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> Too low of inflation is bad because it means less investment in the physical economy But why did this apparently only become the case after 2008? Positive re
by mrec 6y ago
> Too low of inflation is bad because it means less investment in the physical economy
But why did this apparently only become the case after 2008? Positive real returns without gambling were acceptable before that, and we still got a gigantic speculative bubble, so why does it suddenly become reasonable to encourage bubbles even more? Was it just a coordination problem? An initial panic reaction to slash to zero, and then no central bank being willing to go first and unwind it?
As you say, the other major part of this problem is the inability or unwillingness to steer money toward productive investment rather than speculation. Here in the UK it's housing that's the killer; my suspicion is that governments have become addicted to the jam-today enabled by the money created for mortgage loans, which will then have to be paid off on some other poor sucker's watch.
- imtringued 6y agoYou can blame the Fed for one thing, and only one thing. They provided way too much money on the wrong side. The Fed provides loans to banks who then provide loans to companies so that they can grow faster. It's about increasing efficiency, not about total possible upside. However, there is a point after which businesses have enough loans for all the investments they have planned. Every single dollar after that is too much and does nothing. The next step is to spend money in a way that creates more investment opportunities for those companies. In short you want to balance supply and demand. The simplest spending target would be to pick a industry that is not in competition with private industry. My personal favorite are renewables and other infrastructure because you will not displace existing companies through government spending. Carbon taxes also create an incentive to borrow more money and do productive work but they do gnaw at CO2 spewing private industry which is the entire point but there are vested interests that don't want to lose their money.
- Robotbeat 6y agoYeah, one of the most powerful levers the federal government could have with respect to climate is to provide financing support for renewables. If you reduced the cost of capital for solar, wind, and batteries (or nuclear for that matter) to the price of 30 year US treasuries, it’d crush all fossil fuel power plants and provide a spur to the economy. In addition, cheap electricity would be a huge long-term boost to the economy, it’d drive electrification of transport/heating/industry, and the cost to taxpayers would be almost nil.