8 ms·

I'd argue that the greater risk of things falling apart is economic rather than political. We've built our society on two near-ponzi schemes that are in danger

by TimPC 4y ago

I'd argue that the greater risk of things falling apart is economic rather than political. We've built our society on two near-ponzi schemes that are in danger of falling apart. The first is pension funds which are paid into by current workers to pay out for past workers. Pension funds inherently depend on population growth to avoid shortfalls. They rely on the fact that more people pay into them then take out from them at any one time. This literally meets the definition of a ponzi scheme and it will be heartbreaking when it comes due. The other near-ponzi scheme is the real estate market. In my city of Toronto, average real estate prices have gone from 2x average income in 1972 to 16x average income today. To continue growing at this pace they'd have to reach 128x average income by 2072. Those prices are absurd enough that it's clear there will be a slowdown in real estate prices before then. But much of our society is built on real estate growth and we aggressively encourage people to own real estate assets worth more than the entirety of their net worth. When these assets stop going up, or even worse start going down there will be major complications for society. I'm not talking about the adverse effects of a temporary market correction, I'm talking about a new normal in which real estate is flat or downward trending. When real estate is no longer an incredible investment opportunity it will have significant adverse effects on society. For instance, homes are currently a large part of people's retirement plans and selling a home is often used to pay for an extended stay in a nursing home (which is quite expensive). For many people the home represents over 60% of a retirement plan. In my parents lifetime, their home value increased to roughly 10x what it was worth. If my home increases 4x instead this is a substantial adverse impact. If my child's home increases 0x this is disastrous. The things we fundamentally depend on to provide things as important in society as retirement are breaking badly. Meanwhile we're so obsessed with political differences that we barely talk about or work towards solving the slow economic crisis we are facing.

blauditore 4y ago
> They rely on the fact that more people pay into them then take out from them at any one time. This doesn't need to be a ponzi scheme though. Even if population size is stable, if people on average work longer than they are retired, they have to pay less than they receive, all things equal. A problem here has been that people get increasingly older, so they spend a larger percentage of their life being retired, making the ratio of payers vs. receivers worse. The most obvious solution to this is raising the age of retirement, but that's always politically difficult and somehow seen as cruel.
- TimPC 4y ago
  The ponzi part of it is that current payers pay for current retirees. If the pension worked on a forced investment model where you paid into your own retirement and the money was invested for you that would be different. It would even be viable to say the money from those who died prematurely would be distributed to other users and it's possible to have the system generate more overall money for retirees than just what they put in and gain from investment. However, the current system is quite far from that. The money you pay in goes nearly immediately to existing retirees with a moderate reserve of capital that is slowly decreasing as more money exits the system than enters it. This system cannot pay current retirees without the investment from new users, and that's what makes it a ponzi.
  - ElevenLathe 4y ago
    Pensions paid directly by current workers are not really so different from pensions paid out of investments. The thing that one "owns" in most of today's public equities is not physical capital (plants and equipment) but the "nexus of contracts" that allows you to make money from other peoples' labor. In other words, you are still living on backs of the working generation, same as Social Security or similar schemes. Until we invent self-replicating physical capital (i.e. a Santa Claus machine that can make other Santa Claus machines), this will always be true.
  - bluGill 4y ago
    All models are a ponzi that depend on a future generation doing labor. Retirement is ultimately a promise that someone will grow food and the other things you need/want. SS depends on the next generation being willing to pay, while stocks depend on the next generation willing to buy those stocks (or dividends because the company because the next generation bought things from it). Funds in a mattress depend on people wanting your cash.
    - kergonath 4y ago
      > All models are a ponzi No, they are not. “A ponzi” is a fraud. Some of the schemes you mention are not sustainable under certain hypotheses, but none of them have the deceptive and fraudulent aspects of Ponzi schemes, which is important. These are strategies, that might work out or that might not, but in any case they are not tools for personal enrichment through deception.
karpierz 4y ago
> Pension funds inherently depend on population growth to avoid shortfalls. Pension funds inherently depend on increases in production. Population growth is one factor, but technological development can also increase production. > The other near-ponzi scheme is the real estate market. In my city of Toronto, average real estate prices have gone from 2x average income in 1972 to 16x average income today. Hello from a Vancouverite! I broadly agree with this point, and I'm not sure how to work our way out of a housing bubble beyond popping it and dealing with the aftermath. Too many people are invested in the status quo, so any politician who tries to pop it will be crucified for destroying the savings of a large portion of the population.
- TimPC 4y ago
  I haven't worked out all the details but I think the right thing to do is some form of gradual transition to a Georgist taxation system (perhaps with compensation from the government for those who suffer sufficient adverse effects). Reducing the value of property to the structures on them by having heavy taxation rates on unimproved land is fairer than the current system and makes access to property far easier. It reduces speculation in real estate which also improves access. I also agree with the Georgist moral perspective that we have equal entitlements to all land and natural resources. From there, distributing land that is undertaxed seems to give certain individuals and companies unfair advantages. An added benefit is that income taxes and capital gains taxes have always from my perspective been on morally shaky ground as I struggle to find a good moral perspective that justifies them compared to other forms of taxation that seem morally just. Doing a transition like that will be just as difficult as popping a housing bubble (if not more so) but I think it will be of great benefit to society.
- 2ion 4y ago
  >> Pension funds inherently depend on population growth to avoid shortfalls. > >Pension funds inherently depend on increases in production. Population growth is one factor, but technological development can also increase production. Interestingly, capital returns and population growth are (unquestionably?) on exponential curves. So, are production factors too slow to evolve along with the exponentials? Maybe they are, because of waste, lack of recycling, raw resources decline and environmental damage. >> The other near-ponzi scheme is the real estate market. In my city of Toronto, average real estate prices have gone from 2x average income in 1972 to 16x average income today. > >Hello from a Vancouverite! I broadly agree with this point, and I'm not sure how to work our way out of a housing bubble beyond popping it and dealing with the aftermath. Too many people are invested in the status quo, so any politician who tries to pop it will be crucified for destroying the savings of a large portion of the population. You could argue that in the same time frame, world population has more than doubled, and because the cost of capital is a lot cheaper elsewhere than in Canada, pressure on attractive living space in peaceful and stable countries has increased exponentially. At this point, the "liberal" view on capital flows and capital control, the fuel of foreign direct investments of Western countries into overseas properties since WWII, came back to bite the originators of the idea in the ass.
JohnTHaller 4y ago
Most of the folks I know in their 20s here in the NYC metro area assume they'll never be able to afford real estate.
almost_usual 4y ago
US real estate has gone up significantly in _desirable_ markets. There are plenty of cities in the rust belt where neighborhoods are in decay, you can buy a home for 20k if you wanted. What we’re going to see is either govts incentivize people move back to these places. Or more housing in desirable locations. I think the former will happen more than the later.
- TimPC 4y ago
  Agreed. And we've seen crises in the neighbourhoods in decay and significant adverse effects for those who don't get the housing investment gains that much of society is built on. The numbers seem to indicate that will be something of the new normal for everyone rather than just the unlucky few in the wrong place at the wrong time.
- shafoshaf 4y ago
  Incentives are already here. Tulsa offers $10K to move there.
- juve1996 4y ago
  A lot of "undesirable" markets have become desirable. The remaining ones, the market has decided has too many external cost to make such low prices worth it.
- zanny 4y ago
  Theres a generational rift that will stop a lot of decaying areas from seeing repopulatin from newer generations. My wife and I saving to house shop soonish, but one of the primary requirements of our residency will be transit access. We don't like driving, don't like having to own a car, and definitely do not want to have to drive up and down the east coast to visit friends and family. Amtrak access is thus basically required, and anywhere we can avoid buying a car to live is valued dramatically higher than alternatives. Its a growing sentiment the younger you get, where the veneer of the 50s American dream is more and more eroded and we are realizing humans in the 21st century should be living denser, with public transit, and walkable access to day to day needs, than to live in gated communities without a sidewalk or any human contact. And 99.9% of US real estate is built up totally in antithesis of this, largely on racist fundamentals dating to the early 20th century. Like we legit were looking at areas and when talking about just over the DC border into MD the conversation always immediately goes to "yes the properties are a third cheaper, but theres no metro access" and its just off the radar. Pittsburgh is our joke city since it has no usable Amtrak routes out of it (and yes, I know its urban core is nice, but its also tiny and unable to grow). None of these decaying places can afford the capital investment to redevelop to be walkable and sustainably dense. They already are burdened to maintain a million acres of suburbia that is all tax negative. And nobody wants a "top down" solution that involves displacing millions to redevelop cities so the demographic trends going forward want to live there. For anyone looking, Philly is actually pretty affordable. Its combined income tax is 6% in the state, the sales tax isn't outrageous, and property costs are a fraction of NYC or DC. Its definitely near the top of our list considering how unaffordable the parts of Portland, Seattle, and Baltimore with transit are.
ItsMonkk 4y ago
If you make the assumption that PI is 3.14, that's going to work for a good while. But eventually you are going to need to build a circle that's bigger, and 3 significant digits will not cut it, and errors will start showing up. Our economies work in the exact same way. Capitalism started out improving on what came before it, but it has now grown to the level that errors are appearing more and more. We need to be more precise. You've outlined very clearly one of those errors - housing. We know that housing values can not both be an investment and affordable long-term - those things are inherently at opposition. Therefore the best price for land is zero. The way to do that is to increase the tax on the market value of a house until the market value of the house is equal to the cost of the parts and labor needed to build that house. When you do this, you have what we call a 100% land value tax. It fixes all sorts of incentives, turns NIMBY's into YIMBY's, incentivizes the best use for the land. A land value tax is not just increasing the equivalent of PI from 3.14 to 3.14159, it's setting the correct value for land exactly equal to PI. One of the amazing side effects of the land value tax is that now that you don't need a continually increasing housing values, the amount of debt in the world is going to start growing less quickly, as a large percentage of debt comes from mortgages. When you zoom in on how that works, and why it works, what you find out is that you want debt to only increase when real productivity increases. The flipside of that is also true - you want the currency to increase equal to productivity, this is why Bitcoin is fundamentally unstable long-term and why the gold standard collapsed. The reason the land debt is bad is because land is zero-sum. It can not be created or destroyed. Any debt that is created to buy a zero-sum good will eventually turn the economy into a Ponzi scheme. So while a LVT will fix a large portion of the problem, eventually some other zero-sum asset will arrive, and that too will need to be fixed. When all zero-sum debt no longer increases the money supply, the problems that you outline will be resolved. Once you have a money supply that increases equal to productivity, suddenly retirees will be able to save their money and retire on it without threat of inflation. We used to have this in the middle ages, but that's only because we had a flat population with no productivity increases, so a stable currency was sufficient.
- TimPC 4y ago
  I argued for a gradual implementation of Georgist Tax Policies elsewhere in the thread so we are in agreement. I think transitioning to a LVT is a very hard problem that requires a great deal of thought and care. I'm convinced such a transition needs to be gradual because instantaneous is far too destructive. I'm also leaning towards government needing to compensate at least some of those who lose significantly in the transition. I'm open to being proven wrong about either point but the proposals I've seen from Georgists advocating instantaneous change seem woefully ill informed or quite naive about consequences.
john_moscow 4y ago
Economy and politics always go together. Optimizing the economy for the retirements funds (creating favorable conditions for existing big companies) has eliminated the paths to prosperity for the new generations (you cannot run your own shop to outcompete Loblaws or Walmart, and a cashier job there will never afford you anything more than bare survival). This is discouraging people from starting families and having kids, so the government began outsourcing population growth by importing people from other cultures with lower standard of living. This ignites political division in the society where the far left sees anything beside a shared room a privilege and the far right wants to deport anyone who isn't a 3rd-generation local. Keeping the real estate bubble from popping has served somewhat well the real estate investors, but made property ownership impossible for many people. The political response is unsurprising: many question the whole concept of owning real estate, it's becoming increasingly hard to evict a bad faith tenant, and aggressive homeless people actively disrupting the life of nearby real estate owners are seen as victims and not malefactors. The corporate media is doing their best to steer the discussion away and people are buying it. "Fair" isn't somehow when the median salary can reasonably afford a single-income household comfortable to raise 2+ children. It's now about how your fellow minimum-wagers should use the pronouns and how promotions from toilet scrubber to shelf stocker should be granted based on the skin color and historical oppression points, while the actual oppression of the former middle class by the corporations is happening right now.
- TimPC 4y ago
  Most economic discussions are inherently political but it's not the case that most political discussions are inherently economical. I argued that we are avoiding dealing with our economic challenges and are focusing on non-economic political problems.
  - john_moscow 4y ago
    >I argued that we are avoiding dealing with our economic challenges and are focusing on non-economic political problems. Well, yeah, since all major media companies and social networks are owned by the entities directly benefiting from the "economic challenges" of the former middle class.
RspecMAuthortah 4y ago
> In my city of Toronto, average real estate prices have gone from 2x average income in 1972 to 16x average income today. To continue growing at this pace they'd have to reach 128x average income by 2072. Places like Toronto are generally an outlier. Part of it is due to high skilled worker immigration (to read it differently: more well off people emigrating to Canada) and high concentration of jobs in cities like Toronto. I agree with your thesis although I think it has more to do with CAD losing its value compared to hard assets and a consequence of a decade with bad monetary policy.
- TimPC 4y ago
  I think it's hard to classify Toronto as an Outlier, especially if you mean the GTA. There are 38 million Canadians according to the 2021 census. According to the same data source 6.7 million of them live in the GTA. This "outlier" is 17.63% of the data set which to me is closer to a quartile of your data than an outlier.
tasuki 4y ago
> The first is pension funds which are paid into by current workers to pay out for past workers. Pension funds inherently depend on population growth to avoid shortfalls. This is fundamentally a demographic problem, rather than a problem with the pensions system. If pension funds worked by people saving their own money for themselves, it wouldn't actually be all that different. At any point in time, there's the productive part of the population, and the unproductive. If the productive part is too small to support the unproductive, there is going to be a worsening of the situation, probably especially so for the unproductive.
11101010001100 4y ago
Have you compared your parents return of their down payment if they had invested for the same duration in the stock market? I've seen a few cases where it all comes out in the wash...
- TimPC 4y ago
  It might come out in the wash if you ignore the fact that you have to live somewhere. Property taxes and upkeep on a house tend to work out cheaper than skyrocketing rents over the long run. Home upgrades return value on the property. Having freedom to develop the place you live into something you like is incredibly valuable as well.
  - 11101010001100 4y ago
    I agree there value in the freedom. My point is simply on paper, housing is as expensive as every other asset (well, maybe not art). Of course, the real question is if housing should even be considered an asset in the first place.
    - TimPC 4y ago
      The Georgist answer is that the structures on the property should be assets and that taxes should reduce the land value to $0 and be updated regularly to capture the gains in the land value. That's the theory I ascribe to although I think transitioning from our current society to a Georgist one is incredibly difficult.
BeFlatXIII 4y ago
On the flip side, a collapse in real estate prices would be an excellent entry to the property ladder for people who previously couldn't afford it.
- TimPC 4y ago
  If that collapse is accompanied by real estate no longer being a property ladder then the entry might be less relevant or desired.
- rootusrootus 4y ago
  At the expense of all current property owners. Maybe a net win, maybe not.
justin66 4y ago
> This literally meets the definition of a ponzi scheme It absolutely does not. Investors in a Ponzi scheme do not have the information needed to allow them to be aware of the fraud involved. In contrast, at any given point in time you can extrapolate when the Social Security system (for example - the same principle applies to any pension that isn't literally cooking the books) will need to start drawing on the general fund, or fail, if it continues operating as it is operating today. It is a bad mistake to just characterize every non-sustainable investment scheme as a Ponzi scheme. For starters, you'd be awfully confused about what is legal and what is illegal...
- TimPC 4y ago
  This is splitting hairs. You are forcibly invested in social security so you have to pay it even if the numbers indicate you won't be able to get anything back out from it. If the distinction between this and a Ponzi scheme is having the information it's a mighty fine distinction when you have zero ability to act on the information you have.
  - justin66 4y ago
    It’s the difference between defrauding people or not, among other things. Wow. > when you have zero ability to act You have hit another item (do I have the option to opt in?) on the “differences between social security and ponzi schemes” bullet list, but you are pretty aggressively missing the point, I think.
imtringued 4y ago
You know, the problem with both is actually the same. The home owner and pensioner both rely on a young population that will take care of them. Owning a home only reduces the need to build one, which is better than nothing but it does not reduce the need to farm food for example.
Ericson2314 4y ago
This is a bad diagnosis. Remember, the "stocks" here, are all fiction. production at time t pays for retiree consumption at time t. Likewise housing prices are a waste of time when we should all rent, and there should be a land view tax (rent-turtles all the way down). "Pay as you go" pensions scheme is good for the same reasons as LVT is good. I believe society could function with a shorter work-week so I sure as hell am not worried about needing to raise the retirement age cause people are living longer. If we need more productivity, abolish suburbia.
epolanski 4y ago
> But much of our society is built on real estate growth As an italian, I don't get that. I bought a 240k euros home for 25k in advance and 550 €s month of mortgage for the next 30 years. And in 30 years I will pay nothing, neither rent nor mortgage. That's why I did that. Real estate growth wasn't even in the back of my mind. I bought a home to have MY place, and to stop paying 750€ plus rent to some landlord. Rent will also go up with inflation, mortgage payment will get smaller and smaller meanwhile thanks to inflation. I just don't understand the whole estate growth thing at all.
- TimPC 4y ago
  The idea in North America is that homes are mostly investments. The real estate market grows and the home accrues additional value. At some point in retirement, typically when stairs become too difficult you might downsize to a condo, cashing in a fraction of the value. Alternatively, if you need a nursing home you sell the house to pay the exorbitant costs associated with that. The motivation for homes to be investments is that we are taking out the largest loan we will ever have and allocating more than 100% of everything we own into an asset. Having done so it's natural to want that asset to generate returns.
  - epolanski 4y ago
    This is so alien to me. It's a place to live, it has walls, it has a resell value but it's not the main purpose of it. And all investments are risky by definition. One should buy a house because one wants to save money, compared to renting, and have its own place, if you are buying for a price increase it's called speculation. If it is speculation, then you should not depend on it for your future and should put little money into it not decades of mortgage. This is so linear to me. The idea that things keeps getting value forever is flawed and a house is too important and expensive for this kind of speculation.
furbyhater 4y ago
I think the ponzi-scheme is the lie of eternal growth with finite resources (real estate included) combined with the "trickle-down" narrative. It's a pyramid scheme in the sense that it will collapse by its sheer weight before the "trickle-down" effect reaches a critical mass of the population, but those at the top will be very well-off by then anyway. It's maybe just a parameterization problem (wrong initiatives).

by TimPC 4y ago

blauditore 4y ago

> They rely on the fact that more people pay into them then take out from them at any one time. This doesn't need to be a ponzi scheme though. Even if population size is stable, if people on average work longer than they are retired, they have to pay less than they receive, all things equal. A problem here has been that people get increasingly older, so they spend a larger percentage of their life being retired, making the ratio of payers vs. receivers worse. The most obvious solution to this is raising the age of retirement, but that's always politically difficult and somehow seen as cruel.

TimPC 4y ago
The ponzi part of it is that current payers pay for current retirees. If the pension worked on a forced investment model where you paid into your own retirement and the money was invested for you that would be different. It would even be viable to say the money from those who died prematurely would be distributed to other users and it's possible to have the system generate more overall money for retirees than just what they put in and gain from investment. However, the current system is quite far from that. The money you pay in goes nearly immediately to existing retirees with a moderate reserve of capital that is slowly decreasing as more money exits the system than enters it. This system cannot pay current retirees without the investment from new users, and that's what makes it a ponzi.
- ElevenLathe 4y ago
  Pensions paid directly by current workers are not really so different from pensions paid out of investments. The thing that one "owns" in most of today's public equities is not physical capital (plants and equipment) but the "nexus of contracts" that allows you to make money from other peoples' labor. In other words, you are still living on backs of the working generation, same as Social Security or similar schemes. Until we invent self-replicating physical capital (i.e. a Santa Claus machine that can make other Santa Claus machines), this will always be true.
- bluGill 4y ago
  All models are a ponzi that depend on a future generation doing labor. Retirement is ultimately a promise that someone will grow food and the other things you need/want. SS depends on the next generation being willing to pay, while stocks depend on the next generation willing to buy those stocks (or dividends because the company because the next generation bought things from it). Funds in a mattress depend on people wanting your cash.
  - kergonath 4y ago
    > All models are a ponzi No, they are not. “A ponzi” is a fraud. Some of the schemes you mention are not sustainable under certain hypotheses, but none of them have the deceptive and fraudulent aspects of Ponzi schemes, which is important. These are strategies, that might work out or that might not, but in any case they are not tools for personal enrichment through deception.

karpierz 4y ago

> Pension funds inherently depend on population growth to avoid shortfalls. Pension funds inherently depend on increases in production. Population growth is one factor, but technological development can also increase production. > The other near-ponzi scheme is the real estate market. In my city of Toronto, average real estate prices have gone from 2x average income in 1972 to 16x average income today. Hello from a Vancouverite! I broadly agree with this point, and I'm not sure how to work our way out of a housing bubble beyond popping it and dealing with the aftermath. Too many people are invested in the status quo, so any politician who tries to pop it will be crucified for destroying the savings of a large portion of the population.

TimPC 4y ago
I haven't worked out all the details but I think the right thing to do is some form of gradual transition to a Georgist taxation system (perhaps with compensation from the government for those who suffer sufficient adverse effects). Reducing the value of property to the structures on them by having heavy taxation rates on unimproved land is fairer than the current system and makes access to property far easier. It reduces speculation in real estate which also improves access. I also agree with the Georgist moral perspective that we have equal entitlements to all land and natural resources. From there, distributing land that is undertaxed seems to give certain individuals and companies unfair advantages. An added benefit is that income taxes and capital gains taxes have always from my perspective been on morally shaky ground as I struggle to find a good moral perspective that justifies them compared to other forms of taxation that seem morally just. Doing a transition like that will be just as difficult as popping a housing bubble (if not more so) but I think it will be of great benefit to society.
2ion 4y ago
>> Pension funds inherently depend on population growth to avoid shortfalls. > >Pension funds inherently depend on increases in production. Population growth is one factor, but technological development can also increase production. Interestingly, capital returns and population growth are (unquestionably?) on exponential curves. So, are production factors too slow to evolve along with the exponentials? Maybe they are, because of waste, lack of recycling, raw resources decline and environmental damage. >> The other near-ponzi scheme is the real estate market. In my city of Toronto, average real estate prices have gone from 2x average income in 1972 to 16x average income today. > >Hello from a Vancouverite! I broadly agree with this point, and I'm not sure how to work our way out of a housing bubble beyond popping it and dealing with the aftermath. Too many people are invested in the status quo, so any politician who tries to pop it will be crucified for destroying the savings of a large portion of the population. You could argue that in the same time frame, world population has more than doubled, and because the cost of capital is a lot cheaper elsewhere than in Canada, pressure on attractive living space in peaceful and stable countries has increased exponentially. At this point, the "liberal" view on capital flows and capital control, the fuel of foreign direct investments of Western countries into overseas properties since WWII, came back to bite the originators of the idea in the ass.

JohnTHaller 4y ago

Most of the folks I know in their 20s here in the NYC metro area assume they'll never be able to afford real estate.

almost_usual 4y ago

US real estate has gone up significantly in _desirable_ markets. There are plenty of cities in the rust belt where neighborhoods are in decay, you can buy a home for 20k if you wanted. What we’re going to see is either govts incentivize people move back to these places. Or more housing in desirable locations. I think the former will happen more than the later.

TimPC 4y ago
Agreed. And we've seen crises in the neighbourhoods in decay and significant adverse effects for those who don't get the housing investment gains that much of society is built on. The numbers seem to indicate that will be something of the new normal for everyone rather than just the unlucky few in the wrong place at the wrong time.
shafoshaf 4y ago
Incentives are already here. Tulsa offers $10K to move there.
juve1996 4y ago
A lot of "undesirable" markets have become desirable. The remaining ones, the market has decided has too many external cost to make such low prices worth it.
zanny 4y ago
Theres a generational rift that will stop a lot of decaying areas from seeing repopulatin from newer generations. My wife and I saving to house shop soonish, but one of the primary requirements of our residency will be transit access. We don't like driving, don't like having to own a car, and definitely do not want to have to drive up and down the east coast to visit friends and family. Amtrak access is thus basically required, and anywhere we can avoid buying a car to live is valued dramatically higher than alternatives. Its a growing sentiment the younger you get, where the veneer of the 50s American dream is more and more eroded and we are realizing humans in the 21st century should be living denser, with public transit, and walkable access to day to day needs, than to live in gated communities without a sidewalk or any human contact. And 99.9% of US real estate is built up totally in antithesis of this, largely on racist fundamentals dating to the early 20th century. Like we legit were looking at areas and when talking about just over the DC border into MD the conversation always immediately goes to "yes the properties are a third cheaper, but theres no metro access" and its just off the radar. Pittsburgh is our joke city since it has no usable Amtrak routes out of it (and yes, I know its urban core is nice, but its also tiny and unable to grow). None of these decaying places can afford the capital investment to redevelop to be walkable and sustainably dense. They already are burdened to maintain a million acres of suburbia that is all tax negative. And nobody wants a "top down" solution that involves displacing millions to redevelop cities so the demographic trends going forward want to live there. For anyone looking, Philly is actually pretty affordable. Its combined income tax is 6% in the state, the sales tax isn't outrageous, and property costs are a fraction of NYC or DC. Its definitely near the top of our list considering how unaffordable the parts of Portland, Seattle, and Baltimore with transit are.

ItsMonkk 4y ago

If you make the assumption that PI is 3.14, that's going to work for a good while. But eventually you are going to need to build a circle that's bigger, and 3 significant digits will not cut it, and errors will start showing up. Our economies work in the exact same way. Capitalism started out improving on what came before it, but it has now grown to the level that errors are appearing more and more. We need to be more precise. You've outlined very clearly one of those errors - housing. We know that housing values can not both be an investment and affordable long-term - those things are inherently at opposition. Therefore the best price for land is zero. The way to do that is to increase the tax on the market value of a house until the market value of the house is equal to the cost of the parts and labor needed to build that house. When you do this, you have what we call a 100% land value tax. It fixes all sorts of incentives, turns NIMBY's into YIMBY's, incentivizes the best use for the land. A land value tax is not just increasing the equivalent of PI from 3.14 to 3.14159, it's setting the correct value for land exactly equal to PI. One of the amazing side effects of the land value tax is that now that you don't need a continually increasing housing values, the amount of debt in the world is going to start growing less quickly, as a large percentage of debt comes from mortgages. When you zoom in on how that works, and why it works, what you find out is that you want debt to only increase when real productivity increases. The flipside of that is also true - you want the currency to increase equal to productivity, this is why Bitcoin is fundamentally unstable long-term and why the gold standard collapsed. The reason the land debt is bad is because land is zero-sum. It can not be created or destroyed. Any debt that is created to buy a zero-sum good will eventually turn the economy into a Ponzi scheme. So while a LVT will fix a large portion of the problem, eventually some other zero-sum asset will arrive, and that too will need to be fixed. When all zero-sum debt no longer increases the money supply, the problems that you outline will be resolved. Once you have a money supply that increases equal to productivity, suddenly retirees will be able to save their money and retire on it without threat of inflation. We used to have this in the middle ages, but that's only because we had a flat population with no productivity increases, so a stable currency was sufficient.

TimPC 4y ago
I argued for a gradual implementation of Georgist Tax Policies elsewhere in the thread so we are in agreement. I think transitioning to a LVT is a very hard problem that requires a great deal of thought and care. I'm convinced such a transition needs to be gradual because instantaneous is far too destructive. I'm also leaning towards government needing to compensate at least some of those who lose significantly in the transition. I'm open to being proven wrong about either point but the proposals I've seen from Georgists advocating instantaneous change seem woefully ill informed or quite naive about consequences.

john_moscow 4y ago

Economy and politics always go together. Optimizing the economy for the retirements funds (creating favorable conditions for existing big companies) has eliminated the paths to prosperity for the new generations (you cannot run your own shop to outcompete Loblaws or Walmart, and a cashier job there will never afford you anything more than bare survival). This is discouraging people from starting families and having kids, so the government began outsourcing population growth by importing people from other cultures with lower standard of living. This ignites political division in the society where the far left sees anything beside a shared room a privilege and the far right wants to deport anyone who isn't a 3rd-generation local. Keeping the real estate bubble from popping has served somewhat well the real estate investors, but made property ownership impossible for many people. The political response is unsurprising: many question the whole concept of owning real estate, it's becoming increasingly hard to evict a bad faith tenant, and aggressive homeless people actively disrupting the life of nearby real estate owners are seen as victims and not malefactors. The corporate media is doing their best to steer the discussion away and people are buying it. "Fair" isn't somehow when the median salary can reasonably afford a single-income household comfortable to raise 2+ children. It's now about how your fellow minimum-wagers should use the pronouns and how promotions from toilet scrubber to shelf stocker should be granted based on the skin color and historical oppression points, while the actual oppression of the former middle class by the corporations is happening right now.

TimPC 4y ago
Most economic discussions are inherently political but it's not the case that most political discussions are inherently economical. I argued that we are avoiding dealing with our economic challenges and are focusing on non-economic political problems.
- john_moscow 4y ago
  >I argued that we are avoiding dealing with our economic challenges and are focusing on non-economic political problems. Well, yeah, since all major media companies and social networks are owned by the entities directly benefiting from the "economic challenges" of the former middle class.

RspecMAuthortah 4y ago

> In my city of Toronto, average real estate prices have gone from 2x average income in 1972 to 16x average income today. To continue growing at this pace they'd have to reach 128x average income by 2072. Places like Toronto are generally an outlier. Part of it is due to high skilled worker immigration (to read it differently: more well off people emigrating to Canada) and high concentration of jobs in cities like Toronto. I agree with your thesis although I think it has more to do with CAD losing its value compared to hard assets and a consequence of a decade with bad monetary policy.

TimPC 4y ago
I think it's hard to classify Toronto as an Outlier, especially if you mean the GTA. There are 38 million Canadians according to the 2021 census. According to the same data source 6.7 million of them live in the GTA. This "outlier" is 17.63% of the data set which to me is closer to a quartile of your data than an outlier.

tasuki 4y ago

> The first is pension funds which are paid into by current workers to pay out for past workers. Pension funds inherently depend on population growth to avoid shortfalls. This is fundamentally a demographic problem, rather than a problem with the pensions system. If pension funds worked by people saving their own money for themselves, it wouldn't actually be all that different. At any point in time, there's the productive part of the population, and the unproductive. If the productive part is too small to support the unproductive, there is going to be a worsening of the situation, probably especially so for the unproductive.

11101010001100 4y ago

Have you compared your parents return of their down payment if they had invested for the same duration in the stock market? I've seen a few cases where it all comes out in the wash...

TimPC 4y ago
It might come out in the wash if you ignore the fact that you have to live somewhere. Property taxes and upkeep on a house tend to work out cheaper than skyrocketing rents over the long run. Home upgrades return value on the property. Having freedom to develop the place you live into something you like is incredibly valuable as well.
- 11101010001100 4y ago
  I agree there value in the freedom. My point is simply on paper, housing is as expensive as every other asset (well, maybe not art). Of course, the real question is if housing should even be considered an asset in the first place.
  - TimPC 4y ago
    The Georgist answer is that the structures on the property should be assets and that taxes should reduce the land value to $0 and be updated regularly to capture the gains in the land value. That's the theory I ascribe to although I think transitioning from our current society to a Georgist one is incredibly difficult.

BeFlatXIII 4y ago

On the flip side, a collapse in real estate prices would be an excellent entry to the property ladder for people who previously couldn't afford it.

TimPC 4y ago
If that collapse is accompanied by real estate no longer being a property ladder then the entry might be less relevant or desired.
rootusrootus 4y ago
At the expense of all current property owners. Maybe a net win, maybe not.

justin66 4y ago

> This literally meets the definition of a ponzi scheme It absolutely does not. Investors in a Ponzi scheme do not have the information needed to allow them to be aware of the fraud involved. In contrast, at any given point in time you can extrapolate when the Social Security system (for example - the same principle applies to any pension that isn't literally cooking the books) will need to start drawing on the general fund, or fail, if it continues operating as it is operating today. It is a bad mistake to just characterize every non-sustainable investment scheme as a Ponzi scheme. For starters, you'd be awfully confused about what is legal and what is illegal...

TimPC 4y ago
This is splitting hairs. You are forcibly invested in social security so you have to pay it even if the numbers indicate you won't be able to get anything back out from it. If the distinction between this and a Ponzi scheme is having the information it's a mighty fine distinction when you have zero ability to act on the information you have.
- justin66 4y ago
  It’s the difference between defrauding people or not, among other things. Wow. > when you have zero ability to act You have hit another item (do I have the option to opt in?) on the “differences between social security and ponzi schemes” bullet list, but you are pretty aggressively missing the point, I think.

imtringued 4y ago

You know, the problem with both is actually the same. The home owner and pensioner both rely on a young population that will take care of them. Owning a home only reduces the need to build one, which is better than nothing but it does not reduce the need to farm food for example.

Ericson2314 4y ago

This is a bad diagnosis. Remember, the "stocks" here, are all fiction. production at time t pays for retiree consumption at time t. Likewise housing prices are a waste of time when we should all rent, and there should be a land view tax (rent-turtles all the way down). "Pay as you go" pensions scheme is good for the same reasons as LVT is good. I believe society could function with a shorter work-week so I sure as hell am not worried about needing to raise the retirement age cause people are living longer. If we need more productivity, abolish suburbia.

epolanski 4y ago

> But much of our society is built on real estate growth As an italian, I don't get that. I bought a 240k euros home for 25k in advance and 550 €s month of mortgage for the next 30 years. And in 30 years I will pay nothing, neither rent nor mortgage. That's why I did that. Real estate growth wasn't even in the back of my mind. I bought a home to have MY place, and to stop paying 750€ plus rent to some landlord. Rent will also go up with inflation, mortgage payment will get smaller and smaller meanwhile thanks to inflation. I just don't understand the whole estate growth thing at all.

TimPC 4y ago
The idea in North America is that homes are mostly investments. The real estate market grows and the home accrues additional value. At some point in retirement, typically when stairs become too difficult you might downsize to a condo, cashing in a fraction of the value. Alternatively, if you need a nursing home you sell the house to pay the exorbitant costs associated with that. The motivation for homes to be investments is that we are taking out the largest loan we will ever have and allocating more than 100% of everything we own into an asset. Having done so it's natural to want that asset to generate returns.
- epolanski 4y ago
  This is so alien to me. It's a place to live, it has walls, it has a resell value but it's not the main purpose of it. And all investments are risky by definition. One should buy a house because one wants to save money, compared to renting, and have its own place, if you are buying for a price increase it's called speculation. If it is speculation, then you should not depend on it for your future and should put little money into it not decades of mortgage. This is so linear to me. The idea that things keeps getting value forever is flawed and a house is too important and expensive for this kind of speculation.

furbyhater 4y ago

I think the ponzi-scheme is the lie of eternal growth with finite resources (real estate included) combined with the "trickle-down" narrative. It's a pyramid scheme in the sense that it will collapse by its sheer weight before the "trickle-down" effect reaches a critical mass of the population, but those at the top will be very well-off by then anyway. It's maybe just a parameterization problem (wrong initiatives).