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I think that it's because of the simple fact that when interest rates are lower, people borrow more and therefore more new money is created and enters the econo

I think that it's because of the simple fact that when interest rates are lower, people borrow more and therefore more new money is created and enters the economy. This would normally create inflation but because investors are aware of this, they don't want to keep their wealth in cash during times of low interest rates, so they invest in index funds instead... Index funds are historically the safest store of value which can consistently beat inflation. The most popular index funds only invest in the top, biggest corporations. So basically most of the newly created money flows straight to big corporate shareholders and executives via share price increase (note that the majority of that value is not cashed out for spending on consumables; it stays within the corporate sphere as investments). The inflation only occurs in the corporate sphere and so it doesn't impact consumer prices (therefore inflation appears to be normal from the consumer perspective). All corporate activities become more expensive though; processes become slower, employees become less productive, advertising becomes more important and expensive. Wealthy corporate insiders lose their relative sense of value because they get used to seeing higher operational costs and lower Price to Earnings ratios. If all corporations have more cash and have nothing to do with it, they will just spend it on marketing... Otherwise they risk losing brand awareness. In a low rate environment, brand awareness is more valuable than cash because it has future value that will be carried through beyond the current economic environment... To a time when cash will have more value.

dalbasal 8y ago
I think in a broad sense you can consider shares (especially within the scope of index funds) "money supply." A company can issue shares and use them to pay people or buy companies with. That's money. I think that the later points you make about inefficiencies are great, and especially apt/worrying in the large cap tech world. FB & Twitter are a prime example. They increased headcount and costs by 10X-100X, after becoming massive platforms scaled to serve everyone in the world. The product twitter and Facebook serve is still the same product they served with a 10th of the employees. Sure, the ad-tech grew, but that cannot plausibly obsorb thousands of engineers. What mostly grew is various forms of administration. If Toyota got swallowed by the earth tomorrow, the world's ability to produce cars takes a real hit. Real investment will have to be made to replace this capacity. If Facebook or Twitter disappeared, a handful of resourceful people would have a clone up in days. That's a frightening level of inefficiency.
- pushtheenvelope 8y ago
  > FB & Twitter are a prime example. They increased headcount and costs by 10X-100X, after becoming massive platforms scaled to serve everyone in the world. The product twitter and Facebook serve is still the same product they served with a 10th of the employees. I think you're vastly underestimating the complexity of running a product like Facebook or Twitter. At scale, every minor problem gets magnified in both product-terms, and raw technical-terms. This requires investment of people and resources. As a simple example, consider that Facebook has to build, and evolve its own php-esque language runtime. This has properties tuned to the specific traffic patterns of Facebook, thereby saving many millions of dollars in server costs. So, no, I vehemently disagree that a handful of resourceful people can clone Facebook, beyond the most obvious high-level features that you may be familiar with from your personal usage. Similar arguments will apply to Twitter.
  - dalbasal 8y ago
    If you cloned every single detail, I suppose you'd have an exact clone, including all the people. But cloning the main features is cloning the service, from a user perspective. I think you're vastly underestimating how much scale they already had, before all these people. When FB IPOed (just 6 years ago) FB were operatating with 1/10 the current resources. ATT, they were already generating revenue and private investors were falling overthemselves to invest.. so it's not like times were leane then. Since, revenue, expenses & headcount has grown 10X. FB is still basically FB. If their ad business had capped off at $8bn instead of $80bn, my guess is that almost nothing a user notices would be different. It's not proveable. You can always counter that FB does 10X more than they did 6 years ago. We can't count the number of cars leaving a factory.
- pmart123 8y ago
  So for a counter factual example, what if you could legally download all of Renaissance Technologies source code? How much would your company be worth? You still need to hire a team, implement the hardware, understand the nuances, and also build up datasets of trade history, etc. What once in theory sounds easy, might not be as simple as you think. Facebook and Twitter have the users, old content and built social networks. They have data on user patterns, relationships with advertisers, etc. I don’t think it would be as simple as you think.
AnimalMuppet 8y ago
Index funds are stock. It doesn't affect a corporation's cash at all (unless they sell more stock). There's no reason why corporate activities become more expensive, or processes slower, or advertising more expensive. They don't have more cash to spend.
salawat 8y ago
This is absolutely spot on. The default action of most investors will always favor the biggest players, which becomes problematic since it ties up money in an action economy sense to the people connected to those corporations networks. If you model a person as a decision engine, assigning a fixed number of decisions able to be made at a time, then investment leads to increasingly large amounts of capital decisions being delegated to fewer and fewer people realistically. Shareholder value optimi and minimization of liabilities through wage growth suppression over time create a divergent flow of cash away from agents willing capable of making decisions counter to the primary objectives of entrenched actors. You not being in a financial position to invest in a community operated grocer is a consequence of long term winner-takes-all market trends. The decision was made elsewhere and only percolate down to you after a long chain of financial transactions eventually terminating at your employer. It's a fascinating mental model I've been toying with, and trying to figure out what data I'd need access to to prove or disprove any merit to the supposition.

dalbasal 8y ago

I think in a broad sense you can consider shares (especially within the scope of index funds) "money supply." A company can issue shares and use them to pay people or buy companies with. That's money. I think that the later points you make about inefficiencies are great, and especially apt/worrying in the large cap tech world. FB & Twitter are a prime example. They increased headcount and costs by 10X-100X, after becoming massive platforms scaled to serve everyone in the world. The product twitter and Facebook serve is still the same product they served with a 10th of the employees. Sure, the ad-tech grew, but that cannot plausibly obsorb thousands of engineers. What mostly grew is various forms of administration. If Toyota got swallowed by the earth tomorrow, the world's ability to produce cars takes a real hit. Real investment will have to be made to replace this capacity. If Facebook or Twitter disappeared, a handful of resourceful people would have a clone up in days. That's a frightening level of inefficiency.

pushtheenvelope 8y ago
> FB & Twitter are a prime example. They increased headcount and costs by 10X-100X, after becoming massive platforms scaled to serve everyone in the world. The product twitter and Facebook serve is still the same product they served with a 10th of the employees. I think you're vastly underestimating the complexity of running a product like Facebook or Twitter. At scale, every minor problem gets magnified in both product-terms, and raw technical-terms. This requires investment of people and resources. As a simple example, consider that Facebook has to build, and evolve its own php-esque language runtime. This has properties tuned to the specific traffic patterns of Facebook, thereby saving many millions of dollars in server costs. So, no, I vehemently disagree that a handful of resourceful people can clone Facebook, beyond the most obvious high-level features that you may be familiar with from your personal usage. Similar arguments will apply to Twitter.
- dalbasal 8y ago
  If you cloned every single detail, I suppose you'd have an exact clone, including all the people. But cloning the main features is cloning the service, from a user perspective. I think you're vastly underestimating how much scale they already had, before all these people. When FB IPOed (just 6 years ago) FB were operatating with 1/10 the current resources. ATT, they were already generating revenue and private investors were falling overthemselves to invest.. so it's not like times were leane then. Since, revenue, expenses & headcount has grown 10X. FB is still basically FB. If their ad business had capped off at $8bn instead of $80bn, my guess is that almost nothing a user notices would be different. It's not proveable. You can always counter that FB does 10X more than they did 6 years ago. We can't count the number of cars leaving a factory.
pmart123 8y ago
So for a counter factual example, what if you could legally download all of Renaissance Technologies source code? How much would your company be worth? You still need to hire a team, implement the hardware, understand the nuances, and also build up datasets of trade history, etc. What once in theory sounds easy, might not be as simple as you think. Facebook and Twitter have the users, old content and built social networks. They have data on user patterns, relationships with advertisers, etc. I don’t think it would be as simple as you think.

AnimalMuppet 8y ago

Index funds are stock. It doesn't affect a corporation's cash at all (unless they sell more stock). There's no reason why corporate activities become more expensive, or processes slower, or advertising more expensive. They don't have more cash to spend.

salawat 8y ago

This is absolutely spot on. The default action of most investors will always favor the biggest players, which becomes problematic since it ties up money in an action economy sense to the people connected to those corporations networks. If you model a person as a decision engine, assigning a fixed number of decisions able to be made at a time, then investment leads to increasingly large amounts of capital decisions being delegated to fewer and fewer people realistically. Shareholder value optimi and minimization of liabilities through wage growth suppression over time create a divergent flow of cash away from agents willing capable of making decisions counter to the primary objectives of entrenched actors. You not being in a financial position to invest in a community operated grocer is a consequence of long term winner-takes-all market trends. The decision was made elsewhere and only percolate down to you after a long chain of financial transactions eventually terminating at your employer. It's a fascinating mental model I've been toying with, and trying to figure out what data I'd need access to to prove or disprove any merit to the supposition.