by AnthonyMouse | 2025-09-10 18:51:01+00:00
> Wealth inequality is causing many protests recently.

I feel like "wealth inequality" is such a useless frame that it makes me wonder if the politicians harping on it are using it as a dodge to avoid the real issues.

Suppose a middle class lifestyle requires wealth 100 and below 50 is poverty. If the 25th percentile is at 40 and the 99th percentile is at 400, that's very bad, even though it's "only" a factor of 10. If the 25th percentile is at 200 and the 99th percentile is at a million, that's not ideal, but it's certainly better. So the ratio is basically a red herring and what matters is how the people at the bottom are actually doing.

Meanwhile most of the underlying problem with "wealth inequality", both in terms of cause and harm, is actually market consolidation. If you were an early shareholder of a trillion dollar corporation then you're probably a billionaire, but you wouldn't be if trillion dollar corporations didn't exist because there were 100 companies each of 2% the size instead of 2 companies each the size of countries, and moreover the problems come from the existence of a trillion dollar corporation which can then run roughshod over everybody because they don't have enough competition to keep them honest. Which isn't solved in the slightest bit by leaving the corporation the same size but causing it to be owned by mutual funds or foreign investors instead of domestic founders. But people keep proposing taxes as the solution to it, which is exactly the thing that doesn't fix that.

> Young couples can't afford to buy a home to start a family because interest rates are 3x higher than a few years ago while home prices went way up since covid

Current interest rates are in line with historical norms; ZIRP was an aberration. And in general higher interest rates result in lower housing prices, because you don't have people taking out huge low-interest loans and bidding up the prices.

The problem right now is that the transition from ZIRP to normal interest rates sucks, because it creates short-term gridlock. Somebody who would like to sell their house and move can't do it because the payments on a new, higher-interest mortgage are higher than the ones on their old low-interest mortgage, and then they can't afford it so they don't sell their house, which keeps supply off the market.

The best way to fix that is to solve the gridlock with new supply, but we mostly prohibit that through zoning. But it'll happen either way because eventually those low-interest mortgages age out (i.e. get paid down) and then the gridlock breaks and prices come down, it just takes longer and causes more damage in the interim.

And either way the result is going to be a reduction in housing prices, which people are going to call a "housing crash" and complain about it. But the issue isn't prices going down, it's that ZIRP causes a bubble. That's a sunk cost; we're already in it. Returning to ZIRP is only an attempt to re-inflate the bubble, which is just kicking the can down the road. And, of course, you can't use ZIRP if you're trying to fight inflation, which is why causing the bubble to begin with is bad -- once you have enough inflation to make ZIRP untenable, the bubble ultimately has to pop, and trying to fight it (which is what we did in 2008) only makes it worse.

Content warning, this graph is distressing:

https://fred.stlouisfed.org/graph/?g=1Mdsa

The peak in 2007 was the massive housing bubble that crashed the economy.