7 ms·

Only because the toolset is artificially restricted for ideological reasons. Fiscal responses (having the government spend actual money, either on things like

Only because the toolset is artificially restricted for ideological reasons. Fiscal responses (having the government spend actual money, either on things like infrastructure it by just handing it out to the population, which will then largely spend that money as they see fit) rather than monetary policy responses (reduce rates and hope that people will borrow more) are known to work well in most cases. The Corona virus situation is slightly different than the financial mess of 2008 because it involves actual potential supply constraints. This means that a higher rate of inflation may have to be accepted temporarily. But inflation has arguably been far too low for far too long anyway...

gdubs 7y ago
Keynes famously said you could hire people to dig ditches and it would stimulate the economy. However, if we were to take aggressive action on Climate Change, there’s a lot of potential jobs there. A massive potential stimulus. Also, you know, public funding of basic research which could explore, I don’t know, pandemic response, new therapeutics, etc. Like you said, ideological barriers are what’s keeping us stuck. But before we went all in on finance we had a pretty epic run last century of productivity fueled by public investment (think 1940-1970).
- trophycase 7y ago
  I mean half of the economy is digging ditches basically. A few small portions of the economy produce the necessities of life while nearly everyone else just circulates money around through entertainment, advertisement, etc.
- paganel 7y ago
  Climate Change is doing just fine with us doing no work, notice the recent news about the satellite-detectable pollution levels in China being at lows not seen in a long while. Of course, that means us not being as product- and services-rich as we are right now (farewell to cheap airplane rides, disposable clothes and easily replaceable electronics) but at the end of the day something will have to give.
  - heurist 7y ago
    That won't last. China will feel a need to dig itself out of a hole and ramp production beyond normal levels to make up for it.
- lottin 7y ago
  The problem is most governments are already highly in debt. It is not that a fiscal stimulus is a bad idea per se, but it has to start during the expansion cycle by reducing the debt, otherwise at some point so much debt becomes unmanageable.
- OCASM 7y ago
  Keynes's ideas also fail all over the globe. Saving and investing is what grows an economy.
  - hnarn 7y ago
    In what universe does saving stimulate the economy? It's literally the opposite of consumption.
    - OCASM 7y ago
      Saving allows the banks to lend the money to entrepreneurs who increase productive capacity and hence grow the economy.
  - atq2119 7y ago
    Saving doesn't grow the economy, pretty much by definition as was already pointed out. (Real) investment, in the sense of building up new productive capacity, is an important part of growing the economy. However, investment at least by the private sector cannot thrive in a vacuum. It needs a context of either existing or plausible demand. If the demand is missing, you'd be a fool to spend money on increasing productive capacity, i.e. you'd be a fool to invest. Note the important emphasis on what kind of investment we're talking about. Unfortunately, the act of buying existing productive capacity (e.g. by buying stocks) is also called investing, and you have to be careful not to confuse the different meanings of the word.
    - OCASM 7y ago
      Indeed, real investment requires market interest, something the government is pretty bad at discerning Saving goes hand in hand with investment since by putting money in the bank it can be borrowed by entrepreneurs and they can hopefully do something productive with it. Merely spending it doesn't have that effect.
      - atq2119 7y ago
        I feel like you are not replying to the core of the argument: Spending is crucial because that's what signals where investment is needed / desirable. Furthermore, spending is what gives companies profits that can then be reinvested for sustained development. If there is no spending, then investment is simply pointless. If investment happens in a vacuum, without regard for where the demand (which is nearly a synonym for spending) is, the investment will likely go to inefficient or useless projects. Furthermore, the stated causality from saving to investment doesn't exist in our modern financial system. Banks create money out of nothing whenever they find a suitable borrower. Of course, a borrower is more likely to be suitable if they can demonstrate demand for their product - again, the importance of spending. Sidenote: There is an equality of savings and investment in the national accounts (if you ignore the external sector), but that's just an after-the-fact accounting identity without any causal content. There's good reason to believe that, if anything, the causality goes from investment to savings. Either way, it's not an interesting causality. The real economic decisions, certainly the ones that lead to good allocation of capital, follow where the demand is. Sidenote #2: Your stab at the government misses the point as well. Nobody is asking for the government to start investing in productive capacity for things that the private sector usually provides. However, government could ensure that people have more disposable income. This leads to more spending, which encourages (and finances, via reinvested profits!) investment in order to satisfy the added demand. At the same time, it improves the quality of the demand signal, which helps achieve a better overall allocation of capital. There are other useful things that governments could do, but this is an important and useful thing. The economy generally works well when people can just vote with their wallets. But one precondition is that there is money in those wallets.
- joshocar 7y ago
  Also, the result, cheaper and more abundant energy, would stimulate the economy.
- kube-system 7y ago
  Who do you hire when you're at full employment? (The answer is you have to increase immigration, and hire those people)
  - qeternity 7y ago
    Well for starters you stop reducing the participating rate to make things appear better.
    - kube-system 7y ago
      The participation rate isn't set, it's measured.
mindslight 7y ago
> inflation has arguably been far too low for far too long anyway... Do you not need a roof over your head, health insurance, a car, college education, etc? Inflation has been rampant, it's just not apparent in manufactured goods because the actual cost of production dropped rapidly with offshoring and technological progress. Without significant inflation, we would have seen a steady march down of consumer prices, as happened in computing.
- gzu 7y ago
  lewis turning point: https://en.wikipedia.org/wiki/Lewis_turning_point https://en.wikipedia.org/wiki/Lewis_turning_point The inflation has been offshored. China's rural population has been lifted out of poverty. What happens to the world economy when china runs out of cheap labor?
  - HenryKissinger 7y ago
    Some countries will always have cheaper labor than others.
  - elsewhen 7y ago
    There are still many other countries with cheap labor (Bangladesh, Pakistan, lots of Africa etc). It will still take a few more decades for the majority of the whole world to get out of poverty (assuming we don’t go off the rails).
- Ericson2314 7y ago
  Yes the not-so-hidden inflation has been rampant, but universal health care, basic income, and direct infrastructure investment would help, not hurt those. Let's go over Housing, healthcare, and education in turn: - Housing, overpriced because the jobs are concentrated, stupid zoning, etc. We deserve dense cities but UBI means no job, no stave, which in the short term takes away the demand to move. Let's not rest on that and continue to stupid-suburb, but do take some refuge in that short term benefit of decreasing the necessity of people moving. - Education, overpriced because of a shortage of work and a credentialist rat race. I'm all for people being educated---say a liberal arts that includes engineering not because it pays well but because one has to understand the machines that surround us to understand the modern human and social condition. But it's stupid to expect people to stuggle to acquire credentials that won't get them hired and won't actually help with the stupid jobs that get if they are hired. UBI helps eliminate unproductive by removing the desperation that forces people to take them. The decreased demand for employment hopefully will end the credentialism rat race, lowering the cost of education. And the decreased drudgery of the education that remains should make the education better, and push employers to shoulder more of the remaining cost. - Healthcare. Unlike the others this probably is less overvalued; avoiding being sick or getting well when sick is incredibly valuable to the individual, and thus I view the price gouging as inevitable. I don't think there is a market based solution to this one, but that's OK. Just do the universal thing and remove this from the market, and now its not subject to inflation in the same way. [The power of the state commands the supply to exist.]
chewz 7y ago
> toolset is artificially restricted for ideological reasons Not in Hong-Kong. [1] [1] https://edition.cnn.com/2020/02/26/economy/hong-kong-budget-2020-economy/index.html https://edition.cnn.com/2020/02/26/economy/hong-kong-budget-...
ilaksh 7y ago
We are 100,000 years overdue for a major upgrade to the information technology known as money.

gdubs 7y ago

Keynes famously said you could hire people to dig ditches and it would stimulate the economy. However, if we were to take aggressive action on Climate Change, there’s a lot of potential jobs there. A massive potential stimulus. Also, you know, public funding of basic research which could explore, I don’t know, pandemic response, new therapeutics, etc. Like you said, ideological barriers are what’s keeping us stuck. But before we went all in on finance we had a pretty epic run last century of productivity fueled by public investment (think 1940-1970).

trophycase 7y ago
I mean half of the economy is digging ditches basically. A few small portions of the economy produce the necessities of life while nearly everyone else just circulates money around through entertainment, advertisement, etc.
paganel 7y ago
Climate Change is doing just fine with us doing no work, notice the recent news about the satellite-detectable pollution levels in China being at lows not seen in a long while. Of course, that means us not being as product- and services-rich as we are right now (farewell to cheap airplane rides, disposable clothes and easily replaceable electronics) but at the end of the day something will have to give.
- heurist 7y ago
  That won't last. China will feel a need to dig itself out of a hole and ramp production beyond normal levels to make up for it.
lottin 7y ago
The problem is most governments are already highly in debt. It is not that a fiscal stimulus is a bad idea per se, but it has to start during the expansion cycle by reducing the debt, otherwise at some point so much debt becomes unmanageable.
OCASM 7y ago
Keynes's ideas also fail all over the globe. Saving and investing is what grows an economy.
- hnarn 7y ago
  In what universe does saving stimulate the economy? It's literally the opposite of consumption.
  - OCASM 7y ago
    Saving allows the banks to lend the money to entrepreneurs who increase productive capacity and hence grow the economy.
- atq2119 7y ago
  Saving doesn't grow the economy, pretty much by definition as was already pointed out. (Real) investment, in the sense of building up new productive capacity, is an important part of growing the economy. However, investment at least by the private sector cannot thrive in a vacuum. It needs a context of either existing or plausible demand. If the demand is missing, you'd be a fool to spend money on increasing productive capacity, i.e. you'd be a fool to invest. Note the important emphasis on what kind of investment we're talking about. Unfortunately, the act of buying existing productive capacity (e.g. by buying stocks) is also called investing, and you have to be careful not to confuse the different meanings of the word.
  - OCASM 7y ago
    Indeed, real investment requires market interest, something the government is pretty bad at discerning Saving goes hand in hand with investment since by putting money in the bank it can be borrowed by entrepreneurs and they can hopefully do something productive with it. Merely spending it doesn't have that effect.
    - atq2119 7y ago
      I feel like you are not replying to the core of the argument: Spending is crucial because that's what signals where investment is needed / desirable. Furthermore, spending is what gives companies profits that can then be reinvested for sustained development. If there is no spending, then investment is simply pointless. If investment happens in a vacuum, without regard for where the demand (which is nearly a synonym for spending) is, the investment will likely go to inefficient or useless projects. Furthermore, the stated causality from saving to investment doesn't exist in our modern financial system. Banks create money out of nothing whenever they find a suitable borrower. Of course, a borrower is more likely to be suitable if they can demonstrate demand for their product - again, the importance of spending. Sidenote: There is an equality of savings and investment in the national accounts (if you ignore the external sector), but that's just an after-the-fact accounting identity without any causal content. There's good reason to believe that, if anything, the causality goes from investment to savings. Either way, it's not an interesting causality. The real economic decisions, certainly the ones that lead to good allocation of capital, follow where the demand is. Sidenote #2: Your stab at the government misses the point as well. Nobody is asking for the government to start investing in productive capacity for things that the private sector usually provides. However, government could ensure that people have more disposable income. This leads to more spending, which encourages (and finances, via reinvested profits!) investment in order to satisfy the added demand. At the same time, it improves the quality of the demand signal, which helps achieve a better overall allocation of capital. There are other useful things that governments could do, but this is an important and useful thing. The economy generally works well when people can just vote with their wallets. But one precondition is that there is money in those wallets.
joshocar 7y ago
Also, the result, cheaper and more abundant energy, would stimulate the economy.
kube-system 7y ago
Who do you hire when you're at full employment? (The answer is you have to increase immigration, and hire those people)
- qeternity 7y ago
  Well for starters you stop reducing the participating rate to make things appear better.
  - kube-system 7y ago
    The participation rate isn't set, it's measured.

mindslight 7y ago

> inflation has arguably been far too low for far too long anyway... Do you not need a roof over your head, health insurance, a car, college education, etc? Inflation has been rampant, it's just not apparent in manufactured goods because the actual cost of production dropped rapidly with offshoring and technological progress. Without significant inflation, we would have seen a steady march down of consumer prices, as happened in computing.

gzu 7y ago
lewis turning point: https://en.wikipedia.org/wiki/Lewis_turning_point https://en.wikipedia.org/wiki/Lewis_turning_point The inflation has been offshored. China's rural population has been lifted out of poverty. What happens to the world economy when china runs out of cheap labor?
- HenryKissinger 7y ago
  Some countries will always have cheaper labor than others.
- elsewhen 7y ago
  There are still many other countries with cheap labor (Bangladesh, Pakistan, lots of Africa etc). It will still take a few more decades for the majority of the whole world to get out of poverty (assuming we don’t go off the rails).
Ericson2314 7y ago
Yes the not-so-hidden inflation has been rampant, but universal health care, basic income, and direct infrastructure investment would help, not hurt those. Let's go over Housing, healthcare, and education in turn: - Housing, overpriced because the jobs are concentrated, stupid zoning, etc. We deserve dense cities but UBI means no job, no stave, which in the short term takes away the demand to move. Let's not rest on that and continue to stupid-suburb, but do take some refuge in that short term benefit of decreasing the necessity of people moving. - Education, overpriced because of a shortage of work and a credentialist rat race. I'm all for people being educated---say a liberal arts that includes engineering not because it pays well but because one has to understand the machines that surround us to understand the modern human and social condition. But it's stupid to expect people to stuggle to acquire credentials that won't get them hired and won't actually help with the stupid jobs that get if they are hired. UBI helps eliminate unproductive by removing the desperation that forces people to take them. The decreased demand for employment hopefully will end the credentialism rat race, lowering the cost of education. And the decreased drudgery of the education that remains should make the education better, and push employers to shoulder more of the remaining cost. - Healthcare. Unlike the others this probably is less overvalued; avoiding being sick or getting well when sick is incredibly valuable to the individual, and thus I view the price gouging as inevitable. I don't think there is a market based solution to this one, but that's OK. Just do the universal thing and remove this from the market, and now its not subject to inflation in the same way. [The power of the state commands the supply to exist.]

chewz 7y ago

> toolset is artificially restricted for ideological reasons Not in Hong-Kong. [1] [1] https://edition.cnn.com/2020/02/26/economy/hong-kong-budget-2020-economy/index.html https://edition.cnn.com/2020/02/26/economy/hong-kong-budget-...

ilaksh 7y ago

We are 100,000 years overdue for a major upgrade to the information technology known as money.