4 ms·

Yea, it strikes me as the sort of situation where monetary policy does somewhat intentionally live in a vacuum compared to more general policy. Changing the int

Yea, it strikes me as the sort of situation where monetary policy does somewhat intentionally live in a vacuum compared to more general policy. Changing the interest rate doesn't dictate what companies or people do with the money they're borrowing/not lending at that rate. The Fed generally has pretty coarse tools. Whether the increased monetary supply is spent on "good" or "bad" things is up to more general policy choices made in other parts of the government.

onlyrealcuzzo 4y ago
> Whether the increased monetary supply is spent on "good" or "bad" things is up to more general policy choices made in other parts of the government. If we want to "make money" and "increase GDP" - lowering interest rates does appear to do that. But there's no reason you can't "make money" and "increase GDP" and also actually lower productivity and living standards. Imagine an economy where 90% of the economy is people buying land from each other on debt. If suddenly the price of money drops 50%, and people can afford to pay 50% more for land (and do) - all things being equal - GDP increases by 50% * 90% = 45%. If everyone realizes how much money they can make doing this instead of whatever the other 10% of the economy is - say actually working the land to farm apples - then real productivity can drop 100% to 0 - and you still "increase GDP" and people still "make money". At the same time - maybe everyone dies of starvation shortly thereafter? I'm not arguing this is actually happening - especially to this degree - but it is easy to see that it is at least possible*.
- imtringued 4y ago
  Well, what you are describing is actually what happens during economic depressions. People who need to eat don't have money so economic activity is diverted from producing food even though any sane individual would think that producing enough food is the highest priority for any civilization. What I personally find strange is that there are economic schools of thought that just axiomatically conclude that nothing is wrong and these people are rightfully starving even though there are economic schools that prevent starvation and end up with superior output.

onlyrealcuzzo 4y ago

> Whether the increased monetary supply is spent on "good" or "bad" things is up to more general policy choices made in other parts of the government. If we want to "make money" and "increase GDP" - lowering interest rates does appear to do that. But there's no reason you can't "make money" and "increase GDP" and also actually lower productivity and living standards. Imagine an economy where 90% of the economy is people buying land from each other on debt. If suddenly the price of money drops 50%, and people can afford to pay 50% more for land (and do) - all things being equal - GDP increases by 50% * 90% = 45%. If everyone realizes how much money they can make doing this instead of whatever the other 10% of the economy is - say actually working the land to farm apples - then real productivity can drop 100% to 0 - and you still "increase GDP" and people still "make money". At the same time - maybe everyone dies of starvation shortly thereafter? I'm not arguing this is actually happening - especially to this degree - but it is easy to see that it is at least possible*.

imtringued 4y ago
Well, what you are describing is actually what happens during economic depressions. People who need to eat don't have money so economic activity is diverted from producing food even though any sane individual would think that producing enough food is the highest priority for any civilization. What I personally find strange is that there are economic schools of thought that just axiomatically conclude that nothing is wrong and these people are rightfully starving even though there are economic schools that prevent starvation and end up with superior output.