8 ms·

There's something about the dynamic proposed (and said to exist currently) that I'm not understanding (I know little of economics). You would think that becaus

There's something about the dynamic proposed (and said to exist currently) that I'm not understanding (I know little of economics). You would think that because of all the automation causing the low employment and the aggregation of wealth into only a small number of people's hands that prices would not go up because most people had less money to spend cause they're not working. But in many places (Bay Area) it seems like a lot of people are benefiting from the tech boom, enough that they do drive up prices. But how can such a small percentage of the population (what percentage of the population in the Bay Area works in tech?) affect things so universally? It seems like there might be enough benefit to the automation to go around but would require people to shift their skill sets?

crdoconnor 13y ago
>But in many places (Bay Area) it seems like a lot of people are benefiting from the tech boom, enough that they do drive up prices. But how can such a small percentage of the population (what percentage of the population in the Bay Area works in tech?) affect things so universally? With housing it's because they purchase it as an investment, not as a place to live in. With treasuries earning almost nothing, reliable stores of wealth are few and far betwen. That makes housing popular. It wouldn't be so bad if wealth inequality wasn't quite so extreme.
nkoren 13y ago
> You would think that because of all the automation causing the low employment and the aggregation of wealth into only a small number of people's hands that prices would not go up because most people had less money to spend cause they're not working. Prices are determined not by what most people can afford, but by what makes the most money for the seller. To use a contrived example, imagine you are selling a product with no marginal cost to a population with very high inequality. This population consists of 50 people who can afford to pay $1 for your product, and 1 person who can afford to pay $100. How much do you, the seller, charge for your product? You can sell it to 50 people and make $50 profit, or one person and make $100 profit. Therefore you charge the higher price for the product, even though the population is overwhelmingly poor. With a more realistic income-distribution, this same phenomena causes prices to be dictated more by mean incomes rather than median incomes. As society becomes more unequal and the gap between mean and median widens, you therefore can have prices increasing even as the vast majority of people get poorer. (There's a traditional mechanism for dealing with this: price discrimination. In the contrived example above, the perfect solution would be to differentiate your product into a $1 product for poor people, and a $100 product for rich people; this results in the optimum utility for buyers and sellers alike. Unfortunately, this kind of price discrimination is becoming increasingly difficult in today's disintermediated world: the millionaires I know are as happy as anyone else to order off Amazon. So goods and services increasingly tend to have a single price, and that price is increasingly set by the mean.)
- yummyfajitas 13y ago
  This population consists of 50 people who can afford to pay $1 for your product, and 1 person who can afford to pay $100...You can sell it to 50 people and make $50 profit, or one person and make $100 profit. This is true for a single monopolistic market incumbent. On the other hand, if I (the upstart) want to make money, I'll charge $1. I don't care if I just cost you $100 and I only gained $50 in profit - my choices were either getting $50 (by selling at $1) or $0 (by selling at $100). The real estate market is pretty competitive - it's not as if a small oligopoly owns all the land. So if rent is going up, you should be asking what what prevents upstarts from buying up a city block and building a gigantic low cost tower block to house everyone. (Hint: insane SF zoning regulations.)
  - brudgers 13y ago
    It's more than zoning regulations. It's the difficulty of aggregating a large enough parcel. There are two ways to own an urban block: acquire it parcel by parcel over time or purchase it from someone who has acquired it parcel by parcel over time. [1] Obviously basic market place principles play a role. Remaining parcels go up in value as the block becomes increasingly under single ownership and because other people are trying to do the same thing [2]- identifying prime parcels for redevelopment is easy for obvious parcels and there are lots of eyes looking for less obvious parcels. [1] ok, sometimes you can get the government to condemn the block and turn it over to you in one fell swoop and that's probably the most cost effective in many places. [2] The third to last parcel on a block remaining to be aggregated has often improved its location because of the aggregation process and hence commands a much higher price than paid for parcels already part of the aggregate.
    - nitrogen 13y ago
      I seem to recall a story that Disney used a network of shell companies to conceal its aggregation of the property on which Disney World was built to avoid the effects you mention.
      - 13y ago
michaelochurch 13y ago
But how can such a small percentage of the population (what percentage of the population in the Bay Area works in tech?) affect things so universally? Housing prices are extremely inelastic. Reduce supply by a few percent, and prices will go up several times. I'd bet that if 2% of the housing in any major city disappeared, you'd see prices and rents go up 50%. Most commodities have a short-term elasticity and a long-term elasticity. For example, supply problems with oil cause short-term oil shocks but in the long term, people adapt by driving more efficient cars, and more suppliers can come online. With housing, long-term adaptation doesn't happen because of all the NIMBY regulations, bought and paid-for by (no surprise) rich people. Real estate is an area where a few rich people, buying second and third homes (remember inelasticity), fighting new development, and generally being dickheads, can cause massive pain.
waylandsmithers 13y ago
Let's not forget that economists (and to a larger extent, people in general) are notoriously terrible at predicting the future-- even the near future, let alone what might happen in 20 or 50 or 100 years. The economy is just too complex. Where economists excel is analyzing and explaining what happened in the past.

crdoconnor 13y ago

>But in many places (Bay Area) it seems like a lot of people are benefiting from the tech boom, enough that they do drive up prices. But how can such a small percentage of the population (what percentage of the population in the Bay Area works in tech?) affect things so universally? With housing it's because they purchase it as an investment, not as a place to live in. With treasuries earning almost nothing, reliable stores of wealth are few and far betwen. That makes housing popular. It wouldn't be so bad if wealth inequality wasn't quite so extreme.

nkoren 13y ago

> You would think that because of all the automation causing the low employment and the aggregation of wealth into only a small number of people's hands that prices would not go up because most people had less money to spend cause they're not working. Prices are determined not by what most people can afford, but by what makes the most money for the seller. To use a contrived example, imagine you are selling a product with no marginal cost to a population with very high inequality. This population consists of 50 people who can afford to pay $1 for your product, and 1 person who can afford to pay $100. How much do you, the seller, charge for your product? You can sell it to 50 people and make $50 profit, or one person and make $100 profit. Therefore you charge the higher price for the product, even though the population is overwhelmingly poor. With a more realistic income-distribution, this same phenomena causes prices to be dictated more by mean incomes rather than median incomes. As society becomes more unequal and the gap between mean and median widens, you therefore can have prices increasing even as the vast majority of people get poorer. (There's a traditional mechanism for dealing with this: price discrimination. In the contrived example above, the perfect solution would be to differentiate your product into a $1 product for poor people, and a $100 product for rich people; this results in the optimum utility for buyers and sellers alike. Unfortunately, this kind of price discrimination is becoming increasingly difficult in today's disintermediated world: the millionaires I know are as happy as anyone else to order off Amazon. So goods and services increasingly tend to have a single price, and that price is increasingly set by the mean.)

yummyfajitas 13y ago
This population consists of 50 people who can afford to pay $1 for your product, and 1 person who can afford to pay $100...You can sell it to 50 people and make $50 profit, or one person and make $100 profit. This is true for a single monopolistic market incumbent. On the other hand, if I (the upstart) want to make money, I'll charge $1. I don't care if I just cost you $100 and I only gained $50 in profit - my choices were either getting $50 (by selling at $1) or $0 (by selling at $100). The real estate market is pretty competitive - it's not as if a small oligopoly owns all the land. So if rent is going up, you should be asking what what prevents upstarts from buying up a city block and building a gigantic low cost tower block to house everyone. (Hint: insane SF zoning regulations.)
- brudgers 13y ago
  It's more than zoning regulations. It's the difficulty of aggregating a large enough parcel. There are two ways to own an urban block: acquire it parcel by parcel over time or purchase it from someone who has acquired it parcel by parcel over time. [1] Obviously basic market place principles play a role. Remaining parcels go up in value as the block becomes increasingly under single ownership and because other people are trying to do the same thing [2]- identifying prime parcels for redevelopment is easy for obvious parcels and there are lots of eyes looking for less obvious parcels. [1] ok, sometimes you can get the government to condemn the block and turn it over to you in one fell swoop and that's probably the most cost effective in many places. [2] The third to last parcel on a block remaining to be aggregated has often improved its location because of the aggregation process and hence commands a much higher price than paid for parcels already part of the aggregate.
  - nitrogen 13y ago
    I seem to recall a story that Disney used a network of shell companies to conceal its aggregation of the property on which Disney World was built to avoid the effects you mention.
    - 13y ago

michaelochurch 13y ago

But how can such a small percentage of the population (what percentage of the population in the Bay Area works in tech?) affect things so universally? Housing prices are extremely inelastic. Reduce supply by a few percent, and prices will go up several times. I'd bet that if 2% of the housing in any major city disappeared, you'd see prices and rents go up 50%. Most commodities have a short-term elasticity and a long-term elasticity. For example, supply problems with oil cause short-term oil shocks but in the long term, people adapt by driving more efficient cars, and more suppliers can come online. With housing, long-term adaptation doesn't happen because of all the NIMBY regulations, bought and paid-for by (no surprise) rich people. Real estate is an area where a few rich people, buying second and third homes (remember inelasticity), fighting new development, and generally being dickheads, can cause massive pain.

waylandsmithers 13y ago

Let's not forget that economists (and to a larger extent, people in general) are notoriously terrible at predicting the future-- even the near future, let alone what might happen in 20 or 50 or 100 years. The economy is just too complex. Where economists excel is analyzing and explaining what happened in the past.