantillon effect exists it exists in the boring form of those who own the most get paid the most. The proximity argument is nonsense because there are banks in every city. You can "print" money yourself by getting a mortgage to buy a house and many people do.
      - native_samples 5y ago
        "They will actually save more until there is mass unemployment" This is pop psychology and there is ample counter-evidence for it. World War 2 was not caused by monetary policy! A hypothesised, partial cause that Hitler certainly exploited was crippling debts. But that wasn't solvable by economists. Do you think the allied powers that defeated Germany in WW1 would have sat back and tolerated Germany inflating away its war debts?
- pydry 5y ago
  Land value tax
- qu4ku 5y ago
  Yes you can, and it is pretty easy. Build. Every single, new building puts downward pressure on the average price. The moment supply outstrips demand, prices goes down, housing market stops being reasonable asset, money outflows causing further collapse of the market and houses are dirt cheap.
  - jbay808 5y ago
    I think that evidence from China's real estate bubble suggests that no matter how much of a supply excess you build, it might not bring down prices as long as the macro environment favours real estate as an investment, because demand for perceived-as-safe and fast-appreciating investments is nearly infinite. (The excess supply can probably make the eventual bubble pop more dramatic, though, but it seems like it won't be triggered simply by a supply excess). At the very least, a supply-solution proponent would need to explain how China's property supply glut didn't bring prices down until the government cracked down on credit.
Ericson2314 5y ago
On the macro scale more things are going on, and deflation isn't really considered to happen that way.
- jbay808 5y ago
  Why do you say this? Most economists I've read do consider technology, automation and demographics as the primary underlying deflationary forces, beyond the to-and-fro of business and financial cycles. I could come up with a lot of citations if you'd like.
  - Ericson2314 5y ago
    Specific goods getting cheaper sure, but I've only ever heard of demand issues e.g. in the great depression, being able to pull down averages of many different prices.
    - jbay808 5y ago
      It's not just specific goods; technology and automation reduces the cost of almost everything in the consumer price index, from food to transportation to energy (although probably not shelter). I think if you search for "technology deflationary" you'll get lots of views on this, but not many in opposition to it. That said, deflation only ends up happening in specific goods categories like TVs and computers, which are at a particularly sharp point in the technology curve, such that they deflate even faster than average. That's again because the average CPI growth is governed by a feedback loop, where the central bank adjusts interest rates to target 2% inflation, so as, say, food gets cheaper to produce, monetary stimulus is gradually added to the system to combat the falling costs and encourage more consumption. This is done to avoid the kind of deflationary cycle that you're talking about. (Central banks want to avoid deflation so that debts don't become onerous to repay, which can create a depression). But the result is that while technology is deflationary, it does not create deflation, because that's maintained by a feedback loop; instead it manifests in gradually declining interest rates (and thus increasing valuations and real estate prices, as I mentioned). That's what it's like to be in a feedback loop. Your computer may act as a heat source for your home but as long as the thermostat is maintaining temperature at a setpoint, the computer won't change that average temperature -- heat it produces will be offset by reduced furnace activity. (Of course there are also long-term structurally inflationary forces as well. Environmental damage and resource scarcity, like declining fish stocks for example, are structurally inflationary forces. Demographics can go either way. Short term things like wars, debt crises, earthquakes, or pandemics can obviously have a huge impact, and irresponsible monetary policy can throw things right out the window.)

jeffparsons 5y ago

Gosh, that's bleak. I've recently been thinking a lot about policy changes that might help with housing affordability, and the same thing keeps happening: every time I think I've come up with something clever, I eventually realize that I've just accidentally made things even better for people that started off with a lot of capital. It feels like aside from explicit redistribution of wealth (raise minimum wage, tax high income earners more, raise high-end property taxes), you can't change _anything_ without making the rich richer and the poor poorer.

imtringued 5y ago
You can introduce negative interest rates to pay off debt and reduce the money supply. Do the same to land via a land value tax. A lot of equity derives its value from real estate so the obvious escape into stocks won't work in practice.
- jbay808 5y ago
  Negative interest rates increase the money supply though, and explode the valuations of real estate and other assets.
jbay808 5y ago
My preferred policy would be to have central banks adjust rates to maintain inflation at 2% average, and more gradually have governments adjust UBI to maintain a central bank interest rate average at 5%. (You can certainly have the input to one feedback loop be the output of another). Then structural deflationary forces would manifest as UBI increases instead of interest rate decreases. I think the positive real interest rates would ensure the UBI isn't all captured by rent increases, although it's hard to be certain unless it's tested.
- native_samples 5y ago
  The 2% figure is arbitrary though. The correct thing to do is just stop printing money entirely. The idea of a 'deflationary spiral' is one of the many not very well founded bits of economics that's really more like psychology, but inflation is always and everywhere a redistribution of wealth away from savers and people at the bottom, towards those who print money at the top. There's a deep lack of justice in that.
  - jbay808 5y ago
    It's arbitrary but I got those numbers from economist John Taylor, who knows more than I do. Maybe zero inflation would be better.
  - imtringued 5y ago
    The "savers" don't stop saving just because the money supply stays the same. They will actually save more until there is mass unemployment and they are structurally unable to save because of the aforementioned unemployment. We got at least two world wars out of "deflationary spirals" and every single gold standard that was attempted failed during deflation. Also, liquidity preference is a systemic redistribution from the bottom 90% to the top 10%. The people that benefit from inflation are the savers and bankers in the top 10% because they can live off the interest or capital yields which must be higher than interest. Bankers and savers benefit because governments, people and companies pay debts first before they pay anyone else. If the cantillon effect exists it exists in the boring form of those who own the most get paid the most. The proximity argument is nonsense because there are banks in every city. You can "print" money yourself by getting a mortgage to buy a house and many people do.
    - native_samples 5y ago
      "They will actually save more until there is mass unemployment" This is pop psychology and there is ample counter-evidence for it. World War 2 was not caused by monetary policy! A hypothesised, partial cause that Hitler certainly exploited was crippling debts. But that wasn't solvable by economists. Do you think the allied powers that defeated Germany in WW1 would have sat back and tolerated Germany inflating away its war debts?
pydry 5y ago
Land value tax
qu4ku 5y ago
Yes you can, and it is pretty easy. Build. Every single, new building puts downward pressure on the average price. The moment supply outstrips demand, prices goes down, housing market stops being reasonable asset, money outflows causing further collapse of the market and houses are dirt cheap.
- jbay808 5y ago
  I think that evidence from China's real estate bubble suggests that no matter how much of a supply excess you build, it might not bring down prices as long as the macro environment favours real estate as an investment, because demand for perceived-as-safe and fast-appreciating investments is nearly infinite. (The excess supply can probably make the eventual bubble pop more dramatic, though, but it seems like it won't be triggered simply by a supply excess). At the very least, a supply-solution proponent would need to explain how China's property supply glut didn't bring prices down until the government cracked down on credit.

Ericson2314 5y ago

On the macro scale more things are going on, and deflation isn't really considered to happen that way.

jbay808 5y ago
Why do you say this? Most economists I've read do consider technology, automation and demographics as the primary underlying deflationary forces, beyond the to-and-fro of business and financial cycles. I could come up with a lot of citations if you'd like.
- Ericson2314 5y ago
  Specific goods getting cheaper sure, but I've only ever heard of demand issues e.g. in the great depression, being able to pull down averages of many different prices.
  - jbay808 5y ago
    It's not just specific goods; technology and automation reduces the cost of almost everything in the consumer price index, from food to transportation to energy (although probably not shelter). I think if you search for "technology deflationary" you'll get lots of views on this, but not many in opposition to it. That said, deflation only ends up happening in specific goods categories like TVs and computers, which are at a particularly sharp point in the technology curve, such that they deflate even faster than average. That's again because the average CPI growth is governed by a feedback loop, where the central bank adjusts interest rates to target 2% inflation, so as, say, food gets cheaper to produce, monetary stimulus is gradually added to the system to combat the falling costs and encourage more consumption. This is done to avoid the kind of deflationary cycle that you're talking about. (Central banks want to avoid deflation so that debts don't become onerous to repay, which can create a depression). But the result is that while technology is deflationary, it does not create deflation, because that's maintained by a feedback loop; instead it manifests in gradually declining interest rates (and thus increasing valuations and real estate prices, as I mentioned). That's what it's like to be in a feedback loop. Your computer may act as a heat source for your home but as long as the thermostat is maintaining temperature at a setpoint, the computer won't change that average temperature -- heat it produces will be offset by reduced furnace activity. (Of course there are also long-term structurally inflationary forces as well. Environmental damage and resource scarcity, like declining fish stocks for example, are structurally inflationary forces. Demographics can go either way. Short term things like wars, debt crises, earthquakes, or pandemics can obviously have a huge impact, and irresponsible monetary policy can throw things right out the window.)