4 ms·

What I'm thinking is that monetary and fiscal policy will do whatever it takes to make the masses minimally happy. Whatever the side effects (growing wealth ga

What I'm thinking is that monetary and fiscal policy will do whatever it takes to make the masses minimally happy. Whatever the side effects (growing wealth gap, rich making out like bandits), they don't care. As long as the masses have their minimal existence, Netflix, cheap food, etc.

dnautics 6y ago
this is not a bad model for understanding what has happened. Several phenomena have led to this: 1 - fetishization of quantitation in politics. Bias for policy endpoints that can be measured with "objective" numbers. 2 - Selection of employment as a policy endpoint that both the economic left and the right can agree on. 3 - Selection of monetary and fiscal policy as the means to keep employment levels high. 4 - https://krugman.blogs.nytimes.com/2010/02/13/the-case-for-higher-inflation/ https://krugman.blogs.nytimes.com/2010/02/13/the-case-for-hi... "even in the long run, it’s really, really hard to cut nominal wages. Yet when you have very low inflation, getting relative wages right would require that a significant number of workers take wage cuts. So having a somewhat higher inflation rate would lead to lower unemployment..." 5 - Goodhart's law Result: Stealthily cheat the labor class out of their wages to keep employment high over the course of generations (see productivity gap, http://country.eiu.com/asset_images/773319461.gif http://country.eiu.com/asset_images/773319461.gif) Keynes: "Lenin is said to have declared that the best way to destroy the Capitalist System was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some." Keynes should have been more specific: Inflation selectively impoverishes the poor and, and enriches the politically connected, who are usually already wealthy.
- ethbr0 6y ago
  Inflation most strongly acts on those who have no alternative, and only save in currency. Broadly speaking, this means the financially unsophisticated. It doesn't necessarily mean the poor, as (a) they have debt > savings, (b) modern inflation primarily accrues in assets rather than staples, & (c) competition for employees inflates base wages (if low unemployment).
  - deleted 6y ago
    [deleted]
  - atom_arranger 6y ago
    There could be other reasons than them being financially unsophisticated. Could be that people with lower net worths are less comfortable risking what little savings they have on investments. They may also need more liquidity in case of emergencies. Wealthier people can generally afford emergencies without going into their investments.
    - icedchai 6y ago
      I know plenty of smart people with extra cash who are fearful of investing. It is very, very common. Even if they are not completely afraid, they would rather pay a "financial advisor" several percentage points in wrap fees and expenses on poorly performing funds than learn about investing themselves.
      - imtringued 6y ago
        Stupid question, why would the adviser not just take a well performing index, invest into a fraction of the companies based on his own judgement and then just capture a larger fee? There is still an active management component but the risk has been minimized by not straying too far from what regular ETFs are doing.
        icedchai 6y ago
        I worked with some financial advisors earlier in my career, and generally speaking they do not like to invest in individual stocks. Often the company they work for makes them push certain ETFs or mutual funds onto their clients. Often that company even has their own fund family.
  - dnautics 6y ago
    Did you not even read the excerpt? It depresses the real value of labor wages. That is almost definitionally the poor. Consider: You are spending 90% of your wages on day to day expenses and there is 2% targetted inflation. You have lost a whopping ~20% of your margin of survival (100%-90% == 10% -> 100% - 91.8% ~ 8%). If you are spending 20% of your wages on day to day expenses and there is 2% targetted inflation, you have lost closer to 2% of your margin of survival. It's much easier to find lifestyle changes or, more likely, shift your investment balances that will keep you prospering in the "wealthy" situation. And, before you say "wages keep up". No they don't, otherwise the policy of using inflation to prop up employment doesn't work via the policy mechanism. Definitionally. > they have debt > savings You haven't been poor, have you? The wealthy are truly the consumers of low-interest debt. You can't do things like trade forex, place margin stock trades, place options, etc, so fluidly except in a low-interest rate, debt-fueled economy. These debts are awesome because the nominal payback is diluted by real loss in purchasing value. By contrast, the poor are consumers of high interest rate debt. Sometimes even in the annualized double digit regimes (sounds really bad, but this is usually short-term, on the order of weeks to months loans, so only slightly bad). These financial instruments are NOT substantially ameliorated by inflation. If you are in debt and poor, you are not waiting for hyperinflation to make it easier for you to pay off the repo man.
- melolife 6y ago
  I have to disagree with #1, if anything political entities gravitate towards the unquantifiable so that they can be seen to be acting without any real consequences attached to the outcomes.
  - dnautics 6y ago
    political entities is not just people voted into office, it's also unelected high-level policy-setting bureaucrats like cabinet officials, chairpersons of the federal reserve, etc, who have the right higher education credentials that get them to the place where they are, so that the elected folks can claim "I know how how to hire the. best. people." so you must also consider educational trends in social sciences and social policy schools, like Princeton Wilson (is it called Wilson anymore?) or Ecole Sciences-Po. You don't think those people are presenting graphs! with numbers! in powerpoint slides? Also, this is a classic: https://www.youtube.com/watch?v=JUvm9UgJBtg&t=2m40s https://www.youtube.com/watch?v=JUvm9UgJBtg&t=2m40s Numbers! It can't be wrong.
- imtringued 6y ago
  Honestly the fundamental flaw is that the central bank only has one tool. It can add money to the economy but only on the supply side. In theory this is enough because companies don't exist in isolation, to operate they must always employ workers. The problem with this theory is that those workers don't have to be domestic workers. If you lend me USD to build an LCD factory I 100% won't build the factory in Wisconsin or anywhere in the US. There are two options: Just wait (for decades) until salaries in China have caught up to western levels. Introduce an artificial stimulus for domestic work. That artificial stimulus is not the responsibility of the central bank. The rest of the government has to do this.
jopsen 6y ago
Given a positive spin, it might not sound so dystopian :) "Minimally happy" is another way of saying doing away with extreme poverty and desperation -- that might not be so bad.
- legulere 6y ago
  A lot of people are exhausted by working 40+ hour jobs where they are treated badly allowing them mere sustenance because health and accommodation have become so unaffordable.
  - jopsen 6y ago
    Isn't healthcare increasingly being considered part of the "minimally happy package"? Outside the US that certainly is the case.
mam2 6y ago
"minimally happy" is spot on.
imtringued 6y ago
Yeah it is pretty much spot on. If you are wealthy you want your assets to increase in value but what you 100% want to avoid is that the income of workers is increasing. The easiest way to achieve that is by... letting the central bank give the wealthy more money but not give the poor a single penny. If an average worker makes $20/h and you own $100 million you want to grow to $200 million but if an average worker now makes $40/h you haven't gained anything. Worse, if inflation is greater on the consumer side (the money is flowing into assets first so this will never happen) you can actually end up with "only" a $200 million net worth but workers who demand $60/h. You are actually less wealthy than before despite the increase in net worth! Workers massively benefit from consumer inflation.

dnautics 6y ago

this is not a bad model for understanding what has happened. Several phenomena have led to this: 1 - fetishization of quantitation in politics. Bias for policy endpoints that can be measured with "objective" numbers. 2 - Selection of employment as a policy endpoint that both the economic left and the right can agree on. 3 - Selection of monetary and fiscal policy as the means to keep employment levels high. 4 - https://krugman.blogs.nytimes.com/2010/02/13/the-case-for-higher-inflation/ https://krugman.blogs.nytimes.com/2010/02/13/the-case-for-hi... "even in the long run, it’s really, really hard to cut nominal wages. Yet when you have very low inflation, getting relative wages right would require that a significant number of workers take wage cuts. So having a somewhat higher inflation rate would lead to lower unemployment..." 5 - Goodhart's law Result: Stealthily cheat the labor class out of their wages to keep employment high over the course of generations (see productivity gap, http://country.eiu.com/asset_images/773319461.gif http://country.eiu.com/asset_images/773319461.gif) Keynes: "Lenin is said to have declared that the best way to destroy the Capitalist System was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some." Keynes should have been more specific: Inflation selectively impoverishes the poor and, and enriches the politically connected, who are usually already wealthy.

ethbr0 6y ago
Inflation most strongly acts on those who have no alternative, and only save in currency. Broadly speaking, this means the financially unsophisticated. It doesn't necessarily mean the poor, as (a) they have debt > savings, (b) modern inflation primarily accrues in assets rather than staples, & (c) competition for employees inflates base wages (if low unemployment).
- deleted 6y ago
  [deleted]
- atom_arranger 6y ago
  There could be other reasons than them being financially unsophisticated. Could be that people with lower net worths are less comfortable risking what little savings they have on investments. They may also need more liquidity in case of emergencies. Wealthier people can generally afford emergencies without going into their investments.
  - icedchai 6y ago
    I know plenty of smart people with extra cash who are fearful of investing. It is very, very common. Even if they are not completely afraid, they would rather pay a "financial advisor" several percentage points in wrap fees and expenses on poorly performing funds than learn about investing themselves.
    - imtringued 6y ago
      Stupid question, why would the adviser not just take a well performing index, invest into a fraction of the companies based on his own judgement and then just capture a larger fee? There is still an active management component but the risk has been minimized by not straying too far from what regular ETFs are doing.
      - icedchai 6y ago
        I worked with some financial advisors earlier in my career, and generally speaking they do not like to invest in individual stocks. Often the company they work for makes them push certain ETFs or mutual funds onto their clients. Often that company even has their own fund family.
- dnautics 6y ago
  Did you not even read the excerpt? It depresses the real value of labor wages. That is almost definitionally the poor. Consider: You are spending 90% of your wages on day to day expenses and there is 2% targetted inflation. You have lost a whopping ~20% of your margin of survival (100%-90% == 10% -> 100% - 91.8% ~ 8%). If you are spending 20% of your wages on day to day expenses and there is 2% targetted inflation, you have lost closer to 2% of your margin of survival. It's much easier to find lifestyle changes or, more likely, shift your investment balances that will keep you prospering in the "wealthy" situation. And, before you say "wages keep up". No they don't, otherwise the policy of using inflation to prop up employment doesn't work via the policy mechanism. Definitionally. > they have debt > savings You haven't been poor, have you? The wealthy are truly the consumers of low-interest debt. You can't do things like trade forex, place margin stock trades, place options, etc, so fluidly except in a low-interest rate, debt-fueled economy. These debts are awesome because the nominal payback is diluted by real loss in purchasing value. By contrast, the poor are consumers of high interest rate debt. Sometimes even in the annualized double digit regimes (sounds really bad, but this is usually short-term, on the order of weeks to months loans, so only slightly bad). These financial instruments are NOT substantially ameliorated by inflation. If you are in debt and poor, you are not waiting for hyperinflation to make it easier for you to pay off the repo man.
melolife 6y ago
I have to disagree with #1, if anything political entities gravitate towards the unquantifiable so that they can be seen to be acting without any real consequences attached to the outcomes.
- dnautics 6y ago
  political entities is not just people voted into office, it's also unelected high-level policy-setting bureaucrats like cabinet officials, chairpersons of the federal reserve, etc, who have the right higher education credentials that get them to the place where they are, so that the elected folks can claim "I know how how to hire the. best. people." so you must also consider educational trends in social sciences and social policy schools, like Princeton Wilson (is it called Wilson anymore?) or Ecole Sciences-Po. You don't think those people are presenting graphs! with numbers! in powerpoint slides? Also, this is a classic: https://www.youtube.com/watch?v=JUvm9UgJBtg&t=2m40s https://www.youtube.com/watch?v=JUvm9UgJBtg&t=2m40s Numbers! It can't be wrong.
imtringued 6y ago
Honestly the fundamental flaw is that the central bank only has one tool. It can add money to the economy but only on the supply side. In theory this is enough because companies don't exist in isolation, to operate they must always employ workers. The problem with this theory is that those workers don't have to be domestic workers. If you lend me USD to build an LCD factory I 100% won't build the factory in Wisconsin or anywhere in the US. There are two options: Just wait (for decades) until salaries in China have caught up to western levels. Introduce an artificial stimulus for domestic work. That artificial stimulus is not the responsibility of the central bank. The rest of the government has to do this.

jopsen 6y ago

Given a positive spin, it might not sound so dystopian :) "Minimally happy" is another way of saying doing away with extreme poverty and desperation -- that might not be so bad.

legulere 6y ago
A lot of people are exhausted by working 40+ hour jobs where they are treated badly allowing them mere sustenance because health and accommodation have become so unaffordable.
- jopsen 6y ago
  Isn't healthcare increasingly being considered part of the "minimally happy package"? Outside the US that certainly is the case.

mam2 6y ago

"minimally happy" is spot on.

imtringued 6y ago

Yeah it is pretty much spot on. If you are wealthy you want your assets to increase in value but what you 100% want to avoid is that the income of workers is increasing. The easiest way to achieve that is by... letting the central bank give the wealthy more money but not give the poor a single penny. If an average worker makes $20/h and you own $100 million you want to grow to $200 million but if an average worker now makes $40/h you haven't gained anything. Worse, if inflation is greater on the consumer side (the money is flowing into assets first so this will never happen) you can actually end up with "only" a $200 million net worth but workers who demand $60/h. You are actually less wealthy than before despite the increase in net worth! Workers massively benefit from consumer inflation.