5 ms·

Forgive me, but I don't understand your point. Is it that it's so easy to borrow money that there's no need to sift good ideas from bad? And if so, that seems l

by md_ 7y ago

Forgive me, but I don't understand your point. Is it that it's so easy to borrow money that there's no need to sift good ideas from bad? And if so, that seems like it would result in more bad ideas being funded, not fewer good ideas. Yet the paper claims to present evidence to the contrary (sort of; they're talking about innovation gains, not "ideas")--that the cost of gains is increasing. I don't see how that would arise from low interest rates?

xiphias2 7y ago
Money (in the form of buying power) can't be created from nothing, so whenever a bad idea/execution is funded, it takes away buying power from companies that have better execution, but less access to cheap loans. As an example I personally know a CEO who had a great idea, great exececution, but a new competitor startup was funded with millions of dollars of cash that threatened to sue him in the US. He didn't have money for lawyers, so he became in a bad position very fast, even if he was quite certain that the competitor didn't have any case against him. Another example is cheap loans driving up ad prices and rent in SF, which I have seen often talked about here.
- appleshore 7y ago
  Interesting concept. Perhaps we can name this the Swordfish Law: cheap money drives out good ideas.
  - mikhailfranco 6y ago
    This is well known in the Austrian School. It's not that cheap money drives out good ideas, but it dilutes them, because cheap money allows bad ideas to persist - there is no Schumpeterian creative destruction. The corollary is that average productivity declines, because inefficient zombie companies are still encouraged to walk the earth, which is exactly what we have seen since the GFC triggered money printing and artificially low interest rates. Of course, non-Austrian economists are perplexed, and create many spurious explanations, which is an ironic example of the ineffectiveness of (economic) research. [The US legal system is a separate issue of rent seeking by an entrenched lobby, which creates and preserves laws and legal frameworks that reward litigation. US healthcare is another anomalous parasitic example. Other countries do not have these problems to the same extent, but they often have other types of rent seeking, bureaucracy, inefficiency and corruption to compensate.]
- md_ 7y ago
  "Money (in the form of buying power) can't be created from nothing..." But you weren't talking about money creation. You were talking about interest rates. Is it your point that capital has the same cost all the time, and variable interest rates are just a manifestation of money creation?
- mrfox321 7y ago
  Money can be created from nothing. https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy https://www.bankofengland.co.uk/-/media/boe/files/quarterly-...
  - chrisco255 7y ago
    Yes, but there are consequences if it is overdone: https://en.wikipedia.org/wiki/Hyperinflation_in_Zimbabwe https://en.wikipedia.org/wiki/Hyperinflation_in_Zimbabwe
  - xiphias2 7y ago
    I was specifically talking about money defined by the Austrian theory of money (buying power / store of value). Just because monetary units (currency) are created, it doesn't increase buying power of the total amount of the total amount of monetary units. For example if people buy houses from additionally created currency (even if it's debt), the buying power of one unit of that currency goes down, which can be seen by the number of required units needed to buy a house going up. The problem with banks is that they have a good reason to conflate unit of account with store of value: they make lots of profit on people not understanding the difference.
    - dumbfoundded 7y ago
      Money is made up in all cases. It's an abstraction of relative demand. Even if governments abandoned fiat money, they could still pull money from thin air. Mostly because governments use violence to change the relative price of anything. If a government made owning a gold coin or a bitcoin a crime punishable by death, I think its buying power would go down. Similarly, by forcing citizens to pay taxes in a specified currency at the threat of jail time, a new currency is created. It's made up all the way down.
      - xiphias2 7y ago
        Sure, money is a man made belief, Yuval Noah Harari's books are great at explaining this :) Generally gold confiscation doesn't mean the purchasing power going down, just transfering it to the governments. It's still quite scary though, as I wouldn't be surprised if it happened again :( The scariest thing is if all the countries in the world try to ban gold and Bitcoin at the same time to preserve the fiat system. I'm hopeful that as Schnorr signatures will make coinjoins more practical, it will be easier to use as well, thereby making ownership of Bitcoins less visible to governments. Wasabi wallet is great at doing coinjoins, but when I tried it, it was just too slow.
- epicureanideal 7y ago
  And even if both companies theoretically have access to cheap loans, it would still have a negative effect on companies that focus more on execution and ideas rather than focus more on raising lots of money.
dumbfoundded 7y ago
This is a libertarian talking point. The idea is that government control of money leads to less private innovation. We had the industrial revolution in the late 19th century while on the gold standard and now with government-controlled money, most of the long term innovation like renewable energy, nukes, the internet are all funded by the government. It has almost nothing to do with this article.
- appleshore 7y ago
  Low interest rates certainly lead to non-optimal housing development. I completely support massive government funding of energy, nuclear, technology and research. But I don't support the NY Fed and the bank CEOs controlling the open markets, setting the interest rates and flooding dumb "elite" investors with cheap money so they can build bad systems. Having 1 of 12 FRBs dominate the monetary system is a flawed idea, especially when that 1 is Wall Street. Financial engineering is dangerous and antithetical to real research, development and progress.
  - md_ 7y ago
    That's an argument. But it seems to me still a far cry from arguing that cheap capital leads to less innovation--in effect, that dumb money drives out the smart.
- chrisco255 7y ago
  We were on the gold standard until 1971, so most of the tech you just mentioned were developed while on a gold standard.
  - dumbfoundded 7y ago
    Well technically yes. It effectively died in the 1930s when England stopped using it and the US forced citizens to hand over all gold. Its peak in usage was ~1870 to ~1910. https://www.investopedia.com/ask/answers/09/gold-standard.asp https://www.investopedia.com/ask/answers/09/gold-standard.as...

by md_ 7y ago

xiphias2 7y ago

Money (in the form of buying power) can't be created from nothing, so whenever a bad idea/execution is funded, it takes away buying power from companies that have better execution, but less access to cheap loans. As an example I personally know a CEO who had a great idea, great exececution, but a new competitor startup was funded with millions of dollars of cash that threatened to sue him in the US. He didn't have money for lawyers, so he became in a bad position very fast, even if he was quite certain that the competitor didn't have any case against him. Another example is cheap loans driving up ad prices and rent in SF, which I have seen often talked about here.

appleshore 7y ago
Interesting concept. Perhaps we can name this the Swordfish Law: cheap money drives out good ideas.
- mikhailfranco 6y ago
  This is well known in the Austrian School. It's not that cheap money drives out good ideas, but it dilutes them, because cheap money allows bad ideas to persist - there is no Schumpeterian creative destruction. The corollary is that average productivity declines, because inefficient zombie companies are still encouraged to walk the earth, which is exactly what we have seen since the GFC triggered money printing and artificially low interest rates. Of course, non-Austrian economists are perplexed, and create many spurious explanations, which is an ironic example of the ineffectiveness of (economic) research. [The US legal system is a separate issue of rent seeking by an entrenched lobby, which creates and preserves laws and legal frameworks that reward litigation. US healthcare is another anomalous parasitic example. Other countries do not have these problems to the same extent, but they often have other types of rent seeking, bureaucracy, inefficiency and corruption to compensate.]
md_ 7y ago
"Money (in the form of buying power) can't be created from nothing..." But you weren't talking about money creation. You were talking about interest rates. Is it your point that capital has the same cost all the time, and variable interest rates are just a manifestation of money creation?
mrfox321 7y ago
Money can be created from nothing. https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy https://www.bankofengland.co.uk/-/media/boe/files/quarterly-...
- chrisco255 7y ago
  Yes, but there are consequences if it is overdone: https://en.wikipedia.org/wiki/Hyperinflation_in_Zimbabwe https://en.wikipedia.org/wiki/Hyperinflation_in_Zimbabwe
- xiphias2 7y ago
  I was specifically talking about money defined by the Austrian theory of money (buying power / store of value). Just because monetary units (currency) are created, it doesn't increase buying power of the total amount of the total amount of monetary units. For example if people buy houses from additionally created currency (even if it's debt), the buying power of one unit of that currency goes down, which can be seen by the number of required units needed to buy a house going up. The problem with banks is that they have a good reason to conflate unit of account with store of value: they make lots of profit on people not understanding the difference.
  - dumbfoundded 7y ago
    Money is made up in all cases. It's an abstraction of relative demand. Even if governments abandoned fiat money, they could still pull money from thin air. Mostly because governments use violence to change the relative price of anything. If a government made owning a gold coin or a bitcoin a crime punishable by death, I think its buying power would go down. Similarly, by forcing citizens to pay taxes in a specified currency at the threat of jail time, a new currency is created. It's made up all the way down.
    - xiphias2 7y ago
      Sure, money is a man made belief, Yuval Noah Harari's books are great at explaining this :) Generally gold confiscation doesn't mean the purchasing power going down, just transfering it to the governments. It's still quite scary though, as I wouldn't be surprised if it happened again :( The scariest thing is if all the countries in the world try to ban gold and Bitcoin at the same time to preserve the fiat system. I'm hopeful that as Schnorr signatures will make coinjoins more practical, it will be easier to use as well, thereby making ownership of Bitcoins less visible to governments. Wasabi wallet is great at doing coinjoins, but when I tried it, it was just too slow.
epicureanideal 7y ago
And even if both companies theoretically have access to cheap loans, it would still have a negative effect on companies that focus more on execution and ideas rather than focus more on raising lots of money.

dumbfoundded 7y ago

This is a libertarian talking point. The idea is that government control of money leads to less private innovation. We had the industrial revolution in the late 19th century while on the gold standard and now with government-controlled money, most of the long term innovation like renewable energy, nukes, the internet are all funded by the government. It has almost nothing to do with this article.

appleshore 7y ago
Low interest rates certainly lead to non-optimal housing development. I completely support massive government funding of energy, nuclear, technology and research. But I don't support the NY Fed and the bank CEOs controlling the open markets, setting the interest rates and flooding dumb "elite" investors with cheap money so they can build bad systems. Having 1 of 12 FRBs dominate the monetary system is a flawed idea, especially when that 1 is Wall Street. Financial engineering is dangerous and antithetical to real research, development and progress.
- md_ 7y ago
  That's an argument. But it seems to me still a far cry from arguing that cheap capital leads to less innovation--in effect, that dumb money drives out the smart.
chrisco255 7y ago
We were on the gold standard until 1971, so most of the tech you just mentioned were developed while on a gold standard.
- dumbfoundded 7y ago
  Well technically yes. It effectively died in the 1930s when England stopped using it and the US forced citizens to hand over all gold. Its peak in usage was ~1870 to ~1910. https://www.investopedia.com/ask/answers/09/gold-standard.asp https://www.investopedia.com/ask/answers/09/gold-standard.as...