Comment by msandford | Hacker News Reader

Comment by msandford | Hacker News Reader

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A huge part of the problem here is the low, low interest rate environment we're in. Low interest rates make expensive machines cheaper than humans. High interest rates make humans cheaper than machines. (For a range of values of cheaper)

Being able to afford a $300k house on $50k/year is great until you don't make the $50k/year anymore because you've been automated out of a job.

In the past people with a lot of money could invest their money and see a fairly stable, secure return of 5-15% a year depending on the exact risk profile of their investments; savings accounts -> stocks.

Now if you have a lot of money you can buy businesses and replace people with capital equipment. Better returns than investing in the stock market (or bank accounts!) and it's basically off-limits to people who don't have 7+ figure amounts of cash. Which statistically is basically everyone.

Higher interest rates would let the rich enjoy more work-free income but it also keeps normal people in jobs. And it provides some kind of incentive to save; interest in a bank account is basically scale-free.

I think maybe that's another one of the problems we're seeing, opportunities to grow your wealth aren't scale invariant. A little money has very, very few opportunities to earn interest. A lot of money has a many opportunities to be grown.

This is nonsense. Various funds available to ordinary people, including pension funds, do invest in the hedge funds and private equity funds. If anyone were actively buying businesses and replacing people with capital equipment, it would be these groups.

Not really - that's kind of a false dichotomy.

Low interest rates are present to stimulate spending. It allows for investments in capital expenditures (e.g. machines) that would otherwise have up front fixed costs that made it unattainable.

This can allow for businesses to invest into new markets or expand where they otherwise would have not spent anything.

> opportunities to grow your wealth aren't scale invariant.

This can be solved by pooling your capital with a group of people until you reach the scale at which the opportunity you were looking for becomes available. One way this has been done for over a century is via mutual funds.

> Being able to afford a $300k house on $50k/year is great until you don't make the $50k/year anymore because you've been automated out of a job.

It doesn't even work like that. Rent is basically fixed by the average income level. The price of the house is then annual rent / interest rates.

I agree completely. But "owning" a $300k house makes people feel a lot richer than "owning" a $120k house, even if they're the exact same house! You're right that payments are the same, because housing prices are driven by monthly payments not the dollar amount that you're signing for.

Which is part of the problem, too. When mortgage interest rates fluctuate between 6-10% say, a person doesn't get terribly underwater that fast. But when they fluctuate between 3% and 7% a person can go from equity->underwater in a hurry, because the price fluctuations are so much larger.

It's basically a y=1/x kind of problem and the closer you get to x=0 the closer you get to y=infinity in a very nonlinear way. Which is great if you bought a house a x=more and sold a house at x=less because you made huge gains. But if you bought at x=less and are trying to sell at x=more you can be very, very underwater.

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