Why Rent Is So High and Pay So Low • Hacker News Board

Re: Why Rent Is So High and Pay So Low

#141

Post by BenoitEssiambre » Sat, Aug 08, 2015, 2:15 AM UTC

nostromo wrote: post #6

This article doesn't answer the question and seems primary based on nostalgia. My theory: the Fed's zero interest rate policy is very good at inflating asset values: S&P500, housing, you name it. Rising income is a second-order effect: we hope that rising asset values will lead to increased wages. That used to be the case, but no longer is. Why? Because of automation and globalization probably. So, the Fed has the pe…

This is incorrect. Fed only increases asset value because it increases the value of an asset relative to its revenue generation capacity. Interest rates are a revenue to asset ratio. This means residences are worth more relative to their rents but not that rents are higher.

Rising income may be a second-order effect but the low rate at witch it is happening is because the fed is not stimulating enough and constantly missing its inflation target. If it were, employers would be fighting for employees and wages would grow.

It's true that the wealthy own most of the assets that gain value with fed stimulation. However, they can only capture that value if they sell them and spend the money while the feds are stimulating. The total future revenue generation of assets is not greater, only the relative value of selling and spending the money now (which incidentally creates jobs and raises wages). The other thing that becomes highly valued when central banks stimulate is the creation of new assets, another thing that increases employment.

The Fed does not have "the pedal to the medal" for that it would need to promise to allow inflation go higher which it seems mortally afraid of.

Re: Why Rent Is So High and Pay So Low

#142

Post by enraged_camel » Sat, Aug 08, 2015, 2:33 AM UTC

danieltillett wrote: post #55

enraged_camel wrote: post #47

Earlier quoted context omitted.

Counter-data: Paris Hilton.

Actually Paris is quite smart, she just plays an idiot for the masses. Even if she was an idiot, it proves nothing. There are plenty of dumb rich as even with assortative mating your children will be normally distributed, just from a higher mean.

>>Actually Paris is quite smart, she just plays an idiot for the masses.

People said the same thing about George W. Bush. We have yet to see any evidence for that assertion, both for him and Hilton.

>>There are plenty of dumb rich as even with assortative mating your children will be normally distributed, just from a higher mean.

Quite a bold claim. I'd like to see a citation.

Re: Why Rent Is So High and Pay So Low

#143

Post by tcbawo » Sat, Aug 08, 2015, 2:38 AM UTC

adam419 wrote: post #100

tcbawo wrote: post #74

Earlier quoted context omitted.

This is a gray area. If we allowed a large automaker to go bankrupt, we probably would have lost the supply chain and many supporting industries which would be gone (from the US) forever. Same with banks. As much as we detest bailing out bankers, allowing the US to economy to be cut off from credit would create lasting collateral damage.

Creating too bigger to fail out of already too big to fail industries does nothing except throw good money after bad, and increase systemic risk for an even worse repetition of a failure. Not to mention the fact that continuously proceeding with such bailouts is simply unsustainable. The problem lies in our modern inability to stomach losses and handle austerity. It's something no one rightfully wants, but when marke…

Morality aside, the US government acted in its own self-interest by protecting industries within its borders. It is likely had any major US automakers been liquidated, more wealth would have been destroyed than created.

Extending the organism metaphor, forest fires can be a naturally occurring healthy event that promotes renewal. Sometimes, a fire will burn with enough intensity that the forest itself is destroyed. Should we try to prevent all forest fires, the most destructive fires, or let nature take its course?

Re: Why Rent Is So High and Pay So Low

#144

Post by BenoitEssiambre » Sat, Aug 08, 2015, 2:49 AM UTC

adam419 wrote: post #48

nostromo wrote: post #6

This article doesn't answer the question and seems primary based on nostalgia. My theory: the Fed's zero interest rate policy is very good at inflating asset values: S&P500, housing, you name it. Rising income is a second-order effect: we hope that rising asset values will lead to increased wages. That used to be the case, but no longer is. Why? Because of automation and globalization probably. So, the Fed has the pe…

Here's another solution: Respect the wisdom of markets. Allow corrections to take place and don't bury malinvestment under the rug only for it rear it's ugly head worse later on by acting as if you have a better intuition on what the price of money should be. Most people accept the virtue of free markets. Yet many don't see that the actions the Fed has been taking destroys the concept of a market by artificially supp…

The value of money is completely determined by fed actions and allowing it to drift in detrimental value paths would be the farthest thing from respecting the markets. Economy wide "malinvestment" is not a thing. It entails that a person living off of others is more productive than a person working. It's nonsense.

Although money should be just an intermediary tool for trade and negotiation, an artificial asset that is neutral, in the short run this intrinsically valueless paper can distort the markets, even if it has predictable value, but only if it is manipulated into being a store of value that has a better risk adjusted return than private market stores of value.

Paper money has no intrinsic value in itself. If the fed keeps it predictably devaluing fast enough, always moving it towards its intrinsic value, it acts as a very useful enabler of trade by creating a unit of measurement for value and medium of exchange.

But unfortunately, for fiat to enable trade, it also has to artificially be made into a store of value. If this paper is made into a store of value that retains value better than private stores of value (such as stocks, bonds, or just stockpiles of stuff), it jams the markets for private stores of value. It turns savers into accumulators of pieces of paper or numbers in accounts instead of being holders of things that are backed by economic activity and wealth creation. It becomes a subsidy from investors, entrepreneur, job creators and workers to holders of pieces of paper. It is the worst kind of subsidy because it blocks wealth and welfare creation.

The only way for central banks to allow private markets to function properly, is to get money out of the way by making sure it always devalues fast enough that it doesn't overly displace private stores of value that are backed by real economic activity.

Re: Why Rent Is So High and Pay So Low

#145

Post by bikamonki » Sat, Aug 08, 2015, 2:58 AM UTC

Eh, supply and demand? While the good places are ever harder to find for cheap, we the humans are ever easier to replace. The solution will come from the sharing economy, a sort of airbnb for long-term renting mixed with a facebook-dating-like social net that [almost] guarantees one does not move-in with a Freddy Kruger. I even think we will start seeing two or more families sharing a big house. There is also an incentive to property owners to go this way b/c risk is minimized by the multiple sources of income to pay for the hefty rent.

In general terms, the world of one of everything for each one is ending, all the uber-like business models that are popping around prove it feasible and profitable.

Re: Why Rent Is So High and Pay So Low

#146

Post by [deleted] » Sat, Aug 08, 2015, 4:16 AM UTC

adam419 wrote: post #48

nostromo wrote: post #6

This article doesn't answer the question and seems primary based on nostalgia. My theory: the Fed's zero interest rate policy is very good at inflating asset values: S&P500, housing, you name it. Rising income is a second-order effect: we hope that rising asset values will lead to increased wages. That used to be the case, but no longer is. Why? Because of automation and globalization probably. So, the Fed has the pe…

Here's another solution: Respect the wisdom of markets. Allow corrections to take place and don't bury malinvestment under the rug only for it rear it's ugly head worse later on by acting as if you have a better intuition on what the price of money should be. Most people accept the virtue of free markets. Yet many don't see that the actions the Fed has been taking destroys the concept of a market by artificially supp…

[deleted]

Re: Why Rent Is So High and Pay So Low

#147

Post by api » Sat, Aug 08, 2015, 4:19 AM UTC

habitue wrote: post #33

danieltillett wrote: post #10

Earlier quoted context omitted.

This is not a bug it is a feature. The rich are a lot smarter today than when they were the descendants of feudal landlords - 100 years of meritocracy combined with assortative mating makes for a very clever ruling class. Edit. Spelling.

Holy shit. I hope this is sarcastic

You must be new here. There's a sizable cadre of IQ score worshipping neo-eugenicists around here. More people need to actually study evolutionary biology. Like I mean the real kind with math and combinatorics and stuff. Or maybe I'm just a stupid head.

Re: Why Rent Is So High and Pay So Low

#148

Post by ZeroGravitas » Sat, Aug 08, 2015, 5:13 AM UTC

tomp wrote: post #46

The money quotes: "If house prices fall, the middle aged and middle class will be in an uproar. [...] Perhaps even more critically, banks need house prices to rise, or at least not collapse." "More quality housing would increase its stock, and with supply rising to meet demand, prices would fall. This would be great for young renters, bad for middle-aged property owners, bad for banks. Thus it is not likely to happen…

I've been thinking recently that a political party that specificaly threatens to tax the old rich people in the future for all the stupid stuff they're doing right now might help to make this topic more relevant (thinking especially of climate change denial and propping up property bubbles that transfer rather than generate wealth).

It seems kind of far-fetched, but in the Netherlands people sued the government for not doing enough about climate change and won, and I think there's a youth group suing the government in the states about climate change too.

Not sure if the demographics work out politically though.

Re: Why Rent Is So High and Pay So Low

#149

Post by switch007 » Sat, Aug 08, 2015, 6:46 AM UTC

mrbig4545 wrote: post #39

My rent is low and my pay is high. North England is good for that.

Tell me more. High by southern standards? I'm hearing more and more about high paid tech jobs in the north but haven't seen any figures. I'm sick of the south and seriously considering moving north.

Re: Why Rent Is So High and Pay So Low

#150

Post by thedevil » Sat, Aug 08, 2015, 6:48 AM UTC

This makes me sad. The title sounds promising, as if the article contained interesting analysis. But it doesn't. The author doesn't understand economics... Or anything. He peppered in a few facts and statistics to sound credible, which he probably looked up after he wrote the article. I would accuse him of click bait, but I don't think he understands what that even means.