21 ms·
The Covid-19 pandemic is forcing a rethink in macroeconomics
- thedudeabides5 6y agoJust as inequality creates a need for stimulus, they argue, stimulus eventually creates more inequality. Particularly when your predominant stimulus tool is 'print money to buy assets rich people have.'
- duaoebg 6y agoIf rich people sold the assets they wouldn’t have them anymore. The mechanism is more that rich have access to lower interest rates. The proportional difference of interest rates between the rich and poor increases as the risk free interest rate decrease.
- jamesboehmer 6y ago> If rich people sold the assets they wouldn’t have them anymore. But they’d have more money, presumably more than what they paid for the assets. Not that money and goods are exactly fungible, but buying assets from the wealthy makes them wealthier, not poorer or status quo.
- pa7x1 6y agoI think we will look back into economic history to our times in surprising disbelief at how simplistic our central bank policy is. A bit like how we laugh at how doctors used leeches to treat various ailments. From 1929, central bankers learnt that liquidity can be a terrifying disease in an economy, 2008 showed that printing helps and here they go with their newly learned tool trying to fix all problems. Now they have to figure out that if you only inject that liquidity from the top, the inflation appears in certain kind of assets (mostly financial) and has a hard time reaching the rest of the economy, causing ever-rising inequality. I think a more refined approach will be developed at some point, where they will start using two levers to steer the function of the economy. Money printing from below via UBI and regulating the inflation of day-to-day assets and money-printing from above and regulating the inflation of financial assets. This could allow finer control balancing target inflation rates of different assets and preventing rising inequality to tear down society.
- gallegojaime 6y agoUBI as a macroeconomic lever to pull is an intriguing idea - hadn't thought of that consequence. Although it figures changing the amounts would get extremely political.
- RobertoG 6y agoThere is the idea of job guarantee as an automatic stabilizer too. The government grants a job to anyone that wants to work at a minimum wage salary. When unemployment grow, the government automatically expend more in the economy because more people access to the job guarantee. When the economy recovers the private sector take workers away from the job guarantee through paying a little more than the minimum wage (or the same and better conditions) and the government spending is reduced. It's both an inflation and an unemployment stabilizer. UBI doesn't have those properties.
- deleted 6y ago[deleted]
- jmaygarden 6y agoWhat's the incentive to perform if you cannot be fired? A "guaranteed job" might as well be a simple unemployment check.
- dredmorbius 6y agoJob satisfaction / better jobs. The guaranteed job need not be pleasant. Hell, many already aren't. But a job would be guaranteed and would meet basic needs.
- generatorguy 6y agopeople would rather be unemployed than have an unpleasant minimum wage job.
- paulpauper 6y ago1.2 trillion of the CARES act went to households and small biz. It is not like the rich were the primary beneficiaries of this stimulus.
- caiobegotti 6y agoI believe it's not really "rethink" as if we had once figured it out correctly in the past already. We are still actually thinking it for the first time, specially if you consider economists and policy makers were yet looking for "something new" (mentioned in the article) in macroeconomics during the last, what, 50 years? It's all pretty new, which suggests to me that it is all in a pretty extremist and radicalized state: it doesn't have to be 100% trickle down reaganomics or 100% state interventionism exclusively. I'm very confident a major crisis like this one will make key people finally realize that a mix of free global markets + welfare states focused on reducing inequality + democratic institutions will be the answer to many macroeconomics problems. Very few countries have realized this, the rest of the world meanwhile will keep shouting at each other doubling down on stupid policies not based in good examples and will keep blaming keynesianism or whatever neoliberal approach they can't understand.
- thewarrior 6y agoThere are powerful forces whose giant profits would be threatened by such a consensus. It’s hard to say if it will actually happen.
- Retric 6y agoA great deal of political thought and practice is centered around promoting personal benefit. While it might look dumb for someone promoting free markets to also support farm subsidies etc, the spoken justifications have little to do with the actual decision making process. Convincing people who don’t benefit from your policies to still support them is simply how the game is won.
- nickff 6y agoFarm subsidies are wildly popular with voters, both in farm states and non-farm states, and there is not much advertising/public lobbying for them. They are an example of a voter-driven policy, not a special interest group's successful lobby.[1] [1] https://en.wikipedia.org/wiki/The_Myth_of_the_Rational_Voter https://en.wikipedia.org/wiki/The_Myth_of_the_Rational_Voter
- nly 6y agoFinancial repression[0], 0% interest rates and higher inflation, to inflate away trillions of $$ of national debt and drive up nominal GDP, is the order of the next decade. We've reached the limits of what central banks can do, from here on out it's direct government intervention in the commercial credit sector, and driving up demand through fiscal policy. [0] https://en.wikipedia.org/wiki/Financial_repression https://en.wikipedia.org/wiki/Financial_repression
- beamatronic 6y agoIs there anywhere that explains why governments in the US don’t build infrastructure, as a long-term investment?
- walleeee 6y agoJust a wad of totally unscientific, interwoven armchair theories: political cycles are much shorter than the relevant timescales for long-term infrastructure investment; attention spans today are shorter than they used to be; the long slide of most of the "middle class" into financial insecurity means fewer people have the means and free time to educate themselves about and advance civic concerns; some political leaders in the U.S. have for decades undermined public support for public works, as well as public faith in government; American culture is now far more fractured and heterogeneous than it used to be, making coalitions between interest groups more difficult to form and maintain (recent trends in political and social thought, according to which individual and group identities are rendered increasingly explicit - along with the ability, courtesy of electronic communication, to associate almost exclusively with those who identify similarly - may exacerbate this)
- tonyedgecombe 6y agoMy guess is infrastructure doesn't required hordes of unskilled people anymore. I've been watching our water authority put a new water main in outside my house and I didn't see a single person swinging a pick. Instead there was a lot of technology being used and put in the ground. People aren't going to hop from barista to this sort of work any time soon.
- 6y ago
- torrance 6y agoGiven that this is precisely what it’s spent the last 30 years coming to understand, it’s baffling that there is only a single paragraph in this article about Modern Monetary Theory. And one at that certainly doesn’t convey the nuance of the theory at all. For anybody seriously interested in the subject I would recommend the 2019 textbook ‘Macroeconomics’ by Mitchell, Wray & Watts.
- trthomps 6y agoI just finished the book "The Deficit Myth: Modern Monetary Theory and the Birth of the People's Economy" by Stephanie Kelton. Highly recommend to anyone who hasn't heard of MMT and wants a good intro with examples of how MMT could help today.
- RobertoG 6y agoA good lecture by her (video): https://www.youtube.com/watch?v=WS9nP-BKa3M https://www.youtube.com/watch?v=WS9nP-BKa3M
- mdorazio 6y agoThis lecture was frustrating as hell to watch because she only addressed the concerns of naive critics of deficits who don't really understand how monetary policy works. She did basically nothing to address the concerns of people more versed in the topic, such as: - What happens when your deficit gets so high that it's obvious to the people buying treasuries you can't pay the interest they expect without massive inflation? - How do you explain away stagflation from the 70s without being concerned about repeating it? Basically, deficit spending is fantastic for as long as you can get away with it. The question is at what point will you no longer be able to get away with it? 10 years? 20? 100? No one knows. But at some point the interest burden of the debt itself requires more monetary expansion than purchasers of treasuries are willing to accept (inflation is the enemy of fixed interest assets), and then you have a problem. The US recently doesn't have this problem because of its dominant economic and military position in the world (as well as the petro dollar/default currency status), but what happens when those things cease to be true? Those are the concerns I wanted Stephanie to at least pay lip service to, but she conveniently didn't even mention them.
- deleted 6y ago[deleted]
- wz1000 6y ago> Talking about a revolution > Many economists want precisely this state intervention, but it presents clear risks. Governments which already carry heavy debts could decide that worrying about deficits is for wimps and that central-bank independence does not matter. That could at last unleash high inflation and provide a painful reminder of the benefits of the old regime. Sounds more like a plea than a warning, coming from The Economist. Prophecies of inflation seem like a joke in a time of record low inflation with high government deficits. Just look at the case of Japan for one.
- derg 6y agoYep. There's a concerted effort to keep bringing up high inflation as a means of forcing more austerity. The mythical "high inflation" hasn't materialized but the cries continue to happen.
- take_a_breath 6y agoThere is a reasonable argument that we do have inflation, it’s just being shown in assets prices, not commodity prices. Things like education, housing, stocks, art, startup valuations, and more have signs of inflation even if oil and food prices don’t.
- derg 6y agoI would agree to this but this isn't necessarily a blanket monetary policy of spending too much money across the board and is a result of political capture by the wealthy where it's used to keep fueling the infinite growth machine for the already wealthy. I mean housing policy in itself is entirely political: weaponized zoning laws and the lack of new construction to match the growth of the country are a direct result of this infinite growth machine. Housing being considered "an investment" will further perpetuate this price inflation because there is a vested interest in not allowing property values to decrease which is what happens when you can build to match demand.
- PoachedSausage 6y ago
- rdlecler1 6y agoI’ll continue to take karma point hits by insisting that HN stop posting paywalled content.
- dredmorbius 6y agoFor those of us who've read The Economist for two or three or four decades, perhaps more, "rethinking economics" is a reliably recurring evergreen which gets trotted out at times of crisis. When the paper is feeling merely foreward, a possibility that Keynes may not have been completely wrong is broached. In periods of sheer desperation, a hesitant suggestion that subscribers might read (but never follow) Marx is hauled from the deepest rhetorical powder magazines. But that's about the limit of it. The one change I have noted is that where the tactic was invoked only once or twice a decade, its use now seems far more frequent, every few years in the aughts, now only months apart. A search of the paper's archives, or external Web search, largely confirms this: https://duckduckgo.com/?q=rethinking+(macroeconomics%7Cmicroeconomics%7Ceconomics)+site%3Aeconomist.com https://duckduckgo.com/?q=rethinking+(macroeconomics%7Cmicro... Whilst I'm strongly convinced that economic orthodoxy is sharply flawed, monetarism a stunted model like its progenitor, Keynes was insightful, and that Marx's class-consciousness has merits, full understanding and remedy for present concerns must look further afield. MMT, W. Brian Arthur's complexity economics, and Steve Keen's work unifying capital, labour, class, and energy would be a good start.
- gallegojaime 6y agoI subscribe to some of aspects of classical liberalism, and the Economist was a must read for me during years. It explains good ideas, but I would notice a strange formulaic structure they often used. Many poor-quality articles were subtitled "A [paradigm/company/event] brings [boon], but [caveat]".
- dredmorbius 6y agoHence the old joke about the desire for a one-armed economist: they won't be always saying "on the other hand..." Though this does bring to mind Robert K. Merton's unintended consequences and overt/covert functions.
- easymovet 6y ago"a monetary policy that is not constrained by the presence of physical cash", that is like saying a democratic government that is not constrained by the need for voting.
- hypertexthero 6y agoThomas Piketty, in [Capital in the Twenty-First Century][money]: > Yet it seems to me that all social scientists, all journalists and commentators, all activists in the unions and in politics of whatever stripe, and especially all citizens should take a serious interest in money, its measurement, the facts surrounding it, and its history. Those who have a lot of it never fail to defend their interests. Refusing to deal with numbers rarely serves the interests of the least well-off. [Rutger Bregman][ubi]: > Poverty isn’t a lack of character; it’s a lack of cash. [money]:https://www.tbray.org/ongoing/When/201x/2014/05/01/Piketty-Capital https://www.tbray.org/ongoing/When/201x/2014/05/01/Piketty-C... [ubi]:https://www.ted.com/talks/rutger_bregman_poverty_isn_t_a_lack_of_character_it_s_a_lack_of_cash https://www.ted.com/talks/rutger_bregman_poverty_isn_t_a_lac...
- notJim 6y agohttp://archive.is/15nqg http://archive.is/15nqg
- notJim 6y agoI'm a real dummy when it comes to economics, so I have a question. What is the theory that buying assets like stocks boosts the economy? Doesn't this just create incentives to hold on to those stocks, so that you can reap the growth? Given that most stocks by far are held by wealthy people, it's hard to see how this stimulates demand, since they already are able to buy what they want. Theoretically, they might eventually sell the assets and then start a new business or something, but this seems very indirect. Isn't it easier to just hold the stocks/real estate? I don't really understand why holding a stock is considering investing, since the company (where the actual employment and production happens) doesn't see a benefit.
- lisper 6y agoHolding stocks doesn't stimulate demand, it produces capital. In order to start a business you have to spend money to procure the means of production before you can open your doors. You can put up your own money, you can borrow it (debt financing) or you can raise it by selling an ownership interest in the business (stocks/equity financing). It's true that after the stock is issued, lots of financial games get played that don't actually help the economy, but most businesses would never have been started in the first place if not for the ability to issue stock.
- notJim 6y agoThis is the clearest response so far. Thinking about the tech world, we have all this VC money, but all of that is based on the idea that eventually the company will IPO and the VCs will get huge returns. However, given that both VC valuations, and stock market valuations (like P/E ratios, IIRC) are arguably in bubble territory (many have argued this), it doesn't seem like the Fed buying more of these assets is very efficient.
- lisper 6y agoThe Fed buying up assets is a purely political move to prop up the markets, i.e. to protect investors at the expense of everyone else. It's a dick move for a lot of reasons, not least of which is that it effectively says: all rules are off. We, the Fed, will protect you, the shareholders, from all systemic risk by using our fiscal power to as a guarantor of valuations. That in turn causes more people to buy shares, because when all the risk is gone why the hell not? And that in turn disconnects prices from reality. It is welfare for the wealthy. I am a major beneficiary of this policy and I still think it sucks big fat honking weenies, particularly since it has been implemented by people who rail against welfare for the people who actually need it. The brazen hypocrisy makes me want to retch.
- deleted 6y ago[deleted]
- Animats 6y agoThis used to be called "secular stagnation". There's not much forward progress, but nobody really understands why. Japan hit this first, in their 1989 housing crash. In the mid-1980s, Japan seemed poised to dominate the world economy. After the crash, Japan never came back.[1] There was a fear that the US would hit that after the 2008 crash. But the US did come back. At least until the epidemic. Macroeconomists think macroeconomics determines what happens. Sometimes it does, and sometimes it doesn't. When it doesn't, central bankers are totally lost about what to do. Should a country have an industrial policy? The traditional answer in capitalist countries is "no". But it worked for Japan, S. Korea, Singapore, and China, which now make most of the world's good stuff. China's current industrial policy, set in 2015, is called "China 2025"[2][3]. The plan is to achieve dominance in the remaining sectors where China is behind - aircraft, ICs, etc. It's not talked about much outside China, but it's still the operating plan. The main items in 2015 were: 1. New advanced information technology 2. Automated machine tools & robotics 3. Aerospace and aeronautical equipment 4. Maritime equipment and high-tech shipping; 5. Modern rail transport equipment 6. New-energy vehicles and equipment 7. Power equipment 8. Agricultural equipment 9. New materials 10. Biopharma and advanced medical products Halfway through the 10-year plan, China is doing well on at least 7 of those items. Western countries are assuming that the knobs controlled by the financial system determine what happens. When the biggest country on the planet isn't playing that game, that approach may not be competitive. [1] https://www.csis.org/analysis/made-china-2025 https://www.csis.org/analysis/made-china-2025 [2] https://www.pbs.org/wgbh/frontline/article/made-in-china-2025-the-industrial-plan-that-china-doesnt-want-anyone-talking-about/ https://www.pbs.org/wgbh/frontline/article/made-in-china-202... [3] https://static.seekingalpha.com/uploads/2019/1/21/saupload_Japan-Nikkei-225-Index-2017-04-03-chart.png https://static.seekingalpha.com/uploads/2019/1/21/saupload_J...
- barry-cotter 6y ago> This used to be called "secular stagnation". There's not much forward progress, but nobody really understands why. Japan hit this first, in their 1989 housing crash. In the mid-1980s, Japan seemed poised to dominate the world economy. After the crash, Japan never came back. Scott Sumner disagrees on no one understanding this. They’re not printing enough money. Basic sketch of the market monetarist position is that Friedman was right about money being really important but very, very wrong about the appropriate target. Keep printing money until nominal GDP growth hits target, then stop. Better to target NGDP future to reduce instability. Japan’s central bank’s is up there with the Fed causing the Great Depression by contracting the money supply by a third at the beginning of a recession in terms of economic mismanagement.
- plmu 6y agoThe article pleads for more workers rights and bargaining power. While I think that is a noble wish, it is an illusion, and they know it. The article describes "out of the box" thinking, but it is still hopelessly trapped.