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Comment by pjc50 | Hacker News Reader

Inflation is already almost zero in much of the West. People demand growth because they want to get richer, regardless of the prevailing conditions.

I would also like to point out that if there were to be no growth and no inflation (edit: and a static population level!), then the only way to add a dollar to your pile is to permanently make someone else a dollar poorer. That seems likely to accelerate the lethality of the billionaries vs. hungry poor conflict rather than de-escalate it.

> inflation will erode their savings

> compete harder and harder just to maintain his/her existing standard of living

These are two different things. Savings are a stock, "standard of living" is a flow. The distinction matters here because GDP measures flows; the two are related through the money equation "MV=PQ".

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> Inflation is already almost zero in much of the West.

pet theory: Inflation is way way more than zero almost everywhere (prices of services and rents reflect this), but high inflation is masked by increased supply chain efficiencies, cheapening (in some cases worsening) of products and other factors, which keep prices of physical products relatively stable.

There's a real discussion to be had here, but we have to be careful not to move the labels too much. The economics term for differential inflation in various goods is "Baumol cost disease": https://www.vox.com/new-money/2017/5/4/15547364/baumol-cost-...

Tremendous graph there.

Basically, services that have to be provided by western labour in the west have got much more expensive, while goods that can be imported have got much cheaper.

> Basically, services that have to be provided by western labour in the west have got much more expensive, while goods that can be imported have got much cheaper.

This is broadly true though the bit about the West and imports is unnecessary. Manufactured goods have gotten cheaper whether imported or not in real terms, and services get more expensive in relative terms as a consequence. Some of this is probably a result of government misregulation but not all. Cosmetic surgery isn’t covered by insurance, nor is LASIK or hair loss treatment and in inflation adjusted terms prices have been basically flat for over a decade, neglecting the huge increases in quality. Education probably has similarly large inefficiencies, even outside institutions that exist only because of easily available student loans and non-existent quality control like the University of Phoenix.

But Cost Disease is the inevitable product of economic growth. The more capital you have the more labor will be paid because Money is just less valuable to you when you have lots and labour vice versa.

A long report on Baumol’s cost disease in the US context and internationally.

https://www.mercatus.org/system/files/helland-tabarrok_why-a...

> This is broadly true though the bit about the West and imports is unnecessary. Manufactured goods have gotten cheaper whether imported or not in real terms

This must be interpreted in the context of a large fraction of manufacturing moving off shore in the last 75 years. Manufacturing which remained has become significantly less labor intensive (because that which didn’t has moved to lower labor cost locations).

I don't think it's about imports / foreign production, but about the requirement of labour of high income workers generally. Domestic agriculture and manufacturing have experienced less inflation than medicine and education because they have reduced their dependence on labour with greater mechanisation and efficiency.

I think there's also an effect that people are increasingly able to tolerate working very low economic value jobs, because productivity increases in basic necessities of survival, like food and transportation, make this possible. These people are then priced out of healthcare, education, and quality housing. The decreased consumption of expensive labour-based services then decreases their weighting in measures of inflation, allowing them to further inflate, yet overall inflation stay low.

Inflation is the opposite of cheapening, so I don’t see how that can be.

What you may be feeling though, and what isn’t calculated in any numbers, are the increases in volatility, which is itself a cost. The volatility of not living in the few economically burgeoning regions, the volatility of having to keep moving up the ladder or else falling behind, increased years of education and loans for what may or may not be a lucrative career, etc.

Parent is probably referring to "shrinkflation": rather than charge 10% more for a box of cereal, make it 10% smaller for the same price. Or otherwise reduce the cost of inputs.

> volatility

Definitely worth having a discussion on this, although we need to define the reference period - volatility was high in the 60s, 70s, and 80s. Arguably it was only low in the ""end of history"" period between the fall of the Berlin wall and the 2008 crisis.

Cheapening was just one of the above comments points... strange to try and dismiss it on that part alone.

But yeah, if I add filler to my soap so that it costs me 20% less to make, but requires you to use 20% more for efficacy, I've cheapened the good, and inflated it's cost.

It's asset inflation, which is where most of the Fed's inflation (eg many trillions of dollars of overvaluation into the stock market) via artificially low rates has gone since the Clinton and Bush years when they helped to spark the stock market bubble (#1, #2 and now #3) and then the housing bubble that way. Then they openly admitted to intentionally reinflating the housing market with their various market interventions and low rates.

Whenever economists claim inflation is low, they're almost always exclusively talking about traditional consumer goods (in which case it is low for the most part). They comically go out of their way to ignore the inflation in housing, healthcare, education and various asset classes.

Warren Buffett likes to regularly point out that the Fed's rates act like gravity on stock valuations. The lower the rates, the less gravity. The same is largely true of how housing is affected by the Fed's rates. If you want to absolutely crush housing prices, push Fed rates back up to where mortgage rates are at 15-20% again. What that all really means is, the lower the rates, the more asset valuation inflation occurs. It's just that for amusingly convenient reasons (ie to pretend inflation is lower than it is), most economists like to pretend that asset inflation doesn't count as real inflation in their models.

> Whenever economists claim inflation is low, they're almost always exclusively talking about traditional consumer goods (in which case it is low for the most part). They comically go out of their way to ignore the inflation in housing, healthcare, education and various asset classes.

This is false. The CPI weights the basket of goods that comprise the index based on the types of goods that people actually consume, which includes housing (either in the form of rent or mortgage payments), energy, as well as food and consumer goods. It adjusts for consumption patterns monthly, and re-weights the entire index every 2 years.

The BLS surveys rental prices as well as calculating something called “owner equivalent rent” for owner-occupied housing.

> The OER and Rent indexes have the largest weights of the 211 item categories (item strata) that comprise the CPI market basket. As of December 2008 their shares of the total weight (their relative importances) in the CPI for All Urban Consumers (CPI-U), were 24.433 percent and 5.957 percent, respectively.

[1] - https://www.bls.gov/cpi/factsheets/owners-equivalent-rent-an...

> Warren Buffett likes to regularly point out that the Fed's rates act like gravity on stock valuations. The lower the rates, the less gravity. The same is largely true of how housing is affected by the Fed's rates. If you want to absolutely crush housing prices, push Fed rates back up to where mortgage rates are at 15-20% again. What that all really means is, the lower the rates, the more asset valuation inflation occurs. It's just that for amusingly convenient reasons (ie to pretend inflation is lower than it is), most economists like to pretend that asset inflation doesn't count as real inflation in their models.

I know what you're proposing will be very unpopular but I have an idea that will be even more unpopular: a federal property tax on land + buildings at (five percent of property valuation) per year. There will be absolutely no exceptions for anyone. Everyone must pay. This money will mostly go back to local governments, toward infrastructure and utilities (mass transit, water, electricity, fiber Internet, sewage, garbage collection, education, ... ideally automated as much as possible) and a portion will go to supplement VAT to pay for supplemental universal basic income (in addition to the freedom dividend) that more than covers the new property tax on a one bedroom somewhere in the continental United States (so not necessarily midtown Manhattan).

The key difference in what I propose is the lack of exceptions. Everyone must pay regardless of whether it is a strip club or a church. You don't pay, you get evicted within fifteen years or however long we decide. I recommend eviction should happen when unpaid taxes reaches 100% of property value.

My Hope is that this will absolutely crash the housing market and stop this irrational speculation in the housing market.

What you're describing would completely cripple the economy and raise rents rather than lower them, the opposite of what you hope for.

A severe tax on property would simply force property owners to raise rents. This in turn would price people out of the market. The housing stock would suffer as property owners would have no excess funds to make improvements and repairs to property. Building of new property would slow as the market for property deteriorates.

Beyond that...

VAT has had disastrous effects on European economies (go look at the price of goods in Europe. Significantly higher in real terms than in the US). Part of this lies in the way VAT obscures the tax portion of cost, allowing governments to surreptitiously raise taxes. This has happened in most developed countries where VAT is implemented.

You also mention government doing many wonderful things with its newfound revenue, but the reality is that government spending is usually wasted on bureaucratic bloat and other inefficient allocations.

> A severe tax on property would simply force property owners to raise rents. This in turn would price people out of the market. The housing stock would suffer as property owners would have no excess funds to make improvements and repairs to property. Building of new property would slow as the market for property deteriorates.

I am not an economist but this implies property owners are leaving money on the table right now. I don't think that is the case. The market already charges as much as renters can afford to pay. There is not much room for rent to go up.

> You also mention government doing many wonderful things with its newfound revenue, but the reality is that government spending is usually wasted on bureaucratic bloat and other inefficient allocations.

I absolutely agree with you on this one. This is why I want as much automation as possible. However, having worked in the private sector, I can assure you bloat and inefficiency happens in both public and private sector. The main difference I think is that things are much more transparent in the public sector.

In what way have the VAT had disastrous effects on European economies? Goods are more expensive, but that is no disaster.

Normally we use the term "evicted" to imply someone with a lease no longer gets usage of the property; but in this case, these people own the property, so what are you saying happens then? Does the property get given to the government, who then... sells it? I am not complaining (yet), I just want to understand what happens in your mind after the "eviction" as the term isn't clear for me in this context.

> Normally we use the term "evicted" to imply someone with a lease no longer gets usage of the property; but in this case, these people own the property, so what are you saying happens then? Does the property get given to the government, who then... sells it? I am not complaining (yet), I just want to understand what happens in your mind after the "eviction" as the term isn't clear for me in this context.

exactly. the property returns to the market to someone who is willing to pay the property tax.

Why 5%? That's enough to very nearly double the recurring cost of my house (mortgage, insurance and taxes), which seems overly punitive. Does this get offset somewhere else? Looking at a few quick numbers from Google, just residential property alone would add 50% to current US tax revenues. I'm guessing that means we'd be in the ballpark of doubling Federal tax revenue. I guess that's not necessarily a bad thing, but how do you make sure that money actually goes to the things you listed instead of the military?

It would likely halve the market value of property, causing a massive wave of strategic foreclosures and also mean the revenue would be more like 2.5% of current property valuation.

It would also likely be a massive long-term boost to equity markets, though the transitional financial chaos would be a short-term drag.

It would cause a massive wave of something. The more I think about it, the more insane this idea sounds. If I'm renting and my landlord's costs double, is she going to double my rent? Even if you eased in the tax at something like 0.5% per year, this seems like it would result in an absolute bloodbath in which renters and mortgage holders get wiped out and the lucky few with large cash reserves and no property-backed debt buy up all the land at fire sale prices.

> Why 5%?

I need to make it high enough to 1. make home ownership expensive enough that people who own "too much" pay their fair share 2. to pay for the supplemental basic income that covers this high tax for a modest one bedroom unit so I don't end up killing people who are willing to scale down.

I actually wanted it to be slightly higher than seven percent so you end up paying the sticker price of the house once every about ten years but that seemed a little too extreme.

Why do so many plans such as this exist which serve to enrich our government with so much more funding when they are currently incredibly bad at spending what they have? The US spends more per capita on education than many countries who are ahead of us. Construction of public transportation is filled with corruption and inefficiency. So many tasks still require snail mail or physically going and waiting in a line when they could be done online. Why don’t we focus on getting our government to spend effectively before giving them more to spend?

Why can't we work on both problems at the same time?

You're begging the question of whether both are problems. There are plenty of people who would argue that the US Federal government already has plenty of income.

I think "everyone must pay" is even more politically infeasible than setting the tax at 5%, sadly.

> I think "everyone must pay" is even more politically infeasible than setting the tax at 5%, sadly.

This surfaces how little say individuals have in our public policy. I specifically added a clause that would more than offset this tax for a modest one bedroom unit for each individual over the age of eighteen. However, I suspect you are right. However, there will be massive lobbying to kill this proposal before it can even gain any traction. Huge data centers, ware houses, grocery chains, malls, sports stadiums and all these things don't actually pay that much in property taxes and claim that they operate on such razor thin margins that they simply can't exist without a zero percent property tax. These institutions threaten to pull out from our communities if we don't give them rebates on property taxes. Well I'd like to see where they move to when we have a federal property tax!

Outside of the US is my guess for data centers.

Some other assets besides houses and stocks that you see inflation in are education and health...

> Inflation is already almost zero in much of the West

I'm not an economist, but the Big Mac Index would suggest otherwise.

> then the only way to add a dollar to your pile is to permanently make someone else a dollar poorer

What's suggested is not to stop the production of wealth, but the rate of growth of production of wealth.

Please please please can you (and everyone else) be clearer about whether we're talking about stocks or flows, and whether we're talking about money, financial assets or physical capital assets when we say "wealth"? Otherwise I can't make sense of this.

Efficiency gains from technology advances in past 20 years have masked inflation. Look at industries like houses, healthcare, and education which tech hasn’t optimized to the same extent and you see massive inflation

Inflation, using the usual definition, cannot be 'masked by technology' as technology is one of the things that legitimately determine general price level. Inflation counts and always counted general price level with effects of technology advancements taken into account. So the poster you are replying to has it right: inflation is low.

I think the argument is that technology "should have" led to a massive deflation as the price of a bunch of goods and services crashed due to automation; but, instead, that value has been being captured by a combination of people "at the top" simply making more money (hiring fewer people but keeping prices the same somehow, maybe due to supply chain oligopolies or intellectual property barriers <- this is all ancillary to the point, btw, and yet the point doesn't feel complete or honest if I don't add this first effect) and the levers that can be used to cause inflation (which I think are what people are really talking about here when they say "inflation": not the measurable result, but a specific set of deliberate causes of an upward force--whether or not the sum of all forces, in total, is up--on that measurement), the latter of which then leading to an "on average" leveling of the inflation measure where the price of things that can be automated goes down slightly (instead of dramatically) while the price of things that can't be automated goes up.

I agree that technology advances would have lead to massive deflation without all the money printing. The point of money printing is to do precisely this, so that the measure of economy does not get out of sync with the size of the economy. https://www.amazon.com/Lords-Finance-Bankers-Broke-World/dp/... is a great book that touches the topic -- it also shows this discussion is not new.

I also agree that the chosen transmission mechanism of money creation (buying bonds and stocks by central banks) might have lead to worsening inequality. I like the Yudkowsky treatment at https://www.lesswrong.com/posts/tAThqgpJwSueqhvKM/frequently... .

But I still think that the inflation is low and if we want to describe the problems that are happening even though it's low, we should create new language, not shift the current one.

It’s not zero sum, even during recession, because each year the economy is still adding its GDP even if it is not growing. You don’t have to take someone else’s, but you might all take less than the potential.

> because each year the economy is still adding its GDP even if it is not growing

Er .. "economic growth" and "increasing GDP" are usually considered to be synonyms? Do you have alternative definitions?

I believe they may be referring to the idea that not everything is consumed in the year it’s produced. Infrastructure, for example, is useful years or even decades after it is built (and, presumably, counted in GDP).

To make it concrete, if there are two people in the economy: Alice and Bob. The only products that are exchanged is clothes and shoes. Every year, Alice sells 100 Galleons of shoes to Bob and Bob sells 100 Galleons of clothes to Alice. So the GDP of their economy is 200 Galleons. But assuming that shoes and clothes don't decay in one year, Alice and Bob will become wealthier and wealthier in apparel every year.

They will still earn the same number of Galleons each year though, so GDP stays the same.

Perhaps surprisingly, neither capital stock nor asset price inflation is counted.

If your GDP is $100 billion and your growth rate is 0%, you're still adding $100 billion to the economy every year (assuming that not all wealth is not consumed within the same year).

If your GDP is $100 billion and your growth rate is 0%, then next year your GDP will be $100 billion. This is normally considered to be "economy is the same size", not "added to the economy".

GDP is nothing to do with wealth and entirely to do with income.

Do you know if your assumption is true? GDP ignores depreciation/destruction.

> I would also like to point out that if there were to be no growth and no inflation (edit: and a static population level!), then the only way to add a dollar to your pile is to permanently make someone else a dollar poorer.

Is this really true? Aren't you mixing up production growth with production?

Imagine I live alone on my small farm in the middle of nowhere. I produce 20 bags of wheat every year. I eat 19 and save one. So every year I add one bag of wheat to my pile. No one else gets poorer. Or does the existence of the wheat in my barn somehow decrease the value of all other wheat in the world?

> Or does the existence of the wheat in my barn somehow decrease the value of all other wheat in the world?

If you are so remote that the wheat is guaranteed to remain off the market forever, no matter if your starving neighbour comes and offers you a fortune for it? Perhaps. Otherwise the answer has to be yes.

It's not just me saying it, it was one of the more important cases the US Supreme Court heard in the 20th century: https://en.wikipedia.org/wiki/Wickard_v._Filburn

> It's not just me saying it, it was one of the more important cases the US Supreme Court

They might be the authority on who can tax who, but I don't trust them to know how the economy "really" works.

I think more accurate assumption would be that any increase of productivity on your farm (say going from producting 20 to 25 bags per year) would need to be met with a corresponding decrease of productivity somewhere else in the economy - it's the only way to maintain zero growth.

Yes, that is obviously true. But that is not what was claimed in the comment I answered too.

Your growing pile of wheat incurs increasing storage and maintenance costs over time. This will be measured as positive growth, and if growth is 0 in the overall system, by definition it needs to be negative in some other locality.

> Your growing pile of wheat incurs increasing storage and maintenance costs over time.

That is quite neglible. The barn will stand there wether there's any wheat in it or not.

Eventually you will need another barn

For the argument I can stop saving wheat after the first bag.

Inflation is not zero. In terms of consumer prices, yes, but inflation goes into the stock exchange and props up values for absolutely no reason. There is no massive increase of productivity across the board so net valuations of companies have no reason to grow that fast as we see now. That is pure inflation propped up by cheap money you can borrow with minimal risk.

>I would also like to point out that if there were to be no growth and no inflation (edit: and a static population level!), then the only way to add a dollar to your pile is to permanently make someone else a dollar poorer.

That's fine when wealth distribution is "the 0.01% owns 80% of the wealth".

Plenty of dollars to go around...

How real is that wealth? Tesla is worth billions, it hasn’t ever had a profitable year.

The more I learn about how money works, the more I think of it as a convenient work of fiction — and worse, one that means fundamentally differently things to normal and super-rich.

The wealth of billionaires is quite 'real', as long as it's much smaller than the overall amount of money available.

To take a simpler case, take "quantitative easing", QE, which is a euphemism for printing money. Is that money real? Yes. And it will continue to be until people lose confidence in the currency. Remember that money is data - to print a billion dollars a central bank tells their software to do a quick `moneyToLoan += 10e9`.

The wealthy do play a different game, though. The game you play as labor is to keep yourself and your family alive, healthy, and comfortable. This game, call it game 1 is winnable! And when you win that, you get to play another exclusive game, call it game 2 which is 'allocating capital to make even more capital'. (Of course, you don't have to wait to win game 1 to play game 2, and since most people consume in proportion to income, the goalposts move, effectively keeping them in game 1 forever). But game 2 is the game that government plays, but in miniature. It's the game of power; a nice pot of money lets you reach out into the world through labor and do anything the human hand or head can do. The geeky idealists want to do something really big, like settle Mars. The cynical egoists just want MORE, and are willing to commit planetary suicide for a little extra.

It’s real, but it doesn’t always take the form of dollars (probably the most popular misconception). Warren Buffet is a billionaire, but most of that wealth is locked up in businesses that are producing products. If he really wanted all of that cash, he’d have to find a buyer or liquidate those businesses (probably at a loss).

> Inflation is already almost zero in much of the West. Not sure about the USA, but real inflation is closer to 7-8 percent in Europe, wage growth falling behind.

"Unbiased private-sector efforts to calculate the real rate of inflation have yielded a rate of around 7% to 13% per year, depending on the locale — many multiples of the official rate of around 1% per year" https://www.businessinsider.com/if-people-knew-the-actual-in...

In my country (Hungary) grocery prices rose an average 38% from last year for example.

Housing prices in my region are up 33% in 10 years. But I can buy a µC with internal memory, ad converters and countless I/O ports and interfaces for the price of a coke. The coke is actually significantly more expensive.

I like µC, but housing is really great too.

What you are referring to is called biflation. Unfortunately in the current economic climate things that actually have impact on quality of life (housing, food, etc) are becoming more expensive while electronics and other things more on the cheap entertainment side are getting cheaper.

No it really is not. CPI-U is manipulated to make it seem like inflation is almost at zero therefore limiting the cost of living increases for SocSec and other government programs.

So instead of having a 2% CPI, we actually have closer to 9%

It also allows companies cover for Wage Compression because many employers base at least part of annual raises on "Cost of living Adjustments" so if the government is saying Inflation was 1.9% well then the cost of living adjustment for my salary may be 2% with another 2% for performance based or 4% total. But if actual cost of living went up by 9-13% which is likely my real buying power for the next year dropped by 5%.

Question is whether you deserve salary gains to cover financial inflation, or if price cuts did to technology advancements are good enough.

Rent, Food, Gas, Utilities are the biggest drivers for personal cost of living increases, these do not have price cuts due to technology.

All 4 of the big household expenses are increasing at a rate of 7-20% depending on where you live

Where is this actually true? I split my time between the Bay Area and rural Oregon and in neither of those locals has any of those 4 items gone up by 7% in the last year.

Where are food prices going up? I can't say I've noticed it where I live.

Make sure your package sizes aren't getting smaller. 12oz cans are 10.5oz cans in most places now. Also in commodity foods, research if the government has increased subsidies to farms so the price stays the same for the end user.

Then you are not accurately tracking your food costs by unit of measure. Nor tracking pricing at restaurants.

I have seen a combination of both Shrink and Price increases. The cost of eating lunch at my favorite restaurants has steadily increased, and the Average price per unit for normal groceries has increased on a weekly basis. Even if your bill remains the same, that 32oz Ketchup is now probably 28oz

Looking at some commodity index's Beef is about 2x the price it was in 2009, Bananas are about 40% higher than 2009, Milk over 2x higher than it was in 2009.

So I really do not understand what data you are looking at that shows food prices are not going up? Both Empirically and Anecdotally my food costs are increasing

What data sources are you looking at? According to this website which is basing their data off of the U.S. Bureau of Labor Statistic, it shows beef is up 40% [0], bananas are down 5.58% [1], and milk is up 8.56% [2] since 2009 which is way less than what you are quoting and even the beef only averages out to 3.44% inflation per year.

[0]: https://www.in2013dollars.com/Beef-and-veal/price-inflation/...

[1]: https://www.in2013dollars.com/Bananas/price-inflation/2009-t...

[2]: https://www.in2013dollars.com/Milk/price-inflation/2009-to-2...

I track my spending to the penny and this simply isn't the case in the Bay Area.

If we assume that economic efficiency grows over time even in a non-inflation society, then it seems to me that the zero sum game argument doesn't exactly hold.

> Inflation is already zero in much of the West.

There is no way this is true. Real world inflation (the kind all working people experience directly) is somewhere between 5-10% year-over-year in the US + Canada today.

You can't just make that claim with absolutely no evidence to back it up.

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