A medium-quality dinner for two in an expensive city costs 100$. A beautiful kitchen knife costs about that much, but lasts 20 years.
A Broadway musical for a family of 4 costs about 800$. A good mattress costs about that much, but lasts for 20 years.
The given wisdom seems to be that we should value experiences more than things. Good things also cause small dose of repeated joyful experiences.
I am 50 years old, and live a reasonably opulent, upper-middle class, big city life. I am guessing here - all the items in my apartment put together, is probably worth 6 months of my work. A bargain, compared to the joy they give me.
Taking a couple of tennis balls to the local park and throwing them with your kids costs about $5, depending on how many you lose. Going for a run along the beach costs a bus fare. You can camp on the weekend for an initial outlay of a few hundred dollars of secondhand gear plus perhaps $40 a trip. Having everyone bring a plate for a potluck dinner costs slightly more than you'd normally spend for a meal.
I think experiences can be as cheap or as expensive as you like. Essentials are the crux of the article, and without essentials most experiences are harder.
I'm not really sure I see the difference. The point is the experience and how much it costs, whether or not you pay that cost financially or through DIY. And as the previous poster points out, you can get great and life-changing experiences for very little money.
I think what's interesting here is that that's not so true for things. For example, I'm looking into custom ergo keyboards at the moment, and there's lots of off-the-shelf options, but there's also lots of DIY options where you print and solder lots of parts yourself. DIY keyboards tend to be cheaper, but not usually by very much, because fundamentally, the cost of the product is driven by the cost of its constituent parts.
Fundamentally, both things and experiences are driven by supply and demand. Rare experiences that have a low supply but high demand are naturally going to be expensive, just like rare or hard-to-manufacture things. Experiences that can be found everywhere - like throwing a ball around with friends or family - are cheap, just like many common things are.
That said, my intuition would be that the cheapest experiences are pretty much always cheaper than the cheapest things, and the most expensive things (e.g. one-of-a-kind art, rare objects, etc) are generally more expensive than the most expensive experiences.
Well, I think there is a clear difference that I'll try to make clearer. Most people, when they talk about buying an experience, essentially want to do something fairly passive, that is directed by someone else. Like going bungee jumping - pay lots of money, turn up, do as you're told. Or go to a concert - buy tickets, turn up, do as you're told.
As opposed to something like a hike, where you need to contribute a lot of your own decision making and energy into creating the experience. The dollars you spend on food and gear are a bit beside the point.
> Rare experiences that have a low supply but high demand are naturally going to be expensive, just like rare or hard-to-manufacture things.
I don't think the rarity of the experience is relevant. Watching the aurora australis in Australia is rare, but it doesn't cost anything. The cost of experiences is mostly about the labor. Very niche experiences might be expensive because there's a high staff-to-participant ratio, but I wouldn't call that a scarcity cost exactly.
International flights are common but expensive. So are 4 star hotels and fancy meals. And escorts for that matter.
> That said, my intuition would be that the cheapest experiences are pretty much always cheaper than the cheapest things, and the most expensive things (e.g. one-of-a-kind art, rare objects, etc) are generally more expensive than the most expensive experiences.
Probably. Though it gets a bit fuzzy how you define experience. Running for US president is extremely expensive and kind of an "experience". Probably the most expensive genuine experiences you can buy are space tourism trips, which cost in the millions. Although arguably high stakes poker is just an expensive experience for some people.
Rent... a tennis court? I've never even heard of such a practice before. You just wait until there's a free court, then use it. I can imagine places where it's exceptionally popular and the perfect weather where a rental system would be viable, but I'm curious if it's the norm in places.
This is a very US-centric view, where public subsidies for tennis courts exist. In Germany for example, there's no such thing as a public tennis court, as far as I can tell.
Do parks in Germany have basketball courts, football pitches, or baseball diamonds? Is it that parks provide for sports that's US centric, or is it including tennis courts in that set of amenities that's US centric?
There was definitely a public basketball court and a football pitch within a few blocks of where I lived in suburban Münster. So can't speak for all of Germany, but there are some public spaces for the common sports in that country.
In Menlo Park, you have to pay something like $50/yr to get a key to the courts. The key price is higher if you live outside the city limits, in unincorporated Menlo Park (I assume because you're not paying city taxes). Fortunately there are unlocked courts in Palo Alto.
You don't need a tennis court unless you're getting serious. I used to play cricket with apples[0]. As a kid I always had more fun from freeform play than from rules.
(Also strken wrote "throw" so I think they were thinking of a game of catch).
The wikipedia link is for the apple tree genus. The word generic literally comes from the word genus, i.e. they couldn't be less specific when talking about apples.
I think this is just an unfortunately reality of almost any public resource... my community just built a new pickleball complex, but there is still an opportunity for a private pickleball club that has an indoor space. Government is constantly caught in the middle trying to provide resources while also controlling costs and not wanting any project to look like a boondoggle or overspend.
I could look harder, but I think my local parks only have basketball courts and a large field. The biggest park in my town has a baseball field. Never had a public access tennis court.
There are tennis courts in town, but they tend to be part of clubs or whatnot, similar to golf courses. Not public parks.
Or they're always free of charge. I'm also used to there being dozens of free public tennis courts all over town, in multiple parts of the US, in both public parks and schools. I believe even the local private schools have courts that are open to the public.
> Renting a tennis court will cost you more than 5 dollars, even in a public park.
A great example of how even similar experiences can cost whatever you want to pay. You can throw some balls for free or rent a tennis court to do it. Some rich people rent an entire venue for themselves when they go out. You can camp in some nearby woods or go on safari in Africa. Experiences cost however much you want to pay for them. Exclusivity though, that's expensive.
I think baseballs or Footballs (both American and normal) would have been a better metaphor. tennis balls have this odd air resistance to them that make them less satifying to throw with your hands. Which makes sense, since they are designed to be whacked with a racket.
Respectfully, this doesn't have much relevance to the fact that basic necessities like rent and food are significantly more expensive than they were just two years ago.
Housing, transportation, and food account for over 60% of all spending.
Experienes and goods aren't my problem. My problem is that my dwelling costs $500 a month more than it did in 2021 and I live in the exact same place, and I haven't gotten a raise.
Housing is an auction, and a bet on how well the area is going to do. If you live in a place that has very high demand, prices are going to go up if there's no building being done. But it's not all rising prices: My house's value hasn't outpaced inflation through the last 20 years, because it's in the wrong part of St Louis. People with blue collar occupations have no problem buying around me: You can buy a 4 bedroom house for under 300k, and their salaries have gone up far more than the price of the houses.
So house pricing problems? Just localized regulatory problems. We'd have a much smaller problem if more metro areas were attractive to people, instead of having such a big separation between of winners and losers.
Plus, mortgage rates are set at a national level. Your house price went up dramatically in the last two years even though the purchase price didn’t increase because someone new to the neighborhood has to pay a higher monthly payment to buy.
I would argue that the amount of homes that lost value enough to fully compensate the rapid increase in interest rates is going to be extremely low, even in towns and neighborhoods facing rapid decline.
Who do you think are the winners, and who do you think are losers.
You can buy in the wrong part of a city but you will pay much less. Who wins, people who pay less or people who pay less? I think it depends on what they are after.
Between the recent (nationwide) realtor fee debacle and RealPage et al.'s (multi-state) price-fixing, it's probably more accurate to say that housing is a (national) grift.
> basic necessities like [...] food are significantly more expensive than they were just two years ago.
Here on the farm, the price I'm getting when selling food is half of it was two years ago. If I, the farmer, am selling the food for less than two years ago, while you are paying more than two years ago, then it seems experiences are you problem – e.g. you are paying more for the experience of shopping in a grocery store.
If your time is worthless, the least expensive option will be to produce your own food.
If your time has value, the least expensive option will be to buy from a commercial kitchen.
What is reasonable is subjective and depends on the experience you want to have.
If you enjoy cooking as a hobby and are able to afford the high cost of operating your own kitchen, then that will be the only reasonable choice in your mind, and in that case the grocery store will provide a pretty nice experience in simulating wholesale distribution in quantities the hobbyist can manage.
A number of reports suggest that commercial kitchen use is on the decline, so, assuming people aren't eating less, it seems that cooking is gaining in interest as a hobby. Thus it stands to reason that the grocery store can charge that elevated interest more than in times past. That's just basic supply and demand.
You're presumably in America, where they essentially have two kinds of produce: cheap and expensive. Not too much of a middle ground there.
If you produce the former, the shop will purchase large amounts and distribute them to a large audience. You couldn't possibly sell that quantity yourself. The value added is obvious, and their margin is relatively low anyway.
If you produce the latter, the shop will be taking higher margins, but they're much more involved in marketing your product, since they're taking a risk by associating it with their upper-class lifestyle brand. Again clear value added.
Best price for the farmer is always to sell it themselves, but you can only sell a limited amount that way. In Netherland, some smaller farms have a little stall outside where they sell their produce. It's very cheap and fresh for the customer, and the farmer gets a much better price. But the total amount they're selling that way is never going to be big. I suspect it's just a nice bonus to them.
My brother in law has cows, and he recently switched to producing organic milk. That gets him a much better price, and he also recently started making his own cheese and grow his own grain. I love the diversification and we buy directly from him, but his reach is more limited than when he just has Campina pick up all his milk (which still happens).
> they essentially have two kinds of produce: cheap and expensive. Not too much of a middle ground there.
In fact, there is middle ground as the least expensive product goes for animal feed. The middle ground is the lesser quality, but still high enough quality, product that human consumers are still willing to purchase.
You, of course, set out to grow the highest quality product you can – it fetches the highest value, after all – but Mother Nature often has other plans.
The pockets of the entire economy. Ultimately, food is mostly sold on futures contracts, so realistically the end consumer is currently paying the price from one to two years ago when the farm gate price was double what it is now. Within the next year or so, retail food will no doubt crash hard as those old contracts start to clear and the much lower contracts of today start to come into force.
Hardly. If you do not pay your taxes, other people will seek restitution. If you do not engage in the experience provided by the food middlemen, nobody is going to care.
One can always by directly from the farmer, or produce their own food, if they truly do not want the experiences provided by the third parties. But I expect most people will find out that the experiences are actually pretty great.
Not to put any blame on you or anything, because rents are crazy, but median wages have risen pretty significantly over the last few years. You definitely should be looking for a raise, or a new place of work.
On a personal level I feel the same strains, but all sources I’m finding have median wages rising more than median rent since 2020 and certainly since 2021.
However, that would not be true for buying a home especially when factoring in borrowing costs.
That's because rents temporarily cratered when people couldn't move due to lockdowns. But that was monthly, during the latter half of 2020 and the early half of 2021. Moving season is early summer, so people were locked into leases until prices rose again. Then, those leases were hiked in a massive price-fixing scheme, I mean raised in observance of inflation.
Also the industrial revolution happened, which massively drove down the cost of things. Nothing comparable happened for experiences. A restaurant today needs a similar amount of labor to make your meal as a tavern did 400 years ago. Their ingredient costs went down, but waiters and cooks do about the same amount of work, and property values haven't gone down. Meanwhile the amount of work to make a knife has been drastically slashed through technological progress.
it kind of did. Fast food sacrificed the experience for the core consumption. Then you have chain restaurants like Denny's that exist to give the bare minimum "experience" without throwing it all away like modern drive-thrus.
Did they cut down enough to eliminate fine dining? Doesn't look like it. But I haven't done a deep dive into the ecnonomics of that. Just general wisdom that food as a business has always operated on razor thin margins.
The equivalent to the industrial revolution's impact on material goods pricing, in the domain of labor, did happen. It was slavery. Clearly, that did not persist.
What you say is that bigger cities have bigger inflation. If you live in a smaller city, earn half, but everything costs half, then, you don't have any incentive to move to a big city.
If inflation is higher than what you can earn from a saving account, then how is it rational to "save" anything? You’ll have a bit bigger number on the account, but in the end you can actually buy less.
You can of course go with more risky placements and hope to go higher than a saving account, but then you have to spend attention on the market circus with additional worrisome mental load that you can actually lose everything.
>If inflation is higher than what you can earn from a saving account, then how is it rational to "save" anything?
general security? You don't need to (nor should you) hoard 10% of your finances for all 40+ years of your career into a low interest savings account. But you do want to keep a decent amount in case of various downturns. a high CoL city where you pay not much more for "things" can help with that.
Can also help pay for an financial advisor who will happily play with the monopoly money for you. Delegation is a great "experience" to consider when comparing costs of living.
No, just VTI and chill, it's the FIRE / Bogleheads model, and it works very well. No one who saves money for retirement should literally be doing so via a savings account. Sadly, not too many people know this then wonder why they're poor when others are rich come retirement age, not understanding the power of compounding in the market.
Where do you learn about these things? Having grown and living in France, I was never given a word about it, not even at university. We are supposed to have state managed retirement plans, but given the shady future of France, I’m starting to wonder what I should do to ensure I can either reach a retirement that also take into account being able to backup my two kids as they grow up.
2x salary, 2x costs, 2x savings. The savings are far greater if they compound in investments, and if you're remitting income to someone who lives in the lower cost of living area, it can be worth it.
100% this. Maxing out the 401k annually at the relatively low salary of 150k in NYC is easy. Doing that in St Louis at 50k livable wage is super hard. Car payments? Ditto.
I does matter if you plan to move to a cheaper area after a retirement. Or even if you are buying a car which costs about the same from California to Virginia - only local goods/services (and housing of course) are more expensive in high cost high salary places. Everything else if about the same within a given country.
> A Broadway musical for a family of 4 costs about 800$. A good mattress costs about that much, but lasts for 20 years.
Am I the only one that read that and thought "Since when does a mattress last 20 years?" That certainly doesn't match my experience, even for mattresses much more expensive than that.
My friends who are 250 lbs linebackers have to regularly replace their sofas and suchlike because they're 'worn out' i.e. the springs and foam aren't springing and foaming back into place like they used to. On the other hand, I come from a family of 140 lbs marathon runners, and for us that simply does not happen.
Not sure about the US but that price and statement might have been true 15-20 years ago in the UK.
These days a high quality handmade king size mattress of natural materials starts closer to £2,500 and might have a guarantee of 10 years.
I’m lying on a small, high quality mattress purchase 6 years ago for £1,100 from a small boutique business and it started to dip in the middle a bit about 2 years ago but I think it’s got a 2 or 3 more years life left in it.
£630 ($800) will get you a very cheap mattress today and if it’s both comfortable and lasts 20 years that’ll be like winning the lottery
I think you’re referring to those modern foam mattresses which are made of horrid manmade materials, are cheaper for manufacturers, have better margins, don’t last as long and are too hot. Lord knows what you’re breathing in
I don’t understand why they’re so popular. Sex is far worse with them too.
Their marketing is so aggressive I think many people don’t even know pocket sprung mattresses exist.
But they’re selling in droves so maybe there’s I don’t get
But interestingly, out of the all the hotels I’ve stayed at in the past few years, I can only recall one that had a foam mattress (which was awful). Wonder why the hospitality industry favours pocket sprung too…
Foam topped I can understand. But all foam/latex… no thanks.
What’s telling is that all the very high end manufacturers use natural materials and pocket springs. They weight a tonne and are supremely comfortable (I stayed at a hotel with a €5,000 mattress. Was like sleeping on a cloud)
I mean, I was referring to cheap mattresses winning prices, this year it's a pocket spring + foam mattress called myNap TFK for 300€(Stiftung Warentest Matratzentest 2023)
>foam mattresses which are made of horrid manmade materials
>Lord knows what you’re breathing in
Any science supporting that? Anything beeing man made is not an argument
Apart from that, testing for harmful chemicals included in the test report, and did not find a whole lot
>are too hot.
It is a tradeoff, some people like it, some don't...
>Wonder why the hospitality industry favours pocket sprung too…
>Was like sleeping on a cloud
To soft seams to be bad for you, to hard too.
I personally hate soft mattresses (and hotels for that reason) they are great for a night or two
But hotels are actually a good data point.
I would be interested to find some study's about it and would have thought manufacturers would plaster them all over there (expensive) products, but dead silence...
>very high end manufacturers use natural materials and pocket springs
I mean, they have to tell you something to justify the higher price. I would be more impressed if they could point to some data and say we have less from xx in the air and that's known bad for you.
Depends on which part of the UK. In Northern Ireland you can still get delivery and installation of a Respa bed and mattress-for-life, plus collection and recycling of old mattress all for easily under £1000. I think they're sold under the Silentnight brand in GB[0].
Why do you want all(?) natural materials, that doesn't sound hygienic for something you want to have for more than 10 years?
[0] Not all Silentnight would be Respa though, as far as I know.
Eating at a restaurant, going on a cruise or going to spa are not experiences I care about.
Spending time with your loved ones, spending time with friends, going outside and walking, reading a book are experiences that I care more about, and they don't cost much, if anything.
Some people living in poor countries report that they are happier than people living in rich countries.
Why is that? Because they have better experiences.
>Spending time with your loved ones, spending time with friends, going outside and walking, reading a book are experiences that I care more about, and they don't cost much, if anything.
oh, it really depends on the loved one. Hanging out but BYOB? Well, that's $20 a case or so, and you probably bring a few varieties. Cooking or ordering out also incurs some cost on someone. house hangouts are "free" (I won't nitpick on rent), but there's not really any third places these days to really hang out otherwise. You got a park and maybe a dying mall. The natural terrain from there really shapes how much "experience" you can get without someone nickle-and-diming you.
And ofc books vary: my "reading" right now is on game animation and that was a book I paid $100 for or so a few years back. Worth every penny, but not really "cheap" by any metric.
>Why is that? Because they have better experiences
definitely true. experiences vary on your environment, and when there isn't much business to make (for obvious reaons in such a country) you will have more natural experiences. I do yearn somewhat for that, but it again stems down to the dwindling third place; there isn't a "town circle" in many places in the US, which I imagine is a more common aspect of such 3rd world countries.
Yes, in poorer contries, there are lots of third places. This is exactly what I mean. Those third places are where artists often congregate, vendors sell tasty food at less than sit down restaurant, history tours are available as well as other random stuff/festivals. Many of these are outright free or low price.
The US is overly commercialized and overly regulated. Someone owns every square foot and they are trying to make as much money as possible. There aren't as many parks. Vendors certainly aren't allowed to sell anything in most parks. There aren't many creatives congregating in certain areas because they are priced out and must work to make a living way beyond just being able to buy food. So while you might see their once a year event, they certainly aren't out every month.
It is what it is. The US is for making money. With remote work being available, one can now optimize on location and have the best of many worlds.
>And you don't see too many people doing a lot better you can be pretty happy.
This is key, people compare themselves to their neighbours. If everybody around you appears to be wealthier then it's going to take a great deal of fortitude to not feel bad about that situation.
This is one of the reasons social media is so insidious. No mater how good you are at something you can always find someone online who appears much better. Watching some rich arsehole flaunt his Ferrari on YouTube might make you question the value of your ordinary and perfectly good car.
It's also one of the insecurities that advertisers pray on. Modern advertising is full of images of people who appear healthier and wealthier than the target audience with the suggestion that if you buy the product then you too will become slim, happy and wealthy.
Some experiences are expensive, some are free. Things are never free.
Why are things expensive? Because everyone will charge you the most they can get away with. Part because of supply and demand, part because they use your desires against you, part because they have to be profitable.
Things are expensive, as are experiences, because companies and people earn there living creating them. Man, I hate the take of "everyone else is charging too much", because we all do that, don't we? We negotiate higher salaries, switch jobs and move to improve living standards. And each and every dime we make is ultimately paid for by someone else.
Sure, but if prices rise high enough, that high demand induces more suppliers of those services. In cities, where rent is 3-5x that of rural areas, new suppliers cannot enter the market to provide more of that service unless it involves wages high enough to pay for rent. There is a finite amount of space in a city, especially those as extremely zoning-constrained as American cities.
This "everyone will charge you the most they can get away with" doesn't always have to mean prices go parabolic forever; we can enact simple urban land use reforms that allows more housing units and commercial spaces to be built, which can reduce the price of rent for businesses and the rent of housing units that businesses pay indirectly via wages.
The idea with "buy experiences, not things" is that things often come with upkeep costs, even if it is just a spot to store them. A knife needs cleaning and sharpening, a mattress takes a lot of space, needs clean sheets, etc...
And your examples are somewhat biased in that they are things you need anyways. You can't really live without a mattress and some kind of knife. The question is more about what to do with your disposable income. Do you buy a thing you don't really need or an experience you don't really need. The reason to favor experiences it that they don't come with upkeep costs.
> Do you buy a thing you don't really need or an experience you don't really need. The reason to favor experiences it that they don't come with upkeep costs
On the flip side, I regularly sell the things I don't need anymore. I can't sell my experiences, can I?
The other thing you appear to be missing is that there are few experiences you really need, while there are many things you really need, so any comparison of expenses to things is going to be comparing an unnecessary experience to a necessary thing.
>I am 50 years old, and live a reasonably opulent, upper-middle class, big city life.
This indicates to me that you don't actually know the price of anything, particularly post-pandemic. E.g., a middle-of-the-road mattress costs $800. A good one sets you back 2 grand.
On other hand "experience things" are pretty cheap. Specially in second-hand market.
Second-hand books can be very cheap, same goes for music in form of CDs, or movies as DVDs. Or you can rent them pretty cheap. And even new ones are pretty cheap.
So if experience is mass produced as item it can be very cheap too.
In many parts of the World, taxes are very high. That will push prices up.
In Europe, we have to pay for the recklessness we threw money during the pandemic, for the money we borrowed, for the money we printed out of thin air, for the very high energy prices due to failed green policy and for the war in Ukraine.
People in other parts of the world have their share of problems, too.
IMHO there's another structural issue: Expansion of the "landed gentry" class.
That is, people who own a property can live their whole life of it without single contribution to the society. They might own the property due to a sizeable contribution they made early on but lately a lot of people simply got lucky to be at the right place at the right time due to policies that favoured them or events that happen outside of their control or simply inherited the property.
Those people are taking large portion of the output of the productive people and because of the regulations and market dynamics their wealth doesn't come down but even keeps climbing.
Normally this would be reserved for the elites and can be tolerable and maybe even desirable but when you have that elite class large as today, the resources they take out of productive people gets very significant.
For example, if someone who happened to own a shitty house in an area where a lot of people suddenly start come to work, they can extract much of the productive output of the companies and people there simply because its not feasible to build new housing due to regulations.
When a company happens to solve the navigation needs of the world from SV, they happen to pay very significant chuck of their money to landlords in SV. The people who solved the worlds navigation needs might appear to be compensated handsomely actually don't keep the money for long, they transfer significant amount of it to landlords.
Then you end up with something like 2 people who solved the navigation, 5 people who produced and serviced the consumption needs but 10 people compete for the output of these 5 people since 3 people did nothing but just got richer by keeping owning a property.
Actually, these 3 people don't have to be property owners only, it can be anything that brings enough income for life without any further input to the society. Ideally, this wouldn't cause a problem because ideally they should have been living the good life for some huge contribution they made early on but due unfair market situation they ended up like lottery winners.
I disagree with a few things youre saying, though I think your heart is in the right place, allow me a moment. People who own property pay property taxes, the truth is that almost no one owns property in america, even the rich, we only lease it from the government. Further, a rich persons contribution to society is that cellphones are cheap and powerful, that you can have anything from a couch to a christmas dinner delivered to your door, that any of us have free time enough to talk on the internet rather than sustenance farming.
There is a big trick, they are robbing you, but knowing how is half the battle. As you say regulations push out competition, that is one factor; along with government spending which will always flow to connected interests; lastly a monetary system where the money can only exist when its loaned into existence by a private corporation, the Fed.
Each of these have their respective mythos of justification, and an underlying purpose. Regulation is to protect the public despite the fact that the regulations only come after working conditions have already improved, and are passed after the well connected corporate interests have gained some advantage that would be difficult for smaller businesses to replicate. Government spending is sold as defending citizens from ner-do-wells foreign and domestic, or more modernly for providing for the downtrodden, whereas the vast majority of money flows into the military industrial complex, the pharmaceutical industry, the banks and other well connected interests. The existence of a private organization responsible for the creation of our money is sold as a way to keep prices stable, when the reality is it gives them dominion over the wealth of the population, by manipulating interest rates and banking regulations they can chronically steal the wealth out of the paper you work for.
I agree with some of what you’re saying, but “regulation is to protect the public despite the fact that the regulations only come after working conditions have already improved” seems to be pretty patently false, historically, for workplace, health, and environmental regulations.
Well, I wont pretend to have sources in hand, but as I understand it things like child labor were already gone by the time it was regulated away, or like having breaks was found to improve worker efficiency before they were required by law. You can see this from a couple years ago when jeff bezos using a sockpuppet account to lambast bernie sanders attacks on amazon, he said amazon had a higher starting wage than bernies own states minimum wage and called on him to do better; yes, absolutely true but also a pristine reason not to raise the minimum wage, it wouldn't even affect amazon, americas largest private sector workforce. As to environmental regulations, those carbon tetraflourides (i think that was it) were removed before regulations. The emissions of modern vehicles being relatively low is as much a product of manufacturers marketing better gas mileage, low NVH (noise, vibration, hashness), and improved performance, as it has been about environmental regulation. Energy is a ladder, where every step represents higher capital investment and lower long run costs, it also generally represents lower emissions, from burning literal shit>wood>coal>oil>natural gas>nuclear; it shouldn't surpise anyone that the government didnt need to regulate away burning shit for energy.
>people who own a property can live their whole life of it without single contribution
is a big part of why economic growth is slow in the UK these days whereas in the 1800s it was the workshop of the world. The economy shifted from making stuff to getting a levy on asset prices, either housing or financial transactions.
The developed world turned into rent-seekers, which worked fine up until the the developing world developed enough not to need every service the rent-seekers provided by renting out their assets to service providers. Suddenly, the service providers no longer have the fat margins but the rent-seekers still want the same rent increasing at the same pace when all need to consume the stuff produced by the people who were left out of this system.
IMHO the developed world will have to go through restructuring and bring back "makings stuff" home. The inflation is supposed to help with this, when enough architects are willing to pay high enough for cheese maybe some of the architects will get into making cheese.
Overall, I think the adjustment will be good for everybody. Although specialisation in a global trade can be beneficial, it can't be expected that the people of one country will work in sweatshops forever and others will have the good life simply because of their location. Eventually, things should stabilize in a more meritocratic world. A person baking bread in the Philipines shouldn't be having drastically shittier life quality than a person person baking bread in London and people baking bread in general should't have much shittier lives than people who inherited a house or works in finance. Of course, the value of contribution can be different and its all determined on the free market but it shouldn't be priced based on structural issues.
You have hit the nail on the head, and many countries have an invisible tax on services due to company owners selling to private equity companies / large majority shareholders that extract profits to other countries. American (and other) multinationals make owners wealthy and as a quick turnaround start extracting profits outside the nation.
In the UK you can buy a £100m apartment and pay virtually zero tax each year on it. That doesn't sound very high to me. Maybe taxes are high on the wrong people?
> failed green policy
What is a failed green policy? Sounds like a soundbite.
Whatever policies we have, haven't really reduced out CO2 emissions nearly as much as they should. The biggest reduction was probably last winter when everybody turned the heat down to save gas because of the war in Ukraine. I think I heard somewhere that that was a 25% reduction in gas use.
and the weather was unusally warm. If it had been a bad winter, i doubt people will be so willing.
> haven't really reduced out CO2 emissions
nobody wants to pay the costs (neither collectively, nor privately) to do this. It's the fundamental reason why climate policy doesn't work. It has to be based on economics, and technological improvement - these takes quite a while methinks.
That a massive share of Europe is still dependant on natural gas for things like heating and cooking. In the Nordics housing in populated areas are mostly a mix of district heating or electric heating, and the rest either have wood or some oir burner (people far away from the grid).
In mainland Europe they don’t have a lot of wood to burn so gas from the Russian sphere of influence was a cheap solution that became an addiction that blew up in many peoples’ faces – even us in the north, due to the home energy markets being tied to natural gas
It's interesting that you're coming at my question from the pov of 'we didn't go hard enough and decarbonise earlier'. That's not the vibe I got from my parent post, which I thought was 'we've gone too far, green policies are unnecessary/futile' though it was entirely unclear, which was why I wanted clarification.
FWIW I basically agree with you. In the UK most people are reliant on natgas piped to the home for heating and hot water. It's a dense country and we have better options now.
The original post said that energy costs were high due to failed green policy. Do you have anything to add on that matter?
In the UK we have Drax power plant in Yorkshire burning wood pellets shipped from North American forests and calling it green. I don't think it has much effect on overall global energy prices.
That is the price you pay. Energy prices are higher, are more subject to geo-political issues, and it still isnt green. I dont know how you got to global energy prices, 'the uk is paying the price for a failed green energy policy', the policy failed to deliver green energy, and now you have to pay for it in higher prices and be subject to the whims of foreign political leaders.
Sure, energy is a ladder, energy production tuned for higher capital investment ventures have lower long term operating costs. There is an opportunity cost to investing in one policy, like green energy, versus another, like nuclear; they traded a cheap energy future for false advertising.
Anti-Nuclear has been the policy in Germany for decades. The UK has been investing massively in Wind for decades. The prices only went up after the war in 2021.
I appreciate that. Energy could be like 8 cents/kwh though, probably less. I generally consider societies ready access to cheap energy to be the engine that creates wealth, I think we probably agree on that; maybe I havent said enough to convince you that energy could be cheaper, but given that it seems clear to me that any policy which doesnt provide cheaper energy fails categorically.
I dont have a great read on why you are so committed to arguing that the green energy policy has not failed; considering we certainly agree divesting from nuclear was the wrong choice, that the energy wouldnt fit the connotation of green energy, and that we probably (I assume) agree that cheap energy is a critical aspect of developed nations, I am having trouble understanding where you are coming from.
You're not explaining why prices are high, you are justifying your existing beliefs about "money printing" and taxation. Costs (including taxes) are only very loosely related to prices. They only serve as a lower bound, and not even always that.
Taxes are not the reason for the massive price increases. Indeed, you point out high energy prices, which were met with suspension of energy taxes in many European countries, with little effect. VAT was slashed for many sectors, still, prices went up.
If anything, taxes are too low. Many tax rates are at a historic low. European billionaires stole a trillion Euros from the population last year alone. Why people are always so enraged about the taxes that pay for every single public utility instead of the unlimited greed of the hyperwealthy who don't even know what to do with their money because the luxury wharfs are completely booked out and they already own two private jets?
> Why people are always so enraged about the taxes that pay for every single public utility instead of the unlimited greed of the hyperwealthy
Smoke and mirrors. They've managed to deflect the blame nicely, and we are dumb enough to believe that it is so. The same effect can be seen in the universal health care reactions in the US. Fascinating.
Not paying their fair share of taxes on those million dollar bonuses, continuously inflating executive salaries, and realized capital gains is absolutely stealing. Failing to pay their fair share of taxes on their corporations’ income is similarly stealing.
Taxes are a fixed percentage of whatever is sold, ubless taxes are raised (didn't happen yet) or new taxes are introduced (didn't happen neither), taxes have zero impact on prices.
The money we threw at the pandemic, like everyone else in the developed world, avoided an economic crash worse than 2008. It resulted in inflation so, among other causes. The high energy prices were temporary and caused by the war in Ukraine, green energy policiies had nothing to do with that (if you want to thank someone that would be Putin).
I agree with your point in general, and disagree with the OP's sentiment. However, seigniorage via central bank Interest Rates is considered a tax by most economists (or at least most economists would reasonably accept an argument that it was tax as legitimate), and does materially impact prices.
As a result, it's not entirely correct to say that tax rates haven't increased in Europe over the last 2 years.
Interest rates were raised, across the board after inflation hit post covid, those hikes were a counter measure. I am no economist so, but the take that all taxes are bad, all governments are incompetent that all wouod be good if we had just done some super easy thing is at best lazy and worse case really dangerous. Easy answers to comolex questions is what gives us populists.
Money printing didnt stop all the small businesses from closing down, its very easy to see the upward transfer of wealth that occured during the pandemic, it was the largest in history.
Let me see: The Great Recession in the 40s including hyperinflation in various countries. The settling of the American West. The colonisation of India. The Opium Wars. That list quite long actuallx. But of course everything we experuenced ourselves is worse than anything else that ever happened, right?
I dont think any of those would qualify as an upward transfer of wealth at a magnitude close to the response to covid, but at least you pointed out some really mean stuff thats happened, same same?
My cheap tablet doesn't want to smoothly render the linked site but going by the comments, it doesn't answer its own question. I was, however, asking myself the complete opposite question the other day, when browsing Aliexpress. Why are things so cheap? I think I know some of the answers (economy of scale, cheap labor) but still. I was looking for ESP32 related things, and I can get a very sophisticated, tiny little computer, delivered all the way from the other side of the world to my house (Canada) for the price of a coffee at Tim Hortons. So yeah, why are things so cheap?
It's due to the Universal Postal Union, which is a UN agreement that governs the costs and subsidies associated with international shipping.
The link below explains it well, but the gist is that China was rated to be a "poor" nation, whereas the USA was rated to be a "rich" nation. This rating essentially means that the USA is subsidizing packages shipped from China to the USA.
Trump (in a rare moment of not being an idiot) threatened to withdraw from the agreement over the subsidies. He didn't, but the agreement did get amended, and packages from China will start becoming less subsidized (more expensive) by 2025.
The amount of products and service we produce probably did not.
Most people think that M0 is only a small factor in price increase and other factors like credit given by banks, the speed at which money moves and spending/saving behavior play a bigger role. But I doubt that. To me, it seems those are all indirect, delayed outcomes of the money supply. So we don't see the prices increase linearly and instantly with the increase of the monetary base. But we see it eventually.
There are lots and lots of factors that can change the rate between government issued money and money available for consumers. Most of them wouldn't make the news even if the news cared about discussing anything in depth.
But the thing is, historically most governments kept those factors well regulated so that the government had a coarse control over that ratio. (A noisy but effective control.) But at the 2000's crisis, the US decided to loose their regulations so that there the ratio is completely defined by the market.
What that means is that no, it's not obvious that the dollar inflation is coming from the inflated money supply. But that's a problem by itself.
Inflation has been very low since the 1990s. The worry after the 2008 bank crisis was deflation. I suspect our recent blip in inflation which has now largely passed is a result of the covid supply shock.
Inflation has been hidden with outsourcing since the 90's. By moving manufacturing overseas the price of a lot of goods decreased while the items that you cannot outsource increased (Services, Healthcare, Education, Housing).
Except for housing, food, healthcare, education, transportation, and energy. But yeah besides the eye watering increases in the prices of the things that make up the overwhelming majority of the typical household’s spending prices have barely increased. In fact you can get a bigger TV for less money!
I get the sense that people increase prices just because everyone else is increasing prices. Even if nothing increased for you since "everything" is increasing might as well increase because now is when you can get away with it.
Joseph Stiglitz, Nobel Prize winning economist, has said that most of the inflation we saw was markups - ie firms raising their prices due to inadequate amount of competition.
In this case it also correlates with corporate profits.
Edit: it actually does correlate with deficit spending, but only because the last two major deficit spending increases were 2008-2010 and Covid. So it's pretty hard to say deficit spending in particular was causal (as opposed to, say, near-zero interest rates combined with industry consolidation).
Zero interest rates after the 2008 crisis would be my bet, the post-Covid infalation was driven by a significant degree by energy prices and corporate profits. And free money, that only changes as a reaction to said inflation. Just we managed to avoid a 2008-like economic melt down post Covid still puzzles me.
Of course not, claiming that would be rediciulous. The last one, post Covid, seems to be driven partially by corporate profits if you believe people being much more knowledgable about those things than me.
> if you believe people being much more knowledgable about those things
My father was head of the business department at a college and taught finance. He had an encyclopedic knowledge of how money worked. He had a degree in economics from MIT and an MBA from Harvard and a PhD in history from KSU.
We had a lot of discussions about this.
But since he has passed on, you might be interested in "Monetary History of the United States" by Milton Friedman.
Lots of things, government deficit spending being only one of them. What % of causality can be assigned to deficit spending vs. other causes is something I will leave to the experts.
> My father
Knowledge of finance and history is great, but it's not a substitute for actually being an economist.
As for the "degree in economics", lots of people out there have an undergrad economics degree, including me. That doesn't make me an economist any more than my other undergrad degree (math) makes me a mathematician.
One thing that I'm sure you already know about history is that causality is not a constant thing over time. Something can cause inflation in the 1990s, and a completely different process can cause inflation in the 2020s.
I think we all agree that government deficit spending can cause inflation, and is one possible cause to be investigated among others. Is it the sole cause of all inflation in the last 40 years? Is that causality even possible to determine from the data? I suggest that nobody can be both intellectually honest and confident in answering those questions.
Unless you're willing to stake your own expertise against Joseph Stiglitz and Robert Reich, then I respectfully suggest you should back off from your confidence in what you personally believe is happening in the economy.
And yes, I would say the same to Stiglitz if he had a habit of complaining about the D compiler design in economics forums.
Yes, a degree in economics does make one an economist. So does teaching college level finance courses.
> I think we all agree that government deficit spending can cause inflation
If it is borrowed money that is then paid back, it does not cause inflation. If it is borrowed money that is financed by borrowing more money, it does (not "can") cause inflation.
> Is it the sole cause of all inflation in the last 40 years?
Nothing else explains the increase in the quantity of money relative to the value of goods & services in it.
> Unless you're willing to stake your own expertise against Joseph Stiglitz and Robert Reich
Appeal to Authority is a logical fallacy. Remember all the appeals to authority with Fauci, who was upset that people would not accept his pronouncements as the truth, especially after he was found to be lying? Reich is either a fool or a liar. I don't know anything about Stiglitz. I've read enough of Krugman to know he's a fool.
> I would say the same to Stiglitz if he had a habit of complaining about the D compiler design in economics forums.
It's a poor analogy because I have a lifetime of personal experience with economics, I've run successful businesses, I manage investments for several people, and I've read economics texts by Nobel prize winning economists.
My unprofessional opinion is that financial markets absolutely loved Trump, and there was enough economic activity to stave off critical revenue problems in the early days. Then after a few months people started spending as much money as before, they just shifted what they spent it on.
I have the same sense - but they can only get away with it because a) people have excess savings b) people are willing to spend those excess savings.
When consumers start reducing demand, or substituting other products things will change - I’ve already started changing my behaviour - but it takes a little while, you buy a $7 jar of mustard, $12 bag of granola, or a $30 hotel margarita - and you’re f** that never doing that again, but it feels like it takes a while for that to work its way through the system.
Prices increase when costs go up. If you’re selling widgets and your wholesale price goes up, you have to increase the retail price or your margins drop.
Prices increase when a seller increases them. That could be because their costs went up, but it also could just be because they felt like people would pay more.
but if that was true, why did it happen only during the pandemic and not before?
At any point in time, if a business felt like their customer could've paid more, the business should be increasing that price. So the recent price rises cannot be explained with this train of argument.
Unless, of course, the pandemic somehow made it so that people could pay more.
> I know that most people say that M0 is only a small factor in price increase and other factors like credit given by banks, the speed at which money moves and spendin/saving behavior play a bigger role. But I doubt that.
Please don’t take offense, but I doubt that you understand what you’re talking about given the fact that you confused monetary base and money supply.
edit
Joseph Stiglitz, Nobel Prize winning economist, has said that most of the inflation we saw was markups - ie firms raising their prices due to inadequate amount of competition.
These comments at least try to use real economics, even when amateur.
Its refreshing when the vast majority of online discourse about inflation is just shouting “We have inflation because business are so much more greedy than they have EVER been!!!!”
Joseph Stiglitz, Nobel Prize winning economist, has said that most of the inflation we saw was markups - ie firms raising their prices due to inadequate amount of competition.
I’m not sure what argument you think I’m making, what argument you think he’s making, and what argument you think you’re making, that deserves a mic drop.
His point is basically that the most recent inflation was caused by a supply shock and high uncertainty, not aggregate demand from fiscal policy, and that broad monetary tightening is a worse strategy for calming this kind of inflation than <insert set of> targeted policies. None of this is “evil corporation have monopoly.” The example he even uses for service side under-supply is a local mechanic, hardly what people think of as “big business monopoly”
He was wrong about not getting real wage growth, which did appear just months after this was posted, and is now back on track. But it’s not key to his argument, just an interesting thing I noticed.
I watched it months ago and I had the idea that he said that most of inflation was markups due to lack of competition. But I might be thinking of someone else, like Steve Keen.
In fact, one of the ways to anger a neoclassical economist is by arguing that inflation is impossible in an equilibrium economy with perfect information, because nobody is dumb enough to accept worthless money.
HN is particularly arrogant about some subjects, because it seems like having read a few papers, some people think they know more than experts in the field.
Often times they seem to have just read the papers that justify something they already believe in. Economics in particular is not a science and extremely dangerous one to have "opinions" about, since I feel like it's got a heavy ideological bent forced unto it due to political considerations.
There are economists like Steve Keen and Joseph Stiglitz who seem to make sense to me, and then there seems to be a lot of gobblygook. But I'm not an expert nor would I say I categorically know what I'm talking about in this area. I just try my best to listen.
> There are economists like Steve Keen and Joseph Stiglitz who seem to make sense to me, and then there seems to be a lot of gobblygook.
Seems at odds. Even further when you say:
> Often times they seem to have just read the papers that justify something they already believe in. Economics in particular is not a science and extremely dangerous one to have "opinions" about, since I feel like it's got a heavy ideological bent forced unto it due to political considerations.
> HN is particularly arrogant about some subjects, because it seems like having read a few papers, some people think they know more than experts in the field.
Apt. Just wish it would apply to you and not everyone else.
I am quoting experts in the field, and using their own presentations on the subject. I am not an expert in economics, just an interested reader.
It is entirely possible I am also falling victim to the same trap, that's not something I would ever deny. But repeating what you heard from an economist in a mainstream publication just leads to mostly repeating falsehoods, since economists who get heard in the mainstream media seem to me to be often ideological.
There is a guy on YouTube who studied economics and he became a trader on Wallstreet. His opinion is basically that the most realistic career option of an Economist is to work at a central bank or at an investment firm. The ones who work at the central bank can't criticise their employer. There was this Economist Richard Werner who has shown that the causality is from growth to interest. I.e. higher growth leads to higher interest. The problem is that this is at odds with the theory of the central bank lowering interest rates to stimulate the economy. It means that this policy tool is kind of meaningless. The Fed is just following the market. You can't publish this as an economist since it is basically saying "We are incompetent and we don't know what we are doing."
Steve Keen is another fascinating example. He has a whole episode on Lex Fridman where he basically lays out the follies of neoclassical economics, lays out how banks print money and that's not being accounted for, his system thinking for the whole thing.
It was the first time I followed an economist from 0 to 100 and it all made sense. Yet he's considered an outlier, but he is also considered to be one of the few people who correctly predicted the 2008 crash.
> Most people think that M0 is only a small factor in price increase and other factors like credit given by banks, the speed at which money moves and spending/saving behavior play a bigger role.
Well, what you seem to be describing is M2, aka actual money available for spending. Which is a rather large factor in the general price level.
No. That is exactly my point: That the change in M0 is the source of increased prices, not changes to M2 (apart from the changes that are in M2 because M0 is in M2).
Think about it this way: How can M2 increase without M0 also increasing? Then we can look at those mechanisms and determine if they are to "blame" for the recent price increases. I think they are not.
As I understand it, when people talk about the government "printing money" they don't mean literally producing more coins and notes (M0) but rather something metaphorically equivalent.
For every $1 in notes and coins, there are about $30 in bank deposits that exist as a number on a spreadsheet somewhere. So instead of actually printing more, when the central bank "prints money" it means they edit the number in their spreadsheet, increasing their own bank balance. Then they spend that balance buying things like government bonds and treasury bills (which also exist only on spreadsheets)
When you lend money from a bank, you will not spend it on fancy restaurant visits. Because you know you will have to pay it back.
When you own a house and there is a cafe in that house which pays rent even though it is closed, because it gets the money from some governmental covid assistance program, then you do not have to pay the money back and can spend it consumer goods and drive prices up.
"When you lend money from a bank, you will not spend it on fancy restaurant visits. Because you know you will have to pay it back."
This doesn't reflect consumer behavior. Just consider a simple example ignoring future income. Say I have 520k. I buy a 500k house.
Scenario 1. I buy it with cash and I have 20k left.
Scenario 2. I buy it with a mortgage (20% down), and how have 420k left.
It's easy to see why those in scenario 2 would continue to fund lifestyle choices like eating out.
The reality that they need to pay back that debt gets moved to the future. The future also provides additional income. So the need to pay it back gets delayed, meaning money available now is freed up for lifestyle choices.
I think it is hard to get much insight from these "just so" stories because so much is dependent on the circumstances and counterfactual.
I think is reasonable to think that low interest rates pulls consumer spending from the future into the present, when compared to higher interest on lending.
High inflation also spurs consumer spending because the return on savings is less.
back to housing, My experience is that personal spending is waaay down after buying a house, because I now need to service 1.2M of debt every year, which is about 80k.
Agree with your first 3 points. I would also say though that your experience with housing is not unexpected, but this does not contradict the point I'm trying to make. The comparison would be the situation where you bought that house with cash. If you could even do so, I think it's safe to assume your spend would be even less.
The point is, that creation of debt does not immediately net cancel out to a no-op in terms of consideration for monetary inflation.
This is all in response to the comment several steps up "Banks lending is an increase in the money supply" and the commenter who presumably disagreed with that by saying that one will not spend that money in the economy because they have to pay it back.
Even though you are right, this is a very poor example.
If the person that lent you the 400k don't have them at their disposal then the total amount of money at the disposal of someone in the economy didn't change after your transaction.
Fair distinction. But even in the hard money lending case, the implication is that money is being freed up to circulate. More velocity leads to more inflation
> When you lend money from a bank, you will not spend it on fancy restaurant visits.
Given the amount of people with insurmountable credit card debt and nothing to show for it except Instagram pictures, I'd say you're not entirely correct.
If the money borrowed is not spent on investments, then they would have to use after-tax money to pay the interest.
This after-tax money needs to have been pre-tax money at some point, so therefore, they do pay taxes at some point. Just not income tax presumably, but something akin to capital gains tax (e.g., sell off some of their assets/equity to pay interest). It's a lower tax rate, but in absolute terms, it's still a large numbner.
Nothing else explains the global rise in luxury spending and the global cost of living crisis. Steve Keen can bring out all his charts and theories but the lived experience of the people tells a different story.
> To me, it seems those are all indirect, delayed outcomes of the money supply.
Why do you think that? Suppose that Treasury minted $100,000,000,000,000,000 in coins and locked them up in Fort Knox and never spent them. By what mechanism would that increase in the money supply drive up prices?
That depends on what they spend them on and what the recipient does with them. Which is, obviously, the exact point of the thought experiment. It’s not the existence of money, no matter how great the amount, that drives inflation, it’s the spending thereof.
And it’s not just mere spending either, but how it’s spent matters. One of the reasons the government has been able to issue trillions of new dollars a year for the past decade and a half with relatively little inflation is that most of that money was captured by a relatively small number of ultra high net worth persons who mostly hoard it and don’t appreciably change their expenditures except of course on finance assets, which observably have inflated like crazy.
However, in 2020 when government started spending new money into the hands if average citizens then inflation started to skyrocket.
I don’t understand why this is hard for people when it’s been so clearly observable. It’s a cautionary tale against letting ideology override evidence I suppose.
> Rich people do not hoard cash. They invest it, all of it.
Did I not make that clear? I said that they "don’t appreciably change their expenditures except of course on finance (sic) assets, which observably have inflated like crazy."
I dislike the lazy and misleading usage of "investing" for a simple asset swap of cash for already issued financial assets, even though that's what most people mean by the term. That is a savings reallocation. Investing is when you actually allocate new capital, so for example buying into an IPO, a public offering, angel investing, buying equipment, and so on.
> Rich people do not hoard cash. They invest it, all of it. Even money deposited in a bank account gets invested, as the bank loans it out.
Banks don't loan deposits, but rather loan origination creates deposits. You're a very smart guy, take some time to learn how the banking system actually works.
> There are no Scrooge McDuck cash vaults.
The Federal Reserve Bank of New York has entered the chat.[1]
>> Rich people do not hoard cash. They invest it, all of it.
> Did I not make that clear?
You wrote: "ultra high net worth persons who mostly hoard it"
> Banks don't loan deposits, but rather loan origination creates deposits. You're a very smart guy, take some time to learn how the banking system actually works.
The banks cannot loan money out unless they have reserves on deposit. Yes I know about fractional reserve banking, but those reserves come from deposits. That's why banks give out free checking. They can loan a multiple out of the cash on deposit. It's also why they have minimum deposit levels.
Take some time yourself :-)
"No individuals or private sector entities are permitted to store gold in the vault." -- from your cite
> You wrote: "ultra high net worth persons who mostly hoard it"
I thought it was clear that the sentence after modified that.
Although you need to ask yourself, when those UHNWIs spend a billion dollars cash on stocks and bonds, where does that cash go? It doesn't just disappear into the ether, it becomes the seller's deposit, and now the seller is holding the cash. So yeah, at the end of the day (literally, payments settle at the end of the day), somebody is holding that cash, and that somebody is the ultra rich and banking institutions, trusts, and various other entities that they own, with public pension funds taking up some of the slack. It's much clearer if you stop think of it as "investing" and start think of it as what it is, an asset swap. Namely swapping cash for equity or debt.
> The banks cannot loan money out unless they have reserves on deposit. Yes I know about fractional reserve banking, but those reserves come from deposits. That's why banks give out free checking. They can loan a multiple out of the cash on deposit. It's also why they have minimum deposit levels.
Nope. Reserves come from the Federal Reserve, they're a different thing. That's right, the money in your deposit account and the money banks use for interbank payments are different "data types" that happen to share the same unit of account.
Banks can and do originate loans in any amount they deem fit when they have a creditworthy borrower. When Mr Banker is deciding whether or not to extend your business a 10 million dollar line of credit, he doesn't call Fred down in the Vault Department to check if there is enough in the money bin or reserve account to originate the loan. He simply sends it off to underwriting, sees if they think your business is creditworthy, and if so originates the loan, which creates a loan liability and a deposit asset on the business's ledger and a loan asset and deposit liability on the bank's ledger. Reserves are not at all involved in the loan origination process. Then before close of business the bank acquires any necessary reserves on the interbank market or from the discount window. And those reserves will always, in aggregate, be available, because the 0th law of the Federal Reserve is "thou shalt maintain the integrity of the interbank payment system."[1]
The fact that reserves have no direct effect on loan origination is precisely why banks are now required to meet capital requirements in addition to reserve "requirements."
> Take some time yourself :-)
I have. Like I said, you're objectively wrong about this. If you're ok with that state of affairs then fine, but since this site is about knowledge and I have great respect for you I thought I'd share.
> "No individuals or private sector entities are permitted to store gold in the vault." -- from your cite
That was mostly humorous. But yeah, money bins are for the elite. Sovereign wealth funds and such.
Incidentally this is true for reserves as well. Individuals are not permitted to open a reserve account at a Federal Reserve Bank. The only way we can actually obtain and hold reserves is via physical Federal Reserve Notes. Obviously that's got a lot of considerable drawbacks, although I'd bet dollars to donuts that the ultra wealthy probably keep somewhere between a hundred thousand and a million bucks in paper money reasonably close at hand for reasons analogous to why normal people have a change jar.
The money is always put to use, one way or another. It is not hoarded, because it's stupid to hoard large quantities of money. You don't get wealthy by being stupid with money.
> Reserves come from the Federal Reserve
Sigh. Remember that Silicon Valley Bank that went bust recently because it didn't have enough on deposit to cover customer redemptions?
> I'd bet dollars to donuts that the ultra wealthy probably keep somewhere between a hundred thousand and a million bucks in paper money reasonably close at hand
You'd lose that bet. There's simply no reason to do that other than if you're doing illegal money laundering.
> Banks can and do originate loans in any amount they deem fit when they have a creditworthy borrower.
No, they have to meet the reserve ratio. Otherwise, they wouldn't offer free checking.
> The money is always put to use, one way or another. It is not hoarded, because it's stupid to hoard large quantities of money. You don't get wealthy by being stupid with money.
To highlight your ignorance let’s avoid distractions and focus on this one point: if the filthy rich don’t have most of the cash, who does? Who has 31 trillion dollars in cash, and isn’t filthy rich?
Remember that cash always exists. If Mr Filthy spends a billion to buy stock from Mr Rich, now Mr Rich holds that billion in cash. That cash billion is always going to be in play.
What chain of accounting operations do you imagine take place that allow the UHNWI sector to divest itself of cash nearly entirely and who is going to hold that cash once they have?
> You'd lose that bet. There's simply no reason to do that other than if you're doing illegal money laundering.
In my personal experience, which is to say the VHNWIs I’ve known (owns property outright in Tokyo, Hamptons, NYC central park overlook, bentley, that kind of guy) it’s been for drugs. An awful lot of blow mainly. I’ve never to my knowledge met an UHNWI so sure I’m extrapolating, but I’m pretty sure the kind of oil sheikh who flies around his arabian stallions and camel herd with him on his private 747 has a mil or two cash handy for whatever.
As to who has it, it's in circulation. It's being used to buy goods and services, and then the merchant does nightly drops to the bank, who credits it to the merchant's account, then hands out the cash for withdrawals and loans.
I would presume that much of the cash in circulation is in the untracked illegal economy, as the cash isn't traceable. Drug dealers hoard millions in cash because no bank will take it.
> If Mr Filthy spends a billion to buy stock from Mr Rich, now Mr Rich holds that billion in cash.
Using emotionally laden words doesn't make your case more compelling. Be that as it may, nobody buys stock anymore with cash. I've been buying stock my entire adult life, never with cash.
> it’s been for drugs
I.e. the black market, which I already allowed runs on cash.
> I’m pretty sure the kind of oil sheikh who flies around his arabian stallions and camel herd with him on his private 747 has a mil or two cash handy for whatever.
Speculation. But indeed, some rich people may have large quantities of cash on hand for use in the black market. After all, an illegal arms dealer isn't going to take your credit card. But that's not hoarding cash, either.
By cash I meant M1[1] which is the general usage (“let me check how much cash is in my account” &c). I’ll allow that I should have been more precise since you’re trying to nitpick your way out if answering the where does that money go question. That’s sitting at $20 trillion ish. Again, this is end of the day money, so vague hand waving about circulating money doesn’t cut it. The overwhelming amount of cash settles end of day. So whose accounts are that $20 trillion sitting in?
To save you some trouble using the rough figure of 115 million “banked” households if you want to claim it’s spread around that would require the median household to have approximately $174,000 in demand deposits, so it’s certainly not there.
Again, you said the ultra rich don’t hold that $20 trillion. Then who does?
Frankly I think you’re just extrapolating incorrectly from your flawed understanding of the banking system and your own presumably HNWI savings allocations. I agree it can be a bit tough to understand there are folks out there for whom a million in notes and coins is a lesser percentage of their net worth than the change in your change jar is of yours.
The thing is, "cash" in one's account is not cash at all and is not being hoarded. It gets loaned out. It's put to use such that it generates interest income.
> there are folks out there for whom a million in notes and coins is a lesser percentage of their net worth than the change in your change jar is of yours.
You argued before that they were hoarding most of their wealth. Now it's a tiny percentage.
Bezos (and other billionaires) were in the paper recently for funding their cash needs by borrowing. Why would they borrow if they had a cash hoard? It doesn't make any sense.
> The thing is, "cash" in one's account is not cash at all and is not being hoarded. It gets loaned out. It's put to use such that it generates interest income.
No, it doesn't. Banks don't loan out deposits; banks originating loans create deposits. It's basic double entry bookkeeping. Your deposit asset is the bank's liability.
Here is a basic, simplified, but essentially correct model:
1) Credit worthy borrower Alice approaches a bank to borrow $1,000,000 to buy some real asset worth $1,000,000 from Bob. Maybe a house, maybe a business, whatever, doesn't really matter.
2) Bank performs underwriting and determines that Alice is in deed credit worthy. Now bank performs the following four operations simultaneously (This is where we simplify, we're assuming Alice and Bob use the same bank to avoid bringing interbank payments in, and other possible complications like an escrow party, but all those extra steps sum out to equivalent to the simple model).
3) Create a deposit in Bob's account with the bank for $1,000,000.
4) Create a corresponding liability on bank's account for $1,000,000, corresponding to Bob's deposit.
5) Create a liability on Alice's account with the bank for $1,000,000.
6) Create a corresponding asset on the bank's account for $1,000,000. This is the asset that banks sell when they sell a loan.
7) Bob transfers the real asset to Alice.
At this point the bank has created $1,000,000 that Bob is going to spend as he pleases, but the bank's total net worth is unchanged, since the bank's new liability is equaled by its new asset. And the bank then expects to earn a return on that asset based on the terms of whatever the loan agreement are. Alice and Bob's respective net worth are also nominally unchanged, because Bob has the new deposit to offset his old real asset, and Alice has the new liability to offset her new real asset.
Now at this point you're going to object about fractional reserve requirements. As it happens they actually never constrained loan origination because the Fed had to supply the exact amount of reserves after the fact, in aggregate, that the banking system required for the loans it originated, because if it didn't the interbank payment system would seize up. However that's quite complicated to demonstrate and I'm not up for it[1].
But fortunately we can ignore that, because there are no reserve requirements anymore[2]:
As announced on March 15, 2020, the Board reduced reserve requirement ratios to zero percent effective March 26, 2020. This action eliminated reserve requirements for all depository institutions.
> You argued before that they were hoarding most of their wealth. Now it's a tiny percentage.
Tiny percentage of notes and coins. Not M1 cash. And you still haven't answered, who is holding that $20 trillion in M1 cash? If the ultra high net worth individuals are all divesting themselves of all their M1 cash, someone has to be their counterparty. Who?
[1] It is worth understanding though if you're interested. The shocking thing is that reserves and deposits (and coins too, but they're a tiny percentage of outstanding cash money) are entirely different "data types"! They just both happen to be denominated in the same unit of account. Naturally that's not a coincidence but a property of how the modern banking system has been constructed. Reserves mainly come into play for interbank payments and federal government spending. Incidentally coins are also a different type from paper money. That's not particularly relevant to the topic at hand, but the existence of that rabbit hole serves to show just how interesting and complex the money system actually is.
Sorry, but that's what they do. You don't agree, so there's nothing further to talk about.
> Bob transfers the real asset to Alice.
I.e. the bank loaned out Bob's deposit to Alice. The rest is just accounting machinations. Yes, I understand double entry bookkeeping. I got an A on that course (!) and I've been doing the the accounting for my business ever since.
> Sorry, but that's what they do. You don't agree, so there's nothing further to talk about.
Agreed. One cannot educate the obstinate, and you are obstinately clinging to your ignorance here.
Here[1] for example is another explanation and you can easily find more from sources as authoritative as the central banks themselves, who I think we can both agree have a better grasp on the operational mechanics of banking than either of us. I won’t bother to provide those additional links for obvious reasons.
Nevertheless perhaps one day you’ll stop believing the fairy tale version of banking you learned as a boy, and when you do you can refer back.
You do realize that commercial banks create most of the money in the economy and QE is merely the central bank flooding the banks with reserves to back the money they already created?
Honestly, how can you be this dense. The difference in the past years wasn't QE or "money printing", it was that the government performed fiscal stimulus, which tends to put money into the hands of people more than letting their bank account be backed by government bonds.
The Economics Explained yotuber made a video about how hyperinflation is already there using a similar graph and where is it exactly?
I find a lot of things are expensive simply because the business owners live in an expensive area, and this unfortunately rarely results in a vastly superior product. Yes, I'm referring to a lot of DTC brands based out of SF. It's very telling judging from the marketing on just how much they spend to convince you their stuff is superior. I've started to negatively correlate ads vs quality and instead seek brands that don't spend much on marketing, but are still known. Those companies offer true value.
The weirdest thing to me is the variation in gas pricing. Within 100 miles I see gas under $4 and up to $6 on the same day. The most striking was two gas stations on a corner where one was $3.85 and the other $5.30. Even weirder (anecdotally), the cheapest gas seemed to come to the wealthier spots first while poor neighborhoods stayed high.
SUVs are indeed terrible, but the models sold in Europe are tiny compared to American trucks. The most popular SUV in Germany for example is the VW Tiguan with a curb weight of around 1500kg. AFAIK the most popular car in the US in the Ford F150 with a curb weight around 2100kg.
I suspect you would be interested in seeing the time-prices of various goods, things like TVs continue to steadily get cheaper, whereas things like education and housing continue their upward climb.
Well, houses, it's simple: they (politicians) limit the number of new builds, otherwise prices would fall. It's always supply and demand in the end.
Diamond extracting also: they control the amount of diamonds that 'enter' the market each year. Imagine if it was 'flooded': the diamond market would collapse.
Even in areas where building is effectively unlimited, land is effectively free (or less than $5k/acre) a new house is still moderately expensive. There's a minimum price below which you cannot realistically go, because of flat-cost items, and minimum building requirements.
So you end up where a smallish house costs $200k to build/sell at a modest profit, and a nice large house costs not terribly much more but can be sold at a much higher profit margin.
Sure, but those costs (including land costs) are reduced with triplexes/quadplexes/townhomes, which require moving a mountain to get approved in most zoning districts.
In Oregon we recently re-legalized 4-plexes and some other, denser forms of housing by right in our cities. But it's a pretty incrementalist reform, and it'll take time to see the effects.
The quadplexes have to age and trickledown to being boring housing stock; around here the apartments and quads are going for about the same as older stand-alones and only a bit cheaper than new stand-alones. And when you factor in the usual HOA cost the payment ends up being the same.
Blaming this on politicians takes voters off the hook too much. There are plenty of homeowners, and ironically, pro-rental groups, strongly advocating for policies that limit supply of new housing.
Housing prices increasingly reflect labour costs, as those represent a higher percentage of the BOM year over year. North America has high wages and so the minimum threshold for a new 2000 sq ft hovers around $250K, bulk of it being labour cost, the rest materials.
My Latin American friends working in construction would not believe this, they are paid crap, and is the American construction company owner who pockets most of the money.
Depends on what they're working in. A certified plumber, electrician, furnace/gas, HVAC specialist, all command market rates set by tgeir associations. Tilelayers, bricklayers, carpenters and cabinet makers also have set rates. There isn't much left that's unregulated, perhaps framing, drywall/plaster, hardwood/vinyl flooring, painting and landscaping.
There's also growing competition from large companies buying up supply for one reason or another. Housing is being used as an investment option by hedge funds, and now there's whole companies running AirBnB rentals. The latter is being limited in some areas and there's a new bill in the Senate to stop the former, but at the moment it's hard for first-time homebuyers to enter the market when companies just pay 20% over asking price and outbid them.
This gets posted a lot and the reality is that hedge funds own a very small percentage of properties: it's hard to find numbers, but anywhere from <1% ("how many single-family homes do hedge fund owners own" / "how many single-family homes exist") to 3% (how many "institutional investors" own) [1]. They allegedly purchased ~27% of the new homes during the first 3 months of 2023 [1], which is a larger ratio (and not ideal), but still less than the majority. The majority of homes are owned by individuals [2], and the main reason prices are high is supply and demand.
Institutional investors own less than 1% of SFHs. The only reason to invest in them in mass is because you think the area is dominated by NIMBYs who will prevent new supply. Otherwise theyre a bad investment. So funnily enough YIMBY policy fixes this issue too.
For this to be true, you would expect to see rapid population growth. There aren't any Western countries with undue population growth levels - the immigrants are brought in to make up the numbers for the millions of babies that aren't being made.
As is often the case in these discussions, my home country is forgotten.
> Canada's population is currently growing at a record-setting pace. In 2022, the number of Canadians rose by 1,050,110. This marks the first time in Canadian history that our population grew by over 1 million people in a single year, and the highest annual population growth rate (+2.7%) on record since 1957 (+3.3%).
Canada is also going through its worst affordability crisis in recent memory. I'm happy to have gotten out, but as anyone living there now can tell you, things have gotten very bad, very quickly.
I'm actually an immigrant in Canada, so part of the problem!
BUT: I look around me and I see oodles of space and very little new building going on. 2.7% growth should not be impossible to deal with.
When I first moved to Toronto, I was shocked to discover that there are not only actual houses in the downtown area, but entire zero-rise neighbourhoods.
I now live in Calgary, which is where half of Ontario is moving, and according to this [0] we had a "record" new housing starts last year of 5700 houses and 7700 apartments in Calgary. We probably need closer to 57000 and 77000; we have the financial system to support that, and we have enough room for it. Finding that many tradespeople might be a challenge, but we aren't even trying.
It’s rather rich to be invited to a party and point out that if the hosts had used their resources better, there’d be enough chairs and food for everyone.
I wasn’t invited to the party, I was invited to move in to the house; and now I’m getting blamed for the lack of chairs when really we have enough room and money to literally install a nice comfy chair for every human on the planet.
That explains Canada’s housing crisis, but not America’s or much of Europe’s. I guess immigration makes it especially worse in Canada, but without immigration driving growth, it would still probably be bad.
The issue elsewhere is not country-wide net population change, it's people moving into just a few cities. So there is plenty of cheap housing where few people want to live
Here in Norway the primary driver of the housing crisis is that people move from the countryside to larger cities, while hardly anyone does the reverse.
Ironically there's a shortage in the countryside as well, as many of those that move or inherit (ie kids moved) don't sell due to low prices, opting to keep it as a summer home.
And since prices are low it's difficult to get a loan, since sales price is often below the cost of building.
Average wages have never gone down since WW2 (stats are readily available), although immigration may be a factor in dampening the growth rate. For most people on HN, everything before WW2 is before your lifetime.
"Average real-terms pay in Britain fell at among the fastest rates for more than two decades at the end of 2022, as public sector pay deals continue to fall behind the private sector during the cost of living crisis.
The Office for National Statistics said wages in real terms declined by 2.6% in the three months to November, among the largest falls in growth since comparable records began in 2001."
This is a take that would take serious evidence to convince me of. Population growth rates been declining in every western country to the point where, even with immigration, many are below replacement.
Also, we don't tax the capital gains of sold additional homes enough. We should tax those gains to the extent that it isn't profitable to own and sell additional property.
Renting shelter is an important piece of flexibility for many people. I was in no position to buy an entire shelter nor tie myself down long-term right after college (and in fact, moved 6 times in the first 8 years, all but one of those being based entirely on my evolving preferences [one was my landlord selling and moving away]).
If you agree that renting shelter is important to many people for valid reasons, someone or something has to be able to own that property that you call "additional" and others call "the place I live".
I agree with this argument, but it's unrelated to taxing capital gains.
Landlords should make money for the services they provide: upkeep of the building, providing living space, etc. But real estate capital gains do not come from productive investment such as in a productivity-boosting new company. Capital gains in real estate are unproductive rentierism, and are a drain on the economy.
One thing that all economists can agree on, from Adam Smith to Ricardo to Marx, is that land rent is bad and should be taxed away. Capital gains on real estate sales are a great way to do that, while preserving profit for those who productively improve land and rent it out to others.
I would agree with you on the capital gains point iff we indexed the basis of properties to inflation.
Because we don't, much of what we call "capital gains" are "return of capital, measured in a greater number of now less valuable dollars". Return of capital should not be taxed.
As someone who rents and is hoping to buy a home eventually, I think both sides are somewhat right. No, I'm not in a position to buy, so I have to rent. However, I think that there's too many single-family homes that are owned simply to rent out right now. I'm okay with multi-family homes (apartments, townhomes, etc) being rented out more than I am with houses. Taxing additional single-family homes that aren't acquired through inheritance or similar means wouldn't affect apartment rentals and would still have the desired effect on single-family homes (which I think was the intent).
> they (politicians) limit the number of new builds,
This theory doesn't work very well, because there are lots of places where new construction is entirely uncapped (politicians are desperate for the new property tax growth), and prices still don't fall there. Prices are lower there than SF/NYC comparables, sure, but still up 300% over the past decade, and still rising every year.
I know everyone takes Econ 101, and then nothing else, but there's a lot more to pricing than just "supply v demand". We have lots of markets with high prices despite adequate supply, or even despite major oversupplies.
> Imagine if it was 'flooded': the diamond market would collapse.
The diamond market was already flooded decades ago (we can literally manufacture diamonds without mining now) and the market still did not collapse.
And of course, the supply price of diamond stones has almost nothing to do with the cost of a diamond ring, which is why Zales can still charge thousands of dollars for a loose diamond stone, that can be infinitely manufactured in lab for less than 1/4th of that price
Prices are almost never supply vs demand. And in a capitalist economy, prices are almost never competitive.
>This theory doesn't work very well, because there are lots of places where new construction is entirely uncapped (politicians are desperate for the new property tax growth), and prices still don't fall there
> the supply price of diamond stones has almost nothing to do with the cost of a diamond ring
Correct. But it does have something to do with the supply of *diamond rings*. Since there is a de-facto cartel between producers, middlemen and retail, it is not easy for new entrants to sell their rings to consumers. So no, there is not an oversupply of real diamond rings that would depress prices. Also, there is a sizeable % of people that want to spend more on a ring, which is quite rare in markets.
Also, I bet that there is a growing ecosystem of individuals and companies producing fake diamond jewellery and selling it direct to consumer (haven't looked into it).
> Nobody’s buying property where they think the price will fall.
Regular people do this all the time. Every renter on the planet is "buying property" that will have $0 resale value to them when they leave, for example.
If every house depreciated to exactly $0 upon move out (or even just depreciated at a controlled normal rate, similar to Japan's housing), most regular people would still buy houses. You still have to live somewhere, and plenty of people would prefer to own rather than rent -- even at a zero dollar resale value.
Having agreed with everything up to this point, that's a rather bold claim. I would understand it as "supply and demand are not the primary factor in determining almost all prices". Is this really your claim? What are the factors then? Is there evidence?
Yeah, big cuts in lifestyle are required to achieve climate goals. Underlying most initiatives is effective energy/capita reduction. No international travel for the middle class. Probably weekend only car use.
With the honestly astonishing ramp up in solar power and grid-scale battery production over the past decade, I have to disagree with this take. We're hurtling towards solving climate change through market forces alone — now, that doesn't mean we shouldn't also be using policy to speed the solution, but it is pretty clear that, as Noah Smith puts it, "Solar and batteries are going to win, and our thinking needs to adjust accordingly."[0]
The coolest statistic I've heard regarding solar and batteries is that 0.5% of worldwide GDP is being invested in it. One out of every 200 dollars spent is being spent on solar energy! It's truly incredible :)
I agree. I believe the green shift is a big part of the underlying cost. Every good requires energy to produce, and clean energy is currently more expensive than coal and gas.
This keeps getting touted again and again and it's wrong every time. The problem isn't generation, it's storage and distribution, in particular the last mile. Try running a steel smelter on solar power. Natural gas and coal can be transported directly to the factory, solar and wind cannot.
Additionally, dirty coal is very cheap in parts of the world, far cheaper than solar plus batteries. Remember, most of the stuff we consume is not produced in America, and is not subject to US energy policy.
And it also runs on natural gas all day and night, so why bother with solar at all? Sans incentives and regulations, solar makes little economic sense for most use cases.
Steel (and in general metal) production most definitely uses electricity, and copious amounts of it.
There's an opportunity cost to having an expensive power plant just sitting around doing nothing during the day. Yes you use less fuel, but how much of the cost of power is the fuel itself vs infrastructure and other non-marginal costs?
So only if the total cost of solar is less than the marginal cost of gas would it make economic sense to replace gas with solar during the day.
> Historically, the steel industry has accounted for
about 6 percent of U.S. energy consumption. Today, that figure is less than 2 percent and will decrease further to 1.5 percent by 2010
> The total replacement of the open hearth process by basic oxygen and electric furnaces.
> The growth of the electric furnace sector of the industry at the expense of hot metal-based processes ...
p. 13
> Electricity (Figure 11): The correlation between plant tons and kilowatt hours over a wide range of production shows that the use of electricity outside the EAF is significant. With an average of 770 kWh/shipped ton and a typical EAF consumption under 500 kWh/cast ton, a significant amount of energy is used for auxiliary equipment in the melt shop, rolling, oxygen production, and general utilities
The price of the good is the cost of the most expensive producer that satisfies demand. Since wind & solar can't (yet) satisfy demand, they're not the marginal producer and don't set the price.
I think that is a pretty terrible model for modern energy production. You have lots of vertical integration and heterogeneous production methods. You also have long term supply contracts at different price points with independent producers.
If I have one plant that costs $X/kwh and another that costs $2X/kwh, my average production costs is not set by my least efficient plant.
When the government needs money (to support Ukrain, Isreal , just a couple of examples), it will collect money from everybody by making money worth less
As someone who did the whole math on modular synthesizers a few years ago because I wondered why many of those cost 3 to 4 times the electronic parts: This is the markup you need if you don't want to sell at a loss. The only reason other consumer electronics are cheaper, is because they are sold at a bigger scale where the costs of the parts go down and the design costs can be shared on more shoulders. There are some exceptions to this, where the designs are simple and the parts are few, but most of the stuff I ever saw was reasonably prized.
The issue is just that people not doing the math have no idea what reasonably priced is.
>I wondered why many of those cost 3 to 4 times the electronic parts: This is the markup you need if you don't want to sell at a loss.
Only in an indirect way. They cost 3-4 times the electronic parts because that is what customers are willing to pay for them.
A company ideally prices their products such that the net profit is maximized (theoretically). Markup is more of an indicator of whether the product is worth producing at all. If your margins are too high a competitor has room to sell a competing product that undercuts yours which will reduce the optimal price.
Well yes and no. If you price in operations, wages and other overheads and a modest margin you will typically land just there. Sure, it depends a lot on the thing, and that multiplier is only the lower limit. If you create a butique guitar fuzz pedal that consists of five parts that multiplier can easily be much higher, especially if you somehow convince people to pay for that.
But if it was any lower you will sell at a loss unless you sell huge numbers.
I thought the question of the subject can easily be googled/explained. The hard question is why are wages not keeping up? Greed? But greed has always been there. Shouldn't people stop affording certain things and that lead to a price drop?
I hope an economist answers this but my theory is that most businesses have consilidated/merged into larger businesses over that past two decades and this means they can get by for a couple of years with losing revenue so long as when customers come back the price that is acceptable to charge would make up the difference of whatever they lost
The pandemic disrupted supply chains of everything and so the supply of things went down. A short recession happened in 2020 but the US economy bounced back quickly thanks to small business loans (which were converted to grants), stimulus payments, and Americans staying home were able to build savings. Additionally, because of the Pandemic, labor was in high demand, and real wages and buying power grew sharply for the first time in a generation. You could get $15/hr working at McDonalds with a signing bonus. This lower supply and increased demand resulted in higher prices.
Two prices deserve special mention: Gas and Housing. Gas prices went up due to the war in Ukraine (Russia is a major oil exporter), and Housing has been increasing in price since the great recession due to low supply. The federal reserve also slashed interest rates to help stimulate the economy in response to the pandemic, which had the effect of subsidizing demand. With historically low supply and high demand, the cost of housing exploded and has not fallen yet.
Some of your points reiterate a framing I often hear from the establishment, which misleads people from understanding the more accurate causes.
Lockdown policies had much to do with supply chain disruption. Many businesses were willing to stay open but were forced to shut down, which obviously drove prices up due to lack of supply. The lockdowns were an unprecedented level of authoritarianism over what was a bad flu, very creepy and weirdly timed since it was a re-election year, but I digress.
Real wages haven't really increased given the level of inflation and economic distortions. If anything, real wages for average workers were steadily increasing during the Trump administration. According to the Fed analysis using CPI adjusted dollars, so take that with a grain of salt, we can see median weekly real earnings had previously peaked at 345 in Q1 of 2009, remained low during most of the Obama administration, finally returning to 345 in Q4 2015. This level steadily increased until Q1 of 2020 when it was 367. After some major distortions from stimulus checks, unemployment payouts, it spiked to 393 in Q2 of 2020, but is now back down to 365, slightly below where we were before the lockdowns. Except now there's less labor force participation, more homelessness, more crime, etc.
Gas had been increasing since Biden took office, so it's not accurate to entirely blame it on the Russia-Ukraine war. As we all know gas was very cheap in the US during the Trump administration, at $2.63 per gallon in January of 2020, 2.42 in Jan of 2021 before Biden formally took office, then had increased 3.413 in Jan of 2022 right before the war started.
Much of the cause for high energy prices are due to green energy policies which subsidize inefficient sources like solar and wind, while penalizing reliable sources like natural gas and nuclear. I know that in California electricity prices have increased significantly, where the Electric Utility Retail Price was already high at 0.164 in January of 2020, and is now at 0.270. This is deceptively low, as I have to pay a connection base rate and peak usage pricing, so it's actually closer to 0.75 / kwH in the evening.
> The lockdowns were an unprecedented level of authoritarianism over what was a bad flu, very creepy and weirdly timed since it was a re-election year, but I digress.
The website is surfing on a trend of people worrying about the price of things.
However, I would argue most of things are cheap, even today. Their very low price in the last decade(s) was maybe an anomaly due to huge income inequalities in the world, global commerce expansion due to a very peaceful era, and very abundant energy.
The price of things is still quite low, if yo try to imagine what it would cost to a small or even a large community to build most of the things we use, we would have to go back to the 1800's.
Writing this comment reminds me that things could get more expensive, and making them cheaper takes a huge amount of human effort.
The problem is really housing. The housing crisis overshadows the hundreds of smaller wins we've had in other goods like electronics, because housing is such a large proportion of expenses, and it's a compulsory expense. When you add in wage stagnation of the lower class, we've now got a big social problem. A generation of alienated young people. They have no hope of home ownership and rents keep increasing. This then creates political radicalization. My grandfather, a middle-class guy, grew up objectively poorer than people today but home ownership (without a mortgage!) was a given and that takes a load of stress off your shoulders when half of your paycheck isn't going to a landlord.
> a trend of people worrying about the price of things.
Rather dismissive.
There are whole chunks of the industrialized world struggling to afford basic necessities while working full time jobs. Calling it 'Worrying' is almost british levels of understatement.
Debt to GDP had a nice leap in 2020. The government took on significant increases in debt. While GDP did continue to increase.
The Treasury bill yields inverted. When this happens, nobody is buying their debt. So it goes on the 'balance sheet' the balance should be at basically 0. The pre-2009 nominal balance wasn't a problem.
What you will see, during the financial crisis the USA federal government effectively went bankrupt. Has been bankrupt since. Nobody wants to hold enough of their debt anymore.
Thusly resulting in a unusual huge increase in inflation.
This isn't free money. The USA will try its best to pull money out of their reserve currency balance but in so doing because of no gold standard will start removing the USA from being a reserve currency.
Or what is happening, anyone holding onto currency or currency likes that are returning below inflation are the ones who pay for the government's spending.
This will be exceptionally hard on people holding downpayment funds. Not to mention anyone who lives paycheque to paycheque and doesn't receive a raise in excess to inflation. They are the ones who pay for the government's deficit spending.
Healthcare costs an absolute fortune. If you're not paying it all out-of-pocket, it's being paid by insurance with big premiums from your paycheck. If you can't afford the full cost because you're too poor, middle-class people are subsidizing it for you from their paychecks. The middlemen (mostly insurance companies) are profiting hugely on the whole population here.
Housing costs a fortune thanks to America's NIMBYism, zoning laws, and lack of construction.
Finally, everyone needs an expensive car and all the costs associated (insurance, fuel, repairs), and I'm guessing America has the most lane-miles per capita of roads to maintain of any country (maybe Canada competes here).
All these costs add up, and mean that American workers need a ton of money just to have a basic lifestyle.
Personally, I think this is going to end up making American labor extremely uncompetitive on the global market. It already has in many industries, but it's just going to get worse, and other countries are catching up in development or have passed the US.
>Personally, I think this is going to end up making American labor extremely uncompetitive on the global market.
As long as most countries depend on the US and most international transactions and lending is done in USD, that does not matter. US can buy in dollars and then print some to cover their debts.
The only threat to this model is OPEC selling oil in other currencies and BRICS countries establishing a parallel financial system. But then, that's why US has the army and the three letter agencies, to assure against that.
That doesn't make American labor competitive at all, on the global market. It just props up labor prices domestically, so servers can get paid a fortune (in global terms) so they can afford a shitty overpriced apartment and a personal car, whereas servers in other countries just walk or bicycle to work and get inexpensive healthcare and don't need as much money to live. But no one is going to pay American labor rates for manufactured goods, unless it's for F35s. So in the end, most Americans are just working at bullshit jobs, and the whole economy is propped up by its currency being the reserve currency. That's not what I'd consider a good long-term strategy for your society.
Cost of living in the US seems low to me. I'm comparing to my travels in Europe and living in Canada. This is without taking into account that people earn more and pay less tax in the States.
Not sure where you got the idea that the US isn't expensive after traveling to Europe. Hotels, restaurants, and transportation are significantly cheaper in western Europe than in America, and those are the main costs you'll see as a tourist.
Not to mention food. Eating at a brasserie in Paris, two meals, two drinks was about 24-27 euros. When we came back from our trip we ate at a “French” restaurant in our town serving the exact same food and it was close to $80 plus 20% for a tip. Two meals and two drinks. Not to mention the quality was much less even though it’s highly reviewed.
America is expensive in a lot of ways you get much less than what you pay for.
> we ate at a “French” restaurant in our town serving the exact same food and it was close to $80 plus 20% for a tip
That's because French restaurants in US are considered fancy. They are always expensive. But if you compare say Thai restaurants, the prices are similar (I just did -- curry near me in suburban Paris €13.5, curry in suburban NJ $15+tax+tip).
They exaggerated, but not by much. You can easily find brasseries in Paris with a lunch menu for 15-20 euros. The catch is that you have to eat during lunch time, they are typically not open through the day. Dinners are more of course.
We really do live on different planets if you really think those prices are real. I never paid prices anything like that in various countries in central Europe, and I sure as hell didn't go to McDonald's. But if I had, a typical meal there is about 10 Euros or so in Germany. What the heck are you ordering, their most expensive bottles of wine or something? Or are you going to the most exclusive restaurants in these cities?
Avg wage is higher than most countries on the planet. High cost of living in tier 1 (international) cities. Not all parts of America are expensive, just the parts most people prefer to live in.
Bluntly, it's the Law of Supply and Demand at work. With inflation, it means there's more money in the economy than the goods and services, to the value of the money goes down, i.e. inflation.
Consider an economy with 10 people in it. Now double everyone's money. The prices will all double.
Where does all this extra money come from in the US economy? Federal deficit spending. The government (through various machinations) simply creates more money to cover the deficit.
This is why the government switched to a fiat money system in 1914 - then the government can just spend whatever they want with no constraints.
Fun historical fact: During the Civil War, the Confederacy experienced rampant inflation. The treasury was located in Richmond, VA. When the Union Army got close to Richmond, the Confederacy packed up the printing press and moved the Treasury, which took a few weeks. During those few weeks, inflation came to an abrupt halt. When they got the printing press running again, inflation resumed its gallop.
If you can't collect tax because of a war going on then printing money and inflating away the value of your currency is probably the next best alternative.
Fun historical fact: When the US currency was based on gold, there were two periods of inflation:
1. the California gold rush
2. the Alaska gold rush
Even more fun was the Spanish belief that looting the New World of gold and silver would make Spain rich. All it did was cause massive inflation in Spain.
What about a professional tool with a million features? Sure, sometimes designers create unnecessary complexity. But sometimes the problem is inherently complex.
A cup is something a baby can learn to use. A CAD package for designing rocket motors? Not so much.
It does apply. Assuming a baseline(e. g. "literate English" or "colorblind primate"), a UX designer should be able to create an interface that allows for the engineered function to operate should the operating entity desire that action by a mixture of prior shared knowledge and novel information. If the designer is unable to fully convey the functionality, then to some degree, the designer did fail.
The website doesn’t explain why things are expensive, it just presents the comparison between search terms frequency. Also, data visualization for “Top categories by country and year” reminds me how pimple cream companies illustrate pimples.
> above prices at say Walmart or Target for similar SKUs?
"The consumers' lawsuit filed in July 2022 challenged Amazon's "minimum margin agreements" with its merchandise suppliers. The plaintiffs alleged those deals have prohibited non-Amazon retailers from selling the same product elsewhere for a lower price." <https://www.reuters.com/legal/litigation/amazon-loses-bid-di...>
In short, the prices were the same at other retailers because Amazon was price-fixing.
That’s not quite how Amazon pricing works. It doesn’t allow sellers to discriminate their discounts by channel. But if say Walmart runs a sale on product X, Amazon will follow that price. I’ve read the whole complaint and I’m familiar with how Amazon pricing works.
You’re mistaken on the definition of price fixing.
This press release isn't even about Amazon itself. That price fixing case only incidentally involves Amazon because the products were sold on the market place, Amazon was not a party to the price fixing.
Lol, I love these clueless takes. That's why the 1990s saw a low, steady rate of inflation -- because there was so little greed. But starting around 2022, we saw a sudden surge of greed, when there was so little greed beforehand. And that's how things got so expensive!
You might consider reading up on a subject called "economics".
"Economics" was invented by the wealthy elites as a tool of class control to justify their bottomless, insatiable greed. All "Economics" does is rationalize the obviously failing status quo.
Considering that there are many different schools of economists with very varied ideas, that's absurd. I think you don't even understand the definition of 'economics'.
Yeah it's definitely more than just monetary phenomena. I'd argue that bad fiscal policy makes it happen and jiggering the money supply is what we do to fix mistakes by terrible leadership, but that's certainly also an oversimplification.
Regularly requoting Friedman doesn't make it true. You're confusing cause and effect. Inflation can be fixed by adjust the money supply, but it may or may not have been caused by money supply.
You're correct in that not the requoting that makes Friedman's dictum true. It's the basic math.
The aggregate price level is equal to the money supply, times the velocity of money, divided by the volume of transactions. The duty of monetary policy is to size the money supply accordingly. When the central bank fails in that task, or is overwhelmed by fiscal recklessness, you get inflation. Everywhere and always. By "phenomenon", he's not talking about the proximal cause; he's talking about the policy point of failure.
And it sure as heck has zero to do with excessive javascript and Google search trends.
Sure, if the Fed is prescient. There's lag in the system, so to prevent inflation the Fed would have to predict supply shocks several months in advance.
Designers who “ease-in” text on-scroll should have their hearts “eased-out”. With a spoon. (“Why a spoon, cousin?”) Because it's dull, you twit: it'll hurt more.
A medium-quality dinner for two in an expensive city costs 100$. A beautiful kitchen knife costs about that much, but lasts 20 years.
A Broadway musical for a family of 4 costs about 800$. A good mattress costs about that much, but lasts for 20 years.
The given wisdom seems to be that we should value experiences more than things. Good things also cause small dose of repeated joyful experiences.
I am 50 years old, and live a reasonably opulent, upper-middle class, big city life. I am guessing here - all the items in my apartment put together, is probably worth 6 months of my work. A bargain, compared to the joy they give me.