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> loosening of monetary policy The federal funds rate is zero. So, direct injection of money seems the only way forward. Direct injection failed massively in t

> loosening of monetary policy The federal funds rate is zero. So, direct injection of money seems the only way forward. Direct injection failed massively in the last recession where money was given to the markets but failed to reach the consumers. There is a lesson to learn there. Europe approach in the current situation is to pay companies to keep citizens employed in combination with it’s already existing social protections. USA approach has been directed to assure companies capital to keep them for failing. The pandemic is an awful situation but a very interesting economic experiment. Time will tell the pros and cons of the different approaches.

zozbot234 6y ago
Monetary loosening did not fail post-2008 recession, except to the extent that it wasn't really tried in the first place. Whenever aggressive monetary loosening was done, even by unconventional means, the market responses in the forex, stock and even in the bond markets were very clear. (Contrary to common misconceptions, loose monetary policy should not be expected to cause low rates in e.g. the bond market; low market rates occur when money has been too tight, and interest-rate based monetary policy works like stabilizing an unstable system, so pushing market rates higher requires setting the policy rate even lower!)
- nostrademons 6y ago
  That I think was his point: we did see large responses in asset prices, but this excess money going into the forex/stock/bond markets did not trickle down into the labor market like conventional economic theory assumes it would. Instead of stimulating the real economy, it led to asset bubbles and widening income inequality.
  - zozbot234 6y ago
    Excess money does not go "into" markets, it flows through markets and into private-sector balances. And excess money is not what you think it is anyway: when bond-market returns are low due to tight monetary policy in the past, the demand for cash and cash-like instruments is sky-high and the monetary authorities need to create even more excess money to satisfy it. This is pretty much non-negotiable: if you want to avoid this kind of conundrum, you should avoid tight policy in the first place. (High asset prices are simply the flip side of low returns for bond-like instruments.)
    - nostrademons 6y ago
      So that's all technically correct, but the point I'm making is that as that excess money is flowing through asset markets, it's ending up on the balance sheet of private-sector actors who have little need to spend it on a day-to-day basis anyway. In Keynesian terms, money is pooling at precisely those firms who have a low MPC (which is not coincidental: it pools at those firms because they have a low MPC, because pooling indicates a high MPS). Thus the government needs to inject much more money through these markets than it expects, because the Keynesian multiplier is low. In the process, it inflates the paper wealth of these firms significantly more than it actually stimulates the real economy, something we saw from 2010-2020. I think the OP is alluding to the strategy of giving money directly to consumers, and particularly poor consumers (who tend to have a high MPC). This limits the pooling effect: it still happens, but it can't happen until the money has circulated throughout the economy a few times, which increases the stimulus effect for a given amount of inequality generated. As an added benefit, the effects are more immediate, which helps the central bank understand the consequences of its actions more rapidly and not have to act 18 months or so in advance of when the stimulus trickles down to real production.
      - zozbot234 6y ago
        If you want to do this kind of policy by directing money flows in a non-neutral way, the highest-impact policy by far is subsidizing investment. Investment spending reacts very aggressively to any change in forecasted returns, far more so than would be implied by differential MPC. (A policy of giving more money to the poor is highly desirable for other reasons; e.g. it directly addresses liquidity constraints. It's sensible to regard these as distinct issues, however.) At the moment, the Fed is paying interest on excess reserves, which is quite bad if you think there's too little demand and we should have more investment. That's one way of saying that policy might have been too tight even post-2008.
  - Hokusai 6y ago
    > Instead of stimulating the real economy, it led to asset bubbles and widening income inequality. Yes. I guess that I was not clear enough. “ Wages in California have grown fastest for earners at the top of the income distribution. Wages for those in the bottom- and middle-income earners remained stagnant up until the recession and dropped until about 2014. As in the national data, low- and median-wage workers in California finally experienced wage growth that outpaced inflation starting in 2014. This was in part due to labor market tightening, but also due to state and local increases of the minimum wage.” https://irle.berkeley.edu/the-post-recession-labor-market-an-incomplete-recovery/ https://irle.berkeley.edu/the-post-recession-labor-market-an... Until 2014 there were no wage growth for bottom-middle income workers (California). That is a long fall. Meanwhile the markets recovered way faster. We see this pattern repeating in this current crisis that just is starting. There has been a fast fall and fast asset valuation. But, employment has fallen fast but is recovering slower. It’s too soon to get to conclusions as is going to take years to see how the economy evolves. But, there is always lessons to be learned on how to improve the economy to all social strata from past mistakes.

zozbot234 6y ago

Monetary loosening did not fail post-2008 recession, except to the extent that it wasn't really tried in the first place. Whenever aggressive monetary loosening was done, even by unconventional means, the market responses in the forex, stock and even in the bond markets were very clear. (Contrary to common misconceptions, loose monetary policy should not be expected to cause low rates in e.g. the bond market; low market rates occur when money has been too tight, and interest-rate based monetary policy works like stabilizing an unstable system, so pushing market rates higher requires setting the policy rate even lower!)

nostrademons 6y ago
That I think was his point: we did see large responses in asset prices, but this excess money going into the forex/stock/bond markets did not trickle down into the labor market like conventional economic theory assumes it would. Instead of stimulating the real economy, it led to asset bubbles and widening income inequality.
- zozbot234 6y ago
  Excess money does not go "into" markets, it flows through markets and into private-sector balances. And excess money is not what you think it is anyway: when bond-market returns are low due to tight monetary policy in the past, the demand for cash and cash-like instruments is sky-high and the monetary authorities need to create even more excess money to satisfy it. This is pretty much non-negotiable: if you want to avoid this kind of conundrum, you should avoid tight policy in the first place. (High asset prices are simply the flip side of low returns for bond-like instruments.)
  - nostrademons 6y ago
    So that's all technically correct, but the point I'm making is that as that excess money is flowing through asset markets, it's ending up on the balance sheet of private-sector actors who have little need to spend it on a day-to-day basis anyway. In Keynesian terms, money is pooling at precisely those firms who have a low MPC (which is not coincidental: it pools at those firms because they have a low MPC, because pooling indicates a high MPS). Thus the government needs to inject much more money through these markets than it expects, because the Keynesian multiplier is low. In the process, it inflates the paper wealth of these firms significantly more than it actually stimulates the real economy, something we saw from 2010-2020. I think the OP is alluding to the strategy of giving money directly to consumers, and particularly poor consumers (who tend to have a high MPC). This limits the pooling effect: it still happens, but it can't happen until the money has circulated throughout the economy a few times, which increases the stimulus effect for a given amount of inequality generated. As an added benefit, the effects are more immediate, which helps the central bank understand the consequences of its actions more rapidly and not have to act 18 months or so in advance of when the stimulus trickles down to real production.
    - zozbot234 6y ago
      If you want to do this kind of policy by directing money flows in a non-neutral way, the highest-impact policy by far is subsidizing investment. Investment spending reacts very aggressively to any change in forecasted returns, far more so than would be implied by differential MPC. (A policy of giving more money to the poor is highly desirable for other reasons; e.g. it directly addresses liquidity constraints. It's sensible to regard these as distinct issues, however.) At the moment, the Fed is paying interest on excess reserves, which is quite bad if you think there's too little demand and we should have more investment. That's one way of saying that policy might have been too tight even post-2008.
- Hokusai 6y ago
  > Instead of stimulating the real economy, it led to asset bubbles and widening income inequality. Yes. I guess that I was not clear enough. “ Wages in California have grown fastest for earners at the top of the income distribution. Wages for those in the bottom- and middle-income earners remained stagnant up until the recession and dropped until about 2014. As in the national data, low- and median-wage workers in California finally experienced wage growth that outpaced inflation starting in 2014. This was in part due to labor market tightening, but also due to state and local increases of the minimum wage.” https://irle.berkeley.edu/the-post-recession-labor-market-an-incomplete-recovery/ https://irle.berkeley.edu/the-post-recession-labor-market-an... Until 2014 there were no wage growth for bottom-middle income workers (California). That is a long fall. Meanwhile the markets recovered way faster. We see this pattern repeating in this current crisis that just is starting. There has been a fast fall and fast asset valuation. But, employment has fallen fast but is recovering slower. It’s too soon to get to conclusions as is going to take years to see how the economy evolves. But, there is always lessons to be learned on how to improve the economy to all social strata from past mistakes.