9 ms·

It doesn't necessarily, but there are some issues to think about: 1) Interest rates that are low mean that middle-class savings accounts don't grown in size. Q

It doesn't necessarily, but there are some issues to think about: 1) Interest rates that are low mean that middle-class savings accounts don't grown in size. QE requires low interest rates as I understand it. 2) MMT is linked to QE but guess what, an oligarchic system isn't going to distribute QE capital to middle class and poor people, it's going to go into the pockets of the ruling class. In any case, you really can't trust the corporate economists, and their performance before the 2008-2009 economic crash is proof of that. It's as bad as if the entire climate science community had predicted global cooling and we got global warming instead - clearly, the scientific community would conclude that their models are fundamentally flawed. This of course is why economics professors are safely enclosed in university business departments, so they don't have to face constant ridicule from real scientists.

dragonwriter 5y ago
> MMT is linked to QE No, its not. MMT rejects the fiscal/monetary dichotomy as fiction, and tends to prefer more targeted (traditionally “fiscal”) stimulus, without typical fiscal constraints, because it views the only real constraints on “fiscal” actions as monetary effects; QE is blunt stimulus that respects the classic monetary/fiscal divide that MMT argues against.
bradleyjg 5y ago
> QE requires low interest rates as I understand it. It’s the other way around. QE lowers interest rates; that’s the main purpose. The idea is that low interest rates force investment in risky ventures (since safe ones are offering low yields) and those risky investments on net will generate excess economic growth.
- nybble41 5y ago
  The problem being, of course, that those risky investments were considered "risky" for a reason. A fair assessment, in the absence of forced incentives, would say they're more of a net liability than a net asset. Better than having your funds confiscated, perhaps, but otherwise not worth considering. When they fail (as many of them inevitably will) those failed investments result in waste and economic decline, not growth. And as usual the less-sophisticated investors will bear the lion's share of the losses.
  - bradleyjg 5y ago
    I wouldn’t say that people are entitled to a safe investment option that offers a decent yield, but on the other hand I’m also skeptical of more than a decade of what was supposed to be extraordinary intervention.
    - nybble41 5y ago
      I also wouldn't say that anyone is entitled to a safe investment option, but they are entitled to non-interference—which includes the various rules and regulations which keep people (and especially those with less resources) tied to the US Dollar even as it's diluted at an ever-increasing pace. And without those rules and regulations anything remotely like QE would be a quick route to economic (and political) suicide, rather than the slow-but-inevitable decline we see today.
    - hackingforfun 5y ago
      I think it would be great if cash was a safe option. I.e. the rates offered would be higher than inflation, so that the value of cash is not eroded. QE leads to people investing in riskier assets, treating stocks like a savings account, which to me does not seem right.
  - hackingforfun 5y ago
    I agree and think the QE from March 2020 only lead people to believe that stocks are safe assets. Then again if The Fed keeps printing, maybe it all just keeps going.
    - lotsofpulp 5y ago
      The QE from multiple times in previous decades should also work to help believe stocks are safe assets. And why wouldn’t it? As long as USA is relatively stable compared to other countries, and USD is desirable relative to other currencies, then I think it is reasonable to consider low cost broad market index funds to be inflation protected savings accounts on a 3+ year investment horizon.
- cies 5y ago
  > those risky investments on net will generate excess economic growth. Economic growth comes from increased consumer spending. Not from investment. We will all learn that lesson very soon.
  - xxpor 5y ago
    This is the most frustrating thing about the current situation. We finally juiced the economy in a way that we've created a supply side constraint for the first time since at least 2000! People finally feel free to quit their jobs and demand higher wages! Of course, if you're a media company owner who's friends with other billionaires, you don't like this. So all of the coverage has been almost exclusively negative. Biden isn't helping himself by appearing to do nothing, but there's a lot of upside here.
  - coliveira 5y ago
    That's right, the only thing PE is accomplishing is to inflate asset valuation, but the increase in economic activity is very marginal without robust consumer spending.
  - adam_arthur 5y ago
    It's a combination of both. Consider Rivian which just went public at ~80B valuation (on revenue of 0, mind you). They raised ~10B dollars through investor capital and can now use that to create factories, hire employees and so on. Further, they can issue more shares down the line to finance their growth. I agree that consumer demand is required to grow aggregate revenues/earnings, and create a stably higher economy. But in theory using investment capital to invest into productive capacity puts upwards pressure on wages, thus longer term consumption. However, when capital is misallocated it may not result in productive growth.
  - bradleyjg 5y ago
    That’s a pretty silly thing to say in such a blanket way. R&D creates entire new segments of the economy.
Ericson2314 5y ago
The mainstream economic theory genuinely believed that handing out central bank securities would work just as well as, say. adjusting a UBI or normal fiscal policy. Yes, it's a suspiciously convenient idiocy --- especially because they also think wealthy households spend less (even if they don't think wealthy bussinesses do something similar) --- so certainly it's not something that can be completely fixed without a fight, but that doesn't mean all trying to "fix the policy-academic consensus" is useless. For example, Republican Jerome Powell is no Pinko, but under his watch the fed has become less closed minded about that "full employment" should look like. This is good, and is precisely because that and the pandemic checks that we are seeing great bottom half wage gains (in real terms too) and increased strikes. So yes, ultimately you can't trick "the man" with new ivory tower shit, but you can at least attack the straw mans and deflections. Maybe the best theory of change is to create new pandemics so they will have to print more checks to defend the system, and eventually, one of those strike waves will be the revolution :D. (Is this conservationism? I don't think so, because it's about the system's response to a bad thing making "working class lives" better not worse.)
- xibalba 5y ago
  > revolution Revolutions almost always result in prolonged mass violence. Most often of the horrific, needless, and soul shattering kind. A sampling of recent revolutions: the Bolshevik Revolution, the French Revolution, Cambodian civil war/Khmer Rouge takeover, Nazi takeover of Germany, Chinese Communist Revolution, the Cuban Revolution, etc etc. I propose a new heuristic for my fellow HN'ers: if someone pines for revolution, its a very good signal that they are poorly acquainted with history or that they are a sociopath.
  - Ericson2314 5y ago
    Should I do a :D and /s? I obviously don't want more pandemics and bloody revolution --- I am sure I will be the one getting guillotined, for one. The best case --- if it works --- is "non-reformist reform" as the European social democracies were planning. Some Marxists think it was doomed to fail because you can't avoid the antagonisms. I think they were merely prudish about printing money (especially Germans), and if drank more Post-Keynsian kool-aid (and let in more immigrants not as an underclass like in America), we would all be Socialist already.
spamizbad 5y ago
I don't understand how higher interest rates on savings accounts would meaningfully impact the middle class. The median savings account balance is just $5,300[1]. And the thing about savings accounts is that they generally do get spent down periodically - they typically aren't used to continuously squirrel away cash for decades, so you're not compounding interest over the long term. You might save for 5 years and then do a big spend-down to purchase a car, a house, home repair, medical emergency, etc. So, if the savings interest rate is a paltry 1%, that's just $35. But if it were 5%, it's $265 -- Except now you're paying 1-2 points more on a mortgage, student, and/or car loan. The median household debt is something like $59,000: roughly 10x the amount in savings. So, you make $230 more in savings interest at the cost of thousands of additional interest payments. Reducing QE and making debt more expensive seems to benefit a very narrow group of individuals who have the means to store large amounts of cash in safe liquid assets and don't carry significant debts relative to their income. Everyone else is worse off. [1]https://advisorsmith.com/data/average-savings-account-balance/ https://advisorsmith.com/data/average-savings-account-balanc...
- Clubber 5y ago
  You get what you incentivize. We are currently incentivizing debt over savings, so that's what we get. When I was in college, the bank would give something like 6-7% on savings. If I had a million dollars in the bank I could comfortably live off that interest for life. Now if I put a million dollars in the bank, I lose wealth due to inflation, so I'm incentivized to put it in a fund or something now, which is a lot riskier than bank interest.
  - whimsicalism 5y ago
    > Now if I put a million dollars in the bank, I lose wealth due to inflation, so I'm incentivized to put it in a fund or something now, which is a lot riskier than bank interest. Yes, people investing in productive enterprise is actually better for real output, prices, and generally overall welfare.
    - cies 5y ago
AnimalMuppet 5y ago
> Interest rates that are low mean that middle-class savings accounts don't grown in size. So far as I recall, interest rates on savings accounts have never been greater than inflation. That is, the money stored in a savings account would not grow in real terms. That's true with or without QE.
anm89 5y ago
QE doesn't require low rates. The causality works in the other direction. QE suppresses rates. QE could be done at any level of rates, with the exception of if long duration was too low or even negative I which case it may become politically or practically infeasible

dragonwriter 5y ago

> MMT is linked to QE No, its not. MMT rejects the fiscal/monetary dichotomy as fiction, and tends to prefer more targeted (traditionally “fiscal”) stimulus, without typical fiscal constraints, because it views the only real constraints on “fiscal” actions as monetary effects; QE is blunt stimulus that respects the classic monetary/fiscal divide that MMT argues against.

bradleyjg 5y ago

> QE requires low interest rates as I understand it. It’s the other way around. QE lowers interest rates; that’s the main purpose. The idea is that low interest rates force investment in risky ventures (since safe ones are offering low yields) and those risky investments on net will generate excess economic growth.

nybble41 5y ago
The problem being, of course, that those risky investments were considered "risky" for a reason. A fair assessment, in the absence of forced incentives, would say they're more of a net liability than a net asset. Better than having your funds confiscated, perhaps, but otherwise not worth considering. When they fail (as many of them inevitably will) those failed investments result in waste and economic decline, not growth. And as usual the less-sophisticated investors will bear the lion's share of the losses.
- bradleyjg 5y ago
  I wouldn’t say that people are entitled to a safe investment option that offers a decent yield, but on the other hand I’m also skeptical of more than a decade of what was supposed to be extraordinary intervention.
  - nybble41 5y ago
    I also wouldn't say that anyone is entitled to a safe investment option, but they are entitled to non-interference—which includes the various rules and regulations which keep people (and especially those with less resources) tied to the US Dollar even as it's diluted at an ever-increasing pace. And without those rules and regulations anything remotely like QE would be a quick route to economic (and political) suicide, rather than the slow-but-inevitable decline we see today.
  - hackingforfun 5y ago
    I think it would be great if cash was a safe option. I.e. the rates offered would be higher than inflation, so that the value of cash is not eroded. QE leads to people investing in riskier assets, treating stocks like a savings account, which to me does not seem right.
- hackingforfun 5y ago
  I agree and think the QE from March 2020 only lead people to believe that stocks are safe assets. Then again if The Fed keeps printing, maybe it all just keeps going.
  - lotsofpulp 5y ago
    The QE from multiple times in previous decades should also work to help believe stocks are safe assets. And why wouldn’t it? As long as USA is relatively stable compared to other countries, and USD is desirable relative to other currencies, then I think it is reasonable to consider low cost broad market index funds to be inflation protected savings accounts on a 3+ year investment horizon.
cies 5y ago
> those risky investments on net will generate excess economic growth. Economic growth comes from increased consumer spending. Not from investment. We will all learn that lesson very soon.
- xxpor 5y ago
  This is the most frustrating thing about the current situation. We finally juiced the economy in a way that we've created a supply side constraint for the first time since at least 2000! People finally feel free to quit their jobs and demand higher wages! Of course, if you're a media company owner who's friends with other billionaires, you don't like this. So all of the coverage has been almost exclusively negative. Biden isn't helping himself by appearing to do nothing, but there's a lot of upside here.
- coliveira 5y ago
  That's right, the only thing PE is accomplishing is to inflate asset valuation, but the increase in economic activity is very marginal without robust consumer spending.
- adam_arthur 5y ago
  It's a combination of both. Consider Rivian which just went public at ~80B valuation (on revenue of 0, mind you). They raised ~10B dollars through investor capital and can now use that to create factories, hire employees and so on. Further, they can issue more shares down the line to finance their growth. I agree that consumer demand is required to grow aggregate revenues/earnings, and create a stably higher economy. But in theory using investment capital to invest into productive capacity puts upwards pressure on wages, thus longer term consumption. However, when capital is misallocated it may not result in productive growth.
- bradleyjg 5y ago
  That’s a pretty silly thing to say in such a blanket way. R&D creates entire new segments of the economy.

Ericson2314 5y ago

The mainstream economic theory genuinely believed that handing out central bank securities would work just as well as, say. adjusting a UBI or normal fiscal policy. Yes, it's a suspiciously convenient idiocy --- especially because they also think wealthy households spend less (even if they don't think wealthy bussinesses do something similar) --- so certainly it's not something that can be completely fixed without a fight, but that doesn't mean all trying to "fix the policy-academic consensus" is useless. For example, Republican Jerome Powell is no Pinko, but under his watch the fed has become less closed minded about that "full employment" should look like. This is good, and is precisely because that and the pandemic checks that we are seeing great bottom half wage gains (in real terms too) and increased strikes. So yes, ultimately you can't trick "the man" with new ivory tower shit, but you can at least attack the straw mans and deflections. Maybe the best theory of change is to create new pandemics so they will have to print more checks to defend the system, and eventually, one of those strike waves will be the revolution :D. (Is this conservationism? I don't think so, because it's about the system's response to a bad thing making "working class lives" better not worse.)

xibalba 5y ago
> revolution Revolutions almost always result in prolonged mass violence. Most often of the horrific, needless, and soul shattering kind. A sampling of recent revolutions: the Bolshevik Revolution, the French Revolution, Cambodian civil war/Khmer Rouge takeover, Nazi takeover of Germany, Chinese Communist Revolution, the Cuban Revolution, etc etc. I propose a new heuristic for my fellow HN'ers: if someone pines for revolution, its a very good signal that they are poorly acquainted with history or that they are a sociopath.
- Ericson2314 5y ago
  Should I do a :D and /s? I obviously don't want more pandemics and bloody revolution --- I am sure I will be the one getting guillotined, for one. The best case --- if it works --- is "non-reformist reform" as the European social democracies were planning. Some Marxists think it was doomed to fail because you can't avoid the antagonisms. I think they were merely prudish about printing money (especially Germans), and if drank more Post-Keynsian kool-aid (and let in more immigrants not as an underclass like in America), we would all be Socialist already.

spamizbad 5y ago

I don't understand how higher interest rates on savings accounts would meaningfully impact the middle class. The median savings account balance is just $5,300[1]. And the thing about savings accounts is that they generally do get spent down periodically - they typically aren't used to continuously squirrel away cash for decades, so you're not compounding interest over the long term. You might save for 5 years and then do a big spend-down to purchase a car, a house, home repair, medical emergency, etc. So, if the savings interest rate is a paltry 1%, that's just $35. But if it were 5%, it's $265 -- Except now you're paying 1-2 points more on a mortgage, student, and/or car loan. The median household debt is something like $59,000: roughly 10x the amount in savings. So, you make $230 more in savings interest at the cost of thousands of additional interest payments. Reducing QE and making debt more expensive seems to benefit a very narrow group of individuals who have the means to store large amounts of cash in safe liquid assets and don't carry significant debts relative to their income. Everyone else is worse off. [1]https://advisorsmith.com/data/average-savings-account-balance/ https://advisorsmith.com/data/average-savings-account-balanc...

Clubber 5y ago
You get what you incentivize. We are currently incentivizing debt over savings, so that's what we get. When I was in college, the bank would give something like 6-7% on savings. If I had a million dollars in the bank I could comfortably live off that interest for life. Now if I put a million dollars in the bank, I lose wealth due to inflation, so I'm incentivized to put it in a fund or something now, which is a lot riskier than bank interest.
- whimsicalism 5y ago
  > Now if I put a million dollars in the bank, I lose wealth due to inflation, so I'm incentivized to put it in a fund or something now, which is a lot riskier than bank interest. Yes, people investing in productive enterprise is actually better for real output, prices, and generally overall welfare.
  - cies 5y ago

AnimalMuppet 5y ago

> Interest rates that are low mean that middle-class savings accounts don't grown in size. So far as I recall, interest rates on savings accounts have never been greater than inflation. That is, the money stored in a savings account would not grow in real terms. That's true with or without QE.

anm89 5y ago

QE doesn't require low rates. The causality works in the other direction. QE suppresses rates. QE could be done at any level of rates, with the exception of if long duration was too low or even negative I which case it may become politically or practically infeasible