4 ms·

It is exactly this thought process that is preventing good fiscal stimulus during recessions. Well intentioned thoughts like these are a good default for the g

It is exactly this thought process that is preventing good fiscal stimulus during recessions. Well intentioned thoughts like these are a good default for the government running in cruise control - when there is no financial volatility. A stimulus is only required during a recession. In each recession, we have only allowed the Fed to print more money, which hasn't turned out well. Instead of printing this money and raising asset prices, during each recession, fiscal policy should help increase the supply of things direly in need. If a recession is causing food shortages, we don't want printed money to increase demand for food. We would do much better by literally subsidizing X units of food for the next 1 year.

fny 4y ago
How is subsidizing food producers any different than giving everyone money to buy food? In both cases you give money to food producers and in turn they increase production. The only difference is in your case the price signal is entirely lost. For example, say we decide to subsidize corn. In theory, the government is taking money out of your pocket and giving it to the corn farmer who in turn gives corn to you a lower cost. So you're still effectively paying more for the same damn thing, the government just did it for you! Over time a massive bureaucracy and incentive structure will grow around corn farming and special interest groups will fight to the death to make sure corn subsidies never go away. Oh, wait, that's actually the world we live in. Now imagine I give you cash for food--not specifically corn--you get to decide which food you spend it on. Say everyone can't get enough of corn. Sure, you're right, everyone will pay more for corn the difference is though we also see the price go up instead of the government hiding it. This price signal is very important. Once the price of corn gets too high for you, you will switch to some other food, and in turn different areas of the economy will be stimulated. Food subsidies are exactly how you get big agriculture. Certain players know how to play the government game better and take advantage of it. If I give everyone money, sure prices go up, but everyone has gained voting power against existing institutional players, and in my opinion, that is exactly how you get competition and growth.
- nine_zeros 4y ago
  > How is subsidizing food producers any different than giving everyone money to buy food? Subsidizing production by incentivizing number of units is different from just creating demand and waiting for producers to match up. By incentivizing number of units of production, say x% incentive for per 1000 bushels of corn AFTER 10k bushels, you are literally incentivizing production of food and suppressing prices. You are asking farmers to use as much land as possible to produce corn. This is assuming that there is a shortage of corn in the market. In this way, the market is flooded with cheap corn and prevents recession caused by corn. The benefit of this approach is that something useful actually got produced besides money. By only creating demand, production is not guaranteed to ramp up. Many farmers will be happy to take more dollars for the same amount of corn, causing inflation, thus causing fed to raise rates, thus causing recession. The disadvantage of this is that nothing got produced except money. This fiscal support should be timeboxed (say 1-year during a recession) to prvent the big ag monopolies you are talking about. We don't even need to think in hypotheticals. Today, the biggest cause of inflation (and thus fed rate hikes and thus recession) is housing. There is some merit to raising rates and flattening demand. But the biggest solution would be to flood the market with supply of housing. Just incentivize builders to build 2 million units within a year with fiscal policy and bam, inflation is gone.
  - junofan 4y ago
    You’re talking about a how a centrally planned economy can in theory overcome market failure. > Just incentivize builders to build 2 million units within a year with fiscal policy and bam, inflation is gone. Why fiscal policy and not zoning laws or something? Why would giving money to developers lead to zero inflation?
    - nine_zeros 4y ago
      > Why fiscal policy and not zoning laws or something? Why would giving money to developers lead to zero inflation? The fiscal policy is meant to be a one-time, short term boost to the exact items that is causing CPI to go higher. The fiscal policy is meant to be timeboxed. A zoning law is a much more long term thing.

fny 4y ago

How is subsidizing food producers any different than giving everyone money to buy food? In both cases you give money to food producers and in turn they increase production. The only difference is in your case the price signal is entirely lost. For example, say we decide to subsidize corn. In theory, the government is taking money out of your pocket and giving it to the corn farmer who in turn gives corn to you a lower cost. So you're still effectively paying more for the same damn thing, the government just did it for you! Over time a massive bureaucracy and incentive structure will grow around corn farming and special interest groups will fight to the death to make sure corn subsidies never go away. Oh, wait, that's actually the world we live in. Now imagine I give you cash for food--not specifically corn--you get to decide which food you spend it on. Say everyone can't get enough of corn. Sure, you're right, everyone will pay more for corn the difference is though we also see the price go up instead of the government hiding it. This price signal is very important. Once the price of corn gets too high for you, you will switch to some other food, and in turn different areas of the economy will be stimulated. Food subsidies are exactly how you get big agriculture. Certain players know how to play the government game better and take advantage of it. If I give everyone money, sure prices go up, but everyone has gained voting power against existing institutional players, and in my opinion, that is exactly how you get competition and growth.

nine_zeros 4y ago
> How is subsidizing food producers any different than giving everyone money to buy food? Subsidizing production by incentivizing number of units is different from just creating demand and waiting for producers to match up. By incentivizing number of units of production, say x% incentive for per 1000 bushels of corn AFTER 10k bushels, you are literally incentivizing production of food and suppressing prices. You are asking farmers to use as much land as possible to produce corn. This is assuming that there is a shortage of corn in the market. In this way, the market is flooded with cheap corn and prevents recession caused by corn. The benefit of this approach is that something useful actually got produced besides money. By only creating demand, production is not guaranteed to ramp up. Many farmers will be happy to take more dollars for the same amount of corn, causing inflation, thus causing fed to raise rates, thus causing recession. The disadvantage of this is that nothing got produced except money. This fiscal support should be timeboxed (say 1-year during a recession) to prvent the big ag monopolies you are talking about. We don't even need to think in hypotheticals. Today, the biggest cause of inflation (and thus fed rate hikes and thus recession) is housing. There is some merit to raising rates and flattening demand. But the biggest solution would be to flood the market with supply of housing. Just incentivize builders to build 2 million units within a year with fiscal policy and bam, inflation is gone.
- junofan 4y ago
  You’re talking about a how a centrally planned economy can in theory overcome market failure. > Just incentivize builders to build 2 million units within a year with fiscal policy and bam, inflation is gone. Why fiscal policy and not zoning laws or something? Why would giving money to developers lead to zero inflation?
  - nine_zeros 4y ago
    > Why fiscal policy and not zoning laws or something? Why would giving money to developers lead to zero inflation? The fiscal policy is meant to be a one-time, short term boost to the exact items that is causing CPI to go higher. The fiscal policy is meant to be timeboxed. A zoning law is a much more long term thing.