9 ms·

Wealth: redistribution and interest rates

82 points by pizza 9y ago

EGreg 9y ago
Let’s actually name the thing: we’re talking about capitalism. The genius of capitalism is precisely its multiplicative nature. This is an interesting article but something in particular struck me. Why does almost every public mention of Capitalism in the USA accompanied by some paean to it? It sounds like A veneration that follows any mention of Mohammad among devout Muslims. Why does everyone feel they need to give their bona fides? I feel that there are several senses in which it is the official state religion.
- avdempsey 9y ago
  Have you seen what America does to enemies of capitalism?
  - asignasobfoas 9y ago
    This was a pretty funny episode that discusses the most evil people ever to come out of Harvard University including Henry Kissinger. https://soundcloud.com/chapo-trap-house/episode-100-chapo-goes-to-college-41717 https://soundcloud.com/chapo-trap-house/episode-100-chapo-go...
    - noddy1 9y ago
      heh, 2 of my favourite things in the world collide - hackernews and chapo.. quote of the century - post-trump election in hillary clinton "democrat" voice: "i MAY not be DALE Earnhardt but I SMASHED into the FUCKING WALL because I couldn't turn LEFT"
  - adventured 9y ago
    Have you seen what enemies of Capitalism do to their own people? USSR, Mao's China, Pol Pot & Cambodia, Castro Brothers & Cuba, North Korea, Venezuela, East Germany, Vietnam / North Vietnam. Maybe you mean China. Which the US provided massive amounts of capital to in free exchange, which they used to lift hundreds of millions of people out of extreme poverty and jump start their collapsed hyper poor nation that had failed in nearly every possible way under Mao's Communism. The US also prevented the Soviets from murdering millions of Chinese through pre-emptive nuclear war, by telling the Soviets that the US would respond with a nuclear attack on the USSR if they went ahead. You mean Vietnam? Which the US has had good trade relations with for decades and increasingly has good political relations with.
- kobeya 9y ago
  Because criticizing capitalism is like criticizing gravity. It objectively works as a method for optimizing allocation of resources for the progress of society, as measured by metrics like GDP per capita. Saying capitalism doesn't work is the economic equivalent of being a flat earther. So if you are saying something that sounds like "capitalism doesn't work", you'd better phrase it as "capitalism as practiced today works but is suboptimal" if you want to not be automatically dropped in the looney bin category.
  - substack 9y ago
    GDP has its own limitations, as it measures aggregate economic activity and does not take into consideration things like wealth distribution, environmental impact, unrenumerated labor. Further, imagine a society where everyone must pay for something that used to be free, like breathable air. If air becomes commodified, GDP goes up, but quality of life goes down as something that was previously a public good enters the realm of private profit. Extrapolate for various kinds of state-run services. https://en.wikipedia.org/wiki/Gross_domestic_product#Limitations_and_criticisms https://en.wikipedia.org/wiki/Gross_domestic_product#Limitat...
  - RealityNow 9y ago
    Not sure if you were being sarcastic, but to equate criticizing capitalism to being a "flat earther" is absurd. Economics is not a science. Capitalism has a ton of flaws, just talk to the masses in poverty in America. The fact that we ignore this while fixating on flawed metrics like GDP is a huge problem.
    - kobeya 9y ago
      I assure you I am not being sarcastic. By history and by the objective metrics used by economists capitalism works and alternatives tried do not. There are two legitimate criticisms of this I'm aware of: (1) capitalism is less optimal than scheme X that has never been tried yet, or (2) the metrics used by economists doesn't measure what we should value--maximizing them doesn't necessarily result in optimal outcomes, as measured by better social utility metrics that we should be using instead. TFA falls in the first category as it makes an argument (which I believe btw) that interest rate policies in place result in net transfers of wealth from poor to rich since the 80's. I could also believe arguments that free market capitalism is a form of local gradient ascent of the GDP landscape that does anticipate or react to global or systemic risks like global warming. I could also believe an argument that our metrics of societal prosperity don't measure what we really want, which is a moral judgement about whether the society is better or not. E.g. if all the wealth gets concentrated in the 1% and the remaining 99% becomes figurative or even literal slaves, that's probably a worse outcome even if productivity increases. The problem is that while it is easy to cook up such what-if thought experiments, it is not easy to quantify the result into a mathematical model of moral social utility. Come up with such an objective, measurable metric and economists will start using it. Seriously try coming up with one and you will see why no one has. Moral philosophy is still a field of philosophic arguments, not solved problems.
- RealityNow 9y ago
  Capitalism is indeed a religion, and the definition of capitalism has changed over time to become more towards laissez-faire. Now we're at a point where any sort of government action aside from cutting taxes is considered "socialist", which is still considered taboo even after the cold war. The democratic party of today is more to the right than the Republican party of the past.
  - deleted 9y ago
    [deleted]
- kiliantics 9y ago
  I was really irked by this line too but in the final paragraph the author seems to mention capitalism again with less enthusiasm. I got the impression that the author was genuinely surprised to see that our economy is woefully bad at distributing wealth fairly. The fact that many academics still don't appreciate what a terrible social system capitalism is - even though academia is one of the only places where you can be supported as openly anti-capitalist - shows just how out of touch they are with the ills of the world around them.
- Super_Jambo 9y ago
  Because their disagreement is not with Capitalism, they do not want to throw out the system they want to tweak it.
dnautics 9y ago
> If we “do nothing” (\tau =0), inequality increases indefinitely. No. This is "if we do nothing different". Reducing interest rates are a policy. But QE and lowering interest rates should have been predicted to have had this effect. Central bank interest rate reduction lowers the cost of debt for citizens who can afford low interest loans. that's mostly financial sector orgs and individuals, who are, for example, using debt-based instruments for leveraged investment. Even a mortgage is accessible mostly to people already on the upper half of the wealth scale - the poor in SF, for example, are not benefitting from interest rate reductions. The effect of increasing the M(2+) money supply by encouraging increasing outstanding loans by making them cheaper ALSO has the effect of making the cost of living more expensive for the lowest part of society, and also forces the middle class to engage in speculative investment as a dominant part of their retirement strategy, which is a subsidy for big business. We should flippantly call this phenomenon "trickle up wealth redistribution". If we increase interest rates, in the short term a lot of people in the lower half of the economy are going to get poorer. Many of them will declare bankruptcy (which is a good thing!), but in the long term it will break the cycle of indebtedness to the rich, if we take efforts to make sure debt risk is always assumed by the lender.
- yeukhon 9y ago
  > but in the long term it will break the cycle of indebtedness to the rich, if we take efforts to make sure debt risk is always assumed by the lender. I can see how that works, but in practice, lenders always sell their debts. My mortgage via Citi is sold, even though my interest rate and my payment remain unchanged. Then comes the government which will always provide some bailout, so what does "assume risk" even mean when in the end risk is going to get swallowed by another lender anyway?
  - dnautics 9y ago
    Well as long as the Government doesn't bail out, then someone assumes the risk, and along the way there are write-downs, and the purchaser of the debt now holds the basket and assumes the old risk. So basically I'm saying "as long as government doesn't bail out".
spitfire 9y ago
This seems to strongly support Milton Friedman's basic income (along with sane interest rates). BI provides the boost, while sane interest rates reduces the drag. So the question left is how do you communicate this to the public.
- everheardofc 9y ago
  Offtopic: Why is paid busywork or a job guarantee more acceptable than basic income? Apparently the risk of basic income is that people end up only playing video games. But aren't video games the definition of busywork?
kiliantics 9y ago
Interesting to note that the time when the wealth redistribution parameter must become negative to match data for the US economy is around the 1980s. This is also around the time when a lot of "neoliberal" and "free-market" policies were introduced.
- kiliantics 9y ago
  Can't say I'm surprised at the downvotes here from the free-marketeers of HN but you can't deny that there were massive public spending cuts under Reagan, along with subsidies for private interests, which is basically what the negative value of tau represents.
- uoaei 9y ago
  At this point one begins to realize that "Reaganomics" is more than just a dog whistle and actually had a huge impact on the working class. It's a twisted joke that Reagan was just inducted into the Labor Department's Hall of Honor.[1] [1] http://thehill.com/homenews/administration/347840-labor-department-names-ronald-reagan-to-hall-of-honor http://thehill.com/homenews/administration/347840-labor-depa...
soVeryTired 9y ago
Models like the one described in TFA bother me. It's easy enough to write down an equation, estimate some of its parameters, and tell a story about it. The hard part is making a convincing case that the model actually resembles reality: that link is the missing piece that rarely appears in modelling exercises like this one. Until you can make a convincing connection between reality and your model, all you're doing is solving equations and telling stories.
- uoaei 9y ago
  Unfortunately, without a laboratory to test such hypotheses, that is all that economics (as we understand it today) can ever be. Edit: also, TFA gives some good arguments for validity of the model.

82 points by pizza 9y ago

Let’s actually name the thing: we’re talking about capitalism. The genius of capitalism is precisely its multiplicative nature. This is an interesting article but something in particular struck me. Why does almost every public mention of Capitalism in the USA accompanied by some paean to it? It sounds like A veneration that follows any mention of Mohammad among devout Muslims. Why does everyone feel they need to give their bona fides? I feel that there are several senses in which it is the official state religion.

avdempsey 9y ago
Have you seen what America does to enemies of capitalism?
- asignasobfoas 9y ago
  This was a pretty funny episode that discusses the most evil people ever to come out of Harvard University including Henry Kissinger. https://soundcloud.com/chapo-trap-house/episode-100-chapo-goes-to-college-41717 https://soundcloud.com/chapo-trap-house/episode-100-chapo-go...
  - noddy1 9y ago
    heh, 2 of my favourite things in the world collide - hackernews and chapo.. quote of the century - post-trump election in hillary clinton "democrat" voice: "i MAY not be DALE Earnhardt but I SMASHED into the FUCKING WALL because I couldn't turn LEFT"
- adventured 9y ago
  Have you seen what enemies of Capitalism do to their own people? USSR, Mao's China, Pol Pot & Cambodia, Castro Brothers & Cuba, North Korea, Venezuela, East Germany, Vietnam / North Vietnam. Maybe you mean China. Which the US provided massive amounts of capital to in free exchange, which they used to lift hundreds of millions of people out of extreme poverty and jump start their collapsed hyper poor nation that had failed in nearly every possible way under Mao's Communism. The US also prevented the Soviets from murdering millions of Chinese through pre-emptive nuclear war, by telling the Soviets that the US would respond with a nuclear attack on the USSR if they went ahead. You mean Vietnam? Which the US has had good trade relations with for decades and increasingly has good political relations with.
kobeya 9y ago
Because criticizing capitalism is like criticizing gravity. It objectively works as a method for optimizing allocation of resources for the progress of society, as measured by metrics like GDP per capita. Saying capitalism doesn't work is the economic equivalent of being a flat earther. So if you are saying something that sounds like "capitalism doesn't work", you'd better phrase it as "capitalism as practiced today works but is suboptimal" if you want to not be automatically dropped in the looney bin category.
- substack 9y ago
  GDP has its own limitations, as it measures aggregate economic activity and does not take into consideration things like wealth distribution, environmental impact, unrenumerated labor. Further, imagine a society where everyone must pay for something that used to be free, like breathable air. If air becomes commodified, GDP goes up, but quality of life goes down as something that was previously a public good enters the realm of private profit. Extrapolate for various kinds of state-run services. https://en.wikipedia.org/wiki/Gross_domestic_product#Limitations_and_criticisms https://en.wikipedia.org/wiki/Gross_domestic_product#Limitat...
- RealityNow 9y ago
  Not sure if you were being sarcastic, but to equate criticizing capitalism to being a "flat earther" is absurd. Economics is not a science. Capitalism has a ton of flaws, just talk to the masses in poverty in America. The fact that we ignore this while fixating on flawed metrics like GDP is a huge problem.
  - kobeya 9y ago
    I assure you I am not being sarcastic. By history and by the objective metrics used by economists capitalism works and alternatives tried do not. There are two legitimate criticisms of this I'm aware of: (1) capitalism is less optimal than scheme X that has never been tried yet, or (2) the metrics used by economists doesn't measure what we should value--maximizing them doesn't necessarily result in optimal outcomes, as measured by better social utility metrics that we should be using instead. TFA falls in the first category as it makes an argument (which I believe btw) that interest rate policies in place result in net transfers of wealth from poor to rich since the 80's. I could also believe arguments that free market capitalism is a form of local gradient ascent of the GDP landscape that does anticipate or react to global or systemic risks like global warming. I could also believe an argument that our metrics of societal prosperity don't measure what we really want, which is a moral judgement about whether the society is better or not. E.g. if all the wealth gets concentrated in the 1% and the remaining 99% becomes figurative or even literal slaves, that's probably a worse outcome even if productivity increases. The problem is that while it is easy to cook up such what-if thought experiments, it is not easy to quantify the result into a mathematical model of moral social utility. Come up with such an objective, measurable metric and economists will start using it. Seriously try coming up with one and you will see why no one has. Moral philosophy is still a field of philosophic arguments, not solved problems.
RealityNow 9y ago
Capitalism is indeed a religion, and the definition of capitalism has changed over time to become more towards laissez-faire. Now we're at a point where any sort of government action aside from cutting taxes is considered "socialist", which is still considered taboo even after the cold war. The democratic party of today is more to the right than the Republican party of the past.
- deleted 9y ago
  [deleted]
kiliantics 9y ago
I was really irked by this line too but in the final paragraph the author seems to mention capitalism again with less enthusiasm. I got the impression that the author was genuinely surprised to see that our economy is woefully bad at distributing wealth fairly. The fact that many academics still don't appreciate what a terrible social system capitalism is - even though academia is one of the only places where you can be supported as openly anti-capitalist - shows just how out of touch they are with the ills of the world around them.
Super_Jambo 9y ago
Because their disagreement is not with Capitalism, they do not want to throw out the system they want to tweak it.

dnautics 9y ago

> If we “do nothing” (\tau =0), inequality increases indefinitely. No. This is "if we do nothing different". Reducing interest rates are a policy. But QE and lowering interest rates should have been predicted to have had this effect. Central bank interest rate reduction lowers the cost of debt for citizens who can afford low interest loans. that's mostly financial sector orgs and individuals, who are, for example, using debt-based instruments for leveraged investment. Even a mortgage is accessible mostly to people already on the upper half of the wealth scale - the poor in SF, for example, are not benefitting from interest rate reductions. The effect of increasing the M(2+) money supply by encouraging increasing outstanding loans by making them cheaper ALSO has the effect of making the cost of living more expensive for the lowest part of society, and also forces the middle class to engage in speculative investment as a dominant part of their retirement strategy, which is a subsidy for big business. We should flippantly call this phenomenon "trickle up wealth redistribution". If we increase interest rates, in the short term a lot of people in the lower half of the economy are going to get poorer. Many of them will declare bankruptcy (which is a good thing!), but in the long term it will break the cycle of indebtedness to the rich, if we take efforts to make sure debt risk is always assumed by the lender.

yeukhon 9y ago
> but in the long term it will break the cycle of indebtedness to the rich, if we take efforts to make sure debt risk is always assumed by the lender. I can see how that works, but in practice, lenders always sell their debts. My mortgage via Citi is sold, even though my interest rate and my payment remain unchanged. Then comes the government which will always provide some bailout, so what does "assume risk" even mean when in the end risk is going to get swallowed by another lender anyway?
- dnautics 9y ago
  Well as long as the Government doesn't bail out, then someone assumes the risk, and along the way there are write-downs, and the purchaser of the debt now holds the basket and assumes the old risk. So basically I'm saying "as long as government doesn't bail out".

spitfire 9y ago

This seems to strongly support Milton Friedman's basic income (along with sane interest rates). BI provides the boost, while sane interest rates reduces the drag. So the question left is how do you communicate this to the public.

everheardofc 9y ago
Offtopic: Why is paid busywork or a job guarantee more acceptable than basic income? Apparently the risk of basic income is that people end up only playing video games. But aren't video games the definition of busywork?

kiliantics 9y ago

Interesting to note that the time when the wealth redistribution parameter must become negative to match data for the US economy is around the 1980s. This is also around the time when a lot of "neoliberal" and "free-market" policies were introduced.

kiliantics 9y ago
Can't say I'm surprised at the downvotes here from the free-marketeers of HN but you can't deny that there were massive public spending cuts under Reagan, along with subsidies for private interests, which is basically what the negative value of tau represents.
uoaei 9y ago
At this point one begins to realize that "Reaganomics" is more than just a dog whistle and actually had a huge impact on the working class. It's a twisted joke that Reagan was just inducted into the Labor Department's Hall of Honor.[1] [1] http://thehill.com/homenews/administration/347840-labor-department-names-ronald-reagan-to-hall-of-honor http://thehill.com/homenews/administration/347840-labor-depa...

soVeryTired 9y ago

Models like the one described in TFA bother me. It's easy enough to write down an equation, estimate some of its parameters, and tell a story about it. The hard part is making a convincing case that the model actually resembles reality: that link is the missing piece that rarely appears in modelling exercises like this one. Until you can make a convincing connection between reality and your model, all you're doing is solving equations and telling stories.

uoaei 9y ago
Unfortunately, without a laboratory to test such hypotheses, that is all that economics (as we understand it today) can ever be. Edit: also, TFA gives some good arguments for validity of the model.