Gonna take a while to digest, but the intro shows a common mistake.
If Scrooge McDuck’s downtown Duckburg apartment rises in price, and Scrooge’s net worth rises equally, but nothing else changes, the distribution of purchasing power is now more unequal — fewer people can afford that apartment. But nobody is richer in terms of actual material wealth, not even Scrooge. Scrooge is only “richer” on paper. The total material wealth of Duckburg hasn’t gone up at all.
This confuses”nominal” or “projected” price with an actual price, which is only known at time of sale. And you seem to believe that paper wealth (which may or may not EVER be converted into goods and services) is the same as purchasing power.
You’re correct that the total material wealth of Duckburg hasn’t gone up. Scrooge’s material wealth _ALSO_ hasn’t gone up, just his nominal wealth. And no other member of the city has been harmed or lost material wealth. The entire scenario of “price went up but literally nothing changed owners” is an accounting fiction with no direct impact on anyone.
So when you say
When many goods become more expensive without materially improving, the result is increased wealth inequality without increased material abundance.
That’s not the same thing—those are REAL prices, which people have actually paid. And even if you factor out monetary effects by looking at what people pay in terms of hours of labor or the like, real prices for many things have gone up. For many others, of course, they’ve gone WAY down while quality improves. The median American worker can buy a pocket computer for less than a week’s labor which is literally thousands of times more powerful than they’d have gotten 30 years ago for over a month’s work.
That said, I agree with many of your concerns that there are more gatekeepers than producers, and many things cost too much, because many people are capturing parts of the money/product flow without actually providing value themselves. I’m not sure that “monopoly” is the right proxy to think about this problem, but it’s clearly a problem.
This confuses”nominal” or “projected” price with an actual price, which is only known at time of sale. And you seem to believe that paper wealth (which may or may not EVER be converted into goods and services) is the same as purchasing power.
This seems like a mere technicality. Since Mr. McDuck can use the projected price as collateral for a loan, it gives him purchasing power without the need to actually sell anything. And for people who don’t own an apartment, increases in nominal price have a major economic impact: they pay more rent.
The median American worker can buy a pocket computer for less than a week’s labor which is literally thousands of times more powerful than they’d have gotten 30 years ago for over a month’s work.
It’s standard practice in economic analysis to exclude the electronics sector, because it’s so unrepresentative of the economy as a whole. If you have an example that isn’t electronics or something closely linked to electronics, it’s worth bringing into the conversation.
If you use a house as a collateral, there is a probability you will lose your house, if I am not confused about collaterals. As such, someone accepting your house as a collateral is almost the same as them playing a lottery where with some percent chance they are forced to buy your house. So I think we should consider that transaction to be in the same category as selling the house.
It’s worth noting that projected prices play a significant role in decision-making, since decision-making is all about evaluating counterfactuals. Suppose Scrooge ties his purchasing decisions to his paper net worth; then his effective purchasing power changes even though he isn’t getting an income stream directly from the apartment. (Cases where he takes out a loan on the apartment, as jimrandomh suggests, do seem somewhat different.) That is, if his home is increasing in value, that means he doesn’t need to convert other income streams into savings as much, and so can convert them into consumption instead. Or he might make riskier financial decisions with other asset classes, trusting that the more valuable house could better offset losses elsewhere.
You could take a loan with your house as collateral if you are more certain than your loan-giver that you will not default. If a bank tries to give people loans based on the probability they determine that you default, some of the population will happen to know their probability of defaulting to be underestimated, and take a loan at a profit. The bank would rather have their “fraudulent customers” be the ones that pay back loans more often than expected.
No, the whole point of using a house as collateral is that the bank only loses money if you default and the asset depreciates by more than the (loan size/house value) ratio.
I don’t think it’s fair to assume that Sarah is confusing nominal with actual prices. Unless you are using specialist terminology I’m unfamiliar with, she probably is using “projected” prices, but I don’t see what makes you think she’s confusing them with anything else.
Specifically, I take her references to the “price” of Scrooge’s apartment to mean something like “the price someone would actually pay if they bought the thing now”. Obviously this is a somewhat nebulous notion, and in particular there’s probably no good way to measure it reliably without substantial risk of changing the very thing you’re trying to measure. But it still seems a reasonable thing to think about.
And, with that notion of price, it’s not true that
no other member of the city has been harmed or lost material wealth
if the price increases—because wealth is a matter of what you can afford to buy, and everyone else in Duckburg just became less able to afford apartments.
Gonna take a while to digest, but the intro shows a common mistake.
This confuses”nominal” or “projected” price with an actual price, which is only known at time of sale. And you seem to believe that paper wealth (which may or may not EVER be converted into goods and services) is the same as purchasing power.
You’re correct that the total material wealth of Duckburg hasn’t gone up. Scrooge’s material wealth _ALSO_ hasn’t gone up, just his nominal wealth. And no other member of the city has been harmed or lost material wealth. The entire scenario of “price went up but literally nothing changed owners” is an accounting fiction with no direct impact on anyone.
So when you say
That’s not the same thing—those are REAL prices, which people have actually paid. And even if you factor out monetary effects by looking at what people pay in terms of hours of labor or the like, real prices for many things have gone up. For many others, of course, they’ve gone WAY down while quality improves. The median American worker can buy a pocket computer for less than a week’s labor which is literally thousands of times more powerful than they’d have gotten 30 years ago for over a month’s work.
That said, I agree with many of your concerns that there are more gatekeepers than producers, and many things cost too much, because many people are capturing parts of the money/product flow without actually providing value themselves. I’m not sure that “monopoly” is the right proxy to think about this problem, but it’s clearly a problem.
This seems like a mere technicality. Since Mr. McDuck can use the projected price as collateral for a loan, it gives him purchasing power without the need to actually sell anything. And for people who don’t own an apartment, increases in nominal price have a major economic impact: they pay more rent.
It’s standard practice in economic analysis to exclude the electronics sector, because it’s so unrepresentative of the economy as a whole. If you have an example that isn’t electronics or something closely linked to electronics, it’s worth bringing into the conversation.
If you use a house as a collateral, there is a probability you will lose your house, if I am not confused about collaterals. As such, someone accepting your house as a collateral is almost the same as them playing a lottery where with some percent chance they are forced to buy your house. So I think we should consider that transaction to be in the same category as selling the house.
It’s worth noting that projected prices play a significant role in decision-making, since decision-making is all about evaluating counterfactuals. Suppose Scrooge ties his purchasing decisions to his paper net worth; then his effective purchasing power changes even though he isn’t getting an income stream directly from the apartment. (Cases where he takes out a loan on the apartment, as jimrandomh suggests, do seem somewhat different.) That is, if his home is increasing in value, that means he doesn’t need to convert other income streams into savings as much, and so can convert them into consumption instead. Or he might make riskier financial decisions with other asset classes, trusting that the more valuable house could better offset losses elsewhere.
Edit: Epistomological status: armchair reasoning
You could take a loan with your house as collateral if you are more certain than your loan-giver that you will not default. If a bank tries to give people loans based on the probability they determine that you default, some of the population will happen to know their probability of defaulting to be underestimated, and take a loan at a profit. The bank would rather have their “fraudulent customers” be the ones that pay back loans more often than expected.
No, the whole point of using a house as collateral is that the bank only loses money if you default and the asset depreciates by more than the (loan size/house value) ratio.
I don’t think it’s fair to assume that Sarah is confusing nominal with actual prices. Unless you are using specialist terminology I’m unfamiliar with, she probably is using “projected” prices, but I don’t see what makes you think she’s confusing them with anything else.
Specifically, I take her references to the “price” of Scrooge’s apartment to mean something like “the price someone would actually pay if they bought the thing now”. Obviously this is a somewhat nebulous notion, and in particular there’s probably no good way to measure it reliably without substantial risk of changing the very thing you’re trying to measure. But it still seems a reasonable thing to think about.
And, with that notion of price, it’s not true that
if the price increases—because wealth is a matter of what you can afford to buy, and everyone else in Duckburg just became less able to afford apartments.