What you have discovered is known as the 'paradox of productivity'. Productivity improvements are essentially running up the down escalator.
The returns go to cheaper items, because there is less labour time going into each item as productivity improves.
If you redenominate in the 'labour hour' currency, then it all starts to make sense. As does the apparent increase in pay of a concert violin player. Ultimately a concert level violin player doing their thing still takes the same amount of time top produce as it always did, society still likes concerts, and they haven't yet become fond of AI violin players. They exchange those hours for products with less hours in them. So they appear to get a wage increase. Classically this is known as the Baumol effect.
This goes beyond 'real wages', to 'real stuff'. People are definitely getting more stuff than they did 40 years ago. My iPhone is testament to that. As is the lack of power cuts.
Underlying everything is essentially an exchange of labour hours.
As to returns to IP holders, those are often the pension fund, who then pay the pensions to pensioners who then spend it on stuff.
Since we have an ageing population there will definitely be an increase in the transfer to the elderly. It can't be any other way. Is that a fair transfer? Well that's the debate.
>People are definitely getting more stuff than they did 40 years ago. My iPhone is testament to that. As is the lack of power cuts.
Yeah, we can get much more and much cheaper stuff than before thanks to the 'Made in China' boom, but what we can't get now is affordable real-estate. Too bad we can't go live inside our iPhones. /s
Good comment. To be honest I got puzzled by this as well. My explanation is that it is just artificial based on low interest rates and high competition for real estate. So basically the cost of build stuff maybe remained kind of the same but people have more money and can get higher credits so the prices are dictated by this competition instead of real build costs + it is not always possible to build a lot of new houses in nyc for example.
During the pandemic the price of used cars started to rise. Did we attribute that to people with more money who can then get higher credit on the now more expensive cars?
No, we attributed it to a lack of supply of cars, and worked to free up the blockages so that the market would return to its correct state where cars depreciated.
It's the same problem with housing. We need to build an awful lot more, and we need to move the work to where we build the houses.
Once we cross the rubicon and house prices start to depreciate, as they should because they wear out, then we'll see a phase shift in the market and vastly more supply. It'll be like the latent heat of condensation.
Housing prices vary inversely with interest rates. Monthly payments are and always have been between 1/4 and 1/3 of income. This is actually up right now due to the bubble which cant last.
Its not that they have necessarily gotten more expensive, its just that there is a global rate of inflation and a local one, which results in higher cost/standard of living countries being crushed because their local inflation rate will exceed the global one until the country is pulled to the average. So its just as valid to say that the global products continue to get cheaper.
And that was entirely predictable, when a country allows the free flow of capital, and goods but not people then it becomes a race to the bottom in sectors which can move to lower cost areas. There is a certain amount of price suppression for some local goods and the demand dries up, but for things which aren't optional the price will continue to inflate until the system breaks. Infant child care is in this position, the workers competing internationally can't afford to pay for the care of their infants because its local labor intensive.
Basically its broken economic policy and its just a matter of time before it explodes. And its probably not fixable because if the cost of labor ever gets equal, then capital is just going to move to the country that say has the smallest carbon tax/whatever.
Basically a prereq for free trade should be a common government, and free movement of people.
Interest rates are lowest in the most developed countries.
The only exception is the US because it has a structural deficit.
It's actually the opposite. Countries have tried to artificially raise interest rates above liquidiry preference via inflation targeting and stimulus for the last 40 years.
>but what we can't get now is affordable real-estate
Median housing in the US has been around inflation adjusted $100/sq ft for decades.
Houses today are massively larger than in the past, making the costs look higher. And what you get today is also a lot better - more efficient, cheaper to heat and cool, safer, better electrical, water, etc.
>Median housing in the US has been around inflation adjusted $100/sq ft for decades.
I was talking about the European real-estate market. I don't know the US market but I heard it's much more affordable than here, at least outside of SF/NY/etc.
European costs vary by well over a factor of 10 across countries, especially urban to rural.
I don't see evidence across all of Europe any data for much difference than in the US. Dense places cost more, sparse places are amazingly cheap. Poorer countries, like poor states, have even cheaper housing.
You can't import land from china, that is a problem that your local community is responsible for. Better get used to being screwed by your fellow towns people.
> As to returns to IP holders, those are often the pension fund, who then pay the pensions to pensioners who then spend it on stuff.
Pensions aren't distributed evenly across the population, it tends to be that the richer you are, the bigger the pension. That means that IP has the effect of making the rich richer, increasing inequality.
Interestingly, this is basically the marxist analysis of the economy, in terms of surplus value.
The rosy side of the equation happens when we look at the price of useful products that can be automated, like fridges or computers, where labourers are much richer in such products than they were 100 years ago. However, the ugly side is visible when looking at the price of products that can't be automated, like land, where labourers are much poorer then they were 100 years ago. The difference is often made up of useless products that could be automated, like cheap fashion or fast food, which marketing keeps pushing as hard as possible.
The returns go to cheaper items, because there is less labour time going into each item as productivity improves.
If you redenominate in the 'labour hour' currency, then it all starts to make sense. As does the apparent increase in pay of a concert violin player. Ultimately a concert level violin player doing their thing still takes the same amount of time top produce as it always did, society still likes concerts, and they haven't yet become fond of AI violin players. They exchange those hours for products with less hours in them. So they appear to get a wage increase. Classically this is known as the Baumol effect.
This goes beyond 'real wages', to 'real stuff'. People are definitely getting more stuff than they did 40 years ago. My iPhone is testament to that. As is the lack of power cuts.
Underlying everything is essentially an exchange of labour hours.
As to returns to IP holders, those are often the pension fund, who then pay the pensions to pensioners who then spend it on stuff.
Since we have an ageing population there will definitely be an increase in the transfer to the elderly. It can't be any other way. Is that a fair transfer? Well that's the debate.