pet theory: Inflation is way way more than zero almost everywhere (prices of services and rents reflect this), but high inflation is masked by increased supply chain efficiencies, cheapening (in some cases worsening) of products and other factors, which keep prices of physical products relatively stable.
Tremendous graph there.
Basically, services that have to be provided by western labour in the west have got much more expensive, while goods that can be imported have got much cheaper.
This is broadly true though the bit about the West and imports is unnecessary. Manufactured goods have gotten cheaper whether imported or not in real terms, and services get more expensive in relative terms as a consequence. Some of this is probably a result of government misregulation but not all. Cosmetic surgery isn’t covered by insurance, nor is LASIK or hair loss treatment and in inflation adjusted terms prices have been basically flat for over a decade, neglecting the huge increases in quality. Education probably has similarly large inefficiencies, even outside institutions that exist only because of easily available student loans and non-existent quality control like the University of Phoenix.
But Cost Disease is the inevitable product of economic growth. The more capital you have the more labor will be paid because Money is just less valuable to you when you have lots and labour vice versa.
A long report on Baumol’s cost disease in the US context and internationally.
https://www.mercatus.org/system/files/helland-tabarrok_why-a...
This must be interpreted in the context of a large fraction of manufacturing moving off shore in the last 75 years. Manufacturing which remained has become significantly less labor intensive (because that which didn’t has moved to lower labor cost locations).
I think there's also an effect that people are increasingly able to tolerate working very low economic value jobs, because productivity increases in basic necessities of survival, like food and transportation, make this possible. These people are then priced out of healthcare, education, and quality housing. The decreased consumption of expensive labour-based services then decreases their weighting in measures of inflation, allowing them to further inflate, yet overall inflation stay low.
What you may be feeling though, and what isn’t calculated in any numbers, are the increases in volatility, which is itself a cost. The volatility of not living in the few economically burgeoning regions, the volatility of having to keep moving up the ladder or else falling behind, increased years of education and loans for what may or may not be a lucrative career, etc.
> volatility
Definitely worth having a discussion on this, although we need to define the reference period - volatility was high in the 60s, 70s, and 80s. Arguably it was only low in the ""end of history"" period between the fall of the Berlin wall and the 2008 crisis.
But yeah, if I add filler to my soap so that it costs me 20% less to make, but requires you to use 20% more for efficacy, I've cheapened the good, and inflated it's cost.
Whenever economists claim inflation is low, they're almost always exclusively talking about traditional consumer goods (in which case it is low for the most part). They comically go out of their way to ignore the inflation in housing, healthcare, education and various asset classes.
Warren Buffett likes to regularly point out that the Fed's rates act like gravity on stock valuations. The lower the rates, the less gravity. The same is largely true of how housing is affected by the Fed's rates. If you want to absolutely crush housing prices, push Fed rates back up to where mortgage rates are at 15-20% again. What that all really means is, the lower the rates, the more asset valuation inflation occurs. It's just that for amusingly convenient reasons (ie to pretend inflation is lower than it is), most economists like to pretend that asset inflation doesn't count as real inflation in their models.
This is false. The CPI weights the basket of goods that comprise the index based on the types of goods that people actually consume, which includes housing (either in the form of rent or mortgage payments), energy, as well as food and consumer goods. It adjusts for consumption patterns monthly, and re-weights the entire index every 2 years.
The BLS surveys rental prices as well as calculating something called “owner equivalent rent” for owner-occupied housing.
> The OER and Rent indexes have the largest weights of the 211 item categories (item strata) that comprise the CPI market basket. As of December 2008 their shares of the total weight (their relative importances) in the CPI for All Urban Consumers (CPI-U), were 24.433 percent and 5.957 percent, respectively.
[1] - https://www.bls.gov/cpi/factsheets/owners-equivalent-rent-an...
I know what you're proposing will be very unpopular but I have an idea that will be even more unpopular: a federal property tax on land + buildings at (five percent of property valuation) per year. There will be absolutely no exceptions for anyone. Everyone must pay. This money will mostly go back to local governments, toward infrastructure and utilities (mass transit, water, electricity, fiber Internet, sewage, garbage collection, education, ... ideally automated as much as possible) and a portion will go to supplement VAT to pay for supplemental universal basic income (in addition to the freedom dividend) that more than covers the new property tax on a one bedroom somewhere in the continental United States (so not necessarily midtown Manhattan).
The key difference in what I propose is the lack of exceptions. Everyone must pay regardless of whether it is a strip club or a church. You don't pay, you get evicted within fifteen years or however long we decide. I recommend eviction should happen when unpaid taxes reaches 100% of property value.
My Hope is that this will absolutely crash the housing market and stop this irrational speculation in the housing market.
A severe tax on property would simply force property owners to raise rents. This in turn would price people out of the market. The housing stock would suffer as property owners would have no excess funds to make improvements and repairs to property. Building of new property would slow as the market for property deteriorates.
Beyond that...
VAT has had disastrous effects on European economies (go look at the price of goods in Europe. Significantly higher in real terms than in the US). Part of this lies in the way VAT obscures the tax portion of cost, allowing governments to surreptitiously raise taxes. This has happened in most developed countries where VAT is implemented.
You also mention government doing many wonderful things with its newfound revenue, but the reality is that government spending is usually wasted on bureaucratic bloat and other inefficient allocations.
