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Scott Sumner likes Mishkin's Economics of Money, Banking, and Financial Markets. If you're in USA, looks like you can get the 7th edition for around $10. * ht

Scott Sumner likes Mishkin's Economics of Money, Banking, and Financial Markets. If you're in USA, looks like you can get the 7th edition for around $10. * https://www.themoneyillusion.com/the-league-of-monetary-cranks/ https://www.themoneyillusion.com/the-league-of-monetary-cran... * https://www.themoneyillusion.com/mishkins-revealing-omissions/ https://www.themoneyillusion.com/mishkins-revealing-omission... His blog is great. Mainstream, orthodox macroeconomics. Well written, useful, and entertaining. Read the whole thing, in chronological order: * https://www.themoneyillusion.com/page/932/ https://www.themoneyillusion.com/page/932/ I graduated with a B average in economics, so I can't address this head on, but here's my understanding of the mainstream perspective: 1. Never reason from a price change: Prices go up, therefore people buy less? To the contrary, this begs the question of, why did prices go up? The causation is backwards: demand goes up, and then prices respond. 2. For example: "Low interest rates are generally a sign that money has been tight, as in Japan; high interest rates, that money has been easy." -Milton Friedman. The demand for money goes up (for whatever reason), the fed responds by increasing the supply of money, then interest rates fall. 3. Interest rates and inflation are nominal, thus don't impact relative prices (ie price discovery). Deflation/hyperinflation do have real effects though. 4. High/low, easy/tight is relative to market expectations. Successfully targeting the interest rate (or NGDP/aggregate demand) isn't market "stimulation" but keeping things on track, in a do no harm manner. And deviating does harm (ie business cycles). 5. Mainstream macro says money is neutral in the long run, non neutral in the short run. This might be what you're looking for: the effect of short term non neutrality of money on relative prices across the overall economy. So, if the downward pressure on DCF denominators is an economy wide phenomenon (ie inflation), then it's still the same say top 10% of businesses that survive. The missing link for me is: what's pushing up the value of inefficient businesses more than efficient businesses (or apples)? What distorts prices specifically and systematically in favor of inefficient businesses, vs. against or randomly/unpredictably? Now, let me go off the rails a bit re: wealth inequality. I think it's mostly just technology. There's just more and more stuff every year, and that sort of accretion, mix and stir with meritocracy, kleptocracy, plain old statistical randomness, network effects, what-have-you, lead to not just more wealth inequality, but inequality in general, and really just more overall diversity. The space of possibilities is just expanding at an incredible rate, together with the population, so there's a lot more room. And, I think it's natural for the distribution of people to be diffuse across the space. And, more people across a wider space, it's harder to consolidate, especially upward (eg Mao moved us in the wrong direction). Markets + technology do bring up the floor (hunger, shelter, etc), but we're still a ways off from the floor or the ceiling hitting our biological limits, ie post scarcity a la Iain M Banks' The Culture.

vladimirralev 5y ago
I know this is the mainstream, but all of this reads like total nonsense to me. 1. Price changes carry important information too. What if demand stays the same but price still goes up? It could there is too much money, or supply is constrained or a new tax was imposed in the chain, or something was banned or the market is simply inefficient. 2. Low rates are sign that money has been tight? Maybe in a world where rates are determined by a market, but right now the rates are whatever the Fed commands. If the Fed wasn't suppressing rates, all rates would be much higher. Further the demand for money is always infinite. Ask anybody on the street if they demand more money and 100% will say yes. Why doesn't the Fed increase the money supply for the random Joe on the street, but does so to cover unsustainable liquidity commitments made by banks? 3. Interest rates certainly drive relative prices as they widen and shrink the gaps between those on fixed income and everybody else. As such the different cohorts evolve different utility functions and preferences. For example certain asset prices can go higher than the price of food from interest alone. 4. Both inflation and NGDP are broad aggregates that clump together the top 1% with the rest with no regard of inequality, climate change, social unrest. It's easy to slip into a mode where the top 1% does extremely well while 99% are left behind and rioting, all satisfying the inflation or NGDP target. A mockery of a feudal economy in a way. And this is where we are heading. 5. We can prove this one as being false. Money neutrality has never been demonstrated in the long term. In fact most forms of money ended up guided by politics, hyper-inflated the supply, was banned, price-controlled or otherwise collapsed due to some inevitable populist political decision. It's pretty funny how the Fed keeps telling us they look long term, inflation is transitory and markets will work it out in a few years without intervening. But when the repo market crashed they didn't wait "for the market to work itself out", they rewrote their whole rulebook and launched support facilities the same day. By now it's clear they are making it up as they go and they are just dominating the system with increasingly excessive interventions into a self-exciting oscillation. The Fed increasingly need to resort to breaking the law to achieve their goals. The Fed is only allowed to buy government-guaranteed assets with the full faith that they will be repaid with taxes. They are not supposed to buy mortgages, ETFs, junk bonds, muni bonds. They've had these discussions in the past and determined it's against the federal reserve act. There is no doubt that the authors of the act never intended for this to be possible and the states wouldn't have even signed on the act if it was presented to them in such form.

vladimirralev 5y ago

I know this is the mainstream, but all of this reads like total nonsense to me. 1. Price changes carry important information too. What if demand stays the same but price still goes up? It could there is too much money, or supply is constrained or a new tax was imposed in the chain, or something was banned or the market is simply inefficient. 2. Low rates are sign that money has been tight? Maybe in a world where rates are determined by a market, but right now the rates are whatever the Fed commands. If the Fed wasn't suppressing rates, all rates would be much higher. Further the demand for money is always infinite. Ask anybody on the street if they demand more money and 100% will say yes. Why doesn't the Fed increase the money supply for the random Joe on the street, but does so to cover unsustainable liquidity commitments made by banks? 3. Interest rates certainly drive relative prices as they widen and shrink the gaps between those on fixed income and everybody else. As such the different cohorts evolve different utility functions and preferences. For example certain asset prices can go higher than the price of food from interest alone. 4. Both inflation and NGDP are broad aggregates that clump together the top 1% with the rest with no regard of inequality, climate change, social unrest. It's easy to slip into a mode where the top 1% does extremely well while 99% are left behind and rioting, all satisfying the inflation or NGDP target. A mockery of a feudal economy in a way. And this is where we are heading. 5. We can prove this one as being false. Money neutrality has never been demonstrated in the long term. In fact most forms of money ended up guided by politics, hyper-inflated the supply, was banned, price-controlled or otherwise collapsed due to some inevitable populist political decision. It's pretty funny how the Fed keeps telling us they look long term, inflation is transitory and markets will work it out in a few years without intervening. But when the repo market crashed they didn't wait "for the market to work itself out", they rewrote their whole rulebook and launched support facilities the same day. By now it's clear they are making it up as they go and they are just dominating the system with increasingly excessive interventions into a self-exciting oscillation. The Fed increasingly need to resort to breaking the law to achieve their goals. The Fed is only allowed to buy government-guaranteed assets with the full faith that they will be repaid with taxes. They are not supposed to buy mortgages, ETFs, junk bonds, muni bonds. They've had these discussions in the past and determined it's against the federal reserve act. There is no doubt that the authors of the act never intended for this to be possible and the states wouldn't have even signed on the act if it was presented to them in such form.