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This Cantillon effects keeps getting mentioned even though it's well outside of mainstream economics. And its convoluted explanation is not accurate in modern

by jcfrei 6y ago

This Cantillon effects keeps getting mentioned even though it's well outside of mainstream economics. And its convoluted explanation is not accurate in modern financial markets. The reality is much simpler. The FED intervenes by buying financial assets which directly benefits people who hold these financial assets: Either by selling to the FED or through the increase in their price. Poor people without savings (and without financial assets) don't benefit. It's as simple as that.

ethbro 6y ago
I forget which contrarian this stemmed from, but it was probably linked on HN previously. There's a larger reason most central banks print money: most countries are debtor nations. If you are a debtor nation, and you have the option to print at minimal consequence (say, because your currency is a world reserve currency), doing so is strictly better than all other options. All other approaches open the very real possibility of an ugly spiral into depression (real) and default. I believe the phrasing the author used was 'when faced with a choice between actual default (economy unable to support debt payments) and implicit default (currency inflation), almost every democratic government will choose the latter.' It's easier for people to lose invisible money (inflation) than visible money (depression / fiscal tightening / loan repayment).
lazulicurio 6y ago
> This Cantillon effects [...] is not accurate in modern financial markets > The FED intervenes by buying financial assets which directly benefits people who hold these financial assets [...] Poor people without savings (and without financial assets) don't benefit Would you mind expounding on this a little bit? From my perspective, you seem to be decrying the Cantillon effect in one sentence yet acknowledging its existence in the next. Edit: To explain my confusion a bit more: In my (albeit limited) understanding, the Cantillon effect claims that monetary injections will spread unevenly across the economy. So, I read your comment as: "The claim that monetary injections will spread unevenly across the economy is not accurate. The reality is much simpler. The FED just injects money in a way that it spreads unevenly across the economy."
- jcfrei 6y ago
  I think the explanation the Cantillon effect gives is wrong. The monetary injection spreads uneven not because the effects on purchasing power are delayed between different groups but because it mostly increases the value of financial assets. And rich people have a larger share of their wealth in financial assets. Most of the wealth in the lower income percentiles is probably in consumer goods (appliances, cars, etc) and very little in savings / financial assets.
  - lazulicurio 6y ago
    I'm still having trouble grasping the distinction that you're trying to make. Is it just that there's a separation between purchasing power and asset value?

by jcfrei 6y ago

ethbro 6y ago

I forget which contrarian this stemmed from, but it was probably linked on HN previously. There's a larger reason most central banks print money: most countries are debtor nations. If you are a debtor nation, and you have the option to print at minimal consequence (say, because your currency is a world reserve currency), doing so is strictly better than all other options. All other approaches open the very real possibility of an ugly spiral into depression (real) and default. I believe the phrasing the author used was 'when faced with a choice between actual default (economy unable to support debt payments) and implicit default (currency inflation), almost every democratic government will choose the latter.' It's easier for people to lose invisible money (inflation) than visible money (depression / fiscal tightening / loan repayment).

lazulicurio 6y ago

> This Cantillon effects [...] is not accurate in modern financial markets > The FED intervenes by buying financial assets which directly benefits people who hold these financial assets [...] Poor people without savings (and without financial assets) don't benefit Would you mind expounding on this a little bit? From my perspective, you seem to be decrying the Cantillon effect in one sentence yet acknowledging its existence in the next. Edit: To explain my confusion a bit more: In my (albeit limited) understanding, the Cantillon effect claims that monetary injections will spread unevenly across the economy. So, I read your comment as: "The claim that monetary injections will spread unevenly across the economy is not accurate. The reality is much simpler. The FED just injects money in a way that it spreads unevenly across the economy."

jcfrei 6y ago
I think the explanation the Cantillon effect gives is wrong. The monetary injection spreads uneven not because the effects on purchasing power are delayed between different groups but because it mostly increases the value of financial assets. And rich people have a larger share of their wealth in financial assets. Most of the wealth in the lower income percentiles is probably in consumer goods (appliances, cars, etc) and very little in savings / financial assets.
- lazulicurio 6y ago
  I'm still having trouble grasping the distinction that you're trying to make. Is it just that there's a separation between purchasing power and asset value?