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You can't solve structural economic problems with monetary policy. That's how you get (hyper)inflation, and that story's been born out dozens of times across h

You can't solve structural economic problems with monetary policy. That's how you get (hyper)inflation, and that story's been born out dozens of times across history. The solution to real productivity declines is real productivity increases, and the incentive to reallocate your resources into the most productive activities is lacking when the cost of capital is effectively nil and the central bank bails out any misallocation.

imtringued 5y ago
I don't understand your comment. When the cost of capital is nil then the common expectation is that too much investment drives up inflation and we then have to prioritize and allocate resources. Governments are begging for this to happen. I don't know why but when the central bank intends lower interest rates to overheat the market people somehow stop believing that the market even exists. It's really strange. I mean it. People talk about how the market works and will fix everything on its own but as soon as there is any government action even action that supports the market suddenly people think it will completely break down, as if the market didn't exist or function the way they say.
- nostrademons 5y ago
  The way I look at it, the point of a market is to convince us to do things we don't want to do that nevertheless other people want us to do. Money is the mechanism for this. When you get paid for something, it sweetens the deal, so that you put up with stuff like going in to work 9-5 and dealing with angry customers and writing unit tests. Prices are an information-carrying mechanism: they tell people which activities are in high demand but low supply, and conversely, which activities aren't really worth doing. Bankruptcy and unemployment are the means with which we "prioritize and allocate resources". They are, by definition, when you stop doing what you were doing and start doing something else. So no, I would disagree that "governments are begging for this to happen" - I can't think of a government that's encouraged bankruptcy and unemployment since the 1980s. I view various forms of capital as a way to get over local maxima in economic efficiency. You borrow money or raise funds now so that you can build up tooling and innovations that will let you work more efficiently in the future, and then if you're right, you make lots of profits and can pay back your loans & dividends. If you're wrong, you go bankrupt, your investors take a haircut, and that capital goes back to other more productive activities. Constantly growing debt balances and inflation, however, I view as a way of lying to ourselves. They're basically saying "Well, in the future, things will get better", but when the future arrives and you still don't have profits, shrink the yardstick so things look better. That's exactly what "government action that supports the market" is - it's a way to avoid the failure of enterprises and loss of jobs that the market, on its own, doesn't demand enough to make profitable. Do this over 90 years and you can get some pretty extensive misallocation of capital.
  - czl 5y ago
    When used for productive things debt is good otherwise it is bad. Growing debt can indicate growing trust and confidence in the future. Growing debt can also indicate over confidence and blindness about the future. Economies have debt cycles: https://youtu.be/PHe0bXAIuk0 https://youtu.be/PHe0bXAIuk0 Inflation is the economy’s rate of debt forgiveness. Bad when high but good when low but above zero. Without it economies get clogged by debt. A slow rate of debt forgiveness is more economically efficient than bankruptcies or debt jails. Inflation also combats sticky prices by forcing contracts to be regularly renegotiated to supply demand prices. For example wages are hard to adjust down and having inflation do that automatically few % per year is more economically efficient than having to fire workers and replace them.
czl 5y ago
Compound interest over time causes gaps between the rich and poor to grow exponentially. The wider the rich poor gap the less efficient your economy. Societies that realize this implement debt forgiveness policies such as https://en.m.wikipedia.org/wiki/Jubilee_(biblical) https://en.m.wikipedia.org/wiki/Jubilee_(biblical) and modern bankruptcy and inflation. Societies that fail to do this stagnate, with many in them trapped by debt slavery. Slow growing stagnant societies lose competitions for resources to societies that implement debt forgiveness. Sometimes stagnant societies implode in civil wars and revolutions as happened in France, Russia, China. This also results in wealth gaps shrinking but at far greater cost.

imtringued 5y ago

I don't understand your comment. When the cost of capital is nil then the common expectation is that too much investment drives up inflation and we then have to prioritize and allocate resources. Governments are begging for this to happen. I don't know why but when the central bank intends lower interest rates to overheat the market people somehow stop believing that the market even exists. It's really strange. I mean it. People talk about how the market works and will fix everything on its own but as soon as there is any government action even action that supports the market suddenly people think it will completely break down, as if the market didn't exist or function the way they say.

nostrademons 5y ago
The way I look at it, the point of a market is to convince us to do things we don't want to do that nevertheless other people want us to do. Money is the mechanism for this. When you get paid for something, it sweetens the deal, so that you put up with stuff like going in to work 9-5 and dealing with angry customers and writing unit tests. Prices are an information-carrying mechanism: they tell people which activities are in high demand but low supply, and conversely, which activities aren't really worth doing. Bankruptcy and unemployment are the means with which we "prioritize and allocate resources". They are, by definition, when you stop doing what you were doing and start doing something else. So no, I would disagree that "governments are begging for this to happen" - I can't think of a government that's encouraged bankruptcy and unemployment since the 1980s. I view various forms of capital as a way to get over local maxima in economic efficiency. You borrow money or raise funds now so that you can build up tooling and innovations that will let you work more efficiently in the future, and then if you're right, you make lots of profits and can pay back your loans & dividends. If you're wrong, you go bankrupt, your investors take a haircut, and that capital goes back to other more productive activities. Constantly growing debt balances and inflation, however, I view as a way of lying to ourselves. They're basically saying "Well, in the future, things will get better", but when the future arrives and you still don't have profits, shrink the yardstick so things look better. That's exactly what "government action that supports the market" is - it's a way to avoid the failure of enterprises and loss of jobs that the market, on its own, doesn't demand enough to make profitable. Do this over 90 years and you can get some pretty extensive misallocation of capital.
- czl 5y ago
  When used for productive things debt is good otherwise it is bad. Growing debt can indicate growing trust and confidence in the future. Growing debt can also indicate over confidence and blindness about the future. Economies have debt cycles: https://youtu.be/PHe0bXAIuk0 https://youtu.be/PHe0bXAIuk0 Inflation is the economy’s rate of debt forgiveness. Bad when high but good when low but above zero. Without it economies get clogged by debt. A slow rate of debt forgiveness is more economically efficient than bankruptcies or debt jails. Inflation also combats sticky prices by forcing contracts to be regularly renegotiated to supply demand prices. For example wages are hard to adjust down and having inflation do that automatically few % per year is more economically efficient than having to fire workers and replace them.

czl 5y ago

Compound interest over time causes gaps between the rich and poor to grow exponentially. The wider the rich poor gap the less efficient your economy. Societies that realize this implement debt forgiveness policies such as https://en.m.wikipedia.org/wiki/Jubilee_(biblical) https://en.m.wikipedia.org/wiki/Jubilee_(biblical) and modern bankruptcy and inflation. Societies that fail to do this stagnate, with many in them trapped by debt slavery. Slow growing stagnant societies lose competitions for resources to societies that implement debt forgiveness. Sometimes stagnant societies implode in civil wars and revolutions as happened in France, Russia, China. This also results in wealth gaps shrinking but at far greater cost.