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Not additional spending exactly, but direct payments to the population to avoid a liquidity trap. It's a trade off, gaining a little on GDP by increasing inflat

by chomp 5y ago

Not additional spending exactly, but direct payments to the population to avoid a liquidity trap. It's a trade off, gaining a little on GDP by increasing inflation. See: Japan for what a persistent liquidity trap does to a country. Helicopter money is a bit unconventional, and doesn't solve every economic woe. It's just one of the 1000 tools in the monetary policy toolbox. EDIT: It's important to note that mild inflation is a good thing. It spurs people to buy now rather than later. If inflation was zero for a hypothetical country, why buy a house today if you know the house would be the same price 10 years from now? That spending today cycles dollars into the economy that keeps the engine running. 2% is generally regarded as pretty optimal. Aggressive unconventional measures applied early has stronger effects than applied later. France has had some pretty lackluster GDP growth over the past few years, and probably sees now to be prime time to keep the engine rolling now that the country is waking back up from the pandemic. This is more or less in line with the European Central Bank's line of thinking: https://www.ecb.europa.eu/press/key/date/2021/html/ecb.sp210628~695f98b30c.en.html https://www.ecb.europa.eu/press/key/date/2021/html/ecb.sp210... France's inflation was only 2.7% for the month of September, which is a little high, but way low compared to what their more successful peers are hitting (not that 5% is what you should be aiming for, but as a yardstick for hot economies, it means they have some wiggle room). If France wants to keep the renewed interest in spending going, especially with their historical sluggish growth, they need to apply a little more juice to the economy.

ephbit 5y ago
> EDIT: It's important to note that mild inflation is a good thing. It spurs people to buy now rather than later. If inflation was zero for a hypothetical country, why buy a house today if you know the house would be the same price 10 years from now? This argument in favour of inflation always baffles me .. yeah, maybe people weigh different reasons for/against buying something like a house now or rather later ... but I'm rather sceptic that regular people who'd buy a house to live in it (who could afford to buy it right now) would have a relevant tendency to wait another 10 years because there's almost no inflation. For entities such as real estate investors the inflation aspect is obviously a lot more relevant, yes. But for regular people, most buying decisions are probably dominated by the aspect of when they need the thing, not by the speculation of whether the thing they could use right now might still cost the same in the future. Besides that, the notion of spurring people to buy now rather than later is IMO a bit outdated. Buying less now and shifting consumption into the (hopefully less carbon footprinty) future might be one of the most important levers to push, to get humanity out of the climate catastrophe trap. Might just be the argument in favour of deflation ... let's hear it in 10 years from now. I'm also curious what all these modern monetary advocates will bring up when - contrary to their predictions - inflation doesn't just conveniently level off to an acceptable 2 per cent in the next 18 months.
- ephbit 5y ago
  Forgot the 'theory' in the last paragraph. It should've read 'modern monetary theory'.
anm89 5y ago
> It's important to note that mild inflation is a good thing I'd lightly disagree with this and say that a naturally small but positive interest rate is desirable but not always good or right. That's different than saying a small but positive interest rate is optimal in ever scenario or regardless of what it takes to make it happen. We've been playing tricks with interest rates to attain a positive interest for a decade and now bond markets are so drastically distorted that we are having to do increasingly drastic measures to try to get our fix. I would argue the problem is that for much of that time, mild disinflation was priced into the market clearing rate. And instead of taking our medicine then, we have created an incredibly fragile environment that has the potential to be way more painful than the thing we were trying to prevent. Cpi is 5 but I'm going to argue 7-8 is a more meaningful number to the average American right now. We can't raise rates but 7-8 sustained is also intolerable. I think our low but positive rates at all costs attitude is going to turn out not to look so clever through the lense of history

by chomp 5y ago

ephbit 5y ago

> EDIT: It's important to note that mild inflation is a good thing. It spurs people to buy now rather than later. If inflation was zero for a hypothetical country, why buy a house today if you know the house would be the same price 10 years from now? This argument in favour of inflation always baffles me .. yeah, maybe people weigh different reasons for/against buying something like a house now or rather later ... but I'm rather sceptic that regular people who'd buy a house to live in it (who could afford to buy it right now) would have a relevant tendency to wait another 10 years because there's almost no inflation. For entities such as real estate investors the inflation aspect is obviously a lot more relevant, yes. But for regular people, most buying decisions are probably dominated by the aspect of when they need the thing, not by the speculation of whether the thing they could use right now might still cost the same in the future. Besides that, the notion of spurring people to buy now rather than later is IMO a bit outdated. Buying less now and shifting consumption into the (hopefully less carbon footprinty) future might be one of the most important levers to push, to get humanity out of the climate catastrophe trap. Might just be the argument in favour of deflation ... let's hear it in 10 years from now. I'm also curious what all these modern monetary advocates will bring up when - contrary to their predictions - inflation doesn't just conveniently level off to an acceptable 2 per cent in the next 18 months.

ephbit 5y ago
Forgot the 'theory' in the last paragraph. It should've read 'modern monetary theory'.

anm89 5y ago

> It's important to note that mild inflation is a good thing I'd lightly disagree with this and say that a naturally small but positive interest rate is desirable but not always good or right. That's different than saying a small but positive interest rate is optimal in ever scenario or regardless of what it takes to make it happen. We've been playing tricks with interest rates to attain a positive interest for a decade and now bond markets are so drastically distorted that we are having to do increasingly drastic measures to try to get our fix. I would argue the problem is that for much of that time, mild disinflation was priced into the market clearing rate. And instead of taking our medicine then, we have created an incredibly fragile environment that has the potential to be way more painful than the thing we were trying to prevent. Cpi is 5 but I'm going to argue 7-8 is a more meaningful number to the average American right now. We can't raise rates but 7-8 sustained is also intolerable. I think our low but positive rates at all costs attitude is going to turn out not to look so clever through the lense of history