* Rent (they're all high; and can't afford to buy anywhere near where I work)
* Food (prices are pretty much the same everywhere)
* Internet (Cable's the only modern-speed option where I currently rent)
* Energy / Gas - either utilities or again, the same everywhere
I think most everyone else is in the same boat. I can scale down some of these a little bit, but they're all fairly __inelastic__. I can't stop eating. I need all of these for life and work.
Want to tame inflation? Tax the hell out of profits above X%!!! Someone's making money on this.
and the companies do not want to compete: most modern large companies only exist as a _vehicle for investment_, and as such compete for shareholders, not consumers. Due to this, short-termism dominates: average CEO stays 4 years at a given company, and performance of the company after they leave is largely uncorrelated with their carreer success, while share prices during tenure actually does.
So they'll suck the blood from us, crash everything, and get a raise when politicians ask them very nicely to try and fix it. And while share prices will go down on the S&P, billionaires will gte richer, and hedges will make bank...
I'm not familiar with the law of rent, but it does not seem accurate. Right now blue collar workers can't afford to rent within a 60 minute commute to Boston, where they are not paid a wage that justifies that commute. Why would you cook or clean in Boston when you could do it literally anywhere else in MA without the commute?
I guess my point is that markets continually prove to not be rational. Maybe a philosopher hundreds of years ago imagined they could be, but that's not how things are shaking out.
> Why would you cook or clean in Boston when you could do it literally anywhere else in MA without the commute?
Because that's where you have your social connections. Friends, family. That's where your home is, your parents lived there, your grandparents lived there, you grew up there. And you hold out for better times. And that's why you can be exploited like that.
That's the "not rational" part. The humans participating in the market are not "rational", for some odd definition of the word. But if you think through motivations, they are rational, if you put value in the reasons why people do this kind of job in this kind of situation.
No the "not rational" part is that wages are not commensurate with cost of living increase because short term thinking yielding record profit margins is addictive.
Workers are leaving because they can't afford it, not because they want to stratify their families and leave their homes.
For those thinking this is the market successfully working: has the market successfully worked in the Bay Area? How does SF look right now?
> No the "not rational" part is that wages are not commensurate with cost of living increase because short term thinking yielding record profit margins is addictive.
Wages are where the two parties met. It's high enough so the seller of the good (employee) is ok with selling and it's low enough so the buyer of the good (employer) is ok with buying. As long as they do business with each other, they are apparently both deciding, rationally, that this is an acceptable deal. Better than the alternative.
> Workers are leaving because they can't afford it, not because they want to stratify their families and leave their homes.
Great that they are leaving! They should be leaving! Cause then, and only then, will businesses be driven closer to raising wages since the sweet spot in the above equilibrium moves upwards.
> For those thinking this is the market successfully working: has the market successfully worked in the Bay Area? How does SF look right now?
Well in the Bay Area, the market is highly distorted. Lots of NIMBY zoning rules preventing high density housing being built. People sitting on detached homes because they can't afford to move. This heavily distorts housing costs which then impacts salaries since all those tech workers need to live somewhere. Big tech and VC-funded not-as-big tech is floating in money, so can afford to push salaries/compensation higher and higher. It's the market, but it's not pretty and it's heavily distorted.
In the case of the Boston cleaner, that seems to indicate the living costs can also drive salary. If nobody applies to work somewhere, the wages either go up or the job goes unfilled.
> In the case of the Boston cleaner, that seems to indicate the living costs can also drive salary. If nobody applies to work somewhere, the wages either go up or the job goes unfilled.
When one job salary doesn't cover living costs, you are more likely forced to have two or three, not a raise in your current one. It also solves problem of unfilled jobs. Because there are cases when job is only economically feasible if performed in urban area with high population density, so you can't really change your location.
When then starts happening the politicians start screaming about how we need more immigrants (who are willing to live 5 to a 1 bedroom apartment and suffer a brutal commute).
Is no one cleaning in Boston? It seems pretty easy to test whether it’s a market failure (ie, there are no cleaners cleaning in Boston).
I think if you ask anything vs “new law passed by Congress” I’m going with anything. So at least the invisible hands will eventually solve this problem by raising cleaner pay until someone is willing to commute 60 minutes (note that was my commute in a larger metro area on programmer pay) or cleaners can afford closer.
The problem with your (and many others) "short-term thinking" argument is that the assumed long-term consequences -- you wrote "crash everything" -- doesn't happen. We went from 2008 to now, 15 years, with corporate profits and stock prices zooming straight up. Even shutting down the globe was just a temporary blip. Highly aggressive corporate activity, massive expansion of economic inequality, yet the longest non-recessionary period in this country's history.
Been hearing "unsustainable" for a long time. I believed it wholeheartedly for a while. Sure, we will have recessions again, perhaps we're in one presently, but do you think the USA is going to somehow collapse? It will likely see a gradual decline in living standards, I agree, but you are overlooking how bad the 70s were economically, when the Baby Boomers were in their 20s and 30s.
That's the thing though, we shouldn't be seeing a decline in living standards. Technology, productivity, efficiency are all up dramatically. We just have an oligarchic ruling class sucking up all the difference.
I'm not claiming there will never be another downturn -- of course there will be -- but the fact that we just went through the longest non-recessionary period in this country's history, despite all the "short-termism" already indicates at least some flaws in the original hypothesis
I would question whether the measure we should be concerned with is "recession or not" - everything can be getting worse while simultaneously corporate profits are high. That's kind of by definition what short-term thinking gets you - cash in hand but ruined infrastructure and societal safety nets.
You can always find negative things if you go looking for them. The reason people care so much about "income inequality" rather than "poverty rates" is that poverty has declined dramatically around the globe. So doom-and-gloomers shifted the goalposts and ignore successful results.
You can't accuse corporate CEOs of short-term thinking and then use infrastructure and "societal safety nets" as the measurements -- CEOs are responsible for the success of their company, not of the well-being of an entire society, that's the government's job.
Notice how many of those things have highly inelastic supply, are monopolies (or close), or have really bloated "value adding" supply chains.
NIMBYs and such ensure that more housing can't be built, at scale, in areas with high rents, to have normal supply/demand dynamic.
Food is relatively cheap, if you cook for yourself and don't mind a lot of beans, rice, bread-machine bread, peanut butter, etc. If you want heavily processed or prepared food, or restaurant food...that's an order of magnitude more expensive. And many parts of the food industry are far too consolidated to be competitive.
Etc.
Taxing the hell out of profits sounds great...but in sectors where the real problems are strangulated supply, monopolies, and massive processing in the supply chain - it won't do much good.
> Food is relatively cheap, if you cook for yourself and don't mind a lot of beans, rice, bread-machine bread, peanut butter, etc. If you want heavily processed or prepared food, or restaurant food...that's an order of magnitude more expensive. And many parts of the food industry are far too consolidated to be competitive.
The people already doing so are absolutely fucked.
While potentially still cheaper, those basic staples have typically seen a disproportionately large rise in their price. The price of porridge oats and milk increased by over 30% in the UK between 2022-2023[0]. Own brand plain dried pasta went up by 41% in one, relatively cheap, supermarket[1].
CPI as a whole is at 8.9% but food is at 19.2%[2].
That's not even accounting for the noticeable inflation in the price of the cheapest goods that occurred prior or energy bills more than quadrupling between 2019 and 2023, even before Ukraine they had nearly doubled.
The argument that undermines the price gouging theory is that consumer demand for optional Goods remains High and is also inflating. This indicates that consumers are not responding to higher prices by decreasing demand.
I wasn't arguing the merits of price gouging, rather that as opposed to what CPI figures may suggest, the poorest have been hit much harder, by much higher inflation than those better off.
Seeing as we're now on the topic. Demand may be high where you are but that certainly doesn't hold true in the UK. The statistics show clearly that people are buying less[0] and getting less for it.
Retail volume is down 3.1% on 2022 across the board, there's literally a chart titled "Divergence between retail sales volumes and values"[1] showing how severely people are being squeezed. Figure 4[2] breaks out the same data for food retail specifically.
While certain demographics have been able to somewhat keep up with rising prices, the reality is that some food banks are having to distribute 50% more than they did pre-pandemic[3]. Real disposable income is already well below 2020 levels and expected to erase a decade of "growth" as it nosedives towards that of 2013[4].
Prepared food is really unconsolidated like bulk food unless you live in a total roadside mall hellscape. There seems to be agreements on maintaining irrational pricing where there is price differentiation. I.e. you will pay more for cheaper to make vegan food because a vegan can't eat a cheap burger. IMO this is more distributed in nature like landlords sharing a price fixing app.
Disagree. There is a very old rule of thumb in the restaurant biz, that your selling price has to be 4x your actual cost of the food - because of all the labor, kitchen equipment, rent, etc. overhead. I'd bet that similar rules of thumb apply to grocery stores' deli departments, shrink-wrapped sandwiches in vending machines, and pretty much every other sort of non-restaurant prepared food.
And, at least in the area I live in, the barriers to entry for the restaurant biz are pretty minimal. Most restaurants are (at most) local micro-chains, and there's a lot of churn as people try to make a restaurant work...and often fail financially. Want to get into the restaurant biz? With a low-6-figure nest egg, and willingness to wait for some local commercial landlord to have a vacant failed little restaurant on his hands, it's "easy". And the real estate supply is pretty elastic - cities and NIMBYs favor the (often quick & easy) construction of more small retail spaces; likewise converting generic vacant retail spaces into more restaurants.
Vs. if you want to be residential landlord - I'll guess a 7-figure nest egg to buy existing property (limited supply, and buying some does not increase overall supply). If you want to actually expand supply, by building rental housing at scale...you'd better have an 8-figure nest egg, and experienced legal team, and be willing to spend 8+ years (from "ready to do this" to "collect rent checks") fighting your way through the government red tape, NIMBY-land's standing army, and actual construction. With no guarantees of success.
Short term it would create a strong incentive not to hoard property. If it's not rented out it is losing money. Landlords would scramble to rent them out - driving up supply.
Medium term rents would decrease, too. A land tax would create a powerful incentive to yield low density housing in high value locations to be redeveloped into high density housing - increasing supply.
What would also go down is property prices. Significantly.
It would kill all political will to fight redevelopment too. There would be no point fighting to declare a launderette historic to prevent it from being turned into apartments. Desperation for local housing wouldnt get directly turned into home equity and higher rents like it does now, it would just jack up your tax bill.
The idea that you can tax an input more and reduce prices is ridiculous on its face.
> Demand for housing would remain the same.
Also unlikely. Basically any change in local conditions will impact housing demand one way or another. The global number of people needing housing may not change, but that’s not housing demand (globally or locally).
> Short term it would create a strong incentive not to hoard property. If it's not rented out it is losing money.
Property tax already does that, and most places have properry taxes. Also, the fact that property has non-tax maintenance costs does that. “Hoarding real property” is largely a theoretical concern.
> Landlords would scramble to rent them out - driving up supply.
Except they already do that, but higher taxes would raise the break-even price.
> Medium term rents would decrease, too. A land tax would create a powerful incentive to yield low density housing in high value locations to be redeveloped into high density housing - increasing supply.
No, it wouldn’t: housing demand already does it, the constraint is regulatory (zoning control) not the desire to build. Higher taxes on lans drive up costs without dealing with the constraint. Deal with the constraint and you’ll see development because more housing on the same land is more money for the landlord even with 0 taxes. All more taxes do is raise the break-even rent.
> What would also go down is property prices.
Nominally, but the cost of ownership would stay the same or be higher, some of it moving from purchase price to taxes.
> It would kill all political will to fight redevelopment too.
No, the political will to kill redevelopment would just also be political will to kill the taxes.
> There would be no point fighting to declare a launderette historic to prevent it from being turned into apartments.
There’s no financial case for that now, and higher land taxes wouldn’t erase nonfinancial political motives.
>The idea that you can tax an input more and reduce prices is ridiculous on its face.
Of course. It would absolutely reduce the price of property.
Just not rents.
>Basically any change in local conditions will impact housing demand
Hand waving.
>Property tax already does that, and most places have properry taxes.
When high enough property taxes do inhibit hoarding, yeah. They approximate a less desirable form of land value tax.
In my city property taxes are capped at an absurdly low level and property is hoarded like bitcoin while people die on the street. Tax policy at work.
>Except they already do that, but higher taxes would raise the break-even price.
Remember when you said?
"The idea that you can tax an input more and reduce prices is ridiculous on its face."
You were absolutely correct. PROPERTY prices would decline to compensate for the higher taxes.
That would in turn keep the breakeven price more or less the same for developers.
It would also reduce the capital intensity of property development since the cost of the land wouldn't be front loaded.
Dont get me wrong. This would turn property owners into renters of a kind (renting land from society) and this would make a lot of property owners furious - and probably violent. It's not a panacea - it's just a way to euthanize one kind of economic parasite.
Taxing land doesn't increase rent; it's an inelastic good with greater demand than supply. See Ricardo's Law of Rent, Henry George, or basically any analysis of land tax (or indeed, taxing any monopoly good). The incidence of land tax is well known to not fall on the tenant.
It is passed on to the consumer but the consumer in this case is the landlord not the renter.
There are two markets with two types of consumer here:
1) The market for a roof over your head. This is highly (but not completely) inelastic. People need somewhere to live.
2) The market for property as an investment. Higher taxes on an asset disincentivizes ownership of that asset. This is elastic because there are tons of other asset classes you can pour surplus wealth into.
Effectively a land value tax already exists for renters - in demand locations have higher rents. The "tax receipts" just dont flow into government coffers.
Depending on how high and fast it was raised it would likely lead to a steady stream of landlords defaulting on their mortgages and leaving the banks holding the property.
(Usually) rents are already as high as they can be, in aggregate. In other words, the market cannot bear a higher cost for the good, so an increase in cost has to be eaten by the landlord.
This is actually very easy to see in countries with no 30 year mortgages, because landlords have to refix their mortgage rates every 1-5 years. This means you can see regular landlord cost changes as interest rates fluctuate, as well as the impact on rents.
The impact on rents is essentially 0 as landlord costs change; instead, rents follow tenant incomes, because landlords are able to charge more as long as tenant incomes increase.
I've got plenty of data from New Zealand if you're interested, but I'm sure it's the same everywhere there is supply-constrained housing.
> Usually) rents are already as high as they can be, in aggregate. In other words, the market cannot bear a higher cost for the good, so an increase in cost has to be eaten by the landlord.
Rising tenant incomes. As incomes increase, landlords are able to increase rents proportionally. This is only true where demand outstrips supply, but that's the case in most developed cities in the West, as well as many other cities.
Tenants have several fixed costs to pay: taxes, food, rent, and transportation being the main ones. If their incomes go up, rent typically consumes the increase, because housing is a fairly uncompetitive market.
Why would you want farms in urban settings? We have plenty of farm land as is, in fact if many cities were more densely structured rather than suburban there would be even more farm land.
A land value tax wouldnt tax density it would just tax the value of the land.
This would encourage property density in high value locations like inner cities but wouldn't enforce it.
In terms of farmland it would just mean that farmers rent the land from the government rather than, say, blackrock or bill gates (two of the biggest owners of farmland right now).
This would not affect food prices by much it would just mean that when you buy food from those farms, instead of ~15% of the price flowing into bill gates' pocket it would flow into government coffers. Bad luck Bill Gates. Bad luck Blackrock.
> A land value tax wouldnt tax density it would just tax the value of the land.
I wasn’t responding to an LVT suggestion, but a suggestion of taxes that would be based on density of use and go up for lower density. I quoted the suggestion in my response. LVT is a whole different thing.
The value in LTV would be influenced by density. If every parcel around a plot of land is dense the total value would be higher. So tax the land at the average density of surrounding parcels and allow for unlimited density. That would incentivize density and development where it is needed and prevent a single hold out from inefficiently blocking development.
Builders won't build less if it's people paying rather than corporations. There isn't going to be a shortage of demand until there is an increase in supply because housing is inelastic.
All of them were sorted during WFH. I moved out to remote places and paid far less. I saved quite a bit on all of the above remote other than Internet of course. The economy is setup to extract your money from you once you've earned it.
Well, yes. How else can the rich keep getting richer? And the umpteen million individuals assuming "stocks will return 10% over the long term" in their retirement planning actually manage to retire as they planned?
And as long as the culture wars can be kept burning fairly hot, the line-ups of new movies and video drama compelling, and the web addictive - the poor working masses won't put up too much of a fuss over all that extraction.
In my country, rents are increasing now after the markets have already been flat or down, the startup boom has long fizzled out, and there are layoffs almost every day.
It's baffling. Rents were down during the pandemic but they've now rocketed up 50-100% in some areas.
> Food (prices are pretty much the same everywhere)
I can't believe this is true. Either you're shopping for food at a subsistence level, in which case you know exactly what you're missing and how much easier it would be if you could afford a bit more, or you indulge yourself a bit and you're wilfully ignoring that you could pay less.
A good where consumers have inelastic demand does not mean that individual companies face inelastic demand curves - that's the whole point of competition. ie. It doesn't matter if you're willing to pay a lot to avoid starvation since no individual company is making profits off of having some market power to starve you.
The thought that food providers are colluding to raise prices is absurd and should serve as a reductio ad absurdum in these arguments, not a fundamental explanation for "greedflation".
> The DOJ, explained forbes.com, charged that company “executives worked together to keep prices paid to poultry farmers low while raising costs for consumers at grocery stores and restaurant chains.”
> Seems relevant to note that these charges failed..
As USA lives in post law age it only means that relevant corporations carpet bombed regulator with lawyers, paid politicians, lobbyists, job offers for key bureaucrats(after they retire/leave) to make it go away. And to prosecute corporation regulator needs money, money they have is finite so they need to choose their fights. And they need don't know if around the corner some corporation doesn't produce fentanyl out of baby skulls. On top of that fixing plight of chicken producers won't translate into them spending money on lobbyists, hiring retired bureaucrats or financing PACs, everything corporations that gain from it will definitely do.
* Rent (they're all high; and can't afford to buy anywhere near where I work)
* Food (prices are pretty much the same everywhere)
* Internet (Cable's the only modern-speed option where I currently rent)
* Energy / Gas - either utilities or again, the same everywhere
I think most everyone else is in the same boat. I can scale down some of these a little bit, but they're all fairly __inelastic__. I can't stop eating. I need all of these for life and work.
Want to tame inflation? Tax the hell out of profits above X%!!! Someone's making money on this.