6 ms·

That's the logical hypothesis, but the article we're commenting on seems to show that it's more complicated. FTA: "The logical case for why the Fed’s activiti

by bhupy 5y ago

That's the logical hypothesis, but the article we're commenting on seems to show that it's more complicated. FTA: "The logical case for why the Fed’s activities cause wealth concentration is that low interest rates and high levels of QE tend to boost asset prices, such as stocks and real estate, which are primarily owned by the wealthy. By making homes and stocks more expensive and unaffordable, it widens the wealth gap between those who owned those assets before the Fed began its QE vs those who were not yet significant asset holders when this occurred. There are other more nuanced arguments, but let’s start with that one, because that’s the main one. If that’s the case, and QE is indeed a powerful force for wealth concentration, we should see that the nations that have the lowest interest rates and that have performed the most QE relative to their GDP, have the highest levels of wealth inequality, right? In reality, we find the opposite. ... The regions that did the most QE relative to their GDP, and that have had lower interest rates for longer, have less wealth inequality, not more, as measured by the ratio of the mean wealth divided by the median wealth. If the prior theory was true, we should have seen the opposite. More of a correlation, rather than an inverse correlation. ... I’m not making the argument that QE reduces wealth concentration, because that’s not the case either. Instead the point is, it’s complicated. QE and interest rates by themselves are significantly uncorrelated (or even inversely correlated) variables vs how much wealth concentration a country has, when comparing between countries. That is an uncommon view, but that’s simply how the math works out. Clearly we need to look at the nuances."

whimsicalism 5y ago
It seems like many people in this thread are missing that poor people are often underwater in debt, so lower rates help them. There is a reason most of the farmer uprisings in the early US were over wanting more inflation rather than deflationary policy that made the value of their debt payments higher.
- ruined 5y ago
  poor people don't get lower rates. they get payday loans and 19% credit cards, or a tent. inflation is "good" for debts if your budget is otherwise balanced and your income rises apace, but if either is not the case inflation will only depress purchasing power. historical farmer revolts were interested in higher inflation because they had land, a real asset, and sold crops, real commodities, that provided appropriate income. modern poor people generally have zero assets.
  - xxpor 5y ago
    >they get payday loans and 19% credit cards, or a tent. The rates for those are still lower than they otherwise would be.
    - ruined 5y ago
      payday loan APR is generally around 300% to 700%. this is not a rate set by a market, it is the claw of a predator, useful only to deal a killing blow.
      - whimsicalism 5y ago
        Rates are set by a market. It's interesting how even as formal christianity is in decline, the moral constructs that it popularized (distaste for usury, protestant emphasis on liberty over well-being) morph into new forms.
      - xxpor 5y ago
        A lot of states have capped those rates relative to prime.
        ruined 5y ago
        which simply reinforces the idea that it's not a market. credit cards, too, are generally capped. the rate always maxes out the legislated cap. so it's not really dependent.
        Ericson2314 5y ago
        Yes the market power is also one sided, capping the rate also doesn't really help without guaranteeing more access to credit. The best thing is: a) UBI, just hand out a tiny bit of money to make poor people more liquid, because liquidity kills, not insolvency b) postal banking, because even shittier than a payday loan is high fee check cashing without a pretense of debt! Poor people hopefully at the point can save up a paychecks worth of buffer in their bank account, and don't need postal bank loans to replay payday loans.
- gruez 5y ago
  > It seems like many people in this thread are missing that poor people are often underwater in debt, so lower rates help them. ...only if inflation rates are on the way up (ie. higher than expected). on the way down (ie. inflation is lower than expected), they lose out.
- wussboy 5y ago
  Maybe the more meaningful question is, "Why are poor people often in debt?" And how would we address that?
  - ahallock 5y ago
    Debt isn't always bad. It's a powerful tool (leverage), and bankruptcy shouldn't have a stigma. We need people to be financially educated. We teach calculus in schools but very little on finance. Perhaps that's changed since I was in high school, but for me, it was non-existent.
    - raxxorrax 5y ago
      > Debt isn't always bad. I know the mantra of our financial system that creating debt also creates opportunity, but that is certainly detached from reality if used to form a general rule. For a average Joe, debt is exclusively bad. For states? They have more possibilities. But at that point we are talking about completely different forms of debt.
    - Ericson2314 5y ago
      Debt should be for doing interesting things. Like if you are expanding your business. It shouldn't be needed in the steady state. Poor people don't do interesting "events" economically be definition! Truly, to be poor is "stuff happens to you", not "you happen to stuff". The vast majority of people should not need loans. If we want people to be more "creative" we should achieve that with firstly with more leisure team for hobbies. No faux-entrepreneurship hustle culture. No trying to "acculture the poor" with extrinsic rewards, when rich kids have the luxury of not having the intrinsic rewards beaten out of them. Let people have hobbies. Let people involve their neighbors and pool their UBIs for the bigger-scale ones. Let no one need debt to survive. We should go "common core" on calculus. The essence to understanding economics right is stocks vs flows, and even if people never learn "this method of solving integrals, they should be able to see a graphed function, and draw it's rough derivative and integral. It's an essential skill. They should also know how to ride bikes and kinesthetically learn this stuff on hills. It is an essential toolkit of thinking, no symbols or formalism needed or wanted.

by bhupy 5y ago

whimsicalism 5y ago

It seems like many people in this thread are missing that poor people are often underwater in debt, so lower rates help them. There is a reason most of the farmer uprisings in the early US were over wanting more inflation rather than deflationary policy that made the value of their debt payments higher.

ruined 5y ago
poor people don't get lower rates. they get payday loans and 19% credit cards, or a tent. inflation is "good" for debts if your budget is otherwise balanced and your income rises apace, but if either is not the case inflation will only depress purchasing power. historical farmer revolts were interested in higher inflation because they had land, a real asset, and sold crops, real commodities, that provided appropriate income. modern poor people generally have zero assets.
- xxpor 5y ago
  >they get payday loans and 19% credit cards, or a tent. The rates for those are still lower than they otherwise would be.
  - ruined 5y ago
    payday loan APR is generally around 300% to 700%. this is not a rate set by a market, it is the claw of a predator, useful only to deal a killing blow.
    - whimsicalism 5y ago
      Rates are set by a market. It's interesting how even as formal christianity is in decline, the moral constructs that it popularized (distaste for usury, protestant emphasis on liberty over well-being) morph into new forms.
    - xxpor 5y ago
      A lot of states have capped those rates relative to prime.
      - ruined 5y ago
        which simply reinforces the idea that it's not a market. credit cards, too, are generally capped. the rate always maxes out the legislated cap. so it's not really dependent.
        Ericson2314 5y ago
        Yes the market power is also one sided, capping the rate also doesn't really help without guaranteeing more access to credit. The best thing is: a) UBI, just hand out a tiny bit of money to make poor people more liquid, because liquidity kills, not insolvency b) postal banking, because even shittier than a payday loan is high fee check cashing without a pretense of debt! Poor people hopefully at the point can save up a paychecks worth of buffer in their bank account, and don't need postal bank loans to replay payday loans.
gruez 5y ago
> It seems like many people in this thread are missing that poor people are often underwater in debt, so lower rates help them. ...only if inflation rates are on the way up (ie. higher than expected). on the way down (ie. inflation is lower than expected), they lose out.
wussboy 5y ago
Maybe the more meaningful question is, "Why are poor people often in debt?" And how would we address that?
- ahallock 5y ago
  Debt isn't always bad. It's a powerful tool (leverage), and bankruptcy shouldn't have a stigma. We need people to be financially educated. We teach calculus in schools but very little on finance. Perhaps that's changed since I was in high school, but for me, it was non-existent.
  - raxxorrax 5y ago
    > Debt isn't always bad. I know the mantra of our financial system that creating debt also creates opportunity, but that is certainly detached from reality if used to form a general rule. For a average Joe, debt is exclusively bad. For states? They have more possibilities. But at that point we are talking about completely different forms of debt.
  - Ericson2314 5y ago
    Debt should be for doing interesting things. Like if you are expanding your business. It shouldn't be needed in the steady state. Poor people don't do interesting "events" economically be definition! Truly, to be poor is "stuff happens to you", not "you happen to stuff". The vast majority of people should not need loans. If we want people to be more "creative" we should achieve that with firstly with more leisure team for hobbies. No faux-entrepreneurship hustle culture. No trying to "acculture the poor" with extrinsic rewards, when rich kids have the luxury of not having the intrinsic rewards beaten out of them. Let people have hobbies. Let people involve their neighbors and pool their UBIs for the bigger-scale ones. Let no one need debt to survive. We should go "common core" on calculus. The essence to understanding economics right is stocks vs flows, and even if people never learn "this method of solving integrals, they should be able to see a graphed function, and draw it's rough derivative and integral. It's an essential skill. They should also know how to ride bikes and kinesthetically learn this stuff on hills. It is an essential toolkit of thinking, no symbols or formalism needed or wanted.