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> A normal household has to pay rent or make mortgage payments. To arbitrarily exclude the biggest expense to consumers from CPI is pretty misleading. "How the

> A normal household has to pay rent or make mortgage payments. To arbitrarily exclude the biggest expense to consumers from CPI is pretty misleading. "How the CPI measures price change of Owners’ equivalent rent of primary residence (OER) and Rent of primary residence (Rent)": * https://www.bls.gov/cpi/factsheets/owners-equivalent-rent-and-rent.pdf https://www.bls.gov/cpi/factsheets/owners-equivalent-rent-an... > The whole argument for printing money being OK is dumb. If it's OK to print money to pay for some things why are you not doing it more? Why not make everyone a millionaire? Because while it may be "OK to print money to pay for some things" it may not be OK for others. Making "everyone a millionaire" may be one of those times when it is not-OK. > Ultimately, printing money doesn't make anyone more productive or produce anything. Money printing helps with liquidity, which helps the economy to keep running, which can (but is not guaranteed to) help with more "productive" aspects of the economy: * https://en.wikipedia.org/wiki/Money_creation https://en.wikipedia.org/wiki/Money_creation You've managed to fit quite a few straw men in one post.

Robotbeat 6y ago
Yeah, liquidity is really important. When liquidity runs out, you have people who are CAPABLE and WILLING to work being unable to find productive work. The way around it is to do odd jobs, DIY stuff they’re not good at because they have no choice, and barter (you see this increase during depressions), but this is way less efficient. So “printing money” (providing liquidity) actually increases productivity in the same way division of labor increases productivity. You can pay a plumber instead of taking 10 times longer and doing a poorer job, for instance.
- Retric 6y ago
  It seems like lack of money is unlikely to cause liquidity issues rather than some other issue preventing money from circulating through the economy. Inflation actually solves the second problem rather than the first as it punishes those who hoard cash.
  - eecc 6y ago
    But it does so at the expense of those looking to borrow it productively. Wealth tax punishes hoarders without the collateral damage of preventing most from having sane mortgages.
    - Retric 6y ago
      That’s one side of the equation, but as always there are diminishing returns. Therefore, borrowing money should be mildly discouraged as ultra low interest rates results in a huge misallocation of resources. That said, consistent low levels of inflation have minimal impact on borrowing as the future cash paying for the loan is discounted. In effect it simply forces a minimum annual loan repayment rate.
- throwaway316943 6y ago
  Does it actually address the source of the problem though? Illiquidity is caused by people hoarding wealth and not circulating it in the economy. Printing money gets more cash in the system but does not free up the hoarded wealth which is still locked up in assets that can remain unproductive. This seems like a temporary patch. If you take your example where there is not enough cash to pay a plumber, the cash is amassed in the accounts of a small number of people that are unable to generate enough work to keep all of the plumbers employed. You print more money to fix the supply problem but this immediately generates another; who gets the new cash first? We give it to institutions that will lend it so that we can reuse the existing system to vet people worthy of loans. So the credit worthy get access to new money and maybe they use it to do new construction or renovations that require plumbers. The plumbers, and others, now have income again. Problem solved? Well no, what about the original wealth that was hoarded? If it was kept as dollars it’s now depreciating but it’s likely that as soon as that started happening it would have been converted into another form that would retain its value. There are a limited set of assets that retain their value in face of inflation so we would see circulation in that part of the economy up until all of the original wealth had been converted into a stable form. It would still be driven by a small number of people though so the impact would be limited. What happens if you don’t continue to print money? I would think it would eventually find its way into one of these asset traps where it would then remain and we’d wind up right back at the start. So keep pumping new money in? But now it no longer affects the original wealth since that has been converted into other forms so the original problem will remain unsolved and you’ll need to keep the tap on forever so you don’t run out of money. A better solution in my mind would have been to directly force the original wealth back into the system.
  - Robotbeat 6y ago
    To the degree that printing money by reducing interest rates and perhaps causing a bit of inflation, it basically punishes hoarding of cash by taxing it at the inflation rate (plus the opportunity cost of having near zero nominal return in savings accounts). So that does force the original wealth into circulation. But it’s true that the Fed’s monetary stimulus is likely to be less effective at providing liquidity to individuals than direct fiscal stimulus like the stimulus checks people are getting. (Although it’s not all stimulating because many are using the money to pay off debts.)
dfgdghdf 6y ago
Some people argue that too much liquidity can lead to greater boom-bust cycles. Economics reminds me of Software Engineering a bit, where smart people on two sides can argue opposite cases and both sound reasonable!
- chii 6y ago
  that's because there's no correct answer, and has more to do with the person's political bias or leanings, than sound science.
  - throwaway316943 6y ago
    That’s wrong. The current theories may not have the right answers but it is a real system in the physical world so there is a “correct answer” or description of how it works. It’s subject to change but that only changes the description as well.
    - Raidion 6y ago
      I think it's not wrong so much as you have tipping points that are really unknown, and a lot this depends on where we are in the tipping point. How much debt is too much debt? How much money printing is too much? How much is an asset really worth? You can have a "correct" answer that's unknowable. Assuming you know everything, you can calculate everything. However, there is an amount of randomness in the system (and everything can't be known), so the 'right' answer is hard to know, will not always be correct, and is impacted by personal risk tolerances.
  - throw0101a 6y ago
    Demonstrably false. Ten years ago a bunch of folks predicted a bunch of bad things would happen because of money printing and QE: > We believe the Federal Reserve's large-scale asset purchase plan (so-called "quantitative easing") should be reconsidered and discontinued. We do not believe such a plan is necessary or advisable under current circumstances. The planned asset purchases risk currency debasement and inflation, and we do not think they will achieve the Fed's objective of promoting employment. * https://economics21.org/html/open-letter-ben-bernanke-287.html https://economics21.org/html/open-letter-ben-bernanke-287.ht... A bunch of other folks (generally Keynesians, like Paul Krugman), said the above was non-sense. The results of the 'experiment' came in: the Keynesians were right. See also "expansionary austerity". In fact Krugman recently wrote an entire book on "zombie ideas": certain things that come up over and over again, often over several decades, but will not die; Arguing with Zombies: * https://wwnorton.com/books/9781324005018 https://wwnorton.com/books/9781324005018 * https://www.theguardian.com/books/2020/may/03/arguing-with-zombies-review-paul-krugman-trump-republicans https://www.theguardian.com/books/2020/may/03/arguing-with-z... * https://www.theatlantic.com/magazine/archive/2020/01/review-paul-krugman-arguing-with-zombies/603052/ https://www.theatlantic.com/magazine/archive/2020/01/review-... There are correct answers. It's just that certain political classes find them 'inconvenient' (i.e., contradictory) to their ideologies. There are of course complicated matters where things are open for debate. But some things have been settled.
pnutjam 6y ago
"Making everyone a millionaire" is so easy to refute. It's a nonsense talking point masquerading as an argument. It's a waste of time to consider it, but here we go. There is value in being able to predict the cost of things, a wild swing in costs and monetary policy probably won't damage the system, but it will make assets difficult to value and our system needs to do that. Done
- water8 6y ago
  The whole reason the stock market is a thing is because the cost of things is unpredictable. But next time your advice for fortune-telling will surely be better received with less arrogance.
rorykoehler 6y ago
Printing money doesn’t help with liquidity if you don’t inject it at the lowest level of the economy (ie on the street into lay peoples pockets). This is the biggest lie we’ve been sold during all this quantitive easing malarkey. All it is is theft from the poor by the rich.
- imtringued 6y ago
  It obviously belongs there because anything else would fail to create the desired level of inflation as we can see today. What we truly need is fiscal policy and it's funny how on point this 8 year old cartoon is: https://youtu.be/-DdfLtOrBPU https://youtu.be/-DdfLtOrBPU
- throw0101a 6y ago
  Great. Tell legislatures to (a) act faster when there's an emergency, or (b) enact better safety nets that automatically kick in when an emergency arises. The fact that central banks can act quickly isn't a sign that what they're doing is wrong on the monetary side, but rather that the fiscal side of things needs to get its act together.
- wolfretcrap 6y ago
  There are other ways to inject money into people's pocket directly by reducing logistic cost by investing in better infrastructure. Everyone from top to bottom uses roads and railroads, airports, seat ports for shipping. Everyone benefits from having them fast and more efficient.
  - rorykoehler 6y ago
    Yes, longer term. A new road doesn't help you today when you have to choose between paying the mortgage and buying groceries. Giving money directly to banks to cover their liquidity while people get thrown out of their homes because they can't pay their mortgages with the same banks is monumentally stupid and I don't give the people who made this decision the benefit of the doubt. If they are that stupid they are not qualified to be in their jobs.
morpheos137 6y ago
Creating liquidity where there is not a demand for liquidity is economically distortionary and has long term economic effects analogous to people who abuse stimulants or steroids. Yeah liquidity may make your economy feel on top of the world today but over time it will need to pay the piper. There is no such thing as a free lunch and this time is not different. If the economy needed more liquidity you would see high or rising real interest rates and stationary or falling asset prices. Instead we see very low interest rates and sky-rocketing asset prices. Sure adding liquidity will continue to inflate assets prices for a while but as the other commenter said it does not actually produce anything real and actually leads to malinvestment or underinvestment. Thanks to excessive liquidity in the economy we have BS companies like Uber sticking around while real innovation is stagnating. Eventually excess liquidity combined with high savings and low interest rates can even paradoxically lead deflation. See Japan for example. We may, also reach a point, where no matter how much liquidity we add we do not stimulate real economic growth. Regardless the commenter is right, liquidity on its own produces nothing and low interest rates signal that it is not demanded. Instead of worrying about inflation or deflation we should be worrying about what we can do to make the most people better off at time t+1. Traditionally that has been through economic growth. Liquidity does not promote economic growth if the economy is drowning in liquidity.
lumost 6y ago
The fact that CPI uses OER doesn’t necessarily mean oer is a good measure. During the housing bubble prices may have increased at a 17% rate while OER increased at a 4.5% rate. I’d argue asking the question “what rate would you rent your home at” is fundamentally flawed and prone to underestimation. The answer is and always will be “the market rate for a rental in my neighborhood”. This number is generally greater than the interest+maintenance a fresh buyer would pay. https://blog.principal.com/2017/07/06/owner-equivalent-rent-unmasked/ https://blog.principal.com/2017/07/06/owner-equivalent-rent-...

Robotbeat 6y ago

Yeah, liquidity is really important. When liquidity runs out, you have people who are CAPABLE and WILLING to work being unable to find productive work. The way around it is to do odd jobs, DIY stuff they’re not good at because they have no choice, and barter (you see this increase during depressions), but this is way less efficient. So “printing money” (providing liquidity) actually increases productivity in the same way division of labor increases productivity. You can pay a plumber instead of taking 10 times longer and doing a poorer job, for instance.

Retric 6y ago
It seems like lack of money is unlikely to cause liquidity issues rather than some other issue preventing money from circulating through the economy. Inflation actually solves the second problem rather than the first as it punishes those who hoard cash.
- eecc 6y ago
  But it does so at the expense of those looking to borrow it productively. Wealth tax punishes hoarders without the collateral damage of preventing most from having sane mortgages.
  - Retric 6y ago
    That’s one side of the equation, but as always there are diminishing returns. Therefore, borrowing money should be mildly discouraged as ultra low interest rates results in a huge misallocation of resources. That said, consistent low levels of inflation have minimal impact on borrowing as the future cash paying for the loan is discounted. In effect it simply forces a minimum annual loan repayment rate.
throwaway316943 6y ago
Does it actually address the source of the problem though? Illiquidity is caused by people hoarding wealth and not circulating it in the economy. Printing money gets more cash in the system but does not free up the hoarded wealth which is still locked up in assets that can remain unproductive. This seems like a temporary patch. If you take your example where there is not enough cash to pay a plumber, the cash is amassed in the accounts of a small number of people that are unable to generate enough work to keep all of the plumbers employed. You print more money to fix the supply problem but this immediately generates another; who gets the new cash first? We give it to institutions that will lend it so that we can reuse the existing system to vet people worthy of loans. So the credit worthy get access to new money and maybe they use it to do new construction or renovations that require plumbers. The plumbers, and others, now have income again. Problem solved? Well no, what about the original wealth that was hoarded? If it was kept as dollars it’s now depreciating but it’s likely that as soon as that started happening it would have been converted into another form that would retain its value. There are a limited set of assets that retain their value in face of inflation so we would see circulation in that part of the economy up until all of the original wealth had been converted into a stable form. It would still be driven by a small number of people though so the impact would be limited. What happens if you don’t continue to print money? I would think it would eventually find its way into one of these asset traps where it would then remain and we’d wind up right back at the start. So keep pumping new money in? But now it no longer affects the original wealth since that has been converted into other forms so the original problem will remain unsolved and you’ll need to keep the tap on forever so you don’t run out of money. A better solution in my mind would have been to directly force the original wealth back into the system.
- Robotbeat 6y ago
  To the degree that printing money by reducing interest rates and perhaps causing a bit of inflation, it basically punishes hoarding of cash by taxing it at the inflation rate (plus the opportunity cost of having near zero nominal return in savings accounts). So that does force the original wealth into circulation. But it’s true that the Fed’s monetary stimulus is likely to be less effective at providing liquidity to individuals than direct fiscal stimulus like the stimulus checks people are getting. (Although it’s not all stimulating because many are using the money to pay off debts.)

dfgdghdf 6y ago

Some people argue that too much liquidity can lead to greater boom-bust cycles. Economics reminds me of Software Engineering a bit, where smart people on two sides can argue opposite cases and both sound reasonable!

chii 6y ago
that's because there's no correct answer, and has more to do with the person's political bias or leanings, than sound science.
- throwaway316943 6y ago
  That’s wrong. The current theories may not have the right answers but it is a real system in the physical world so there is a “correct answer” or description of how it works. It’s subject to change but that only changes the description as well.
  - Raidion 6y ago
    I think it's not wrong so much as you have tipping points that are really unknown, and a lot this depends on where we are in the tipping point. How much debt is too much debt? How much money printing is too much? How much is an asset really worth? You can have a "correct" answer that's unknowable. Assuming you know everything, you can calculate everything. However, there is an amount of randomness in the system (and everything can't be known), so the 'right' answer is hard to know, will not always be correct, and is impacted by personal risk tolerances.
- throw0101a 6y ago
  Demonstrably false. Ten years ago a bunch of folks predicted a bunch of bad things would happen because of money printing and QE: > We believe the Federal Reserve's large-scale asset purchase plan (so-called "quantitative easing") should be reconsidered and discontinued. We do not believe such a plan is necessary or advisable under current circumstances. The planned asset purchases risk currency debasement and inflation, and we do not think they will achieve the Fed's objective of promoting employment. * https://economics21.org/html/open-letter-ben-bernanke-287.html https://economics21.org/html/open-letter-ben-bernanke-287.ht... A bunch of other folks (generally Keynesians, like Paul Krugman), said the above was non-sense. The results of the 'experiment' came in: the Keynesians were right. See also "expansionary austerity". In fact Krugman recently wrote an entire book on "zombie ideas": certain things that come up over and over again, often over several decades, but will not die; Arguing with Zombies: * https://wwnorton.com/books/9781324005018 https://wwnorton.com/books/9781324005018 * https://www.theguardian.com/books/2020/may/03/arguing-with-zombies-review-paul-krugman-trump-republicans https://www.theguardian.com/books/2020/may/03/arguing-with-z... * https://www.theatlantic.com/magazine/archive/2020/01/review-paul-krugman-arguing-with-zombies/603052/ https://www.theatlantic.com/magazine/archive/2020/01/review-... There are correct answers. It's just that certain political classes find them 'inconvenient' (i.e., contradictory) to their ideologies. There are of course complicated matters where things are open for debate. But some things have been settled.

pnutjam 6y ago

"Making everyone a millionaire" is so easy to refute. It's a nonsense talking point masquerading as an argument. It's a waste of time to consider it, but here we go. There is value in being able to predict the cost of things, a wild swing in costs and monetary policy probably won't damage the system, but it will make assets difficult to value and our system needs to do that. Done

water8 6y ago
The whole reason the stock market is a thing is because the cost of things is unpredictable. But next time your advice for fortune-telling will surely be better received with less arrogance.

rorykoehler 6y ago

Printing money doesn’t help with liquidity if you don’t inject it at the lowest level of the economy (ie on the street into lay peoples pockets). This is the biggest lie we’ve been sold during all this quantitive easing malarkey. All it is is theft from the poor by the rich.

imtringued 6y ago
It obviously belongs there because anything else would fail to create the desired level of inflation as we can see today. What we truly need is fiscal policy and it's funny how on point this 8 year old cartoon is: https://youtu.be/-DdfLtOrBPU https://youtu.be/-DdfLtOrBPU
throw0101a 6y ago
Great. Tell legislatures to (a) act faster when there's an emergency, or (b) enact better safety nets that automatically kick in when an emergency arises. The fact that central banks can act quickly isn't a sign that what they're doing is wrong on the monetary side, but rather that the fiscal side of things needs to get its act together.
wolfretcrap 6y ago
There are other ways to inject money into people's pocket directly by reducing logistic cost by investing in better infrastructure. Everyone from top to bottom uses roads and railroads, airports, seat ports for shipping. Everyone benefits from having them fast and more efficient.
- rorykoehler 6y ago
  Yes, longer term. A new road doesn't help you today when you have to choose between paying the mortgage and buying groceries. Giving money directly to banks to cover their liquidity while people get thrown out of their homes because they can't pay their mortgages with the same banks is monumentally stupid and I don't give the people who made this decision the benefit of the doubt. If they are that stupid they are not qualified to be in their jobs.

morpheos137 6y ago

Creating liquidity where there is not a demand for liquidity is economically distortionary and has long term economic effects analogous to people who abuse stimulants or steroids. Yeah liquidity may make your economy feel on top of the world today but over time it will need to pay the piper. There is no such thing as a free lunch and this time is not different. If the economy needed more liquidity you would see high or rising real interest rates and stationary or falling asset prices. Instead we see very low interest rates and sky-rocketing asset prices. Sure adding liquidity will continue to inflate assets prices for a while but as the other commenter said it does not actually produce anything real and actually leads to malinvestment or underinvestment. Thanks to excessive liquidity in the economy we have BS companies like Uber sticking around while real innovation is stagnating. Eventually excess liquidity combined with high savings and low interest rates can even paradoxically lead deflation. See Japan for example. We may, also reach a point, where no matter how much liquidity we add we do not stimulate real economic growth. Regardless the commenter is right, liquidity on its own produces nothing and low interest rates signal that it is not demanded. Instead of worrying about inflation or deflation we should be worrying about what we can do to make the most people better off at time t+1. Traditionally that has been through economic growth. Liquidity does not promote economic growth if the economy is drowning in liquidity.

lumost 6y ago

The fact that CPI uses OER doesn’t necessarily mean oer is a good measure. During the housing bubble prices may have increased at a 17% rate while OER increased at a 4.5% rate. I’d argue asking the question “what rate would you rent your home at” is fundamentally flawed and prone to underestimation. The answer is and always will be “the market rate for a rental in my neighborhood”. This number is generally greater than the interest+maintenance a fresh buyer would pay. https://blog.principal.com/2017/07/06/owner-equivalent-rent-unmasked/ https://blog.principal.com/2017/07/06/owner-equivalent-rent-...