While writing my book, Barking With The Big Dogs, I touched on the subject of inflation. My point was made that inflation, specifically regarding real estate, is not going away. However, I use examples such as hamburgers and cars. After all, hamburgers and cars today do not cost what they did thirty years ago.
When I made this comment, Mark Whister, author of many books including 2034: The Corporation and Volatility Illuminated asked me about inflation regarding computers. He stated computers have come way down in price. This is true, I remember when a Compaq 286 cost around $4,000-$5,000 back in the early 1990′s and a good laptop is around a grand or less today.
However, computers have come down in price due to technology improvements, but also consumerism. More people have access to computer. In other words, volume. Unlike houses, computers are hundreds of dollars, not hundreds of thousands of dollars like they were in past. Plus, with technology changes, equipment gets outdated in a hurry. Computers are disposable items.
Houses should also go down in price too (unless resources to build them go up).
To give you an idea why prices should fall. First, houses get outdated and wear out just like cars, although not as fast. Plumbing needs to be fixed, roofs replaced, doors sag, foundations crack. Next, with a bigger population, more people buy houses. If houses and computers are the same, more access to houses should drive prices lower. (Which is what the government also wants. Ask Jimmy Carter and the Housing Act he signed which is part of the idea behind the housing crash just a couple of years ago.) However, land is restrictive in some areas; therefore, supply and demand will drive prices upward.
Unlike houses though, owners and builders do not give them away to sell other services, like computer and cell phone companies do. People can get a free phone or computer when signing up for services than may go on for a lifetime. These services are where the money is made, not the technology item.
In reality though, houses won’t go down. Sure some will lose value, but it’s really to market demand.
Inflation and bubbles are events which the government needs and produces.
When I saw the following comparison, it reminded me of my conversation with Mark and I thought this photo was interesting and worth sharing.
Copyright secured by Digiprove © 2010 Mark
