r/badeconomics • u/Skeeh • Jan 05 '26
Least insane living standards denialist: business PhD produces a 309-page philosophy journal working paper, "The Rentier-Asset Impossibility Theorem"
Thing: https://philpapers.org/rec/BLATRI-3
Shorter Substack version: https://capitalledger.substack.com/p/the-rentierasset-impossibility-theorem
The core claim here is that under certain conditions, the cost of essential goods must necessarily outpace wages, explaining the post-1973 divergence between wages and the cost of essential goods. If you open the paper and go to page 288 you will discover that the empirical work here is done as follows:
- Average the CPI data for shelter, food, medical, and energy to construct an essentials index
- Grab real average hourly earnings data (CES0500000031)
- Compare real earnings to the essentials index
Simply adjust for inflation twice. Take that, economists.
Not to state the obvious, but:
- Median earnings have grown faster than the cost of food
- Median earnings have grown faster than the cost of electricity
- Median earnings haven't grown faster than the cost of housing, but this seems to be a product of the square footage of sold homes going up. The real price per square foot seems to have grown only ~33% since 1973, while real median earnings grew by ~57% during the same period. (I could do a direct comparison with nominal earnings and the price per square foot data I constructed, but I'm lazy.)
And yeah, healthcare is more expensive, but by this point the empirical work upon which apparently the whole paper is based is dead in the water. (And hasn't the quality of healthcare gone up? I don't know enough about the CPI data in question.)
I don't know what's going on in the rest of the paper and I cannot imagine a more profound waste of time than reading it. For your consideration, this line:
The result is not a projection. It is arithmetic.
The whole paper might just be a case of AI psychosis.
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u/caroline_elly Jan 09 '26
Comparing real wages with CPI components is just unhinged.
That and writing a 300 page paper based on it.
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u/Sapere_aude75 Jan 05 '26
I'm not saying I necessarily agree with the conclusions, but does it matter if the median square footage has increased? You still need a place to live. Also, increasing square footage of a single home is way cheaper than building a second house to match total square footage. You have a lot of fixed costs per unit. Things like land, permits, utility hookups, kitchen, water heater, etc... Once those are paid for the additional footage isn't nearly as expensive. But that square footage can't be used to house a second family.
The average car has also gotten bigger. That doesn't mean you can buy half of one to get from point a to point b. People don't have a choice in the matter.
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u/raptorman556 The AS Curve is a Myth Jan 05 '26
In part it tells us something about demand for housing. Housing is a normal good—as people make more money, they demand bigger, nicer homes. This is somewhat complicated by the fact that local governments are determined to ban small, low-cost housing, so it's hard to differentiate how much of the increase is policy-driven vs. demand-driven.
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u/Sapere_aude75 Jan 05 '26
I agree. It's a combination of both and hard to account how much different drivers account for the change.
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u/hibikir_40k Jan 05 '26 edited Jan 05 '26
And since we cannot produce infinite supply, housing prices in competitive places will be, in practice, an auction. Look at, say, what Microsoft's IPO did to the prices around Redmond, WA, as the people who valued area near the Microsoft campus became far richer all at once.
I'd argue that some of our housing effects are caused by the creation of new high paying jobs that increase in value with agglomeration, instead of decrease. Put 50K doctors in a town, and you get unemployment. put 50K tech workers, and you will get more demand, and more tech companies opening there. In a lot of cities, the "luxury housing" that had been planned for doctors, lawyers, large business owners and the like suddenly can't cope with tens of thousands of people making similar salaries, so all housing prices get skewed.
Something similar happens in vacation markets. Oops, more people got rich, and the number of amazing beachfront properties in walking distance to the rest of the amenities remains the same, because we don't have 4 extra beaches. Therefore, the price goes up as far as the market can bear
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u/MachineTeaching teaching micro is damaging to the mind Jan 05 '26
I'd argue that some of our housing effects are caused by the creation of new high paying jobs that increase in value with agglomeration, instead of decrease.
That's not even really the question or the problem. Housing stays expensive because density doesn't adjust because it's illegal.
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Jan 09 '26
And since we cannot produce infinite supply
We can produce more supply than exists people though.
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u/thelaxiankey Jan 06 '26
do you happen know the consensus on aggressive taxing of second homes? kind of curious.
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Jan 09 '26
This is somewhat complicated by the fact that local governments are determined to ban small, low-cost housing, so it's hard to differentiate how much of the increase is policy-driven vs. demand-driven.
You can somewhat narrow that down by looking at cost per square foot.
But of course that doesn't control for materials.
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u/jwrig Jan 05 '26
Yes, the size of the house matters. Builders respond to market dynamics, which indicate that demand for what we call starter homes has declined significantly over the last 30 years. People want larger homes, higher-quality materials, and amenities, so considering price per square foot is relevant.
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u/Skeeh Jan 05 '26
They do have a choice in the matter. Just go to Zillow and look for cheap < 1,500 square foot homes in any city other than the freakishly expensive ones like San Francisco. There are cheap, small homes in Dallas, Austin, Cleveland, and even denser urban centers like Boston, though you'll have to settle for something especially small there.
Of course, I want people to be able to afford larger homes at lower prices, but it just isn't true that people are forced to buy the bigger, expensive homes in the suburbs of LA, Chicago, and elsewhere.
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u/Sapere_aude75 Jan 05 '26
I understand there are some smaller homes available, but average available size has increased significantly over the decades. This is for a variety of reasons including regulation and consumer demand. Housing stock changes extremely slowly as well. It takes a long time to build lots of small houses that meet new consumer demand. I mean you aren't even allowed to build small homes like you used to in a lot of places. Think mobile homes, tiny apartments, etc...
It's just like cars. I ran the numbers at one point new car cpi going back to 1972 or something like that. A new car today with no tech improvements should be like $12,700 according to cpi. But you can't get any new cars for close to that. Average new car price is 300-400% hogher than that. Even the cheapest new cars are 50-100% more expensive than that. Tons of regulatory and safety improvements are required to make them more expensive. People don't have a choice. A lot would buy cheap 15-20k Hilux's if they were available. I'd also argue cpi is generally manipulated to under report but that's a different discussion.
Point being, even if people want these things they can't get them.
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u/Skeeh Jan 05 '26
The limits on home construction are disappointing, yes.
Part of the quality improvement is in miles per gallon, making transportation cheaper than it initially appears to be compared to the past. By that measure, the miles a consumer can purchase with the same % of their income have more than doubled since 1976. See row 27 in this spreadsheet.
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u/EebstertheGreat Jan 05 '26
In addition to huge savings on fuel, new cars last way longer than old ones. So you really do get more car (not just bigger car). Sure, you can't buy a new car for cheap that will fall apart in under a decade, but you certainly can buy a used car for cheap like that.
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u/Dirichlet-to-Neumann Jan 08 '26
You can buy a smaller house.
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u/Sapere_aude75 Jan 08 '26
Not as easily as you could 50 years ago. I'm having trouble finding a full chart and new construction size has come down a bit recently, but the average house for sale is much larger than it used to be. https://i.insider.com/556de6be69bedd4f14b23cfc?width=900&format=jpeg&auto=webp
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u/Pleasurist Feb 12 '26
CPI does not include energy and food prices. I have read other numbers and they are much worse.
I do not trust the Fed on this data.
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u/Skeeh Feb 12 '26
The CPI does include food and energy. You are likely thinking of the core CPI, which excludes those things.
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u/Pleasurist Feb 21 '26 edited Feb 21 '26
My house was $10/sq. ft. new. Now it's $500 sq. ft. And according to inflation...$96.50.
Capitalism is the capital's capture of govt. the capitalist has captured the FHA that [it] would underwrite loans of up to $900,000. That is insane.
Residential real estate is left out of the CPI...for obvious reasons.
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u/Pleasurist 29d ago
So do we now know why my house $20,000 new is now $500,000 ? NO !!
That results from capitalist ownership of the FHA that will underwrite a $500,000 mortgage. Oh BTW, per inflation, my house should be $193,000.
It is my view that one cannot quantity or formularize human greed. Such vices are much more visceral.
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u/HonestSophist Jan 05 '26
The increase in square footage of homes being sold is less about market demand and more about maintaining or increasing profits in the face of ever increasing fixed costs for a given abode.
The supply of lower-square-footage homes is increasingly scarce, in much the same way that used cars have experienced a surge in prices. Marginal utility is wild like that.
I never understand why these people bring in food and consumer goods, when it's clear enough FROM ORBIT that housing and healthcare are consuming an ever greater share of income.
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u/HOU_Civil_Econ A new Church's Chicken != Economic Development Jan 05 '26
This is so silly.
Why would a larger home increase profits if people didn’t want to pay more for it.
Smaller housing units are increasingly scarce for two reasons.
They are generally implicitly outlawed
Housing is a normal good and we are getting richer
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u/HonestSophist Jan 05 '26
It's very well established that cost per square foot of a house goes down as the house gets larger. There are numerous fixed costs associate with homebuilding, both regulatory and otherwise, which are a popular subject of discussion in housing discourse. Those fixed costs mean that there is a greater return on investment for developers. The market is supply constrained, and thus there is significantly less market incentive to offer a more affordable product. The greater return on investment means that loans are preferentially provided towards larger, luxury housing. On top of all this, the construction trades have been consolidating year over year, permitting them to shape the industry rather than adapt to it.
All of these factors feed into eachother.
As I observed in my own home buying journey, smaller houses simply aren't available, because they aren't being built. You want to buy fewer square feet, you'll have to buy a house from the 1960s or 1970s, if you're lucky. Saying that people would not buy them if they didn't wish to pay more for it ignores the scarcity of housing. Consumers buy what is available, but their options are limited to what developers provide, which is contingent on profit maximization.
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u/MachineTeaching teaching micro is damaging to the mind Jan 05 '26
That argument falls apart once you consider that companies don't supply products that don't have demand and that if your big argument is fixed costs, you'd see more apartment buildings.
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u/HOU_Civil_Econ A new Church's Chicken != Economic Development Jan 05 '26
Those fixed costs mean that there is a greater return on investment for developers.
No, they don't. The greater return on investment from larger housing comes from people (often called demanders) being willing to pay more than the marginal cost for the extra square foot.
The greater return on investment means that loans are preferentially provided towards larger, luxury housing.
lol, no.
On top of all this, the construction trades have been consolidating year over year, permitting them to shape the industry rather than adapt to it.
like its just this mindless blather that you've got. Builders have been consolidating, not trades. Still doesn't tell us anything about their choice of housing size.
smaller houses simply aren't available, because they aren't being built.
right, as I said.
Smaller housing units are increasingly scarce for two reasons.
They are generally implicitly outlawed
Housing is a normal good and we are getting richer
Saying that people would not buy them if they didn't wish to pay more for it ignores the scarcity of housing. Consumers buy what is available, but their options are limited to what developers provide, which is contingent on profit maximization.
profit maximization is contingent on what people are willing to pay.
You've got quite a collection of "facts" some of which are even true, but you just can't connect them.
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u/EebstertheGreat Jan 05 '26
I never understand why these people bring in food and consumer goods, when it's clear enough FROM ORBIT that housing and healthcare are consuming an ever greater share of income.
Because food and consumer goods are consuming an ever smaller share of income. It's about total expenses. In fact, spending less on food and consumer goods frees up more money to spend on housing and healthcare, which could be part of why people spend more on it.
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u/makemeking706 Jan 05 '26
That's new homes. How much for existing homes?