Inflation adjusted $/sqft on average across the US housing costs exactly the same as it did in the 1970s. With interest rates 1/5 of what they were back then, each square foot is actually much more affordable.
I admit I misspoke, because of course, monetary policy controls interest rates, but I maintain that a change in affordability is not dominated by inflation but rather other social policies. Houses are twice is big and families are 20% smaller.
> Inflation adjusted $/sqft on average across the US housing costs exactly the same as it did in the 1970s.
> Inflation adjusted
Inflation is a result of monetary policy. So when you’ve adjusted the price for the monetary policy, you see that 50 years of capital accumulation and efficiency has been soaked up by monetary policy.
> I admit I misspoke, because of course, monetary policy controls interest rates, but I maintain that a change in affordability is not dominated by inflation but rather other social policies. Houses are twice is big and families are 20% smaller.
Things are supposed to get cheaper as capital accumulates. Social policies undoubtedly have an effect. So does increasing the money supply. An increase in the number of currency units necessarily causes each unit to be worth less, ceteris paribus.
> Happy to debate more but [citation needed].
I’m not sure how to proceed. The notion that one could print money and have each currency unit correspond to the same amount of physical goods is prima facie false.
> "I’m not sure how to proceed. The notion that one could print money and have each currency unit correspond to the same amount of physical goods is prima facie false."
No, it's not, you're looking at half the equation. Value of money is a function of both supply and velocity. If velocity drops but supply increases commensurately, each unit of currency corresponds to the same amount of physical goods. [1]
This should be dead obvious to you, as the money supply doubled last year but the price of Apples went up 2%. Not 100%. Same with the entire CPI basket. Housing actually got cheaper. Rent went down a ton.
> Inflation is a result of monetary policy. So when you’ve adjusted the price for the monetary policy, you see that 50 years of capital accumulation and efficiency has been soaked up by monetary policy.
We are talking in constant dollars that have a 0% notional rate of inflation. That's what inflation-adjusted means in this context.
What do you mean by "50 years of capital accumulation"? People don't accumulate or hold dollars for exactly this reason. They accumulate and hold assets and value, whose performance matches or exceeds inflation.
> Things are supposed to get cheaper as capital accumulates. Social policies undoubtedly have an effect. So does increasing the money supply. An increase in the number of currency units necessarily causes each unit to be worth less, ceteris paribus.
I'm not sure what that means. Things aren't supposed to get anything as capital accumulates.
An increase in number of currency units may or may not cause each unit to be worth less, as velocity is the missing half of the equation. With that in mind the goal is each unit to be worth 2% less each year, to incentivize higher velocity of money and investment.
It's a straw man to say that your buying power drops 2% each year as a result of inflation. You're only penalized for inflation for the period between you receiving the dollars and using them to purchase assets whose performance exceeds inflation.
> No, it's not, you're looking at half the equation. Value of money is a function of both supply and velocity. If velocity drops but supply increases commensurately, each unit of currency corresponds to the same amount of physical goods. [1]
for consumer goods, “velocity” is the rate at which those goods are consumed. People aren’t generally choosing to starve themselves or pay rent on 4 apartments according to economic conditions.
i should have included “ceteris paribus” with my statement but I thought it was obviously implied.
> This should be dead obvious to you, as the money supply doubled last year but the price of Apples went up 2%. Not 100%. Same with the entire CPI basket. Housing actually got cheaper. Rent went down a ton.
Ceteris is not paribus. The increase in money supply soaked up all the decrease in prices people ‘should’ have experienced.
> We are talking in constant dollars that have a 0% notional rate of inflation. That's what inflation-adjusted means in this context.
I understand what “inflation-adjusted” means. Once you adjust for the price increase due to people’s dollars being worth less, the commodity costs the same. Of course people aren’t paying in notional inflation-adjusted dollars, they are paying in the actual dollars that have depreciated, so they end up paying more for less, because of monetary policy. The value they miss out on accrues to people who get the new money earlier.
> What do you mean by "50 years of capital accumulation"?
I mean that the capital stock of the economy has increased over the past 50 years as a result of people investing their surplus in capital goods. This results in increased productivity and (ceteris paribus) a lower real cost of goods and services.
> People don't accumulate or hold dollars for exactly this reason. They accumulate and hold assets and value, whose performance matches or exceeds inflation.
Yes, because monetary policy results in depreciation of fiat currency.
> I'm not sure what that means. Things aren't supposed to get anything as capital accumulates.
Things are supposed to get cheaper as capital accumulates because labor is more efficient when combined with tools, resulting in more outputs and the subsequent decrease in real price.
> An increase in number of currency units may or may not cause each unit to be worth less, as velocity is the missing half of the equation.
You’re missing the part where I said “ceteris paribus”, a commonly specified requirement for assertions about the connection between theory and economic reality.
> It's a straw man to say that your buying power drops 2% each year as a result of inflation. You're only penalized for inflation for the period between you receiving the dollars and using them to purchase assets whose performance exceeds inflation.
It’s not a strawman, its literally the case.
Additionally this requirement to invest dollars before they depreciate leads to asset prices skyrocketing without support from the underlying fundamentals. This leads to people who are already invested (the rich, the wealthy, the established old money, the upper class) gaining disproportionately, and new investors being priced out. Hence monetary policy is directly responsible for the rich getting richer and the poor being left behind.
>I’m not sure how to proceed. The notion that one could print money and have each currency unit correspond to the same amount of physical goods is prima facie false.
The entire problem is that it's not false at all. There are various ways to produce more physical goods without employing more domestic workers. Every time the fed is printing money that money gets invested in a way that does not result in decreased unemployment. It's being used to produce more physical goods which keeps the price of physical goods constant.
Ultimately the only truly scarce "good" is labor. Everything derives from it. If prices are not rising that means labor is not scare at all, which is idiotic because there are lots of ways to productively deploy that labor.
> The entire problem is that it's not false at all. There are various ways to produce more physical goods without employing more domestic workers. Every time the fed is printing money that money gets invested in a way that does not result in decreased unemployment. It's being used to produce more physical goods which keeps the price of physical goods constant.
I was unclear and I should have included ceteris paribus, but you’re correct. The fed keeps the price of goods constant when it should be decreasing.
> Ultimately the only truly scarce "good" is labor. Everything derives from it. If prices are not rising that means labor is not scare at all, which is idiotic because there are lots of ways to productively deploy that labor.
Raw materials are also truly scarce, and you’ve neglected to apply the same level of analysis here as you did above.
This is incorrect.