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Your version actually makes a better argument for causality than the original one (which appears to be essentially bank and government debt may be less efficien

Your version actually makes a better argument for causality than the original one (which appears to be essentially bank and government debt may be less efficient allocation of capital than other theoretical uses the corporations could have put the money to but chose not to because they couldn't find any more efficient uses for it). But it's still not quite right: banks can and always do lend much more than is deposited with them, and the main thing that reduces their lending is changes in interest rates, which is a policy decision taken by the Fed (whose primary driver is actually stopping most prices rising too fast). If the Fed raised the interest rate tomorrow, the rich would actually expect to earn more from their money being loaned to consumers, but the demand for mortgages and personal loans would be lower. As the supply of money available for banks to lend is largely not determined by the rich (unlike a Gold Standard type system with fixed money supply), their preference for putting money in banks is like pushing on a string when it comes to consumers loaning more money. It's almost the other way round: corporations raking in massive profits and having the option to keep funds in banks rather than reinvest in the corporation is a symptom of not much competition. That lack of competition does push prices for poor people up and wages down and that may be one of the reasons why they need to borrow more. (Housing market policy obviously also plays a massive role in the size of mortgage debt too.)

jfrunyon 5y ago
It seems to me that the original is more along the lines of "bank and government debt may be less efficient allocation of capital than giving it to the people who will end up spending it anyway". Because it is. Debt is almost always less efficient than using cash - especially if you're not rich.
- notahacker 5y ago
  Yes and no. Debt is obviously less beneficial than cash to the person who has to repay, and cash carries an opportunity cost rather than a direct one with repayment timescales, but newly created money is more likely to be allocated efficiently with respect to economic growth when handed to those who expect to be able to repay. You can plausibly argue it's [Kaldor Hicks] efficient as well as more equitable to take money off the rich and give it to ordinary consumers if the rich aren't reinvesting in businesses because they don't see people having the funds to demand stuff in future (or if they're intentionally stifling their part of the economy or plain unimaginative) but the article seems to stop short of committing to that. It suggests government debt (much of it as a result of handouts to the needy) is part of the problem and appears lukewarm about redistribution.
dnautics 5y ago
The primary driver of the fed is stopping prices from increasing too fast? The fed does talk about inflation, but unless my perception is wrong, they talk about employment more.
- reducesuffering 5y ago
  I think you're interpretation is correct and GP is wrong to think the "primary driver of the Fed is stopping prices from increasing too fast." Fed has recently repeatedly stated it's goal is to drive down unemployment and is willing to let inflation run hot to achieve that. It's always a balancing act if one of them is worse than the other, they will focus on that. However it looks like when both of them are bad, they would rather focus on unemployment by letting inflation hit harder.
  - notahacker 5y ago
    The Fed has a formal target of 2% inflation (the major change recently was to allow it to be 2% on average, over time rather than 2% period) It doesn't have any employment target, although obviously extremes of unemployment is something it pays some attention to when deciding whether it's OK to miss its primary target or not.
- Geee 5y ago
  There's a mistake in that comment. The opposite is true. Central banks primary driver is to stop CPI prices from decreasing, which happens naturally because economic productivity increases with technological progress, making it easier and cheaper to produce goods and services. Money is created to revert this development so that CPI prices increase at the rate of 2% per year. Naturally, life would get easier because of technology, but instead life is made harder and harder to incentivize economic growth and environmental destruction, and keeping people in jobs that are not necessary or keeping work days longer than necessary (hamster-wheel economy). It's important to note that inflation is relative to CPI prices, because CPI prices will naturally decrease but prices of scarce assets like real estate will relatively increase because they're more limited by space, time and energy. On the other hand, digital goods and services are highly deflationary, i.e. digital consumption is getting cheaper. So, there's digital deflation, 2% CPI inflation, 10% (or more) asset inflation.

jfrunyon 5y ago

It seems to me that the original is more along the lines of "bank and government debt may be less efficient allocation of capital than giving it to the people who will end up spending it anyway". Because it is. Debt is almost always less efficient than using cash - especially if you're not rich.

notahacker 5y ago
Yes and no. Debt is obviously less beneficial than cash to the person who has to repay, and cash carries an opportunity cost rather than a direct one with repayment timescales, but newly created money is more likely to be allocated efficiently with respect to economic growth when handed to those who expect to be able to repay. You can plausibly argue it's [Kaldor Hicks] efficient as well as more equitable to take money off the rich and give it to ordinary consumers if the rich aren't reinvesting in businesses because they don't see people having the funds to demand stuff in future (or if they're intentionally stifling their part of the economy or plain unimaginative) but the article seems to stop short of committing to that. It suggests government debt (much of it as a result of handouts to the needy) is part of the problem and appears lukewarm about redistribution.

dnautics 5y ago

The primary driver of the fed is stopping prices from increasing too fast? The fed does talk about inflation, but unless my perception is wrong, they talk about employment more.

reducesuffering 5y ago
I think you're interpretation is correct and GP is wrong to think the "primary driver of the Fed is stopping prices from increasing too fast." Fed has recently repeatedly stated it's goal is to drive down unemployment and is willing to let inflation run hot to achieve that. It's always a balancing act if one of them is worse than the other, they will focus on that. However it looks like when both of them are bad, they would rather focus on unemployment by letting inflation hit harder.
- notahacker 5y ago
  The Fed has a formal target of 2% inflation (the major change recently was to allow it to be 2% on average, over time rather than 2% period) It doesn't have any employment target, although obviously extremes of unemployment is something it pays some attention to when deciding whether it's OK to miss its primary target or not.
Geee 5y ago
There's a mistake in that comment. The opposite is true. Central banks primary driver is to stop CPI prices from decreasing, which happens naturally because economic productivity increases with technological progress, making it easier and cheaper to produce goods and services. Money is created to revert this development so that CPI prices increase at the rate of 2% per year. Naturally, life would get easier because of technology, but instead life is made harder and harder to incentivize economic growth and environmental destruction, and keeping people in jobs that are not necessary or keeping work days longer than necessary (hamster-wheel economy). It's important to note that inflation is relative to CPI prices, because CPI prices will naturally decrease but prices of scarce assets like real estate will relatively increase because they're more limited by space, time and energy. On the other hand, digital goods and services are highly deflationary, i.e. digital consumption is getting cheaper. So, there's digital deflation, 2% CPI inflation, 10% (or more) asset inflation.