The Covid-19 pandemic is forcing a rethink in macroeconomics(economist.com)
economist.com
The Covid-19 pandemic is forcing a rethink in macroeconomics
https://www.economist.com/briefing/2020/07/25/the-covid-19-pandemic-is-forcing-a-rethink-in-macroeconomics
220 comments
I'm not going to pretend I know the right answer here. It's an amazingly complex issue. But I find this to be a poor argument.
Absent central bank intervention, a productive economy should naturally undergo significant price deflation year after year as efficiency improves, causing more goods and services to be produced with the same inputs. This is why consumer technology prices trend continually downward.
So if the default, absent any intervention, would be for prices to go down every year across the board, pointing to "low inflation" numbers is a red herring. The question shouldn't be how far inflation numbers are above zero, but how far they are above the negative rate of inflation we'd see otherwise. That differential is what tells us how much wealth is really extracted from the economy via what is effectively a highly regressive tax.
Absent central bank intervention, a productive economy should naturally undergo significant price deflation year after year as efficiency improves, causing more goods and services to be produced with the same inputs. This is why consumer technology prices trend continually downward.
So if the default, absent any intervention, would be for prices to go down every year across the board, pointing to "low inflation" numbers is a red herring. The question shouldn't be how far inflation numbers are above zero, but how far they are above the negative rate of inflation we'd see otherwise. That differential is what tells us how much wealth is really extracted from the economy via what is effectively a highly regressive tax.
> Absent central bank intervention, a productive economy should naturally undergo significant price deflation year after year as efficiency improves, causing more goods and services to be produced with the same inputs
This comment assumes that central banks create money and that's what drives inflation but this isn't the case: commercial banks are the ones which create money (through credit).
Also, you can't sustain an economy under deflation, because deflation would just make the whole economy collapse. In a market driven industrial economy the limiting factor for the economy isn't the output, but the demand, and deflation is the ultimate demand killer (which is why basically nobody buy things in bitcoin: realizing the pizza you bought five years ago is now worth a few thousand dollars doesn't sound cool).
This comment assumes that central banks create money and that's what drives inflation but this isn't the case: commercial banks are the ones which create money (through credit).
Also, you can't sustain an economy under deflation, because deflation would just make the whole economy collapse. In a market driven industrial economy the limiting factor for the economy isn't the output, but the demand, and deflation is the ultimate demand killer (which is why basically nobody buy things in bitcoin: realizing the pizza you bought five years ago is now worth a few thousand dollars doesn't sound cool).
I hear this all the time: deflation causes demand destruction for consumers. But, how many consumers check the inflation numbers before buying a pizza? how many consumers even know what inflation is? (many do not). I really think we need to rethink this assumption that deflation is harmful.
I agree deflation isn't a problem for consumers. How many people buy electronics knowing that they will be worth 30% less within a year?
It is a problem for debtors ( home owners, and corporations ) and banks.
Who wants to have a mortgage on a house that is going down in value every year?
How is a corporation going to get investment in their factory when a competitor could create a similar factory at a cheaper rate in a couple years.
Why would a bank lend money to people who may not be able to pay them back when just holding onto the money generates returns?
It is a problem for debtors ( home owners, and corporations ) and banks.
Who wants to have a mortgage on a house that is going down in value every year?
How is a corporation going to get investment in their factory when a competitor could create a similar factory at a cheaper rate in a couple years.
Why would a bank lend money to people who may not be able to pay them back when just holding onto the money generates returns?
> Who wants to have a mortgage on a house that is going down in value every year?
I do. That's how housing works in Japan - you buy a house to live in, not to save money or invest. Older houses have lost their value (largely due to perceptions of danger in old housing stock - until the last decade or so, increasing understanding of earthquake/tsunami safety meant that houses wouldn't meet current building codes)
That (combined with adequate housing stock, less zoning restrictions, and negative population growth) means that even in the biggest cities, housing is fairly affordable. You buy a house because you want the control and the permanence that comes from owning a house.
I do. That's how housing works in Japan - you buy a house to live in, not to save money or invest. Older houses have lost their value (largely due to perceptions of danger in old housing stock - until the last decade or so, increasing understanding of earthquake/tsunami safety meant that houses wouldn't meet current building codes)
That (combined with adequate housing stock, less zoning restrictions, and negative population growth) means that even in the biggest cities, housing is fairly affordable. You buy a house because you want the control and the permanence that comes from owning a house.
> I do. That's how housing works in Japan - you buy a house to live in, not to save money or invest
Something I don't understand: if there is real deflation, your buying power increases if you wait. In this case: wait a year, get a nicer house for the same price, or pay significantly less for the current house. So even if you're not buying the house as an investment, waiting would improve your situation as a buyer. The more you wait, the better for you.
How do you ever get to actually buying a house in such circumstances?
Something I don't understand: if there is real deflation, your buying power increases if you wait. In this case: wait a year, get a nicer house for the same price, or pay significantly less for the current house. So even if you're not buying the house as an investment, waiting would improve your situation as a buyer. The more you wait, the better for you.
How do you ever get to actually buying a house in such circumstances?
The same reason you ever get to actually buying a computer, tv, or smartphone even though you know they'll keep going down in price if you wait.
On this note, I have always heard that Japan is in horrible situation because of deflation. Is that actually true?
I think it depends what you measure. If you only look at metrics like GDP per capita (in USD), Japan might seem to be doing poorly.
If you look at metrics that actually matter, like quality of life, income inequality, education, crime rates, public infrastructure, life expectancy, etc., it's up near the top--and is certainly doing far better than the US in many important areas.
If you look at metrics that actually matter, like quality of life, income inequality, education, crime rates, public infrastructure, life expectancy, etc., it's up near the top--and is certainly doing far better than the US in many important areas.
> Who wants to have a mortgage on a house that is going down in value every year?
Sounds like a car loan. If the house was cheap enough, people would probably be OK with it, but of course starting from current prices it would be incredibly bad.
Sounds like a car loan. If the house was cheap enough, people would probably be OK with it, but of course starting from current prices it would be incredibly bad.
Wikipedia describes it well [0]:
Deflation is generally regarded negatively, as it causes a transfer of wealth from borrowers and holders of illiquid assets, to the benefit of savers and of holders of liquid assets and currency, and because confused pricing signals cause malinvestment, in the form of under-investment.
In this sense it is the opposite of the more usual scenario of inflation, whose effect is to tax currency holders and lenders (savers) and use the proceeds to subsidize borrowers, including governments, and to cause malinvestment as overinvestment. Thus inflation encourages short term consumption and can similarly over-stimulate investment in projects that may not be worthwhile in real terms (for example the housing or Dot-com bubbles), while deflation retards investment even when there is a real-world demand not being met.
[0]: https://en.wikipedia.org/wiki/Deflation#Effects
Deflation is generally regarded negatively, as it causes a transfer of wealth from borrowers and holders of illiquid assets, to the benefit of savers and of holders of liquid assets and currency, and because confused pricing signals cause malinvestment, in the form of under-investment.
In this sense it is the opposite of the more usual scenario of inflation, whose effect is to tax currency holders and lenders (savers) and use the proceeds to subsidize borrowers, including governments, and to cause malinvestment as overinvestment. Thus inflation encourages short term consumption and can similarly over-stimulate investment in projects that may not be worthwhile in real terms (for example the housing or Dot-com bubbles), while deflation retards investment even when there is a real-world demand not being met.
[0]: https://en.wikipedia.org/wiki/Deflation#Effects
> How many people buy electronics knowing that they will be worth 30% less within a year?
Hasn't this been happening for a long time? Plenty of computing equipment had done just this.
Hasn't this been happening for a long time? Plenty of computing equipment had done just this.
If it's a problem for debtors it will be a problem for just about every past college student in America starting at least a decade ago.
Now, I think we should forgive most if not all student loans, and start paying for an education, but if the system insists on the majority of college degree seekers carrying student loans then you have a huge problem with deflation.
It would also be a massive problem for corporate debt right now. I think the central bank would rather print money by the Trillions then allow deflation at scale.
Now, I think we should forgive most if not all student loans, and start paying for an education, but if the system insists on the majority of college degree seekers carrying student loans then you have a huge problem with deflation.
It would also be a massive problem for corporate debt right now. I think the central bank would rather print money by the Trillions then allow deflation at scale.
> Who wants to have a mortgage on a house that is going down in value every year?
People rent housing, paying monthly and knowing that they'll have nothing to own in the end. People even stay in hotels.
They are buying a service: a place to live under their control, where they want it.
People rent housing, paying monthly and knowing that they'll have nothing to own in the end. People even stay in hotels.
They are buying a service: a place to live under their control, where they want it.
> Who wants to have a mortgage on a house that is going down in value every year?
The problem is not the declining value of the house, it's that the borrower's income is declining.
To a first approximation, inflation is rising wages relative to the goods and services bouoght with them.
Deflation means falling wages, which makes it progressively harder and harder to pay back loans, so people are less and lesss willing to take on debt.
Falling ability to repay also increases risk to lenders making them less willing to lend and causing them to demand higher rates and shorter terms, reducing both investment and consumption.
> just holding onto the money generates returns
No. No, it doesn't. To generate a return, it must be used for investment or lent (ultimately) to someone who invests.
Deflation also disincentivises investment directly (besides lender unwillingness): your market will have less and less disposable income over time, so the expected value of investment declines and the risks go up. So the business case hurdle for investment gets higher and higher.
Deflation is a reinforcing feedback spiral to zero for capitalism. Inflation at about 3% - 4% per year seems to be optimal.
The problem is not the declining value of the house, it's that the borrower's income is declining.
To a first approximation, inflation is rising wages relative to the goods and services bouoght with them.
Deflation means falling wages, which makes it progressively harder and harder to pay back loans, so people are less and lesss willing to take on debt.
Falling ability to repay also increases risk to lenders making them less willing to lend and causing them to demand higher rates and shorter terms, reducing both investment and consumption.
> just holding onto the money generates returns
No. No, it doesn't. To generate a return, it must be used for investment or lent (ultimately) to someone who invests.
Deflation also disincentivises investment directly (besides lender unwillingness): your market will have less and less disposable income over time, so the expected value of investment declines and the risks go up. So the business case hurdle for investment gets higher and higher.
Deflation is a reinforcing feedback spiral to zero for capitalism. Inflation at about 3% - 4% per year seems to be optimal.
One of the biggest issues with deflation is it creates a high floor on interest rates. Even if the nominal interest rate was 0, the real interest rate would be 2% severely limiting the Fed's ability to fix recessions. The current federal funds rate is 0-0.25% and with an inflation rate of 2% that gives us a real interest rate of -2%. If we had 2% deflation then the real interest would be 2%. That's a 4% difference in interest rates, which is huge.
The demand destruction comes from individuals and corporation saving more money instead of spending or investing it because they get a 4% better return in one scenario than another.
The biggest purchase individuals make is buying a house. Surely you can't argue that paying a 1-4% higher interest rate on a house wouldn't noticed by consumers.
The demand destruction comes from individuals and corporation saving more money instead of spending or investing it because they get a 4% better return in one scenario than another.
The biggest purchase individuals make is buying a house. Surely you can't argue that paying a 1-4% higher interest rate on a house wouldn't noticed by consumers.
> The biggest purchase individuals make is buying a house. Surely you can't argue that paying a 1-4% higher interest rate on a house wouldn't noticed by consumers.
That depends on how house prices are determined.
If houses are priced primarily based on the cost of construction plus the cost of materials, you would expect consumers to notice a significant difference in total cost under high vs low interest rates, since the base price of the house will be the same either way and a higher interest rate will lead to a higher total cost.
If houses are priced by people looking at what the maximum monthly payment they can afford is, and are bid up to whatever that maximum monthly payment is, people will just observe that houses cost "almost more than I can afford" no matter what the interest rate is. Lower interest rates will lead to higher prices (capped at 360 (30 years x 12 months per year) times what people can afford, at 0% interest rates), and higher interest rates will lead to lower prices (down to the floor the principal being the of cost of construction).
I think most housing markets are more like the first scenario than the second, at this time, but it is entirely plausible that this won't always be the case, and some would argue that e.g. the bay area housing market already more closely resembles the second scenario.
Edit: typo
That depends on how house prices are determined.
If houses are priced primarily based on the cost of construction plus the cost of materials, you would expect consumers to notice a significant difference in total cost under high vs low interest rates, since the base price of the house will be the same either way and a higher interest rate will lead to a higher total cost.
If houses are priced by people looking at what the maximum monthly payment they can afford is, and are bid up to whatever that maximum monthly payment is, people will just observe that houses cost "almost more than I can afford" no matter what the interest rate is. Lower interest rates will lead to higher prices (capped at 360 (30 years x 12 months per year) times what people can afford, at 0% interest rates), and higher interest rates will lead to lower prices (down to the floor the principal being the of cost of construction).
I think most housing markets are more like the first scenario than the second, at this time, but it is entirely plausible that this won't always be the case, and some would argue that e.g. the bay area housing market already more closely resembles the second scenario.
Edit: typo
You're right that the real estate and policy situation in San Francisco is so bad the supply is pretty inelastic. But I don't think it's perfectly inelastic. I think if the price of housing went up 10x in San Francisco you'd have more buildings being built.
But luckily for us very little of the U.S. is as screwed up as San Francisco.
But luckily for us very little of the U.S. is as screwed up as San Francisco.
Deflation tends to decrease labor demand. The ranks of the unemployed grow, and the purchasing power of paychecks (e.g. offered wages, etc) diminish faster than prices. This has happened time and again in economies all over the world. Not coincidentally, this happened to the U.K. during the interwar period, which John Keynes observed first hand.
And Keynes got to contrast the U.K.'s monetary policy with France's moderately inflationary policy. France made it through the Great Depression relatively unscathed.
Of course, Germany had strongly inflationary policies leading to hyperinflation. They also suffered terribly during the Great Depression. But Germany deliberately chose hyperinflation to spite the U.K. and France for enforcing crushing war reparations.
And Keynes got to contrast the U.K.'s monetary policy with France's moderately inflationary policy. France made it through the Great Depression relatively unscathed.
Of course, Germany had strongly inflationary policies leading to hyperinflation. They also suffered terribly during the Great Depression. But Germany deliberately chose hyperinflation to spite the U.K. and France for enforcing crushing war reparations.
> And Keynes got to contrast the U.K.'s monetary policy with France's moderately inflationary policy. France made it through the Great Depression relatively unscathed.
That is reducing a comparison of the French and English economies down to 1 variable. It is unlikely (nay, practically impossible) that inflationary vs. deflationary policy was the biggest difference between the two.
It is like saying inflation policy was the biggest difference between Japan and the US in the 90s. One of those countries had natural resources, favourable demographics and a fire-hose of migration. The other had limited resources, unfavourable demographics and migration-hostile policies. Their legal systems and approach to corporations was completely different. There are a large number of important variables when comparing the two. Monetary policy is important but not the be-all and end-all.
One is going to be better than the other, but 'Country A did X and did well, B did Y and did badly' isn't an argument. There is too much going on.
That is reducing a comparison of the French and English economies down to 1 variable. It is unlikely (nay, practically impossible) that inflationary vs. deflationary policy was the biggest difference between the two.
It is like saying inflation policy was the biggest difference between Japan and the US in the 90s. One of those countries had natural resources, favourable demographics and a fire-hose of migration. The other had limited resources, unfavourable demographics and migration-hostile policies. Their legal systems and approach to corporations was completely different. There are a large number of important variables when comparing the two. Monetary policy is important but not the be-all and end-all.
One is going to be better than the other, but 'Country A did X and did well, B did Y and did badly' isn't an argument. There is too much going on.
That's just one example. The Pulitzer Prize winning history book, "Lords of Finance: The Bankers Who Broke the World", has many other examples and goes into much greater depth. Of course, there are many more dimensions to 20th century economics than just inflation/deflation. Indeed, a driver of deflation in Europe was the gold standard, as the U.S. was a very large net exporter to Europe (kinda like China today) and accumulated a surplus of gold reserves (offsetting American deflationary policy), stoking deflation in the net importer countries as there was less gold to back British and French currencies.
Deflation is harmful because it is basically a super-regressive windfall. Those with wealth get wealthier, those with nothing get nothing.
The only time I hear about deflation is where asset values (like the housing crisis) mass drop. In that case a lot of people are losing a lot of money, so they stop buying as many things.
I never hear about produced goods deflation that is a price drop like from mass efficiency gain where the existing money/assets start being able to buy more things. That should produce more demand, wouldn't it?
I never hear about produced goods deflation that is a price drop like from mass efficiency gain where the existing money/assets start being able to buy more things. That should produce more demand, wouldn't it?
Deflation causes demand destruction by reducing income because deflation causes (or maybe is more a symptom of) layoffs. A consumer doesn't need to check the price of pizza if their income drops to zero. They will instantly change their spending behavior when they lose their job.
You don't need to check any inflation numbers to realize the impact of it, it is something that happens in your daily life.
Maybe don't think about it when buying a pizza (although I think even then it impacts on consumption), but I recently talked with a friend from Argentina and said that he was buying the sacks of concrete while working in US to build his own house in Argentina in the future as he did not want to deal with the contractor arguments about costs of the material due to the duration of the construction.
Maybe don't think about it when buying a pizza (although I think even then it impacts on consumption), but I recently talked with a friend from Argentina and said that he was buying the sacks of concrete while working in US to build his own house in Argentina in the future as he did not want to deal with the contractor arguments about costs of the material due to the duration of the construction.
> how many consumers even know what inflation is? (many do not)
Nowadays, people don't really know what inflation is because there is none (too little to bother at least) but back in the late sixties and seventies it was a huge popular concern.
> how many consumers check the inflation numbers before buying a pizza
An economy isn't just people buying pizzas. A significant part of the economy is corporate investment, or consumer spendings made thanks to credit, and those are what's really hurt by deflation.
Nowadays, people don't really know what inflation is because there is none (too little to bother at least) but back in the late sixties and seventies it was a huge popular concern.
> how many consumers check the inflation numbers before buying a pizza
An economy isn't just people buying pizzas. A significant part of the economy is corporate investment, or consumer spendings made thanks to credit, and those are what's really hurt by deflation.
> But, how many consumers check the inflation numbers before buying a pizza?
Wrong question. The real issue is: how many consumers check the unemployment numbers before buying a pizza? Answer: a whole hell of a lot.
Wrong question. The real issue is: how many consumers check the unemployment numbers before buying a pizza? Answer: a whole hell of a lot.
> deflation would just make the whole economy collapse
All we have to do is look at history to disprove that. From 1800 to 1914, for example, the USA had periods of inflation and deflation netting out to zero.
All we have to do is look at history to disprove that. From 1800 to 1914, for example, the USA had periods of inflation and deflation netting out to zero.
This was a super messy economic era for the US with a shit ton of economic crisis and monetary issues were a big part of the mess, that's why the Fed ended up being created.
Most of that was due to the government's attempts to manipulate the money, such as bimetalism.
We've also had quite a history of crashes, crises, inflation, etc., since the Fed was created.
We've also had quite a history of crashes, crises, inflation, etc., since the Fed was created.
People don’t buy stuff in bitcoin because of the high transaction costs, and low adoption in points of sale. If you believe that bitcoin price will go up in the future, you would buy bitcoin instead of pizza using dollars.
Two things:
1. It isn't clear that the (real) cost of essentials like food, shelter, clothing, healthcare, education is actually going down significantly.
2. Even if what you say is 100% correct, this "extraction of wealth due to inflation" seems to be a somewhat stable scenario, and certainly hasn't lead to the apocalyptic visions of collapse that inflation hawks perennially create a ruckus about. So even if you think we are living through a hyper-inflationary doomsday scenario, certainly this is a very different doomsday than what one is usually led to imagine (Zimbabwe, Wiemar Republic, Venezuela etc.). Maybe inflationary Armageddon isn't so bad after all!
1. It isn't clear that the (real) cost of essentials like food, shelter, clothing, healthcare, education is actually going down significantly.
2. Even if what you say is 100% correct, this "extraction of wealth due to inflation" seems to be a somewhat stable scenario, and certainly hasn't lead to the apocalyptic visions of collapse that inflation hawks perennially create a ruckus about. So even if you think we are living through a hyper-inflationary doomsday scenario, certainly this is a very different doomsday than what one is usually led to imagine (Zimbabwe, Wiemar Republic, Venezuela etc.). Maybe inflationary Armageddon isn't so bad after all!
I won't call it cause but there certainly seems to be correlation between lowering food costs and healthcare increasing.
Truth is, worldwide there are more deaths from the side effects of too much food, than not enough.
Truth is, worldwide there are more deaths from the side effects of too much food, than not enough.
I generally dont worry about inflation, I roll my eyes when certain financial people talk about the inflation boogieman that hasnt existed for 40 years.
however, we are in a unique situation that has the potential for causing hyper inflation. I say potential because I still think it's not a likely outcome. We are paying people not to work, but eventually someone has to produce something. We ALL can't wfh or be unemployed and collect checks as if we were employed and expect our Amazon deliveries and canned food to arrive; someone has to make and deliver it.
Eventually all the extra money laying around today will chase yesterday's production. I think this is why we often see hyper inflation scenarios stem from low inflation environments. it sounds counter intuitive at first.
This is why we have to be extremely careful when we try to pick and choose what is essential or not. Now we got situations were food is rotting on the vines and milk being dumped down the drain. I dont think we will enter hyper inflation, but we have to be careful about it.
however, we are in a unique situation that has the potential for causing hyper inflation. I say potential because I still think it's not a likely outcome. We are paying people not to work, but eventually someone has to produce something. We ALL can't wfh or be unemployed and collect checks as if we were employed and expect our Amazon deliveries and canned food to arrive; someone has to make and deliver it.
Eventually all the extra money laying around today will chase yesterday's production. I think this is why we often see hyper inflation scenarios stem from low inflation environments. it sounds counter intuitive at first.
This is why we have to be extremely careful when we try to pick and choose what is essential or not. Now we got situations were food is rotting on the vines and milk being dumped down the drain. I dont think we will enter hyper inflation, but we have to be careful about it.
I only glanced through the wikipedia, and it doesn't seem at all like hyper inflation stems form low inflation environments.
https://en.wikipedia.org/wiki/Hyperinflation#Notable_hyperin...
https://en.wikipedia.org/wiki/Hyperinflation#Notable_hyperin...
> 1. It isn't clear that the (real) cost of essentials like food, shelter, clothing, healthcare, education is actually going down significantly.
It is if you think about it. In the 1970s a baby born premature at 28 weeks would have been unlikely to survive. Healthcare quality has increased enormously. If you could get 1980-level healthcare it would cost less of your wage than it did in 1980.
Food, clothing, transport, and heating have unambiguously fallen as a proportion of wages.
Education is perhaps an outlier here. The spiralling cost is usually explained as a zero-sum social signalling mechanism that is super important for life outcomes, and its rising price as being enabled by the falling cost of everything else.
It is if you think about it. In the 1970s a baby born premature at 28 weeks would have been unlikely to survive. Healthcare quality has increased enormously. If you could get 1980-level healthcare it would cost less of your wage than it did in 1980.
Food, clothing, transport, and heating have unambiguously fallen as a proportion of wages.
Education is perhaps an outlier here. The spiralling cost is usually explained as a zero-sum social signalling mechanism that is super important for life outcomes, and its rising price as being enabled by the falling cost of everything else.
The spiralling cost of education is a bit illusory; the actual cost of education is rapidly approaching 0. I can gain free access to a stunning amount of front-line academic research, and anyone can have access to pretty much all of it for prices that are low relative to what it would have cost in the 80s.
You can probably listen to free lectures by country-leading authorities on any STEM subject. Well, TEM. I'm not sure about biology and the other sciences. Access to humanities-related texts is also unbelievable vs the 80s.
The cost of getting socially certified as having become educated is growing. Not the cost of education.
You can probably listen to free lectures by country-leading authorities on any STEM subject. Well, TEM. I'm not sure about biology and the other sciences. Access to humanities-related texts is also unbelievable vs the 80s.
The cost of getting socially certified as having become educated is growing. Not the cost of education.
That's only true if people don't want better stuff over time, only larger quantities of exactly the same stuff
Yep. There's a concerted effort to keep bringing up high inflation as a means of forcing more austerity. The mythical "high inflation" hasn't materialized but the cries continue to happen.
There is a reasonable argument that we do have inflation, it’s just being shown in assets prices, not commodity prices. Things like education, housing, stocks, art, startup valuations, and more have signs of inflation even if oil and food prices don’t.
I would agree to this but this isn't necessarily a blanket monetary policy of spending too much money across the board and is a result of political capture by the wealthy where it's used to keep fueling the infinite growth machine for the already wealthy.
I mean housing policy in itself is entirely political: weaponized zoning laws and the lack of new construction to match the growth of the country are a direct result of this infinite growth machine. Housing being considered "an investment" will further perpetuate this price inflation because there is a vested interest in not allowing property values to decrease which is what happens when you can build to match demand.
I mean housing policy in itself is entirely political: weaponized zoning laws and the lack of new construction to match the growth of the country are a direct result of this infinite growth machine. Housing being considered "an investment" will further perpetuate this price inflation because there is a vested interest in not allowing property values to decrease which is what happens when you can build to match demand.
The housing situation is one giant prisoners dilemma loose-loose, nobody wants to loose out. I've long believed that houses/land are overpriced but I've recently (Just prior to Covid) become a home owner because I needed somewhere to live and the mortgage repayments are cheaper than rent here. It could have been a spectacularly bad move.
Well, it's not a lose lose situation to the people that don't own property yet. They would greatly benefit from housing costs dropping, since they could afford to buy their own house or pay less in rent. The problem is that the people who don't own property tend to have less political power and influence than property owners.
I agree that the basic human need of shelter should be more affordable. I remember 10 years ago, when prices dropped after the financial crisis, people were saying "this is it" but it is politcally untenable to allow prices to drop. So those that didn't own eventually got tired of waiting and then when they have bought they don't want a drop, because who wants to burn money?
> I agree that the basic human need of shelter should be more affordable.
Affordable where? In West Texas or in Paris? Today, Paris' population is ~2M and the residential buildings cannot be taller than 50m by law. If 10M people want to live there, is it a "basic human right" to build 10M homes for them by replacing existing Parisian building by skyscrapers? What will that do to the existing fabric/culture of the city, and who gets to decide what is allowed? Existing residents or the would-be residents?
Affordable where? In West Texas or in Paris? Today, Paris' population is ~2M and the residential buildings cannot be taller than 50m by law. If 10M people want to live there, is it a "basic human right" to build 10M homes for them by replacing existing Parisian building by skyscrapers? What will that do to the existing fabric/culture of the city, and who gets to decide what is allowed? Existing residents or the would-be residents?
Perhaps the question isn't where but when.
40 years ago my parents were able to buy a large modern home for about 3 times times one of their salaries. For young people today it is more like 6 - 10 times the combined salaries of two people.
40 years ago my parents were able to buy a large modern home for about 3 times times one of their salaries. For young people today it is more like 6 - 10 times the combined salaries of two people.
Where did your parents live? In mid-west or in suburbs or in Manhattan? Where are young people living today and are those similar locations as their parents?
It could be a bad move overall, but there is a floor to the loss, because you get a secure roof over your head that you can become attached to. That has value, especially with a family and community nearby.
Yes there is so much mental gymnastics involved in "basket of goods"
My dad bought a house and had a kid in London aged 27. He didn't even have a degree and was an immigrant arriving with all the money he had scrounged in his hand.
Compare that with the London of today where £200k buys you a 80sqft squat:
https://www.dailymail.co.uk/news/article-8541513/Micro-studi...
But you know, house prices and rent aren't a good so there's no inflation so there's no problem right? /s
My dad bought a house and had a kid in London aged 27. He didn't even have a degree and was an immigrant arriving with all the money he had scrounged in his hand.
Compare that with the London of today where £200k buys you a 80sqft squat:
https://www.dailymail.co.uk/news/article-8541513/Micro-studi...
But you know, house prices and rent aren't a good so there's no inflation so there's no problem right? /s
All that extra liquidity is going straight to capital assets.
People think deflationary assets are a good thing (for themselves), but they tend to promote stagnation.
This is correct based on data I've looked at. In fact if you are okay choosing non-capacity constrained housing and education, even those are not having much inflation. If you are okay with community college or even better self motivated to learn online it is very much affordable. If you are ok not living where every else is, the cost of a house is inflating by cost of lumber and local labor costs versus infinite inflation for houses which face land/NIMBY/zoning constraints.
Education, housing(rent, not the price of a house), and medical care. Are all included in the CPI. Education and medical care are going up due to reasons unrelated to inflation. Shelter is going up at 3% due to supply constraints.
The prices of houses, stocks, art, and startups are not. The reason is that assets prices are very heavily affected by interest rates.
Imagine a house that costs $100,000 but rents out for 10,000 a year in profit because interest rate are 10%. Now imagine interest rates drop to 1%. Arbitrage will mean that individuals will borrow money at 1% and buy the house and collect 10%. This drives up the price until the return on the house matches the return of other investments, or basically until the house is worth $1,000,000. Now the cost of rent hasn't changed, but the price of the house has gone up 1,000%.
Did the economy experience 1,000% inflation? No because the cost of living hasn't changed.
The prices of houses, stocks, art, and startups are not. The reason is that assets prices are very heavily affected by interest rates.
Imagine a house that costs $100,000 but rents out for 10,000 a year in profit because interest rate are 10%. Now imagine interest rates drop to 1%. Arbitrage will mean that individuals will borrow money at 1% and buy the house and collect 10%. This drives up the price until the return on the house matches the return of other investments, or basically until the house is worth $1,000,000. Now the cost of rent hasn't changed, but the price of the house has gone up 1,000%.
Did the economy experience 1,000% inflation? No because the cost of living hasn't changed.
Assets experienced a 1,000% inflation. People can still scrape by being consumers and renters (cost-of-living), but owning assets moves farther and farther out of reach.
Since our economic system is built on assets (they appreciate, you can borrow against them, etc.), the inequality gap keeps growing.
Since our economic system is built on assets (they appreciate, you can borrow against them, etc.), the inequality gap keeps growing.
Housing and education are both represented in the CPI. Housing alone is almost a third of it.
I haven't dug in recently to the CPI, but I wouldn't be surprised to find underlying flaws in the CPI's representation of different groups of people such as people who live in urban areas, people who are in a specific income bracket, etc. The CPI may reflect those things, but if those proportions are off it can significantly affect the inflation number it spits out.
I'm not an economic expert but it baffles me that people pay attention to a single CPI and don't look at many at once when analyzing economic policy. A single CPI optimization is inherently going to cater towards the effects on one group, but without study we don't even know what that group is.
I'm not an economic expert but it baffles me that people pay attention to a single CPI and don't look at many at once when analyzing economic policy. A single CPI optimization is inherently going to cater towards the effects on one group, but without study we don't even know what that group is.
Agreeing with what you have said here, but you might have to leave food prices out of the argument soon. I don’t know what numbers economists look at for this, but just as naive consumers we are noticing that food prices are going up.
There's a tangent on this in Carlota Perez's Technological Revolutions and Financial Capital. Basically you get this phenomena of "two moneys" - rather than the economy acting as a monolithic entity, a new socioeconomic system grows up around the new fundamental technologies, and then goods/services/assets that are connected to the new economy (tech companies, programmer & data scientist salaries, Silicon Valley real estate, SV daycare prices) inflate rapidly while everything connected to the old economy remains stagnant. This sucks if you're trying to manage daily life in the new economy - you may be making $600K/year, but a crappy house is now $3M. It's pretty awesome if you're in the new economy but buying something from the old economy though. A new TV is about an hour of compensation for a mid-level Googler; a cruise to Antarctica is about a month's worth.
The usual outcome of this situation is something far worse than high inflation. Instead, you typically get a financial crisis, then war and conquest as the new technologies are applied to weaponry.
The usual outcome of this situation is something far worse than high inflation. Instead, you typically get a financial crisis, then war and conquest as the new technologies are applied to weaponry.
Reminds me of the heightening contradiction, my generation is "criticized" for buying Starbucks instead of saving for a home, so sure I'll not drink a Starbucks daily for 577 years and use that money to buy a home. It's financial advice that ignores the fundamental problem.
I find myself waiting and hoping for a complete and utter financial crash just for the opportunity to be able to afford a home. My income is several times above the poverty line.
It makes me feel sad and guilty but that is the reality. Inflation is real when you look for it.
It makes me feel sad and guilty but that is the reality. Inflation is real when you look for it.
Then you better buy a home sooner. Because as soon as there is a financial crash, central banks are going to flood the economy with new money to prop up stocks/bonds/homes prices. The template was originally tried after 2008 crash (ZIRP, multiple QEs etc) all over the world and is put to test again during the COVID shutdowns. Since the sky didn't fall the first time and not falling the second time, that is going to be a go-to tool for policymakers.
So you believe that hyperinflation is coming?
You mean, current real estate prices in places like SV is not a hyperinflation yet?
In things which are supply constrained? Yes. Think bay area houses or gold or bitcoin.
In things where supply is near-infinite? No. Think digital entertainment, cheap calories or cheap clothes.
In things where supply is near-infinite? No. Think digital entertainment, cheap calories or cheap clothes.
Have you considered looking for a job outside of the west coast because inflation adjusted price per square foot hasn't actually changed for a lot of the US [0]. It's mainly just the west coast where home prices have ballooned (in the US at least).
[0]: 0]: https://www.supermoney.com/inflation-adjusted-home-prices/
[0]: 0]: https://www.supermoney.com/inflation-adjusted-home-prices/
Looking for just one job is not enough. To feel secure leaving silicon valley, you need a wide choice of jobs and employers in the area where you go to, in case the first job doesn’t last. From here every other place looks to have more limited options.
The bay area might have the most programmers, but there are still tons of programmer jobs outside of it. 80% of programmers don't live in california [0]. Almost every fortune 500 company has some software developers so there are jobs in every decent size metropolitan area. A lot of the big companies also have satellite offices you can work at. I just moved from Seattle to Chicago and it only cost me 4% of my salary and I've already had 5 recruiters ping me on linkedin since I moved here a few weeks ago.
[0]: https://dqydj.com/number-of-developers-in-america-and-per-st...
[0]: https://dqydj.com/number-of-developers-in-america-and-per-st...
Well, it's clearly a tradeoff. By staying in the Valley, you are prioritizing having options at many startups at the expense of home ownership.
I live in Minneapolis. Not as wide ranging options here, but many of them are at fortune 500 companies (relatively stable), and homes are affordable. I'm sure you can find examples in many other similar cities.
The Valley may have the most opportunities of anywhere, but to say that there's just no work anywhere else is a bit ridiculous.
I live in Minneapolis. Not as wide ranging options here, but many of them are at fortune 500 companies (relatively stable), and homes are affordable. I'm sure you can find examples in many other similar cities.
The Valley may have the most opportunities of anywhere, but to say that there's just no work anywhere else is a bit ridiculous.
That article doesn't account for lot size, which generally provides more value. It can be argued that a house surrounded on 3 sides by other houses with no outside area is less valuable.
It can be argued, but it isn't correct. I know of houses where the next house in any direction is several miles. They sell for cheap after being on the market for a long time.
People do like space, but the like cities as well. Suburbs are an attempt to compromise.
People do like space, but the like cities as well. Suburbs are an attempt to compromise.
I suspect others are seeking the same type of freedom that I am, or maybe it's direct inverse.
I want freedom from the impact of other people; no more noise through the walls, smoke in the halls, or the unwanted scents from cleaning and cooking when the windows are opened for ventilation. Even renting a house I can't escape this and now there isn't one 'grounds-keeping day', it's every freaking weekend day that someone near me decides to mow their lawn.
Conversely people might like living far apart so they've got the freedom to make a mess, do things an HoA would hate (I argue HoA's exist due to lack of proper, and local, laws and enforcement). For that matter, HoAs are also something that others force as an anti-freedom.
I think what I would really like is a bunker, someplace with nice thick insulation and isolation and very good air filters. However I'd still like to be able to easily visit stores for food, so probably some kind of suburban bunker.
I want freedom from the impact of other people; no more noise through the walls, smoke in the halls, or the unwanted scents from cleaning and cooking when the windows are opened for ventilation. Even renting a house I can't escape this and now there isn't one 'grounds-keeping day', it's every freaking weekend day that someone near me decides to mow their lawn.
Conversely people might like living far apart so they've got the freedom to make a mess, do things an HoA would hate (I argue HoA's exist due to lack of proper, and local, laws and enforcement). For that matter, HoAs are also something that others force as an anti-freedom.
I think what I would really like is a bunker, someplace with nice thick insulation and isolation and very good air filters. However I'd still like to be able to easily visit stores for food, so probably some kind of suburban bunker.
It sounds like what you'd like is living in a small town or village in the German speaking countries.
Keep in mind they may find something you do to complain about!
Keep in mind they may find something you do to complain about!
You didn't provide evidence. Larger lot size absolutely does provide more value.
> It's mainly just the west coast where home prices have ballooned (in the US at least).
And the Northeast, which is apparently more expensive per sq foot than the West, according to your source.
And the Northeast, which is apparently more expensive per sq foot than the West, according to your source.
Yes, this is true. I guess I wasn't very careful with my wording as I was talking in the classical sense of "there's too much money now so your dollar is now worth 20 cents across the board" inflation and not necessarily failed political policy, which housing is absolutely apart of.
I've come to consider the official inflation figures as absolute nonsense. It's a shame, really, because the BLS does a lot of good work, and outdated metric calculation methods really put a tarnish on an otherwise great agency. I'm not sure how much of that is being held hostage to political goals.
Things that are in actual demand [1], like health care, education and housing (in desirable areas) have absolutely been outpacing inflation.
Sure, if you measure the absolute basics needed to not die in a society, the figures might make sense (as it would be mostly food and clothing, both of which are dirt cheap. So cheap in fact that most of the time they can be had for free! Thrift stores and food banks are your friend)
But if we're talking about a thriving society and population, surely our aims should be set higher than the very first step on Maslow's hierarchy of needs?
[1](it's not Smart TVs and Smartphones, although even flagship smartphones have recently ballooned in price far outstripping any sort of inflation figures)
Things that are in actual demand [1], like health care, education and housing (in desirable areas) have absolutely been outpacing inflation.
Sure, if you measure the absolute basics needed to not die in a society, the figures might make sense (as it would be mostly food and clothing, both of which are dirt cheap. So cheap in fact that most of the time they can be had for free! Thrift stores and food banks are your friend)
But if we're talking about a thriving society and population, surely our aims should be set higher than the very first step on Maslow's hierarchy of needs?
[1](it's not Smart TVs and Smartphones, although even flagship smartphones have recently ballooned in price far outstripping any sort of inflation figures)
> But if we're talking about a thriving society and population, surely our aims should be set higher than the very first step on Maslow's hierarchy of needs?
Very much agreed.
The issues with sectors that have been outpacing inflation aren't due to a blanket "we're pumping too much fiat into the economy" but are absolutely political choices.
Healthcare: The US does spend too much here for what we get in return but this is a political choice. We could institute Medicare for All and _save_ money [0]
Education: Again political here. How much funding has been stripped at the state/local level for the universities and how much can be attributed to extremely bloated administrations? Other countries can manage education just fine.
Housing: this is current housing being weaponized to increase the value of property while artificially limiting what, where, when, who, and how much can be built at any given time. See: all of California. Housing as strictly a monetary investment now dictates that nothing is ever allowed to depreciate, only ever increase.
[0]https://www.thelancet.com/journals/lancet/article/PIIS0140-6...
Very much agreed.
The issues with sectors that have been outpacing inflation aren't due to a blanket "we're pumping too much fiat into the economy" but are absolutely political choices.
Healthcare: The US does spend too much here for what we get in return but this is a political choice. We could institute Medicare for All and _save_ money [0]
Education: Again political here. How much funding has been stripped at the state/local level for the universities and how much can be attributed to extremely bloated administrations? Other countries can manage education just fine.
Housing: this is current housing being weaponized to increase the value of property while artificially limiting what, where, when, who, and how much can be built at any given time. See: all of California. Housing as strictly a monetary investment now dictates that nothing is ever allowed to depreciate, only ever increase.
[0]https://www.thelancet.com/journals/lancet/article/PIIS0140-6...
> Healthcare: The US does spend too much here for what we get in return but this is a political choice. We could institute Medicare for All and _save_ money.
This is absolutely true, but also exceptionally hard. Extracting the $1 Trillion/yr out of the current healthcare system is going to put a lot of people out of work. We'll need a good system to re-train them for new work too.
This is absolutely true, but also exceptionally hard. Extracting the $1 Trillion/yr out of the current healthcare system is going to put a lot of people out of work. We'll need a good system to re-train them for new work too.
The change from CPI to “Chained CPI” back in the 90s (?) has been a bit of a con IMO. It was designed to reduce the amount of inflation reported. Making it the official inflation metric used for social security meant that SS cost of living adjustments went down screwing people on social security (that they had already paid for). It also then started to get used later on to set the tax brackets. Which again screws people by slowly pushing them into higher tax brackets.
I prefer the older CPI system. It’s still imperfect but it was fairer.
I prefer the older CPI system. It’s still imperfect but it was fairer.
Surely there must be some price index that uses a basket including these additional important "goods"... does anybody know of one?
I think items like housing and transportation costs are used by some regions when calculating the cost of living that determines the "poverty line" for aid programs. So there's probably already a well-vetted process for looking up some of those price points. Then it's just a matter of aggregating them and tracking that value over time...
I think items like housing and transportation costs are used by some regions when calculating the cost of living that determines the "poverty line" for aid programs. So there's probably already a well-vetted process for looking up some of those price points. Then it's just a matter of aggregating them and tracking that value over time...
Inflation is a consequence of 'the average consumer' having more money to spend and thence becoming less price sensitive. The reason we haven't seen inflation is that the stupendous amounts of money printed recently have all gone to people who already have more than enough cash to spend.
Well it has in Venezuela, with the printing of money. But maybe you need a measure of scarcity to trigger high inflation.
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I believe it's not really "rethink" as if we had once figured it out correctly in the past already. We are still actually thinking it for the first time, specially if you consider economists and policy makers were yet looking for "something new" (mentioned in the article) in macroeconomics during the last, what, 50 years? It's all pretty new, which suggests to me that it is all in a pretty extremist and radicalized state: it doesn't have to be 100% trickle down reaganomics or 100% state interventionism exclusively. I'm very confident a major crisis like this one will make key people finally realize that a mix of free global markets + welfare states focused on reducing inequality + democratic institutions will be the answer to many macroeconomics problems. Very few countries have realized this, the rest of the world meanwhile will keep shouting at each other doubling down on stupid policies not based in good examples and will keep blaming keynesianism or whatever neoliberal approach they can't understand.
There are powerful forces whose giant profits would be threatened by such a consensus. It’s hard to say if it will actually happen.
A great deal of political thought and practice is centered around promoting personal benefit. While it might look dumb for someone promoting free markets to also support farm subsidies etc, the spoken justifications have little to do with the actual decision making process. Convincing people who don’t benefit from your policies to still support them is simply how the game is won.
Farm subsidies are wildly popular with voters, both in farm states and non-farm states, and there is not much advertising/public lobbying for them. They are an example of a voter-driven policy, not a special interest group's successful lobby.[1]
[1] https://en.wikipedia.org/wiki/The_Myth_of_the_Rational_Voter
[1] https://en.wikipedia.org/wiki/The_Myth_of_the_Rational_Voter
I think you missed my point. Convincing people who don’t benefit from your policies to still support them is simply how the game is won.
In the US farmers don’t need to expend significant political capital maintaining farm subsidies. It still comes up from time to time, but nowhere near as much as you would think given the economic and heath costs of such policies.
In the US farmers don’t need to expend significant political capital maintaining farm subsidies. It still comes up from time to time, but nowhere near as much as you would think given the economic and heath costs of such policies.
My point was that in the case of farm subsidies, it doesn't take any convincing; the people believe these are necessary to maintain an adequate supply of food, and they also happen to think supporting farmers is a good cause. As a rule-of-thumb, the bills that everyone signs/votes for very publicly (with ceremonies and such) are actually vote-winners, steel tarriffs are another good example.
Voters hold many mercantilist and nationalist beliefs (on both sides of the aisle), and policies largely reflect these, not some propaganda-driven special interests.
Voters hold many mercantilist and nationalist beliefs (on both sides of the aisle), and policies largely reflect these, not some propaganda-driven special interests.
Now sure, but farm subsidies was a battle fought before you where born. In 1800 such a large percentage of the population was farming that the idea of farm subsidies would have come off as silly. Going back further the idea of say landed nobility in Europe and not the US is such an old fight it became a cultural institution.
Well, the corn laws (of the UK) were a form of farm subsidy (actually a tariff against imports), enacted in about 1815, and repealed in 1846 in the face of opposition from factory workers. The market for agricultural goods has seen increasing subsidy/barriers to trade since the First World War, the sharpest change likely being during the Great Depression.
Outside of the US, things where different. The UK corn laws had less to do with farming than land ownership. The actual percentage of UK population owning large tracks of farm land was low enough to enable that kind of power grab. Further, they excluded potatoes which focused the benefit on the upper crust of society.
It is an interesting bit of history, but the specifics really drive home what I was talking about.
It is an interesting bit of history, but the specifics really drive home what I was talking about.
> I'm very confident a major crisis like this one will make key people finally realize that a mix of free global markets + welfare states focused on reducing inequality + democratic institutions will be the answer to many macroeconomics problems.
Like the Scandinavian countries, which also have the highest reported rates of happiness in the world. Why, at the government level, do we not look at best practices worldwide?
Like the Scandinavian countries, which also have the highest reported rates of happiness in the world. Why, at the government level, do we not look at best practices worldwide?
>Why, at the government level, do we not look at best practices worldwide?
Because there is a ruling class and for the rulers it is not about best practices or happiness, it is about maximizing wealth and maintaining power.
Education and healthcare (which should be considered human rights not industries) are very helpful in seeing some of the tools the ruling class uses to maintain power. Both education and healthcare are standardized enough they are rated by Country and while the US spends more on both than any other country the US is not even close to being rated number 1 in either category.
Yet, to your point, when one points to other countries as evidence how well other systems work (with less funding) that person will be demonized as Anti-American. Even in the current pandemic where the numbers speak for themselves, we are subjected to having to hear the ruling class get on TV and tell us how we are #1 and doing better than every other Country and even worse in many cases this ruling class refers to the pandemic in the past tense and proclaim how they defeated it. It is Machiavellianism incarnate.
Because there is a ruling class and for the rulers it is not about best practices or happiness, it is about maximizing wealth and maintaining power.
Education and healthcare (which should be considered human rights not industries) are very helpful in seeing some of the tools the ruling class uses to maintain power. Both education and healthcare are standardized enough they are rated by Country and while the US spends more on both than any other country the US is not even close to being rated number 1 in either category.
Yet, to your point, when one points to other countries as evidence how well other systems work (with less funding) that person will be demonized as Anti-American. Even in the current pandemic where the numbers speak for themselves, we are subjected to having to hear the ruling class get on TV and tell us how we are #1 and doing better than every other Country and even worse in many cases this ruling class refers to the pandemic in the past tense and proclaim how they defeated it. It is Machiavellianism incarnate.
> Why, at the government level, do we not look at best practices worldwide?
I've seriously been wondering why there isn't a field of study dedicated to comparing government policies across countries. I'm sure such a field of study exists, but I have no idea what the name of that field is - does that fall under public policy? Comparative politics? The fact that I can't put a name on it is the very problem as it shows the field (if it even exists) has very little influence on public policy (unlike say economics, which has the Council of Economic Advisors, CBO, BLS, Fed, U.S. treasury, etc).
I've seriously been wondering why there isn't a field of study dedicated to comparing government policies across countries. I'm sure such a field of study exists, but I have no idea what the name of that field is - does that fall under public policy? Comparative politics? The fact that I can't put a name on it is the very problem as it shows the field (if it even exists) has very little influence on public policy (unlike say economics, which has the Council of Economic Advisors, CBO, BLS, Fed, U.S. treasury, etc).
It's hard to identify which practices are responsible for which outcomes. Suppose you wanted to combine the high happiness rate of Denmark with the low crime rate of Japan; how would you figure out which are the policies you need to accomplish that?
There is research, and it's pretty intuitive. Create stability. Reduce income inequality. Focus spending on social programs. Help people out of addiction, crime, give them a network, healthcare, education and jobs. People who cannot work need funding. Enough to live a dignified life. People are happy when they don't have to worry. People who are happy with the system doesn't really commit crime.
We can surely agree that cheap wide good education has to be one of the policies necessary for that, yet it's quite ignored even in some rich countries.
A big problem is that many educators and school boards treat education as indoctrination. i.e. "Teach people what to think"
The real goal of education is to teach people how to think. Logic, rhetoric, analysis, scientific method, how to identify logical fallacies, understanding statistics, falsifiable theories, analyzing history not only through secondary sources, but actively seeking out primary sources to corroborate secondary sources, so on and so forth.
A useful education for a healthy well-functioning society is about inquiry, not regurgitation.
The real goal of education is to teach people how to think. Logic, rhetoric, analysis, scientific method, how to identify logical fallacies, understanding statistics, falsifiable theories, analyzing history not only through secondary sources, but actively seeking out primary sources to corroborate secondary sources, so on and so forth.
A useful education for a healthy well-functioning society is about inquiry, not regurgitation.
There's near-universal agreement that education should be cheap and wide and good. The question is which policies best accomplish those goals. Should we add vocational high schools like Denmark has, where teachers can focus on practical skills since it's already been decided the students won't go to college? Should we add 60 more days to the school year and universal high school admission tests like they do in Japan?
These are the kinds of questions that need to be studied and answered. But instead, politicians just say “‘Murica is #1” and leave it at that. The platitudes need to stop. We need some policy wonk technocrats to take over government.
I don't think this is something we can blame on the politicians, though. People got grumpy enough about Common Core; imagine how much worse it would go over if a school district announced that it was going to transition towards rote learning.
I can't agree with that, no. "Cheap wide good education" is not a policy. What policies need to be set to achieve it?
I agree. There are many practices common to countries reporting high levels of happiness that Americans (And certainly other western nations) ignore seemingly on principle.
How should the United States address this issue given that it is usually in the top 5 with spending on public education per student every year?
One of the thing Americans do differently is setting up systems for inequality from the get go. First past the post voting, but also using education to produce/select 'winners', rather than use it as a tool for equality. One could say this is a choice and there's no wrong way to make it, but to me it seems clear that it is the root cause for many of the issues in the US. I think superstar systems and mentality necessarily produces inequality and inequality necessarily produces problems.
We would have to analyze the actual distribution of that spend. When this is done, we see wealthier places have higher spending per capita because public schools in the US are funded primarily by property taxes.
Yeah, and local property taxes, at that.
I mean, if I were designing a system to reinforce inequality in districts and schools, local property taxes would be first on my list of policies.
I mean, if I were designing a system to reinforce inequality in districts and schools, local property taxes would be first on my list of policies.
[deleted]
The US has lots of people with a superficial understanding of Scandinavia telling everyone that their idea of Scandinavia is brilliant, easy, etc. (and btw, this is a function of generally poor policy education in the US, the US produces probably the best policy studies research...very little of this is taught in courses that people who go on to be politicians study).
If you go to Scandinavia or study comparative politics, the answer is simple: Scandinavia is Scandinavia, the US is the US. They are different places with outcomes that reflect different values and choices.
What people ignore about Scandinavia: mono-cultural society (if you tried some of the integration stuff that these countries do in the US, you would have people loading guns), huge tax burden on middle class (in the US people who currently pay no tax will have to hand over 40%+ of their income), small population, heavily monopolistic economy, significant exposure to trade/reliance on individual companies, significant natural resources (Norway has 20% of the US oil reserves, their population is smaller than almost every state in the US). Saying they are happier is very woolly, particularly as most countries in that region are societies that place significant social pressure on individuals to conform and be happy (their rates of depression and suicide are high, indeed when Sweden was the socialist paradise their rate of suicide was highest in the world).
Also, you ignore that most Scandinavian countries have moved towards the US model after decades of underperformance and then financial crisis. Even Denmark which has huge trade union membership has the most flexible labour anywhere...again, what people understand about Scandinavia is usually based on their preconceptions about America and their belief in a perfect, easy ideal that confirms their views about the world.
The US gets things far more right than wrong. It is, by far, the most successful economy that has existed to this point. No other large country has replicated that success (all the East Asian economies used Germany as their model, which has resulted in significant baggage). You can say that some stuff needs to be changed...okay, but it isn't as simple as just copying Scandinavia. That will never happen, and won't work if it did. It just makes no sense. The solution to an American problem is American, not Swedish.
If you go to Scandinavia or study comparative politics, the answer is simple: Scandinavia is Scandinavia, the US is the US. They are different places with outcomes that reflect different values and choices.
What people ignore about Scandinavia: mono-cultural society (if you tried some of the integration stuff that these countries do in the US, you would have people loading guns), huge tax burden on middle class (in the US people who currently pay no tax will have to hand over 40%+ of their income), small population, heavily monopolistic economy, significant exposure to trade/reliance on individual companies, significant natural resources (Norway has 20% of the US oil reserves, their population is smaller than almost every state in the US). Saying they are happier is very woolly, particularly as most countries in that region are societies that place significant social pressure on individuals to conform and be happy (their rates of depression and suicide are high, indeed when Sweden was the socialist paradise their rate of suicide was highest in the world).
Also, you ignore that most Scandinavian countries have moved towards the US model after decades of underperformance and then financial crisis. Even Denmark which has huge trade union membership has the most flexible labour anywhere...again, what people understand about Scandinavia is usually based on their preconceptions about America and their belief in a perfect, easy ideal that confirms their views about the world.
The US gets things far more right than wrong. It is, by far, the most successful economy that has existed to this point. No other large country has replicated that success (all the East Asian economies used Germany as their model, which has resulted in significant baggage). You can say that some stuff needs to be changed...okay, but it isn't as simple as just copying Scandinavia. That will never happen, and won't work if it did. It just makes no sense. The solution to an American problem is American, not Swedish.
Talking about US being the most successful economy in the world is kinda misleading without talking about the role that political geography, and how it applied to WW1 and WW2, played in that.
They have already tried your strategy. Economists thought free global markets would lead to liberalization in other governments. That has proved to be utterly untrue with China and as a result they have become the worlds manufacturing hub, while becoming more and more totalitarian.
Production wise, an economy that is not concerned with democratic institutions or reducing inequality will outperform one that is. With that in mind, globalization is basically a race to the bottom human rights wise.
Production wise, an economy that is not concerned with democratic institutions or reducing inequality will outperform one that is. With that in mind, globalization is basically a race to the bottom human rights wise.
Your first point is correct, but your second point is not. Bruce Bueno de Mesquita demonstrated this in "The Logic of Political Survival", and others have come to similar findings.
Briefly, rising incomes under a non-democratic regime lead to a local maximum of growth, as totalitarianism is inextricably linked with economically inefficient institutions. As an autocrat, your top priority is to compensate those who keep you in power, which requires wealth extraction from the productive; this disincentivises efficient production. Unfortunately, nothing about rising wealth will necessarily lead to regime liberalization.
"Reducing inequality" is very different from democracy, and would probably lead to reduced economic efficiency, as it necessarily reduces the incentives for efficient production.
Briefly, rising incomes under a non-democratic regime lead to a local maximum of growth, as totalitarianism is inextricably linked with economically inefficient institutions. As an autocrat, your top priority is to compensate those who keep you in power, which requires wealth extraction from the productive; this disincentivises efficient production. Unfortunately, nothing about rising wealth will necessarily lead to regime liberalization.
"Reducing inequality" is very different from democracy, and would probably lead to reduced economic efficiency, as it necessarily reduces the incentives for efficient production.
> "'Reducing inequality' ... would probably lead to reduced economic efficiency, as it necessarily reduces the incentives for efficient production."
this argument gets made a lot (for instance, re: the lower capital gains rate) because proponents want it to be true and its flaws are not immediately obvious, but it's unambiguously mistaken.
first, esteem from wealth is relative, and as long as there is a spectrum of wealth, the wealthiest will derive maximal esteem regardless of the absolute value of wealth. and that's the primary driver for the ambitious and greedy, not putting resources to highest and best use (which is at best a side effect). greater equality doesn't change that equation one iota.
second, it's plain to see that large accumulations of wealth are fairly unproductive, simply illustrated by the localized real estate bubbles driven by both wealth seeking safe harbor and PE-backed landlords seeking unproductive rents.
in fact, there seems to be a central optimum. relative to now, wider dispersion of wealth (less wealth disparity) seems to provide the best bang-for-buck when it comes to efficiency, putting more potential to work rather than mostly relegating it to the menial sidelines.
this argument gets made a lot (for instance, re: the lower capital gains rate) because proponents want it to be true and its flaws are not immediately obvious, but it's unambiguously mistaken.
first, esteem from wealth is relative, and as long as there is a spectrum of wealth, the wealthiest will derive maximal esteem regardless of the absolute value of wealth. and that's the primary driver for the ambitious and greedy, not putting resources to highest and best use (which is at best a side effect). greater equality doesn't change that equation one iota.
second, it's plain to see that large accumulations of wealth are fairly unproductive, simply illustrated by the localized real estate bubbles driven by both wealth seeking safe harbor and PE-backed landlords seeking unproductive rents.
in fact, there seems to be a central optimum. relative to now, wider dispersion of wealth (less wealth disparity) seems to provide the best bang-for-buck when it comes to efficiency, putting more potential to work rather than mostly relegating it to the menial sidelines.
This argument seems to be ignoring the propensity of wealthy people in redistributionist environments to send false signals about their own level of wealth. E.G. Stalin commanded the wealth of a global superpower, but he dressed in uncomfortable military uniforms to signal solidarity with a poor majority. That kind of 'wealth falsification' seems likely to cause its own inefficiencies not present if wealth is considered the result of better serving the market.
> "Reducing inequality" is very different from democracy, and would probably lead to reduced economic efficiency, as it necessarily reduces the incentives for efficient production.
They are absolutely bound together. Ensuring that every person has the same power in the political process means that everyone has the time and energy to pay attention and be educated on what's going on the world, and that nobody has so much wealth that they can use it to buy influence. The trend towards more inequality while the working class has less and less political power is painfully obvious, especially in the United States.
They are absolutely bound together. Ensuring that every person has the same power in the political process means that everyone has the time and energy to pay attention and be educated on what's going on the world, and that nobody has so much wealth that they can use it to buy influence. The trend towards more inequality while the working class has less and less political power is painfully obvious, especially in the United States.
See also "Rules for Rulers" from CGP Grey for an animated treatment
https://www.youtube.com/watch?v=rStL7niR7gs
https://www.youtube.com/watch?v=rStL7niR7gs
> As an autocrat, your top priority is to compensate those who keep you in power, which requires wealth extraction from the productive
That cost is insignificant when the ruling nomenclature is a relatively small portion of the population and when basic workers rights are not respected. Especially in manufacturing stuff on a pipeline in huge quantities, a totalitarian system can be much more effective output-wise, at the cost of disregarding any environmental and human condition externalities.
That cost is insignificant when the ruling nomenclature is a relatively small portion of the population and when basic workers rights are not respected. Especially in manufacturing stuff on a pipeline in huge quantities, a totalitarian system can be much more effective output-wise, at the cost of disregarding any environmental and human condition externalities.
The cost of compensating the “selectorate” is actually more related to regime organization (i.e. military dictatorship vs. rigged elections) than to work conditions.
This cost can be extremely high, as the autocrat has to pay off enough people to ensure that rivals cannot achieve an advantage.
This cost can be extremely high, as the autocrat has to pay off enough people to ensure that rivals cannot achieve an advantage.
Most totalitarian leaders use fear and repression as tools for maintaining the power structure. Defecting members of the nomenclature and their families are imprisoned and tortured. With modern methods of surveillance and control, that doesn't require a huge army of trusted agents, as was the case in the Eastern bloc, for example.
Even extremely repressive regimes will bribe the selectorate; as an example, you can look at North Korea (or Maoist China), where the peasants were starving and beaten, but the party officials have/had new cars.
[deleted]
I’m not sure how much economists believed this as they were materially incentivized to parrot this logic. Most of economics is just laundering the interests of the ruling class with spurious math and heuristics that are unmoored from political and social realities.
996 in the west. I think many people who operate their own service businesses already run like this. At least over here, immigrants are heavily represented there.
China was more totalitarian before globalization. Without it, they would be more like North Korea. You don't need technology to send people to labor camp or burn books.
Globalization is why extreme poverty has plummeted in the last few decades. Hundreds of millions of people chose to leave their subsidence farm to work long hours in a factory because it's still an improvement for the quality of life of themselves and their families. Sure it would be better if an Indonesia factory worker got paid $20 a day instead of $10, but nobody is offering them $20 and you can't force anyone to.
Globalization is why extreme poverty has plummeted in the last few decades. Hundreds of millions of people chose to leave their subsidence farm to work long hours in a factory because it's still an improvement for the quality of life of themselves and their families. Sure it would be better if an Indonesia factory worker got paid $20 a day instead of $10, but nobody is offering them $20 and you can't force anyone to.
But you can, right?
It's a political choice not to (for example) impose import taxes on goods based on the difference between wages in the two countries concerned.
Not doing this is bad for people, but good for capital.
It's a political choice not to (for example) impose import taxes on goods based on the difference between wages in the two countries concerned.
Not doing this is bad for people, but good for capital.
The US government can't audit every order of widgets to see whether the difference between wages is accurate. Even if it were possible, this would just punish poorer countries where it's riskier to do business in.
You can, but should you? $10 a day is better than the $5 they would get before. More is better of course, but your option isn't pay everyone the same it is pay some and not others.
Well my option is to remove the possibility of labour cost arbitrage through tariffs/customs duties.
Like, I'm Irish, so I have benefited from this trend for my whole life, but that doesn't make it right.
Like, I'm Irish, so I have benefited from this trend for my whole life, but that doesn't make it right.
It's not as simple as 'outsourcing good for capital, bad for labor.' It's been a stupendously positive change for foreign labor in countries that successfully ran low-cost export industries.
Literally hundreds of millions of people in the Third World to were able to raise themselves into the global middle class over the past few decades.
The main people hurt by the outsourcing trend have been middle-class people in wealthy countries who had well-paid, lower-skill jobs producing physical things which are now shipped in from far away.
Good for foreign labor, good for capitalists, and bad for the middle class in rich countries.
This could have even been a win-win-win, if managed more carefully — Germany had pretty robust job retraining programs for people who lost factory jobs. I'd imagine the UK did not.
Literally hundreds of millions of people in the Third World to were able to raise themselves into the global middle class over the past few decades.
The main people hurt by the outsourcing trend have been middle-class people in wealthy countries who had well-paid, lower-skill jobs producing physical things which are now shipped in from far away.
Good for foreign labor, good for capitalists, and bad for the middle class in rich countries.
This could have even been a win-win-win, if managed more carefully — Germany had pretty robust job retraining programs for people who lost factory jobs. I'd imagine the UK did not.
You're operating under the assumption that hundreds of millions of people in the Third World could not possibly have raised their living standards in any way whatsoever rather than the offshoring of the First World's labor-intensive industries as part of a decades-long political program of wage repression in the First World.
There was a win-win-win available and it didn't happen.
We should be honest about who benefited, as well as who was hurt.
We should be honest about who benefited, as well as who was hurt.
>You can, but should you?
Yes. Trade is supposed to mean that no side of the bargain loses. If my country's working class loses, I'm losing. It's not our job to impoverish ourselves for other people's good.
Yes. Trade is supposed to mean that no side of the bargain loses. If my country's working class loses, I'm losing. It's not our job to impoverish ourselves for other people's good.
> Production wise, an economy that is not concerned with democratic institutions or reducing inequality will outperform one that is.
The question is: How can the market be adapted to create a fair, innovative and sustainable society, globally?
How can a single government force any rules with these goals without lowering the welfare of its inhabitants and thus threaten its reelection?
The question is: How can the market be adapted to create a fair, innovative and sustainable society, globally?
How can a single government force any rules with these goals without lowering the welfare of its inhabitants and thus threaten its reelection?
The US is going down the route of mixed socialism--more stimulus and bailout programs, plus private ownership and massive wealth creation. You have tens of millions of Americans getting a soft form of UBI, which benefits privately massive companies such as Walmart and Amazon. it is a form of the government picking winners and losers, the losers being small and medium-sized businesses and the winners being these huge big box and tech companies.
I've always thought that in the absence of regulation, pure market forces will always favor power conglomerating into few large entities just due to efficiency at scale. Is the absence of enforced regulation (anti-trust, different tax treatments) still the same as actively picking winners and losers?
>free global markets + welfare states focused on reducing inequality + democratic institutions
The first of these is incompatible with the latter two.
The first of these is incompatible with the latter two.
I'm a real dummy when it comes to economics, so I have a question. What is the theory that buying assets like stocks boosts the economy? Doesn't this just create incentives to hold on to those stocks, so that you can reap the growth? Given that most stocks by far are held by wealthy people, it's hard to see how this stimulates demand, since they already are able to buy what they want. Theoretically, they might eventually sell the assets and then start a new business or something, but this seems very indirect. Isn't it easier to just hold the stocks/real estate? I don't really understand why holding a stock is considering investing, since the company (where the actual employment and production happens) doesn't see a benefit.
Holding stocks doesn't stimulate demand, it produces capital. In order to start a business you have to spend money to procure the means of production before you can open your doors. You can put up your own money, you can borrow it (debt financing) or you can raise it by selling an ownership interest in the business (stocks/equity financing). It's true that after the stock is issued, lots of financial games get played that don't actually help the economy, but most businesses would never have been started in the first place if not for the ability to issue stock.
This is the clearest response so far. Thinking about the tech world, we have all this VC money, but all of that is based on the idea that eventually the company will IPO and the VCs will get huge returns.
However, given that both VC valuations, and stock market valuations (like P/E ratios, IIRC) are arguably in bubble territory (many have argued this), it doesn't seem like the Fed buying more of these assets is very efficient.
However, given that both VC valuations, and stock market valuations (like P/E ratios, IIRC) are arguably in bubble territory (many have argued this), it doesn't seem like the Fed buying more of these assets is very efficient.
The Fed buying up assets is a purely political move to prop up the markets, i.e. to protect investors at the expense of everyone else. It's a dick move for a lot of reasons, not least of which is that it effectively says: all rules are off. We, the Fed, will protect you, the shareholders, from all systemic risk by using our fiscal power to as a guarantor of valuations. That in turn causes more people to buy shares, because when all the risk is gone why the hell not? And that in turn disconnects prices from reality. It is welfare for the wealthy.
I am a major beneficiary of this policy and I still think it sucks big fat honking weenies, particularly since it has been implemented by people who rail against welfare for the people who actually need it. The brazen hypocrisy makes me want to retch.
I am a major beneficiary of this policy and I still think it sucks big fat honking weenies, particularly since it has been implemented by people who rail against welfare for the people who actually need it. The brazen hypocrisy makes me want to retch.
How is it a political move when basically every central bank in the world is doing the exact same thing? Also, they have not bought any equities. They are almost entirely just buying our own governments debt and mortgage backed securities as you can see in their balance sheet [0].
[0]: https://www.federalreserve.gov/releases/h41/current/h41.htm#...
[0]: https://www.federalreserve.gov/releases/h41/current/h41.htm#...
> How is it a political move when basically every central bank in the world is doing the exact same thing?
Um, because every central bank in the world is controlled by rich people?
Um, because every central bank in the world is controlled by rich people?
> Given that most stocks by far are held by wealthy people
I also won't pretend to be an expert here, but I think this is where your thinking may be going astray. There are lots of retirement-age people who are counting on their pension funds to fund their retirement. Pension fund managers assume steady growth in stocks, something like 7-10% per year. If stocks don't meet that threshold, major parts of the pension system run into big trouble. Pension plans have trillions of USD in assets. This article [1] estimates ~$9T. Retirement-age people in general are a powerful constituent.
[1] https://www.investopedia.com/articles/credit-loans-mortgages...
I also won't pretend to be an expert here, but I think this is where your thinking may be going astray. There are lots of retirement-age people who are counting on their pension funds to fund their retirement. Pension fund managers assume steady growth in stocks, something like 7-10% per year. If stocks don't meet that threshold, major parts of the pension system run into big trouble. Pension plans have trillions of USD in assets. This article [1] estimates ~$9T. Retirement-age people in general are a powerful constituent.
[1] https://www.investopedia.com/articles/credit-loans-mortgages...
Although many regular people have stocks held until retirement, they don't make up a majority of stock owners: https://finance.yahoo.com/news/the-richest-1-own-50-of-stock...
And according to Wikipedia data, in 2016 84% of stock was owned by the top 10%. That leaves 16% of the market to everyone else, a very small %.
https://money.com/stock-ownership-10-percent-richest/
And according to Wikipedia data, in 2016 84% of stock was owned by the top 10%. That leaves 16% of the market to everyone else, a very small %.
https://money.com/stock-ownership-10-percent-richest/
I always keep this paper from NBER handy https://www.nber.org/papers/w24085, especially this chart: https://imgur.com/h8Fo8yx. Stocks are in fact held primarily by the wealthy.
This is a separate question though than whether they are also very important for retirement accounts. You are 100% right about that, even though middle-class retirement accounts represent a small share of the overall market.
This is a separate question though than whether they are also very important for retirement accounts. You are 100% right about that, even though middle-class retirement accounts represent a small share of the overall market.
The main way speculative investors benefit the company is that they hold stocks because they believe it will be more valuable in the future, so that they can sell it for a profit. This demand for the stock drives up the price. Since stock is essentially a portion of the company, this also drives up the valuation of the company. Since the company is more valuable, they can offer equity to investors for a higher price, allowing them to invest in their own business and grow.
It's indirect, but it's a very real benefit.
Edit: Adding to this, the company's reinvestment of funds generated by issuing stock drives demand in other places of the economy. Investing in your own business means spending money on people, infrastructure, and other goods you need to offer your company's service. This necessarily drives demand for these goods. Additionally, this creates cascading demand through the keynesian multiplier effect.
It's indirect, but it's a very real benefit.
Edit: Adding to this, the company's reinvestment of funds generated by issuing stock drives demand in other places of the economy. Investing in your own business means spending money on people, infrastructure, and other goods you need to offer your company's service. This necessarily drives demand for these goods. Additionally, this creates cascading demand through the keynesian multiplier effect.
Do companies routinely issue new stock to raise money? I thought it was a rare occurrence, obviously the IPO, and then occasionally afterward. Your edit is clear.
It suppose to work like that. But it does not apperantly. In the ideal world growth should mean more R&D. Mariana Mazzucato has several books in this topic. Check it out.
In the US (and other countries) a lot of wealth is accumulated in 401ks or other pension like schemes. When people see that their retirement funds have a high value then they are more willing to spend money in the present. But since pensioners are spending less money on average than people in their working ages the effectiveness of stimulating demand via higher stock prices is limited.
It's to fight deflation. With people losing their jobs and holding onto cash to prepare for economic hardship, businesses tend to lower prices to sell their supply as less people are buying. This rewards people for holding onto cash as it increases their buying power if they hold onto cash and wait to buy things. This can even cause a positive feedback loop called a deflationary spiral [0] where everyone is holding onto cash causing prices to fall, causing more people to hold onto cash and so on. That's really bad. You want people spending money and businesses investing money to grow the economy. By injecting money into the economy by buying assets, they hope to counteract deflation. Also, they have not bought any equities yet. They are mainly just buying our own governments debt and mortgage backed securities [1].
[0]: https://en.wikipedia.org/wiki/Deflation#Deflationary_spiral
[1]: https://www.federalreserve.gov/releases/h41/current/h41.htm#...
[0]: https://en.wikipedia.org/wiki/Deflation#Deflationary_spiral
[1]: https://www.federalreserve.gov/releases/h41/current/h41.htm#...
Buying and selling stock doesn't create any boost to the economy. But it is the engine for two very powerful positive effects:
(1) If a person can start a successful new company, they get assets (stocks) that they can sell for money. This creates an extra incentive to start new companies.
(2) Large investors (eg, Buffet-sized) have an incentive to buy significant stakes in companies and improve their management, then sell them to long-term investors. Being able to sell shares for a profit after improving the company creates an incentive to improve companies and then move on to the next one.
And there are a couple of other things like that. So stock trading doesn't in itself do anything useful for the economy but it is the point in time where past decisions that did boost the economy are realised as a profit in dollars. It also creates a barometer for measuring what people with money think about a company's chances, which is useful information and hard to get otherwise.
There is also a very helpful long-term effect where people who can accurately predict the future make money from stock trading, which means over time (in theory) company ownership becomes biased towards excellent long term planners.
(1) If a person can start a successful new company, they get assets (stocks) that they can sell for money. This creates an extra incentive to start new companies.
(2) Large investors (eg, Buffet-sized) have an incentive to buy significant stakes in companies and improve their management, then sell them to long-term investors. Being able to sell shares for a profit after improving the company creates an incentive to improve companies and then move on to the next one.
And there are a couple of other things like that. So stock trading doesn't in itself do anything useful for the economy but it is the point in time where past decisions that did boost the economy are realised as a profit in dollars. It also creates a barometer for measuring what people with money think about a company's chances, which is useful information and hard to get otherwise.
There is also a very helpful long-term effect where people who can accurately predict the future make money from stock trading, which means over time (in theory) company ownership becomes biased towards excellent long term planners.
Financial repression[0], 0% interest rates and higher inflation, to inflate away trillions of $$ of national debt and drive up nominal GDP, is the order of the next decade.
We've reached the limits of what central banks can do, from here on out it's direct government intervention in the commercial credit sector, and driving up demand through fiscal policy.
[0] https://en.wikipedia.org/wiki/Financial_repression
We've reached the limits of what central banks can do, from here on out it's direct government intervention in the commercial credit sector, and driving up demand through fiscal policy.
[0] https://en.wikipedia.org/wiki/Financial_repression
Is there anywhere that explains why governments in the US don’t build infrastructure, as a long-term investment?
In addition to the other responses, a lot of the low hanging fruit from infrastructure in the US has already been claimed, the Interstate system for instance was a massive investment but once it is built the benefits from further transportation infrastructure are more marginal and much of the spending goes towards maintenance which is extremely unsexy.
To give a more tech focused example: building infrastructure to give everyone in the US 50 mbps internet would be expensive and quite valuable. Improving that infrastructure from 50 to a gig would also be expensive but (for now) far less valuable.
To give a more tech focused example: building infrastructure to give everyone in the US 50 mbps internet would be expensive and quite valuable. Improving that infrastructure from 50 to a gig would also be expensive but (for now) far less valuable.
>maintenance which is extremely unsexy
In Pennsylvania, we've put off maintenance so long, the politician who funds it will become the sexiest man in the state. People here hate potholes more than redirected traffic.
In Pennsylvania, we've put off maintenance so long, the politician who funds it will become the sexiest man in the state. People here hate potholes more than redirected traffic.
Maybe. Charlie Baker and Larry Hogan have used that model of down to earth local governance to become the most popular governors in the country while being republicans in blue states. It just isn’t clear that political model will fly in states without extremely high educational attainment.
One example, in California the high speed rail project is bogged down due to land acquisition problems and lack of funding.
Just a wad of totally unscientific, interwoven armchair theories: political cycles are much shorter than the relevant timescales for long-term infrastructure investment; attention spans today are shorter than they used to be; the long slide of most of the "middle class" into financial insecurity means fewer people have the means and free time to educate themselves about and advance civic concerns; some political leaders in the U.S. have for decades undermined public support for public works, as well as public faith in government; American culture is now far more fractured and heterogeneous than it used to be, making coalitions between interest groups more difficult to form and maintain (recent trends in political and social thought, according to which individual and group identities are rendered increasingly explicit - along with the ability, courtesy of electronic communication, to associate almost exclusively with those who identify similarly - may exacerbate this)
My guess is infrastructure doesn't required hordes of unskilled people anymore. I've been watching our water authority put a new water main in outside my house and I didn't see a single person swinging a pick. Instead there was a lot of technology being used and put in the ground. People aren't going to hop from barista to this sort of work any time soon.
My sense is that states and localities don’t have the money for infrastructure projects. They mostly can’t even afford maintenance on the infrastructure they have. Anything that gets built has to come from the feds somehow, so it’s up to Congress.
The democratically controlled house would have to come up with a bill, then the republican controlled senate would have to agree to it, then the president would have to sign it. I don’t think there is that much coordination happening at the federal level right now.
The democratically controlled house would have to come up with a bill, then the republican controlled senate would have to agree to it, then the president would have to sign it. I don’t think there is that much coordination happening at the federal level right now.
>I don’t think there is that much coordination happening at the federal level right now.
There is, but it's divided between two types of bills: boring and sensationalist. Boring bills usually get coordination, bipartisan support, and little news coverage. Sensationalist bills, even if they align with both parties' platforms, get drawn out and played for show on the news.
Sadly, only a few acts can show at the same time. And in the current political world, new acts keep popping up (email dumps, whistleblowers, official tweets). So things that take a while, like infrastructure, never get to launch. (How many times has it been "infrastructure week"?)
There is, but it's divided between two types of bills: boring and sensationalist. Boring bills usually get coordination, bipartisan support, and little news coverage. Sensationalist bills, even if they align with both parties' platforms, get drawn out and played for show on the news.
Sadly, only a few acts can show at the same time. And in the current political world, new acts keep popping up (email dumps, whistleblowers, official tweets). So things that take a while, like infrastructure, never get to launch. (How many times has it been "infrastructure week"?)
Thomas Piketty, in [Capital in the Twenty-First Century][money]:
> Yet it seems to me that all social scientists, all journalists and commentators, all activists in the unions and in politics of whatever stripe, and especially all citizens should take a serious interest in money, its measurement, the facts surrounding it, and its history. Those who have a lot of it never fail to defend their interests. Refusing to deal with numbers rarely serves the interests of the least well-off.
[Rutger Bregman][ubi]:
> Poverty isn’t a lack of character; it’s a lack of cash.
[money]:https://www.tbray.org/ongoing/When/201x/2014/05/01/Piketty-C...
[ubi]:https://www.ted.com/talks/rutger_bregman_poverty_isn_t_a_lac...
> Yet it seems to me that all social scientists, all journalists and commentators, all activists in the unions and in politics of whatever stripe, and especially all citizens should take a serious interest in money, its measurement, the facts surrounding it, and its history. Those who have a lot of it never fail to defend their interests. Refusing to deal with numbers rarely serves the interests of the least well-off.
[Rutger Bregman][ubi]:
> Poverty isn’t a lack of character; it’s a lack of cash.
[money]:https://www.tbray.org/ongoing/When/201x/2014/05/01/Piketty-C...
[ubi]:https://www.ted.com/talks/rutger_bregman_poverty_isn_t_a_lac...
Just as inequality creates a need for stimulus, they argue, stimulus eventually creates more inequality.
Particularly when your predominant stimulus tool is 'print money to buy assets rich people have.'
Particularly when your predominant stimulus tool is 'print money to buy assets rich people have.'
If rich people sold the assets they wouldn’t have them anymore. The mechanism is more that rich have access to lower interest rates. The proportional difference of interest rates between the rich and poor increases as the risk free interest rate decrease.
> If rich people sold the assets they wouldn’t have them anymore.
But they’d have more money, presumably more than what they paid for the assets. Not that money and goods are exactly fungible, but buying assets from the wealthy makes them wealthier, not poorer or status quo.
But they’d have more money, presumably more than what they paid for the assets. Not that money and goods are exactly fungible, but buying assets from the wealthy makes them wealthier, not poorer or status quo.
I think we will look back into economic history to our times in surprising disbelief at how simplistic our central bank policy is. A bit like how we laugh at how doctors used leeches to treat various ailments.
From 1929, central bankers learnt that liquidity can be a terrifying disease in an economy, 2008 showed that printing helps and here they go with their newly learned tool trying to fix all problems. Now they have to figure out that if you only inject that liquidity from the top, the inflation appears in certain kind of assets (mostly financial) and has a hard time reaching the rest of the economy, causing ever-rising inequality.
I think a more refined approach will be developed at some point, where they will start using two levers to steer the function of the economy. Money printing from below via UBI and regulating the inflation of day-to-day assets and money-printing from above and regulating the inflation of financial assets. This could allow finer control balancing target inflation rates of different assets and preventing rising inequality to tear down society.
From 1929, central bankers learnt that liquidity can be a terrifying disease in an economy, 2008 showed that printing helps and here they go with their newly learned tool trying to fix all problems. Now they have to figure out that if you only inject that liquidity from the top, the inflation appears in certain kind of assets (mostly financial) and has a hard time reaching the rest of the economy, causing ever-rising inequality.
I think a more refined approach will be developed at some point, where they will start using two levers to steer the function of the economy. Money printing from below via UBI and regulating the inflation of day-to-day assets and money-printing from above and regulating the inflation of financial assets. This could allow finer control balancing target inflation rates of different assets and preventing rising inequality to tear down society.
UBI as a macroeconomic lever to pull is an intriguing idea - hadn't thought of that consequence. Although it figures changing the amounts would get extremely political.
There is the idea of job guarantee as an automatic stabilizer too.
The government grants a job to anyone that wants to work at a minimum wage salary. When unemployment grow, the government automatically expend more in the economy because more people access to the job guarantee.
When the economy recovers the private sector take workers away from the job guarantee through paying a little more than the minimum wage (or the same and better conditions) and the government spending is reduced.
It's both an inflation and an unemployment stabilizer. UBI doesn't have those properties.
The government grants a job to anyone that wants to work at a minimum wage salary. When unemployment grow, the government automatically expend more in the economy because more people access to the job guarantee.
When the economy recovers the private sector take workers away from the job guarantee through paying a little more than the minimum wage (or the same and better conditions) and the government spending is reduced.
It's both an inflation and an unemployment stabilizer. UBI doesn't have those properties.
[deleted]
What's the incentive to perform if you cannot be fired? A "guaranteed job" might as well be a simple unemployment check.
The reasoning is that many studies show that people that have not worked for a while have a difficult time being hired again.
There are different ideas, but, I suppose that you could see it like a training program too.
Also, there are some supposed psychological benefits to work. And there is always something to do at the local community level, so it would not be totally unproductive work.
There are different ideas, but, I suppose that you could see it like a training program too.
Also, there are some supposed psychological benefits to work. And there is always something to do at the local community level, so it would not be totally unproductive work.
The incentive is in the reward you get for performing well.
Also I don't think it's necessary that a job guarantee make an employee immune from being fired. I'd imagine a job guarantee would have all kinds of jobs ranging from relatively simple (eg. cleaning) to more complex (eg. science). If you're in a more demanding department and underperforming, you could get fired and have to apply to another job in another department.
For example, the military is sort of like a job guarantee in the sense that anyone meeting the physical bar is effectively hired. But any military member can get discharged.
Also I don't think it's necessary that a job guarantee make an employee immune from being fired. I'd imagine a job guarantee would have all kinds of jobs ranging from relatively simple (eg. cleaning) to more complex (eg. science). If you're in a more demanding department and underperforming, you could get fired and have to apply to another job in another department.
For example, the military is sort of like a job guarantee in the sense that anyone meeting the physical bar is effectively hired. But any military member can get discharged.
We actually have the opposite problem right now, what's the incentive to do _the right thing_ if you can be fired for not following orders?
Remember that 40% of americans can't afford a $400 emergency.
Remember that 40% of americans can't afford a $400 emergency.
Job satisfaction / better jobs.
The guaranteed job need not be pleasant. Hell, many already aren't.
But a job would be guaranteed and would meet basic needs.
The guaranteed job need not be pleasant. Hell, many already aren't.
But a job would be guaranteed and would meet basic needs.
people would rather be unemployed than have an unpleasant minimum wage job.
That becomes an interesting dynamic expecially between universal guaranteed income and universal guaranteed employment.
But the original question was how to provide incentive. Assuming able-bodied persons must provide some work, opportunities for advancement, more pay, or more favourable environment, and the prospect of less attractive work, remain. Military and similar environments provide models, e.g., latrine duty.
Most people would prefer some useful occupation, I suspect, however humble.
And again, with guaranteed employment, even the worst job would provide a livelihood.
But the original question was how to provide incentive. Assuming able-bodied persons must provide some work, opportunities for advancement, more pay, or more favourable environment, and the prospect of less attractive work, remain. Military and similar environments provide models, e.g., latrine duty.
Most people would prefer some useful occupation, I suspect, however humble.
And again, with guaranteed employment, even the worst job would provide a livelihood.
Soviet Union had this job guarantee. It didn’t work well. Motivation of people forced to be somewhere all day was very low.
There's a huge difference between guaranteeing everyone who wants a job a job, and forcing everyone in the entire country's population to work for the government while setting their salaries the same and not rewarding productivity.
I have no desire to defend the Soviet Union, but out of curiosity, do you think our current system rewards productivity? I'm thinking along the lines of the movie "Office Space".
I don't know much about the USSR, but I don't think they set everyone's salaries the same or distributed money equally, or any other nonsense like that.
I don't know much about the USSR, but I don't think they set everyone's salaries the same or distributed money equally, or any other nonsense like that.
I don't see the parallel, a job guarantee is supplying jobs to people that otherwise would be at home.
So the government creates a lot of bullshit jobs when neccessary.
I don't think they have to be necessarily, or, at least, totally, bullshit jobs.
Also, it's not only, even not mainly, a social program, but an automatic stabilizer in the economy.
It gives power to the workers too, because there is always an, even if with low pay, alternative available.
Also, it's not only, even not mainly, a social program, but an automatic stabilizer in the economy.
It gives power to the workers too, because there is always an, even if with low pay, alternative available.
But that assumes the jobs guarantee is providing a reasonable job environment. Presumably these jobs would have bosses who can be cruel or can be prejudiced. And this being the job of last resort means they would not have an alternative.
I don't think there is a great track record of jobs being run by the government (or farmed out by the government to other organizations) as being idyllic workplaces.
Also a bs job is soul crushing and work-ethic destroying.
The only true power comes from being able to walk away from the control of anyone else, being able to simply say "no". For that, one needs a UBI.
I don't think there is a great track record of jobs being run by the government (or farmed out by the government to other organizations) as being idyllic workplaces.
Also a bs job is soul crushing and work-ethic destroying.
The only true power comes from being able to walk away from the control of anyone else, being able to simply say "no". For that, one needs a UBI.
It’s interesting that there’s an unstated assumption behind your comment: we need a central authority to plan some, maybe many, aspects of the economy.
Well, the fact of the matter is that the central authority exists and is taking active corrective actions on the economy right now. My observation is that the tools and levers they use to steer the economy are limited and there are consequences to this self-inflicted limitation.
If this central authority is even necessary is an entirely different discussion. My current view is that the economy viewed as a dynamical system is subject to strong positive-feedback loops and these are known to cause ugly behaviors in the solutions of a system (the equivalent of boom and busts in economics). Introducing forces contrary to those positive-feedback loops to stabilize the economy may make sense theoretically. The jury is out if central bankers can do this, know how to do it or if the political incentives are there to even make it happen.
If this central authority is even necessary is an entirely different discussion. My current view is that the economy viewed as a dynamical system is subject to strong positive-feedback loops and these are known to cause ugly behaviors in the solutions of a system (the equivalent of boom and busts in economics). Introducing forces contrary to those positive-feedback loops to stabilize the economy may make sense theoretically. The jury is out if central bankers can do this, know how to do it or if the political incentives are there to even make it happen.
Tax assets directly.
1.2 trillion of the CARES act went to households and small biz. It is not like the rich were the primary beneficiaries of this stimulus.
For those of us who've read The Economist for two or three or four decades, perhaps more, "rethinking economics" is a reliably recurring evergreen which gets trotted out at times of crisis. When the paper is feeling merely foreward, a possibility that Keynes may not have been completely wrong is broached. In periods of sheer desperation, a hesitant suggestion that subscribers might read (but never follow) Marx is hauled from the deepest rhetorical powder magazines.
But that's about the limit of it.
The one change I have noted is that where the tactic was invoked only once or twice a decade, its use now seems far more frequent, every few years in the aughts, now only months apart. A search of the paper's archives, or external Web search, largely confirms this:
https://duckduckgo.com/?q=rethinking+(macroeconomics%7Cmicro...
Whilst I'm strongly convinced that economic orthodoxy is sharply flawed, monetarism a stunted model like its progenitor, Keynes was insightful, and that Marx's class-consciousness has merits, full understanding and remedy for present concerns must look further afield.
MMT, W. Brian Arthur's complexity economics, and Steve Keen's work unifying capital, labour, class, and energy would be a good start.
But that's about the limit of it.
The one change I have noted is that where the tactic was invoked only once or twice a decade, its use now seems far more frequent, every few years in the aughts, now only months apart. A search of the paper's archives, or external Web search, largely confirms this:
https://duckduckgo.com/?q=rethinking+(macroeconomics%7Cmicro...
Whilst I'm strongly convinced that economic orthodoxy is sharply flawed, monetarism a stunted model like its progenitor, Keynes was insightful, and that Marx's class-consciousness has merits, full understanding and remedy for present concerns must look further afield.
MMT, W. Brian Arthur's complexity economics, and Steve Keen's work unifying capital, labour, class, and energy would be a good start.
I subscribe to some of aspects of classical liberalism, and the Economist was a must read for me during years.
It explains good ideas, but I would notice a strange formulaic structure they often used. Many poor-quality articles were subtitled "A [paradigm/company/event] brings [boon], but [caveat]".
It explains good ideas, but I would notice a strange formulaic structure they often used. Many poor-quality articles were subtitled "A [paradigm/company/event] brings [boon], but [caveat]".
Hence the old joke about the desire for a one-armed economist: they won't be always saying "on the other hand..."
Though this does bring to mind Robert K. Merton's unintended consequences and overt/covert functions.
Though this does bring to mind Robert K. Merton's unintended consequences and overt/covert functions.
"a monetary policy that is not constrained by the presence of physical cash", that is like saying a democratic government that is not constrained by the need for voting.
Given that this is precisely what it’s spent the last 30 years coming to understand, it’s baffling that there is only a single paragraph in this article about Modern Monetary Theory. And one at that certainly doesn’t convey the nuance of the theory at all.
For anybody seriously interested in the subject I would recommend the 2019 textbook ‘Macroeconomics’ by Mitchell, Wray & Watts.
For anybody seriously interested in the subject I would recommend the 2019 textbook ‘Macroeconomics’ by Mitchell, Wray & Watts.
I just finished the book "The Deficit Myth: Modern Monetary Theory and the Birth of the People's Economy" by Stephanie Kelton. Highly recommend to anyone who hasn't heard of MMT and wants a good intro with examples of how MMT could help today.
I encourage you to at least read some criticism of her thinking as well and form your own conclusions. She definitely has an agenda to push and tends to ignore some legitimate concerns. [1] is a decent summary.
[1] https://www.wsj.com/articles/the-deficit-myth-review-years-o...
[1] https://www.wsj.com/articles/the-deficit-myth-review-years-o...
A good lecture by her (video):
https://www.youtube.com/watch?v=WS9nP-BKa3M
https://www.youtube.com/watch?v=WS9nP-BKa3M
This lecture was frustrating as hell to watch because she only addressed the concerns of naive critics of deficits who don't really understand how monetary policy works. She did basically nothing to address the concerns of people more versed in the topic, such as:
- What happens when your deficit gets so high that it's obvious to the people buying treasuries you can't pay the interest they expect without massive inflation? - How do you explain away stagflation from the 70s without being concerned about repeating it?
Basically, deficit spending is fantastic for as long as you can get away with it. The question is at what point will you no longer be able to get away with it? 10 years? 20? 100? No one knows. But at some point the interest burden of the debt itself requires more monetary expansion than purchasers of treasuries are willing to accept (inflation is the enemy of fixed interest assets), and then you have a problem. The US recently doesn't have this problem because of its dominant economic and military position in the world (as well as the petro dollar/default currency status), but what happens when those things cease to be true?
Those are the concerns I wanted Stephanie to at least pay lip service to, but she conveniently didn't even mention them.
- What happens when your deficit gets so high that it's obvious to the people buying treasuries you can't pay the interest they expect without massive inflation? - How do you explain away stagflation from the 70s without being concerned about repeating it?
Basically, deficit spending is fantastic for as long as you can get away with it. The question is at what point will you no longer be able to get away with it? 10 years? 20? 100? No one knows. But at some point the interest burden of the debt itself requires more monetary expansion than purchasers of treasuries are willing to accept (inflation is the enemy of fixed interest assets), and then you have a problem. The US recently doesn't have this problem because of its dominant economic and military position in the world (as well as the petro dollar/default currency status), but what happens when those things cease to be true?
Those are the concerns I wanted Stephanie to at least pay lip service to, but she conveniently didn't even mention them.
>>"Those are the concerns I wanted Stephanie to at least pay lip service to, but she conveniently didn't even mention them. "
She, and other MMT proponents, do it in other places. Obviously this was only an introduction. If you are really interested there is now a full textbook [1].
Your questions make me think that you don't understand the basic of what MMT is saying.
>>"[..]deficit gets so high that it's obvious to the people buying treasuries you can't pay the interest"
All the point of MMT is that governments that use its own floating currency don't need anybody do finance them. They could just spend without selling any treasuries. The only limit to that spending is inflationary and selling treasuries don't reduce the danger of inflation. This is not a belief, it's just a description of how the system works today.
For instance, now all the main governments in the world are applying stimulus at the same time. Where is the money coming from? Where is the inflation in Japan? And where the Yens from the increase in the Japanese public debt in the last 30 years come from?
>>"explain away stagflation from the 70s"
Frequently, problems of inflation comes from supply problems. Anyway looking to the QE programs, the current stimulus programs or Japan the last 30 years, should be obvious, by now, that monetarism is a fallacy.
That doesn't mean that you can't spend too much in the economy, but there are frequently other causes. In the 70's you have oil crisis, the Vietnam war, etc..
"[..] at some point the interest burden of the debt itself requires more monetary expansion "
A government with its own currency don't need to keep the fallacy of selling debt to "the markets", but if they choose to do it, and the debt is owned by the Central Bank, the money of the interest goes back to the government.
[1].- http://bilbo.economicoutlook.net/blog/?page_id=33139
She, and other MMT proponents, do it in other places. Obviously this was only an introduction. If you are really interested there is now a full textbook [1].
Your questions make me think that you don't understand the basic of what MMT is saying.
>>"[..]deficit gets so high that it's obvious to the people buying treasuries you can't pay the interest"
All the point of MMT is that governments that use its own floating currency don't need anybody do finance them. They could just spend without selling any treasuries. The only limit to that spending is inflationary and selling treasuries don't reduce the danger of inflation. This is not a belief, it's just a description of how the system works today.
For instance, now all the main governments in the world are applying stimulus at the same time. Where is the money coming from? Where is the inflation in Japan? And where the Yens from the increase in the Japanese public debt in the last 30 years come from?
>>"explain away stagflation from the 70s"
Frequently, problems of inflation comes from supply problems. Anyway looking to the QE programs, the current stimulus programs or Japan the last 30 years, should be obvious, by now, that monetarism is a fallacy.
That doesn't mean that you can't spend too much in the economy, but there are frequently other causes. In the 70's you have oil crisis, the Vietnam war, etc..
"[..] at some point the interest burden of the debt itself requires more monetary expansion "
A government with its own currency don't need to keep the fallacy of selling debt to "the markets", but if they choose to do it, and the debt is owned by the Central Bank, the money of the interest goes back to the government.
[1].- http://bilbo.economicoutlook.net/blog/?page_id=33139
I started reading the book you linked shortly after it came out and gave up because of how shallow all the reasoning was. I think you and most MMT proponents don't understand that the concerns are long-term and deal with knock-on effects, not limited to what is happening right now, and that having your own fiat currency is not a magic wand that you can use to wave away problems with no repercussions.
Gregory Mankiw, an economist at Harvard, voices my criticisms with the book better than I can: [1]
I think it's funny that you point to Japan as a counterexample here. The reason Japan doesn't have high inflation is because the Bank of Japan refused to print money for 20 years[2]. If it did when other countries did not, inflation would be high.
To your next point, you kind of answer it yourself. Why is there no inflation when all the main governments of the world are applying stimulus at the same time? Well, first, because they're all doing it at the same time. As soon as you remove that fact, the situation changes entirely because the economy (and currency/bond markets!) are global, not local. And second, because demand is historically low due to a pandemic. Again, when you remove that fact, everything changes.
On stagflation, I think you are misinformed about what causes/caused it. [3] is a good summary: federal interference in supply + printing money. If that sounds a lot like what MMT proposes as a magic wand, it's because it is.
Finally, I think it's important to distinguish that many critics of MMT, myself included, don't disagree with the marketing-friendly premise that debt spending can be a good thing. We disagree with the idea that it's an unlimited tool with zero repercussions. At some point there is a reckoning - either unsustainable inflation (like 1970s US) or effectively dead economic growth (like Japan) depending on how the central bank reacts. We should be concerned about these things and take steps to make sure that the time of reckoning stays far in the future.
[1] https://scholar.harvard.edu/files/mankiw/files/skeptics_guid...
[2] https://www.ceicdata.com/en/indicator/japan/m2-growth#:~:tex....
[3] https://www.thebalance.com/what-is-stagflation-3305964
Gregory Mankiw, an economist at Harvard, voices my criticisms with the book better than I can: [1]
I think it's funny that you point to Japan as a counterexample here. The reason Japan doesn't have high inflation is because the Bank of Japan refused to print money for 20 years[2]. If it did when other countries did not, inflation would be high.
To your next point, you kind of answer it yourself. Why is there no inflation when all the main governments of the world are applying stimulus at the same time? Well, first, because they're all doing it at the same time. As soon as you remove that fact, the situation changes entirely because the economy (and currency/bond markets!) are global, not local. And second, because demand is historically low due to a pandemic. Again, when you remove that fact, everything changes.
On stagflation, I think you are misinformed about what causes/caused it. [3] is a good summary: federal interference in supply + printing money. If that sounds a lot like what MMT proposes as a magic wand, it's because it is.
Finally, I think it's important to distinguish that many critics of MMT, myself included, don't disagree with the marketing-friendly premise that debt spending can be a good thing. We disagree with the idea that it's an unlimited tool with zero repercussions. At some point there is a reckoning - either unsustainable inflation (like 1970s US) or effectively dead economic growth (like Japan) depending on how the central bank reacts. We should be concerned about these things and take steps to make sure that the time of reckoning stays far in the future.
[1] https://scholar.harvard.edu/files/mankiw/files/skeptics_guid...
[2] https://www.ceicdata.com/en/indicator/japan/m2-growth#:~:tex....
[3] https://www.thebalance.com/what-is-stagflation-3305964
About the Mankiw criticism, I direct you to the answer from people more knowledgeable that me [1]
About the stagflation I recognize that I have not looking enough into it (yet) to be able to have a meaningful debate.
About Japan, your comment: "the BOJ refused to print money for 20 years" puzzles me. The public debt of Japan is, currently, around 240% of GDP, and around half of it is owned by the BOJ. If that's not your interpretation of "printing money", what is it?
I don't understand neither your comment "[..] no inflation when all the governments of the world [..] at the same time". Are you making a reference to the external sector aspects of inflation?
You say: "[..] debt spending [..] We disagree with the idea that it's an unlimited tool with zero repercussions."
Please, note that MMT doesn't say that. MMT says that excessive deficits can be inflationary in a problematic way, what MMT disagree is that public debt (the accumulate of past deficits) is problematic.
Finally, thanks for engaging in this discussion. It seems to me that it's reasonable that people disagree in policies, because policies come from values and those can be very different. What we should be able to agree is in how the financial system currently works. MMT have some policy proposals but that's not the important thing, the important thing is that the description of how the system works is different and, should be falsifiable. Sometimes, in this kind of exchange, I despair because it seems the other person and I are talking past each other.
I think I found your webpage, would you be willing to continue this exchange by mail? I have some problems understanding what is what the MMT critics don't understand. In the worst case scenario we will finish with a better understanding of the other position.
[1] - http://bilbo.economicoutlook.net/blog/?p=43900 - http://bilbo.economicoutlook.net/blog/?p=43961 - http://bilbo.economicoutlook.net/blog/?p=43997
About the stagflation I recognize that I have not looking enough into it (yet) to be able to have a meaningful debate.
About Japan, your comment: "the BOJ refused to print money for 20 years" puzzles me. The public debt of Japan is, currently, around 240% of GDP, and around half of it is owned by the BOJ. If that's not your interpretation of "printing money", what is it?
I don't understand neither your comment "[..] no inflation when all the governments of the world [..] at the same time". Are you making a reference to the external sector aspects of inflation?
You say: "[..] debt spending [..] We disagree with the idea that it's an unlimited tool with zero repercussions."
Please, note that MMT doesn't say that. MMT says that excessive deficits can be inflationary in a problematic way, what MMT disagree is that public debt (the accumulate of past deficits) is problematic.
Finally, thanks for engaging in this discussion. It seems to me that it's reasonable that people disagree in policies, because policies come from values and those can be very different. What we should be able to agree is in how the financial system currently works. MMT have some policy proposals but that's not the important thing, the important thing is that the description of how the system works is different and, should be falsifiable. Sometimes, in this kind of exchange, I despair because it seems the other person and I are talking past each other.
I think I found your webpage, would you be willing to continue this exchange by mail? I have some problems understanding what is what the MMT critics don't understand. In the worst case scenario we will finish with a better understanding of the other position.
[1] - http://bilbo.economicoutlook.net/blog/?p=43900 - http://bilbo.economicoutlook.net/blog/?p=43961 - http://bilbo.economicoutlook.net/blog/?p=43997
This used to be called "secular stagnation". There's not much forward progress, but nobody really understands why. Japan hit this first, in their 1989 housing crash. In the mid-1980s, Japan seemed poised to dominate the world economy. After the crash, Japan never came back.[1]
There was a fear that the US would hit that after the 2008 crash. But the US did come back. At least until the epidemic.
Macroeconomists think macroeconomics determines what happens. Sometimes it does, and sometimes it doesn't. When it doesn't, central bankers are totally lost about what to do.
Should a country have an industrial policy? The traditional answer in capitalist countries is "no". But it worked for Japan, S. Korea, Singapore, and China, which now make most of the world's good stuff. China's current industrial policy, set in 2015, is called "China 2025"[2][3]. The plan is to achieve dominance in the remaining sectors where China is behind - aircraft, ICs, etc. It's not talked about much outside China, but it's still the operating plan. The main items in 2015 were:
1. New advanced information technology
2. Automated machine tools & robotics
3. Aerospace and aeronautical equipment
4. Maritime equipment and high-tech shipping;
5. Modern rail transport equipment
6. New-energy vehicles and equipment
7. Power equipment
8. Agricultural equipment
9. New materials
10. Biopharma and advanced medical products
Halfway through the 10-year plan, China is doing well on at least 7 of those items.
Western countries are assuming that the knobs controlled by the financial system determine what happens. When the biggest country on the planet isn't playing that game, that approach may not be competitive.
[1] https://www.csis.org/analysis/made-china-2025
[2] https://www.pbs.org/wgbh/frontline/article/made-in-china-202...
[3] https://static.seekingalpha.com/uploads/2019/1/21/saupload_J...
There was a fear that the US would hit that after the 2008 crash. But the US did come back. At least until the epidemic.
Macroeconomists think macroeconomics determines what happens. Sometimes it does, and sometimes it doesn't. When it doesn't, central bankers are totally lost about what to do.
Should a country have an industrial policy? The traditional answer in capitalist countries is "no". But it worked for Japan, S. Korea, Singapore, and China, which now make most of the world's good stuff. China's current industrial policy, set in 2015, is called "China 2025"[2][3]. The plan is to achieve dominance in the remaining sectors where China is behind - aircraft, ICs, etc. It's not talked about much outside China, but it's still the operating plan. The main items in 2015 were:
1. New advanced information technology
2. Automated machine tools & robotics
3. Aerospace and aeronautical equipment
4. Maritime equipment and high-tech shipping;
5. Modern rail transport equipment
6. New-energy vehicles and equipment
7. Power equipment
8. Agricultural equipment
9. New materials
10. Biopharma and advanced medical products
Halfway through the 10-year plan, China is doing well on at least 7 of those items.
Western countries are assuming that the knobs controlled by the financial system determine what happens. When the biggest country on the planet isn't playing that game, that approach may not be competitive.
[1] https://www.csis.org/analysis/made-china-2025
[2] https://www.pbs.org/wgbh/frontline/article/made-in-china-202...
[3] https://static.seekingalpha.com/uploads/2019/1/21/saupload_J...
> This used to be called "secular stagnation". There's not much forward progress, but nobody really understands why. Japan hit this first, in their 1989 housing crash. In the mid-1980s, Japan seemed poised to dominate the world economy. After the crash, Japan never came back.
Scott Sumner disagrees on no one understanding this. They’re not printing enough money. Basic sketch of the market monetarist position is that Friedman was right about money being really important but very, very wrong about the appropriate target. Keep printing money until nominal GDP growth hits target, then stop. Better to target NGDP future to reduce instability. Japan’s central bank’s is up there with the Fed causing the Great Depression by contracting the money supply by a third at the beginning of a recession in terms of economic mismanagement.
Scott Sumner disagrees on no one understanding this. They’re not printing enough money. Basic sketch of the market monetarist position is that Friedman was right about money being really important but very, very wrong about the appropriate target. Keep printing money until nominal GDP growth hits target, then stop. Better to target NGDP future to reduce instability. Japan’s central bank’s is up there with the Fed causing the Great Depression by contracting the money supply by a third at the beginning of a recession in terms of economic mismanagement.
Japan has an ageing population. So, it's not GDP or even GDP per capita, but GDP per working hour to look for, and, on that measure, Japan isn't doing too badly.
Japan's problem seems to be very low net household savings and too high savings by corporates. It would be preferable to shift income towards households instead of running up public debt to keep every one employed.
Japan's problem seems to be very low net household savings and too high savings by corporates. It would be preferable to shift income towards households instead of running up public debt to keep every one employed.
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The article pleads for more workers rights and bargaining power. While I think that is a noble wish, it is an illusion, and they know it. The article describes "out of the box" thinking, but it is still hopelessly trapped.
> Many economists want precisely this state intervention, but it presents clear risks. Governments which already carry heavy debts could decide that worrying about deficits is for wimps and that central-bank independence does not matter. That could at last unleash high inflation and provide a painful reminder of the benefits of the old regime.
Sounds more like a plea than a warning, coming from The Economist. Prophecies of inflation seem like a joke in a time of record low inflation with high government deficits. Just look at the case of Japan for one.