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> Summers made the comments after a presentation at the Federal Reserve Bank of Boston on the persistence of low interest rates in global economies, a phenomeno

> Summers made the comments after a presentation at the Federal Reserve Bank of Boston on the persistence of low interest rates in global economies, a phenomenon which he explained as excess savings pursuing a shortage of investments. So central banks printing trillions of dollars (aka Quantitative Easing) to prop up asset prices (and thereby drastically increasing income inequality in developed countries) had nothing to do with record low interest rates? These people sure have a way of "explaining" things without really explaining anything at all.

compcoffee 8y ago
>These people sure have a way of "explaining" things without really explaining anything at all. It's hard to explain things to laymen, especially in subjects like economics, where everyone thinks they've got a complete understanding of the mechanics after watching a couple YouTube videos. The supply of financial capital is high, so borrowers are not willing to pay high interest rates. I see nothing wrong with the explanation of why low rates persist.
- jcbrand 8y ago
  Nowhere in the article is it explained WHY the supply of capital is so high. Here's a hint. Trillions of dollars were printed (and are still being printed) by central banks.
  - jlawson 8y ago
    I thought it was because capital has been building up since WW2 without any giant destructive events to reduce it. Kind of like how things had been just before WW1. This is a central part of Piketty's case in Capital in the Twenty-First Century. Capital just builds up over time, unless something happens to destroy it. Of course I can't argue against money printing being a cause; I don't know the numbers. It seems there are likely several significant contributing causes.
    - village-idiot 8y ago
      Eh, several countries have proven that monetary, tax, and welfare policy can absolutely reduce wealth disparity within a nation. The US is currently proving that some policies can increase disparity. Certainly major catastrophic events has a larger effect, but you don’t need one.
      - jlawson 8y ago
        Is be interested in specific examples of these 'several countries'.
        village-idiot 8y ago
        Denmark and Canada come to mind. Both have flattened their inequality curve in the past decade or so.
        jlawson 8y ago
        Canada had a pro-business conservative government up until a few years ago. I don't have the numbers to say if any inequality curve was flattened or not, but if something did happen it seems very unlikely it was a result of policy. Denmark and Canada also share a property: They are small (population-wise) nations with heavyweight neighbors. Any effect you see is likely to be totally confounded by interactions with those neighbors. E.g. Canadian billionaires may tend go to America, so Canadian inequality "falls". But obviously this isn't doable for the world as a whole.
  - Symmetry 8y ago
    M0, the sort of money that gets printed, is quite small compared to more inclusive money aggregates like M3 and is downright tiny compared to the overall capital supply of the economy. https://en.wikipedia.org/wiki/Money_supply https://en.wikipedia.org/wiki/Money_supply
    - jcbrand 8y ago
      I don't mean "printed" literally, I'm talking about quantitative easing.
  - hndamien 8y ago
    I thought "Quantitative Tightening" was code for "stop the money printers"?
- lotsofpulp 8y ago
  His quote would be more accurate with my additions in the brackets: >a phenomenon which he explained as excess savings [of already rich people] pursuing a shortage of investments [that benefit those already rich people]. There is an enormous backlog of infrastructure work that needs to be done in the US, and around the world, that would benefit everyone and the environment, but since it doesn't result in [immediate] measurable returns that can be sold to investors, these are not investments worth investing in. Money existing for the sake of making more money is pretty useless in the long run, but that's where we're at. Ideally, money would be used to accomplish an end result, such as increasing living standards for all.
  - rcMgD2BwE72F 8y ago
    > In the 18th and 19th centuries western European society was highly unequal. Private wealth dwarfed national income and was concentrated in the hands of the rich families who sat atop a relatively rigid class structure. This system persisted even as industrialisation slowly contributed to rising wages for workers. Only the chaos of the first and second world wars and the Depression disrupted this pattern. High taxes, inflation, bankruptcies and the growth of sprawling welfare states caused wealth to shrink dramatically, and ushered in a period in which both income and wealth were distributed in relatively egalitarian fashion. But the shocks of the early 20th century have faded and wealth is now reasserting itself. On many measures, Piketty reckons, the importance of wealth in modern economies is approaching levels last seen before the first world war. Source: https://www.economist.com/the-economist-explains/2014/05/04/thomas-pikettys-capital-summarised-in-four-paragraphs https://www.economist.com/the-economist-explains/2014/05/04/... If things haven't change much (i.e if we think we can't do much to reduce inequality), there are many reasons to fear war and/or chaos.
- salawat 8y ago
  >It's hard to explain things to laymen, especially in subjects like economics, where everyone thinks they've got a complete understanding of the mechanics after watching a couple YouTube videos. The refuge of an expert who maybe isn't as much an expert as he thinks he is. Not saying that's you GP, but A) laymen aren't as dumb as you think, B) they don't have an incentive to obfuscate things to preserve or justify their status as an expert, and C) the field of economics suffers enormously from the curse of mathematics. The deeper you go, the less relevant it tends to be at predicting the real world. I recently took a month to start digging through a slog of economic theory to try to counter my own Dunning-Kruger effect in the field and had to stop because it just made me angry at the sheer scale of uncompensated positive feedback loops and reliance on statistical multiplexing that our economic system is built on. Any system that depends on all depositors NOT needing their assets back at the same time is fundamentally a scam. A system like Fractional Reserve which is inherently inflationary biases the entire system against those with the smallest and least inclined to grow income streams from the get go. Economics is difficult when you JUST look at money movement to facilitate virtual growth. When you start looking at economics as a means to an end to get PHYSICAL work or change done instead of just in the vacuum of a theoretical accountant's model, you can see some very disturbing trends in the direction things are going. And again, that's just from someone from the outside looking in who isn't relying on their economic expertise to win them their daily bread. Full disclosure, my research revolved more around the ways in which "conservative" (not political, but minimum risk tolerant) investment behavior incentivizes and guaranteed corporate behaviors which optimize for growth figures at all costs, damn the externalities. I'm becoming one of the people who thinks we've been doing things really wrong since about the 80's, but the foundations were laid long before that; we just didn't recognize it because humans generally suck at handling long period trends where the period is > a human lifespan, and labor had enough clout to eke out a greater chunk of the revenue stream at the "cost" of creating a slow growth economy in terms of capital gains by non-practicing investors (I.e. investors who weren't themselves laborers, but were living off managing their wealth's capital gains). Don't ask for data though, my day job has precluded me from being able to do the hard part of the research... (Actually doing it.) I at least think I've almost got the falsification criteria worked out though. Just need to sit down and figure out what data I actually need to give me a complete picture to reason from.
DanielBMarkham 8y ago
Yes, this is still more QE fallout, just without anybody directly explaining it. I guess that's the trick? If you disagreed with the other economist when he pointed out something was whack, later on you can always "admit" you were wrong without really admitting it by describing the same thing using different phrasing. Everybody wins -- except for the general public, however. To them it's just "blah blah blah $INSERT_POLITICAL_SPIN_HERE"
Symmetry 8y ago
Buying up government bonds and thus forcing people to invest their money somewhere else had the effect of propping up asset prices but increasing the amount of money in circulation was more the intent of QE. The effect on asset prices was welcome but not really the main point. There's a lot less money than their is investment capital so every dollar printed had a correspondingly larger effect via the unit account role than via the store of value role. Increasing a pool of money from $1 trillion to $2 trillion should have a larger effect than increasing another from $50 trillion to $51 trillion. And if QE were the whole of the story behind low interest rate I would really expect much higher inflation than what we're seeing.
- roymurdock 8y ago
  M1 = cash/cash equivalents M2 = M1 + short term deposits M3 = M2 + long term deposits M1 + M2 directly influence inflation - this is the money in circulation, greasing the wheels of the economy. QE increased the monetary base by creating creating bank reserves (M3 long term deposits), re-capitalizing banks and companies after the financial crisis triggered collection chains many , giving them a clean sheet to borrow/loan again and make good on prior obligations (the ones that hadn't exploded). In order for QE to affect inflation, banks would have to loan out these reserves, converting M3 money into M1/M2 - currency in circulation. Banks only loaned out a fraction of the $4T they were given by the Fed. The whole story is a global lack of demand in developed countries for loans/capital to help businesses invest. Many companies aren't buying new machines (what would they buy?), and they aren't hiring new skilled workers (what skills do they need with no new machines?) - large contributing factor to wage stagnation. Instead they are cutting costs - outsourcing departments, renting server time, looking to ML/AI to reduce reliance on costly humans with stagnating skill sets. Interest rates are the cost of borrowing money. Interest rates are low because the demand for money and investment capital is low. There's a large supply of money and a decreasing amount of safe, productive places to invest it.
  - Symmetry 8y ago
    My understanding is that one big reason that a lot of QE money didn't get loaned out was that the Fed suddenly started paying the banks on the excess reserves they were holding.
yourbandsucks 8y ago
QE and printing money are supposed to INCREASE inflation and interest rates. According to econ 101, anyways. More supply of dollars means the value of the dollar goes down. At the time these policies were enacted, deflationary spiral was a real risk. And the politics in 2010-2014 meant that increasing the money supply in any way besides handing it directly to rich people would be blocked by the Tea Party people. So we got QE instead of, say, big infrastructure projects or something. The fact that inflation has stayed persistently low despite all of that and the recent fed rate hikes says that something else is afoot. The really scary thing? The 'adults in the room', 'real experts', etc have no theoretical model that explains this. They're people with 40 years experience in saying this is impossible. Yet none of them are fired -- they're still churning out think pieces in DC and people still take them seriously.
- bildung 8y ago
  > The really scary thing? The 'adults in the room', 'real experts', etc have no theoretical model that explains this. They're people with 40 years experience in saying this is impossible. Paul Krugman has actually written about that for many years now. First for Japan in the 80s, then applying the model to the more recent events. His blog is a good source for short snippets explaining it. The keyword of interest here is "liquidity trap", see e.g. https://krugman.blogs.nytimes.com/2013/04/11/monetary-policy-in-a-liquidity-trap/ https://krugman.blogs.nytimes.com/2013/04/11/monetary-policy...
  - yourbandsucks 8y ago
    I think he was talking more about the gold-hawking, "hyperinflation is coming" types -- the ones who were flat out, obviously wrong, in that their predictions from 2008-2012ish were 100% the opposite of what actually unfolded. Nobody cares that they were wrong because they're not trying to get it right. They're propagandists. You never heard a peep from them during Bush, then the sky was imminently going to fall as soon as Obama was elected. Now they're quiet again. If they were actually deficit hawks, they'd have loved Bill Clinton and Obama, and hated Bush and Trump. I was talking more about Brooking Institute types who are supposed to be trying to get it right.
brookhaven_dude 8y ago
The low interest rates were a response to low inflation and low growth. If low inflation persists for some reason (e.g. decreasing cost of production due to automation) even as economy grows, then interest rates will not rise much.

compcoffee 8y ago

>These people sure have a way of "explaining" things without really explaining anything at all. It's hard to explain things to laymen, especially in subjects like economics, where everyone thinks they've got a complete understanding of the mechanics after watching a couple YouTube videos. The supply of financial capital is high, so borrowers are not willing to pay high interest rates. I see nothing wrong with the explanation of why low rates persist.

jcbrand 8y ago
Nowhere in the article is it explained WHY the supply of capital is so high. Here's a hint. Trillions of dollars were printed (and are still being printed) by central banks.
- jlawson 8y ago
  I thought it was because capital has been building up since WW2 without any giant destructive events to reduce it. Kind of like how things had been just before WW1. This is a central part of Piketty's case in Capital in the Twenty-First Century. Capital just builds up over time, unless something happens to destroy it. Of course I can't argue against money printing being a cause; I don't know the numbers. It seems there are likely several significant contributing causes.
  - village-idiot 8y ago
    Eh, several countries have proven that monetary, tax, and welfare policy can absolutely reduce wealth disparity within a nation. The US is currently proving that some policies can increase disparity. Certainly major catastrophic events has a larger effect, but you don’t need one.
    - jlawson 8y ago
      Is be interested in specific examples of these 'several countries'.
      - village-idiot 8y ago
        Denmark and Canada come to mind. Both have flattened their inequality curve in the past decade or so.
        jlawson 8y ago
        Canada had a pro-business conservative government up until a few years ago. I don't have the numbers to say if any inequality curve was flattened or not, but if something did happen it seems very unlikely it was a result of policy. Denmark and Canada also share a property: They are small (population-wise) nations with heavyweight neighbors. Any effect you see is likely to be totally confounded by interactions with those neighbors. E.g. Canadian billionaires may tend go to America, so Canadian inequality "falls". But obviously this isn't doable for the world as a whole.
- Symmetry 8y ago
  M0, the sort of money that gets printed, is quite small compared to more inclusive money aggregates like M3 and is downright tiny compared to the overall capital supply of the economy. https://en.wikipedia.org/wiki/Money_supply https://en.wikipedia.org/wiki/Money_supply
  - jcbrand 8y ago
    I don't mean "printed" literally, I'm talking about quantitative easing.
- hndamien 8y ago
  I thought "Quantitative Tightening" was code for "stop the money printers"?
lotsofpulp 8y ago
His quote would be more accurate with my additions in the brackets: >a phenomenon which he explained as excess savings [of already rich people] pursuing a shortage of investments [that benefit those already rich people]. There is an enormous backlog of infrastructure work that needs to be done in the US, and around the world, that would benefit everyone and the environment, but since it doesn't result in [immediate] measurable returns that can be sold to investors, these are not investments worth investing in. Money existing for the sake of making more money is pretty useless in the long run, but that's where we're at. Ideally, money would be used to accomplish an end result, such as increasing living standards for all.
- rcMgD2BwE72F 8y ago
  > In the 18th and 19th centuries western European society was highly unequal. Private wealth dwarfed national income and was concentrated in the hands of the rich families who sat atop a relatively rigid class structure. This system persisted even as industrialisation slowly contributed to rising wages for workers. Only the chaos of the first and second world wars and the Depression disrupted this pattern. High taxes, inflation, bankruptcies and the growth of sprawling welfare states caused wealth to shrink dramatically, and ushered in a period in which both income and wealth were distributed in relatively egalitarian fashion. But the shocks of the early 20th century have faded and wealth is now reasserting itself. On many measures, Piketty reckons, the importance of wealth in modern economies is approaching levels last seen before the first world war. Source: https://www.economist.com/the-economist-explains/2014/05/04/thomas-pikettys-capital-summarised-in-four-paragraphs https://www.economist.com/the-economist-explains/2014/05/04/... If things haven't change much (i.e if we think we can't do much to reduce inequality), there are many reasons to fear war and/or chaos.
salawat 8y ago
>It's hard to explain things to laymen, especially in subjects like economics, where everyone thinks they've got a complete understanding of the mechanics after watching a couple YouTube videos. The refuge of an expert who maybe isn't as much an expert as he thinks he is. Not saying that's you GP, but A) laymen aren't as dumb as you think, B) they don't have an incentive to obfuscate things to preserve or justify their status as an expert, and C) the field of economics suffers enormously from the curse of mathematics. The deeper you go, the less relevant it tends to be at predicting the real world. I recently took a month to start digging through a slog of economic theory to try to counter my own Dunning-Kruger effect in the field and had to stop because it just made me angry at the sheer scale of uncompensated positive feedback loops and reliance on statistical multiplexing that our economic system is built on. Any system that depends on all depositors NOT needing their assets back at the same time is fundamentally a scam. A system like Fractional Reserve which is inherently inflationary biases the entire system against those with the smallest and least inclined to grow income streams from the get go. Economics is difficult when you JUST look at money movement to facilitate virtual growth. When you start looking at economics as a means to an end to get PHYSICAL work or change done instead of just in the vacuum of a theoretical accountant's model, you can see some very disturbing trends in the direction things are going. And again, that's just from someone from the outside looking in who isn't relying on their economic expertise to win them their daily bread. Full disclosure, my research revolved more around the ways in which "conservative" (not political, but minimum risk tolerant) investment behavior incentivizes and guaranteed corporate behaviors which optimize for growth figures at all costs, damn the externalities. I'm becoming one of the people who thinks we've been doing things really wrong since about the 80's, but the foundations were laid long before that; we just didn't recognize it because humans generally suck at handling long period trends where the period is > a human lifespan, and labor had enough clout to eke out a greater chunk of the revenue stream at the "cost" of creating a slow growth economy in terms of capital gains by non-practicing investors (I.e. investors who weren't themselves laborers, but were living off managing their wealth's capital gains). Don't ask for data though, my day job has precluded me from being able to do the hard part of the research... (Actually doing it.) I at least think I've almost got the falsification criteria worked out though. Just need to sit down and figure out what data I actually need to give me a complete picture to reason from.

DanielBMarkham 8y ago

Yes, this is still more QE fallout, just without anybody directly explaining it. I guess that's the trick? If you disagreed with the other economist when he pointed out something was whack, later on you can always "admit" you were wrong without really admitting it by describing the same thing using different phrasing. Everybody wins -- except for the general public, however. To them it's just "blah blah blah $INSERT_POLITICAL_SPIN_HERE"

Symmetry 8y ago

Buying up government bonds and thus forcing people to invest their money somewhere else had the effect of propping up asset prices but increasing the amount of money in circulation was more the intent of QE. The effect on asset prices was welcome but not really the main point. There's a lot less money than their is investment capital so every dollar printed had a correspondingly larger effect via the unit account role than via the store of value role. Increasing a pool of money from $1 trillion to $2 trillion should have a larger effect than increasing another from $50 trillion to $51 trillion. And if QE were the whole of the story behind low interest rate I would really expect much higher inflation than what we're seeing.

roymurdock 8y ago
M1 = cash/cash equivalents M2 = M1 + short term deposits M3 = M2 + long term deposits M1 + M2 directly influence inflation - this is the money in circulation, greasing the wheels of the economy. QE increased the monetary base by creating creating bank reserves (M3 long term deposits), re-capitalizing banks and companies after the financial crisis triggered collection chains many , giving them a clean sheet to borrow/loan again and make good on prior obligations (the ones that hadn't exploded). In order for QE to affect inflation, banks would have to loan out these reserves, converting M3 money into M1/M2 - currency in circulation. Banks only loaned out a fraction of the $4T they were given by the Fed. The whole story is a global lack of demand in developed countries for loans/capital to help businesses invest. Many companies aren't buying new machines (what would they buy?), and they aren't hiring new skilled workers (what skills do they need with no new machines?) - large contributing factor to wage stagnation. Instead they are cutting costs - outsourcing departments, renting server time, looking to ML/AI to reduce reliance on costly humans with stagnating skill sets. Interest rates are the cost of borrowing money. Interest rates are low because the demand for money and investment capital is low. There's a large supply of money and a decreasing amount of safe, productive places to invest it.
- Symmetry 8y ago
  My understanding is that one big reason that a lot of QE money didn't get loaned out was that the Fed suddenly started paying the banks on the excess reserves they were holding.

yourbandsucks 8y ago

QE and printing money are supposed to INCREASE inflation and interest rates. According to econ 101, anyways. More supply of dollars means the value of the dollar goes down. At the time these policies were enacted, deflationary spiral was a real risk. And the politics in 2010-2014 meant that increasing the money supply in any way besides handing it directly to rich people would be blocked by the Tea Party people. So we got QE instead of, say, big infrastructure projects or something. The fact that inflation has stayed persistently low despite all of that and the recent fed rate hikes says that something else is afoot. The really scary thing? The 'adults in the room', 'real experts', etc have no theoretical model that explains this. They're people with 40 years experience in saying this is impossible. Yet none of them are fired -- they're still churning out think pieces in DC and people still take them seriously.

bildung 8y ago
> The really scary thing? The 'adults in the room', 'real experts', etc have no theoretical model that explains this. They're people with 40 years experience in saying this is impossible. Paul Krugman has actually written about that for many years now. First for Japan in the 80s, then applying the model to the more recent events. His blog is a good source for short snippets explaining it. The keyword of interest here is "liquidity trap", see e.g. https://krugman.blogs.nytimes.com/2013/04/11/monetary-policy-in-a-liquidity-trap/ https://krugman.blogs.nytimes.com/2013/04/11/monetary-policy...
- yourbandsucks 8y ago
  I think he was talking more about the gold-hawking, "hyperinflation is coming" types -- the ones who were flat out, obviously wrong, in that their predictions from 2008-2012ish were 100% the opposite of what actually unfolded. Nobody cares that they were wrong because they're not trying to get it right. They're propagandists. You never heard a peep from them during Bush, then the sky was imminently going to fall as soon as Obama was elected. Now they're quiet again. If they were actually deficit hawks, they'd have loved Bill Clinton and Obama, and hated Bush and Trump. I was talking more about Brooking Institute types who are supposed to be trying to get it right.

brookhaven_dude 8y ago

The low interest rates were a response to low inflation and low growth. If low inflation persists for some reason (e.g. decreasing cost of production due to automation) even as economy grows, then interest rates will not rise much.