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While Dalio has publicly anticipated cash and bonds being poor investments in 2020, I'm making a blanket statement regarding appeals to authority (similar to yo

While Dalio has publicly anticipated cash and bonds being poor investments in 2020, I'm making a blanket statement regarding appeals to authority (similar to you). But when authorities are to be invoked, economists are generally just sideline-experts with no skin in the game, who are unable to translate their understanding of markets into alpha. This is in response to you stating in your first post that economists are the true experts (intuitive, but I think incorrect. It's like interviewing a sports commentator (who wasn't formerly a coach or player) instead of an actual coach). While I don't know Dalio's full position or rationale, I have another comment on this post that explains when and why I personally expect inflation. I am curious though -- can you expand on what you believe Krugman's position to be here, and why it makes sense? He doesn't seem to worry about inflation from open market operations because it works until it doesn't. There has been inflation since 2008, but most of it went to wealthy people who hold the majority of their net worth in equities and real estate. These asset classes are severely under-represented in the CPI. Because these are mostly unrealized gains enjoyed by so few, there aren't that many more people competing to buy milk and eggs, which would actually affect CPI. Many progressive economists don't seem to realize their policies contribute to massive wealth inequality just as much as America's poor attempt at graduated tax brackets. Granted, Krugman has his moments, and for all his faults his recommendations don't seem to be purely ideologically motivated.

throw0101a 6y ago
> While Dalio has publicly anticipated cash and bonds being poor investments in 2020, I'm making a blanket statement regarding appeals to authority (similar to you). Sure. But my appeal-to-authority has peer-reviewed models behind him. Does yours? [citation needed] :) > I am curious though -- can you expand on what you believe Krugman's position to be here, and why it makes sense? He doesn't seem to worry about inflation from open market operations because it works until it doesn't. I've heard the explanation (probably more than once), and it made sense to me when I heard it, but it was not important enough to me to bother retaining. I think this is a decent blurb on it: > Under these circumstances, normal monetary policy, which takes the form of open-market operations in which the central bank buys short-term debt with money it creates out of thin air, have no effect. Why? > Well, the reason open-market operations usually work is that people are making a tradeoff between yield and liquidity – they hold money, which offers no interest, for the liquidity but limit their holdings because they pay a price in lost earnings. So if the central bank puts more money out there, people are holding more than they want, try to offload it, and drive rates down in the process. > But if rates are zero, there is no cost to liquidity, and people are basically saturated with it; at the margin, they’re holding money simply as a store of value, essentially equivalent to short-term debt. And a central bank operation that swaps money for debt basically changes nothing. Ordinary monetary policy is ineffective. > The flip side of this, by the way, is that all those fears about how “printing money” in this slump would lead to runaway inflation were predictably wrong. If you paid attention to the Japanese story from the last decade, you knew that simply expanding the central bank’s balance sheet did little, and certainly wasn’t inflationary: * https://krugman.blogs.nytimes.com/2013/04/11/monetary-policy-in-a-liquidity-trap/ https://krugman.blogs.nytimes.com/2013/04/11/monetary-policy... So as long as rates are at/near zero, 'printing money' won't be a problem. If, however, rates are in a 'normal' range, then yes, increasing money supply can lead to inflation at that time. Krugman first wrote about this in 1998 when Japan first experienced what the rest of us are now seeing (it asks for registration, but you can skip it): * https://www.brookings.edu/bpea-articles/its-baaack-japans-slump-and-the-return-of-the-liquidity-trap/ https://www.brookings.edu/bpea-articles/its-baaack-japans-sl... Generally speaking, if you want to research this yourself, look at these concepts: * https://en.wikipedia.org/wiki/Zero_lower_bound https://en.wikipedia.org/wiki/Zero_lower_bound * https://en.wikipedia.org/wiki/Liquidity_trap https://en.wikipedia.org/wiki/Liquidity_trap Perhaps see "The IS-LM Model and the Liquidity Trap Concept": * https://www.semanticscholar.org/paper/The-IS-LM-Model-and-the-Liquidity-Trap-Concept%3A-to-Boianovsky/4d48513907b6eac16a34f3096e545bc784268f55 https://www.semanticscholar.org/paper/The-IS-LM-Model-and-th... * https://doi.org/10.1215/00182702-36-Suppl_1-92 https://doi.org/10.1215/00182702-36-Suppl_1-92 > These asset classes are severely under-represented in the CPI. Because these are mostly unrealized gains enjoyed by so few, there aren't that many more people competing to buy milk and eggs, which would actually affect CPI. It has not been "under-represented in the CPI". It is not the purpose of CPI to look at asset prices, but rather (roughly) cost of living via a basket of goods. For home, the CPI generally includes either rent or mortgage carrying costs. To home prices, Michael Batnick and Ben Carlson discuss this in light of Ben's weblog post: * https://www.youtube.com/watch?v=d3dO8BW9RHg&t=3m26s https://www.youtube.com/watch?v=d3dO8BW9RHg&t=3m26s * https://awealthofcommonsense.com/2021/01/inflation-truthers/ https://awealthofcommonsense.com/2021/01/inflation-truthers/ * Discussed here: https://news.ycombinator.com/item?id=25644580 https://news.ycombinator.com/item?id=25644580 > Many progressive economists don't seem to realize their policies contribute to massive wealth inequality just as much as America's poor attempt at graduated tax brackets. Want to reduce wealth inequality? Increase taxation/redistribution. Top marginal tax rates are half of what they were during Eisenhower's administration and the (adjusted) minimum wage is below what it was during Nixon. While you may need an economist to get the "right" / "optimal" number, you don't need one to know that they're probably too low.
- lend000 6y ago
  You should read my other post to get the full context. Surely you don't believe the Fed could buy $100 quadrillion worth of low interest government bonds tomorrow without consequence (although that distortion would peg the interest rate to whatever low rate they bought at). While Krugman is technically right that the CPI does not increase, it is for the wrong reasons, and he does not seem to be aware or care that other assets inflate as a direct consequence. Take a look at the increase in GDP adjusted equities and population adjusted real estate indices over the last two decades [0][1]. The point is that we have been experiencing inflated asset prices from these operations, another form of inflation. Because these benefit a relatively small proportion of the US population, it doesn't spill into staples as much as if it were helicopter dropped. Whereas when the Fed prints money for a stimulus check, it is more directly inflationary. We will see that with the $2000 stimulus checks, although that will be a drop in the bucket compared to Social Security once it becomes insolvent, assuming the Fed starts printing money to fund it. > Want to reduce wealth inequality? Increase taxation/redistribution. It seems we are in agreement if you read the last part of the sentence you quoted. Long term capital gains on 20 billion dollars of realized income is less than the effective rate paid by a doctor or engineer who made $400k. However, just because tax brackets are a problem, doesn't mean Fed market interventions aren't also creating problems. From your "inflation truthers" link, it seems to be shut down pretty effectively in the discussion you also linked. If you want to understand why in a more quantitative way than Carlson's ramblings against a straw man, see this graph: https://fred.stlouisfed.org/graph/?graph_id=532320&rn=290#0 https://fred.stlouisfed.org/graph/?graph_id=532320&rn=290#0. This is the approximate percentage of household paper wealth tied up in equities. Monetary policy has changed substantially since record keeping began, but we can see that higher highs and higher lows are being sustained over time as the Fed becomes more trigger happy with open market operations and low interest rates. [0] https://fred.stlouisfed.org/graph/?g=kYEb https://fred.stlouisfed.org/graph/?g=kYEb [1] https://fred.stlouisfed.org/graph/?g=oCZ https://fred.stlouisfed.org/graph/?g=oCZ
- alasdair_ 6y ago
  While it’s true that the maximum tax rates in Eisenhower’s time were much higher compared with our own, they also only phased in at almost 10X more income - to hit the max tax bracket back then you needed to have an inflation adjusted income of over four million a year versus the $518,401 for today. Moreover, such taxes seem terribly unfair for a person who works hard to get a single payout one time, versus a steady high income for many years - someone who makes ten million one time and then nothing else for nine years gets FAR more taken from them that a person who earns a million a year for ten years, despite the same total earnings. Why should the first person have to pay so much more than the second?

throw0101a 6y ago

> While Dalio has publicly anticipated cash and bonds being poor investments in 2020, I'm making a blanket statement regarding appeals to authority (similar to you). Sure. But my appeal-to-authority has peer-reviewed models behind him. Does yours? [citation needed] :) > I am curious though -- can you expand on what you believe Krugman's position to be here, and why it makes sense? He doesn't seem to worry about inflation from open market operations because it works until it doesn't. I've heard the explanation (probably more than once), and it made sense to me when I heard it, but it was not important enough to me to bother retaining. I think this is a decent blurb on it: > Under these circumstances, normal monetary policy, which takes the form of open-market operations in which the central bank buys short-term debt with money it creates out of thin air, have no effect. Why? > Well, the reason open-market operations usually work is that people are making a tradeoff between yield and liquidity – they hold money, which offers no interest, for the liquidity but limit their holdings because they pay a price in lost earnings. So if the central bank puts more money out there, people are holding more than they want, try to offload it, and drive rates down in the process. > But if rates are zero, there is no cost to liquidity, and people are basically saturated with it; at the margin, they’re holding money simply as a store of value, essentially equivalent to short-term debt. And a central bank operation that swaps money for debt basically changes nothing. Ordinary monetary policy is ineffective. > The flip side of this, by the way, is that all those fears about how “printing money” in this slump would lead to runaway inflation were predictably wrong. If you paid attention to the Japanese story from the last decade, you knew that simply expanding the central bank’s balance sheet did little, and certainly wasn’t inflationary: * https://krugman.blogs.nytimes.com/2013/04/11/monetary-policy-in-a-liquidity-trap/ https://krugman.blogs.nytimes.com/2013/04/11/monetary-policy... So as long as rates are at/near zero, 'printing money' won't be a problem. If, however, rates are in a 'normal' range, then yes, increasing money supply can lead to inflation at that time. Krugman first wrote about this in 1998 when Japan first experienced what the rest of us are now seeing (it asks for registration, but you can skip it): * https://www.brookings.edu/bpea-articles/its-baaack-japans-slump-and-the-return-of-the-liquidity-trap/ https://www.brookings.edu/bpea-articles/its-baaack-japans-sl... Generally speaking, if you want to research this yourself, look at these concepts: * https://en.wikipedia.org/wiki/Zero_lower_bound https://en.wikipedia.org/wiki/Zero_lower_bound * https://en.wikipedia.org/wiki/Liquidity_trap https://en.wikipedia.org/wiki/Liquidity_trap Perhaps see "The IS-LM Model and the Liquidity Trap Concept": * https://www.semanticscholar.org/paper/The-IS-LM-Model-and-the-Liquidity-Trap-Concept%3A-to-Boianovsky/4d48513907b6eac16a34f3096e545bc784268f55 https://www.semanticscholar.org/paper/The-IS-LM-Model-and-th... * https://doi.org/10.1215/00182702-36-Suppl_1-92 https://doi.org/10.1215/00182702-36-Suppl_1-92 > These asset classes are severely under-represented in the CPI. Because these are mostly unrealized gains enjoyed by so few, there aren't that many more people competing to buy milk and eggs, which would actually affect CPI. It has not been "under-represented in the CPI". It is not the purpose of CPI to look at asset prices, but rather (roughly) cost of living via a basket of goods. For home, the CPI generally includes either rent or mortgage carrying costs. To home prices, Michael Batnick and Ben Carlson discuss this in light of Ben's weblog post: * https://www.youtube.com/watch?v=d3dO8BW9RHg&t=3m26s https://www.youtube.com/watch?v=d3dO8BW9RHg&t=3m26s * https://awealthofcommonsense.com/2021/01/inflation-truthers/ https://awealthofcommonsense.com/2021/01/inflation-truthers/ * Discussed here: https://news.ycombinator.com/item?id=25644580 https://news.ycombinator.com/item?id=25644580 > Many progressive economists don't seem to realize their policies contribute to massive wealth inequality just as much as America's poor attempt at graduated tax brackets. Want to reduce wealth inequality? Increase taxation/redistribution. Top marginal tax rates are half of what they were during Eisenhower's administration and the (adjusted) minimum wage is below what it was during Nixon. While you may need an economist to get the "right" / "optimal" number, you don't need one to know that they're probably too low.

lend000 6y ago
You should read my other post to get the full context. Surely you don't believe the Fed could buy $100 quadrillion worth of low interest government bonds tomorrow without consequence (although that distortion would peg the interest rate to whatever low rate they bought at). While Krugman is technically right that the CPI does not increase, it is for the wrong reasons, and he does not seem to be aware or care that other assets inflate as a direct consequence. Take a look at the increase in GDP adjusted equities and population adjusted real estate indices over the last two decades [0][1]. The point is that we have been experiencing inflated asset prices from these operations, another form of inflation. Because these benefit a relatively small proportion of the US population, it doesn't spill into staples as much as if it were helicopter dropped. Whereas when the Fed prints money for a stimulus check, it is more directly inflationary. We will see that with the $2000 stimulus checks, although that will be a drop in the bucket compared to Social Security once it becomes insolvent, assuming the Fed starts printing money to fund it. > Want to reduce wealth inequality? Increase taxation/redistribution. It seems we are in agreement if you read the last part of the sentence you quoted. Long term capital gains on 20 billion dollars of realized income is less than the effective rate paid by a doctor or engineer who made $400k. However, just because tax brackets are a problem, doesn't mean Fed market interventions aren't also creating problems. From your "inflation truthers" link, it seems to be shut down pretty effectively in the discussion you also linked. If you want to understand why in a more quantitative way than Carlson's ramblings against a straw man, see this graph: https://fred.stlouisfed.org/graph/?graph_id=532320&rn=290#0 https://fred.stlouisfed.org/graph/?graph_id=532320&rn=290#0. This is the approximate percentage of household paper wealth tied up in equities. Monetary policy has changed substantially since record keeping began, but we can see that higher highs and higher lows are being sustained over time as the Fed becomes more trigger happy with open market operations and low interest rates. [0] https://fred.stlouisfed.org/graph/?g=kYEb https://fred.stlouisfed.org/graph/?g=kYEb [1] https://fred.stlouisfed.org/graph/?g=oCZ https://fred.stlouisfed.org/graph/?g=oCZ
alasdair_ 6y ago
While it’s true that the maximum tax rates in Eisenhower’s time were much higher compared with our own, they also only phased in at almost 10X more income - to hit the max tax bracket back then you needed to have an inflation adjusted income of over four million a year versus the $518,401 for today. Moreover, such taxes seem terribly unfair for a person who works hard to get a single payout one time, versus a steady high income for many years - someone who makes ten million one time and then nothing else for nine years gets FAR more taken from them that a person who earns a million a year for ten years, despite the same total earnings. Why should the first person have to pay so much more than the second?