Re:Why Are Economists Giving Piketty the Cold Shoulder? (2017)
by burlesona on Sunday March 31, 2019 @12:29PM
(#19536433)
The hyper-inflation fix is the only "solution" I've heard in serious discussions on this mess. It's sort of insane, but when you dig into it, it maybe the least bad choice as far as bringing a healthy equilibrium back to the economy without economically devastating huge chunks of the population.
Re:Why Are Economists Giving Piketty the Cold Shoulder? (2017)
by cookingrobot on Sunday March 31, 2019 @01:39PM
(#19536919)
Inflation would also be a tidy way to pay for Universal Basic Income. Just print money and give it out.
Re:Why Are Economists Giving Piketty the Cold Shoulder? (2017)
by ericd on Sunday March 31, 2019 @06:35PM
(#19538878)
Pretty sure hyperinflation is never a good solution. You can also just let people lose money on their investment. That has the benefit of not wrecking the currency.
Re:Why Are Economists Giving Piketty the Cold Shoulder? (2017)
by mcguire on Sunday March 31, 2019 @03:06PM
(#19537580)
Making money cheap for mortgages is the mechanism the financial industry used---they used derivative technology in a largely-failed attempt to reduce the risks[1] of a class of extremely risky loans, loans would would never have been made without the derivatives. I'd argue that this benefited the financial industry much more than even "existing owners."
Buying real estate cheap and selling it for great profit, as a rule, only works once. If you use the proceeds to buy back into the same market, you're buying expensive property; you only actually see the profit if you move to East Bumford and buy cheap property that isn't appreciating. Further $750k or even several million isn't enough to get into the 1%. But skimming a few percent in fees off of millions of transactions is nigh unlimited money.
But those cities are where "the 1%" live or own property, so they're the beneficiaries of the price inflation, which is precisely the issue. A rich person bought a house in SF for $500K and now it's worth $5M, a middle income person bought a house in Detroit for $200K and now it's worth $200K, a lower income person rented an apartment in SF and saw the increase as an increase in rent rather than an increase in home value.
> Further, my feeling is that real estate appreciation is an effect, not a cause. Consider the 2008 event ("circumstance?" "shenanigan?"): it was purely driven by the financial industry. It had, really, nothing to do with real estate at its core; it was caused by bad financial behavior, and the failure of the real estate market was simply how it was translated out of the finance world into the rest of the economy.
It's more like a mechanism rather than a cause or effect. You make money cheap so people borrow and bid up housing costs. This enriches the existing owners who bought before prices increased, which increases wealth inequality because they were already the ones with the most money.
The problem now is that you can't roll back the clock because transactions have already happened. Richard bought a house for $80K and sold it to Michael for $800K, because Michael needed a place to live and the bank was willing to loan him the money. If you now raise interest rates, the housing prices start to come back down, but Richard already has his $720K profit and the loss accrues to Michael who still has the $800K mortgage, and may now have to start paying higher interest on it in addition to the loss in home value.
As a result the possible solutions start to look weird. Like causing general inflation on purpose to devalue everyone's mortgage debt and allow the price of everything else (including wages) to rise to meet the cost of housing without reducing nominal housing costs which would put too many people underwater on their mortgages, and employing policies like relaxing zoning restrictions to ensure that nominal housing prices don't rise with everything else.