8 ms·

Demand growth is what we want. Our economy has been largely demand-limited for a while. Demand growth boosts GDP growth. Corporations are sitting on huge pil

Demand growth is what we want. Our economy has been largely demand-limited for a while. Demand growth boosts GDP growth. Corporations are sitting on huge piles of cash, so they're not investment-limited. Any labor market tightness raises wages, which have been mostly stagnant for a long time (until very recently). Wage growth is also good. If wage growth squeezes profits, then that's also good from a wealth inequality point of view.

mrjangles 5y ago
Yes I was wondering why economists would think this was a bad thing. To someone like me who knows nothing, this seems like an obvious good thing.
- ODILON_SATER 5y ago
  There is no increase in productivity. Inflation can be very costly, especially for the most disadvantaged who do not have investments to hedge against the rise in prices. It may have a positive first order effect in the short run, but it is an elusive one. Inflation, if out of control, has the potential to bring the interest rate to levels that would turn borrowing extremely costly --therefore making acquisition of capital more expensive, affecting productivity. Another side effect is that the government debt could become extremely burdensome, which would force the government to essentially print money to pay its debts. That is effectively a tax (called _seignorage_) on the population. In order to pay its debts, the government prints money, which in turn makes goods and services more expensive --i.e. _seignorage_. High inflation can affect consumer behavior and depress economic activity, which would lead to unemployment, it happened many times, and it is called stagflation. A slower economic activity coupled with increase in prices could then make production more costly, which would push inflation even higher but also increase unemployment. The key here is whether inflation would get out of control. The Fed seems to banking on the idea that this high inflation is transitory, which means that despite its current high levels, there will be some accommodation in the medium run and things would go back to a stable and acceptable target level. Some, like the article above, does not think so. If that's the case, then the Fed will need to act soon.
ClumsyPilot 5y ago
Corporations and capital class had huge piles if cash, that douubled while real Economy stuttered during the pandemic. Noone is talking about the fact that share price and real estate is inflating. But for once there is pressure on wages, and suddenly people are running for the hills
- asdff 5y ago
  5 year SPY chart is hillarious. Covid was seemingly a blip only a tad bigger than the blip in december 2018, we've been right back into the bull market trend for like a year now. The positive slope from march 20 2020 alone to today has just been insane, just a straight line up with hardly any deviation. So amazingly bullish. Fear doesn't exist in the markets anymore, we've seemed to have abandoned it. Just buy your leaps and profit indefinitely until the end of time. Not even a global pandemic could tear it down as it were.
  - EEMac 5y ago
    The 1920s have something to say about markets that climb without reference to underlying production.
    - asdff 5y ago
      If anything the great depression supported this thesis of stocks always going up, and you can safely forget sweating the actual underlying economics. If you held through the crash or bought at the bottom you'd obviously be doing fine. Look at this chart (1). Seem familiar? Looks a lot like the great recession or March 2020 to me: a big plunge that took headlines followed by an unstoppable bull trend, in this case one that kept advancing for decades and decades to today (2). Keep in mind what is key with this thesis is not some fantastical belief that stocks always go up out of magic. It's the understanding that the actions undertaken by the federal government and major banks that run the global economy will always generate increasing stock prices no matter any local blip or bloop or crash or fall in that moment. Buy the dip and take advantage of the sale price, then enjoy the guaranteed ride upwards supported by every major financial institution and first world government on earth, is what the past 100 years of macroeconomics have taught us. 1. https://static.seekingalpha.com/uploads/2011/8/4/763684-131249090706987-ChartProphet_origin.png https://static.seekingalpha.com/uploads/2011/8/4/763684-1312... 2. https://static.seekingalpha.com/uploads/2020/3/16/saupload_bf72f432a4ae65c356f7c3e548e52f8c.png https://static.seekingalpha.com/uploads/2020/3/16/saupload_b...
sokoloff 5y ago
I suspect the second half of this is where a lot of the cheap money will flow towards: > Addressing this imbalance will mean placing upward pressure on wages to entice more workers to work longer as well as requiring investment to improve productivity.
kovacs 5y ago
Organic demand growth is what we want, not this Frankenstein economy that's been created since at least 2008 if not earlier. Demand doesn't boost GDP, producing real goods and services boosts GDP. You can't spend your way to prosperity despite what any of the insane MMT economists might say. I agree that wage growth is good but not in the manner it's happening right now, through insanely easy money policies creating massive inflation that's easily outpacing any of those wage gains. Again, you can't print and spend your way to prosperity. Maybe some of these tools would work if they'd ever let off the gas and removed them but that's not what's happening.
- paganel 5y ago
  > not this Frankenstein economy that's been created since at least 2008 if not earlier For what it's worth the US has economically out-competed the European Union in that time-frame, with the US basically following Keynes and the UE going the austerity route most of the time (and only at times, begrudgingly, also following Keynes as a result of the Americans doing it first). There's also China that has out-competed the US and the UE both, but that's another story.
  - slv77 5y ago
    Both the US and China have paid the costs as that liquidity has flooded into speculative assets such as land which has increased wealth inequality. In addition it likely has resulted in misallocation of capital and a future tidal wave of bad debt. While households are typically cash constrained economies operating in a fiat system rarely are because cash is essentially created at will by the banking industry. Economic constraints are largely due to the ability to identify, fund and execute in good investments that will provide a reasonable return on capital given the risk. Is there any investment area in the economy that is currently constrained by the lack of cash?
    - imtringued 5y ago
      That's just the nature of imbalanced trade. The US reserve currency mandates permanent trade imbalances. It's a double edged sword.
BenoitEssiambre 5y ago
Exactly, this is what a functional economy that is not crippled by financial logjams looks like. It's possible to overdo it but that is much less damaging than under doing it like in the 2010s.
- Jensson 5y ago
  You are wrong, 2010 wasn't enough, and now it is back to worse than 2007, USA is currently consuming goods from other countries and doesn't produce enough to sustain it, and it hasn't produced enough to sustain its consumption for 50 years now. USA is just continuing to borrow from the rest of the world (printing a reserve currency is the same thing as borrowing/taking), shipment after shipment of goods gets sent to USA but little is sent back. This includes services like ads, what you are seeing now is just the effect of USA leeching of the rest of the world. At some point the rest of the world will tire at working for USA's consumption, I wouldn't be surprised if that crash gets much worse than the great depression. https://tradingeconomics.com/united-states/balance-of-trade https://tradingeconomics.com/united-states/balance-of-trade
  - throwaway34241 5y ago
    Most of the economy isn't tradeable though, including major sectors like housing, education, health care etc. If other countries get sick of buying US bonds, the relative value of the currency might depreciate. But as long as it doesn't happen all of a sudden that might not be catastrophic - other countries having stronger currencies might reduce US imports and increase exports (narrowing the trade deficit). Plus increasing automation might mitigate the cost of manufacturing in the US vs overseas.
    - Jensson 5y ago
      But the cost of all of those things are tied to trade prices. Lets say we halve the value of a dollar, then we effectively halve the salary of every American worker relative to the rest of the world, and also halve the value of the American consumption market. That would massively reduce the stock value of all companies that mainly sells to the American market, which includes most big American companies. It would also mean that skilled workers would no longer be incentivised to move to USA to work since the salary is no longer better. Or in other words, it could end the American dominance that has lasted since WW2. If it happens slowly enough it wont be a crash, but the American dominance will still end. I see no scenario where USA will maintain its current dominance, the living standards of Americans will get massively reduced and stocks will massively go down, it could happen quickly or slowly but either way it will happen.
lwouis 5y ago
Personally, I don't want any more growth. Infinite growth is not sustainable. Developed countries are way past what's necessary for a good life. I'd like to advocate for a slow controlled de-growth so we can reach climate agreement goals, and sustain humankind for a few more centuries, in decent living conditions.
- empiricus 5y ago
  We are far from infinite growth, no reason to worry. Maybe 10x or 100x should be enough to get everybody to stop worrying about food, housing, working? Then we can argue about slowing down.

mrjangles 5y ago

Yes I was wondering why economists would think this was a bad thing. To someone like me who knows nothing, this seems like an obvious good thing.

ODILON_SATER 5y ago
There is no increase in productivity. Inflation can be very costly, especially for the most disadvantaged who do not have investments to hedge against the rise in prices. It may have a positive first order effect in the short run, but it is an elusive one. Inflation, if out of control, has the potential to bring the interest rate to levels that would turn borrowing extremely costly --therefore making acquisition of capital more expensive, affecting productivity. Another side effect is that the government debt could become extremely burdensome, which would force the government to essentially print money to pay its debts. That is effectively a tax (called _seignorage_) on the population. In order to pay its debts, the government prints money, which in turn makes goods and services more expensive --i.e. _seignorage_. High inflation can affect consumer behavior and depress economic activity, which would lead to unemployment, it happened many times, and it is called stagflation. A slower economic activity coupled with increase in prices could then make production more costly, which would push inflation even higher but also increase unemployment. The key here is whether inflation would get out of control. The Fed seems to banking on the idea that this high inflation is transitory, which means that despite its current high levels, there will be some accommodation in the medium run and things would go back to a stable and acceptable target level. Some, like the article above, does not think so. If that's the case, then the Fed will need to act soon.

ClumsyPilot 5y ago

Corporations and capital class had huge piles if cash, that douubled while real Economy stuttered during the pandemic. Noone is talking about the fact that share price and real estate is inflating. But for once there is pressure on wages, and suddenly people are running for the hills

asdff 5y ago
5 year SPY chart is hillarious. Covid was seemingly a blip only a tad bigger than the blip in december 2018, we've been right back into the bull market trend for like a year now. The positive slope from march 20 2020 alone to today has just been insane, just a straight line up with hardly any deviation. So amazingly bullish. Fear doesn't exist in the markets anymore, we've seemed to have abandoned it. Just buy your leaps and profit indefinitely until the end of time. Not even a global pandemic could tear it down as it were.
- EEMac 5y ago
  The 1920s have something to say about markets that climb without reference to underlying production.
  - asdff 5y ago
    If anything the great depression supported this thesis of stocks always going up, and you can safely forget sweating the actual underlying economics. If you held through the crash or bought at the bottom you'd obviously be doing fine. Look at this chart (1). Seem familiar? Looks a lot like the great recession or March 2020 to me: a big plunge that took headlines followed by an unstoppable bull trend, in this case one that kept advancing for decades and decades to today (2). Keep in mind what is key with this thesis is not some fantastical belief that stocks always go up out of magic. It's the understanding that the actions undertaken by the federal government and major banks that run the global economy will always generate increasing stock prices no matter any local blip or bloop or crash or fall in that moment. Buy the dip and take advantage of the sale price, then enjoy the guaranteed ride upwards supported by every major financial institution and first world government on earth, is what the past 100 years of macroeconomics have taught us. 1. https://static.seekingalpha.com/uploads/2011/8/4/763684-131249090706987-ChartProphet_origin.png https://static.seekingalpha.com/uploads/2011/8/4/763684-1312... 2. https://static.seekingalpha.com/uploads/2020/3/16/saupload_bf72f432a4ae65c356f7c3e548e52f8c.png https://static.seekingalpha.com/uploads/2020/3/16/saupload_b...

sokoloff 5y ago

I suspect the second half of this is where a lot of the cheap money will flow towards: > Addressing this imbalance will mean placing upward pressure on wages to entice more workers to work longer as well as requiring investment to improve productivity.

kovacs 5y ago

Organic demand growth is what we want, not this Frankenstein economy that's been created since at least 2008 if not earlier. Demand doesn't boost GDP, producing real goods and services boosts GDP. You can't spend your way to prosperity despite what any of the insane MMT economists might say. I agree that wage growth is good but not in the manner it's happening right now, through insanely easy money policies creating massive inflation that's easily outpacing any of those wage gains. Again, you can't print and spend your way to prosperity. Maybe some of these tools would work if they'd ever let off the gas and removed them but that's not what's happening.

paganel 5y ago
> not this Frankenstein economy that's been created since at least 2008 if not earlier For what it's worth the US has economically out-competed the European Union in that time-frame, with the US basically following Keynes and the UE going the austerity route most of the time (and only at times, begrudgingly, also following Keynes as a result of the Americans doing it first). There's also China that has out-competed the US and the UE both, but that's another story.
- slv77 5y ago
  Both the US and China have paid the costs as that liquidity has flooded into speculative assets such as land which has increased wealth inequality. In addition it likely has resulted in misallocation of capital and a future tidal wave of bad debt. While households are typically cash constrained economies operating in a fiat system rarely are because cash is essentially created at will by the banking industry. Economic constraints are largely due to the ability to identify, fund and execute in good investments that will provide a reasonable return on capital given the risk. Is there any investment area in the economy that is currently constrained by the lack of cash?
  - imtringued 5y ago
    That's just the nature of imbalanced trade. The US reserve currency mandates permanent trade imbalances. It's a double edged sword.

BenoitEssiambre 5y ago

Exactly, this is what a functional economy that is not crippled by financial logjams looks like. It's possible to overdo it but that is much less damaging than under doing it like in the 2010s.

Jensson 5y ago
You are wrong, 2010 wasn't enough, and now it is back to worse than 2007, USA is currently consuming goods from other countries and doesn't produce enough to sustain it, and it hasn't produced enough to sustain its consumption for 50 years now. USA is just continuing to borrow from the rest of the world (printing a reserve currency is the same thing as borrowing/taking), shipment after shipment of goods gets sent to USA but little is sent back. This includes services like ads, what you are seeing now is just the effect of USA leeching of the rest of the world. At some point the rest of the world will tire at working for USA's consumption, I wouldn't be surprised if that crash gets much worse than the great depression. https://tradingeconomics.com/united-states/balance-of-trade https://tradingeconomics.com/united-states/balance-of-trade
- throwaway34241 5y ago
  Most of the economy isn't tradeable though, including major sectors like housing, education, health care etc. If other countries get sick of buying US bonds, the relative value of the currency might depreciate. But as long as it doesn't happen all of a sudden that might not be catastrophic - other countries having stronger currencies might reduce US imports and increase exports (narrowing the trade deficit). Plus increasing automation might mitigate the cost of manufacturing in the US vs overseas.
  - Jensson 5y ago
    But the cost of all of those things are tied to trade prices. Lets say we halve the value of a dollar, then we effectively halve the salary of every American worker relative to the rest of the world, and also halve the value of the American consumption market. That would massively reduce the stock value of all companies that mainly sells to the American market, which includes most big American companies. It would also mean that skilled workers would no longer be incentivised to move to USA to work since the salary is no longer better. Or in other words, it could end the American dominance that has lasted since WW2. If it happens slowly enough it wont be a crash, but the American dominance will still end. I see no scenario where USA will maintain its current dominance, the living standards of Americans will get massively reduced and stocks will massively go down, it could happen quickly or slowly but either way it will happen.

lwouis 5y ago

Personally, I don't want any more growth. Infinite growth is not sustainable. Developed countries are way past what's necessary for a good life. I'd like to advocate for a slow controlled de-growth so we can reach climate agreement goals, and sustain humankind for a few more centuries, in decent living conditions.

empiricus 5y ago
We are far from infinite growth, no reason to worry. Maybe 10x or 100x should be enough to get everybody to stop worrying about food, housing, working? Then we can argue about slowing down.