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A couple of things: Your assumption of limitless JIT production is wrong but it's better to address this second. Your statement about making everyone poorer to

A couple of things: Your assumption of limitless JIT production is wrong but it's better to address this second. Your statement about making everyone poorer to reduce demand is confusing. Do you mean raising interest rates makes everyone poorer and we shouldn't do it? If so, that's not true. It makes people that have borrowed poorer and it makes people who have lent richer. There are second order effects where borrowers can no longer borrow and spend so demand is reduced but that's not really making people poorer, it's limiting their ability to spend money they don't have. If you meant inflation was making everyone poorer, that's true, but your statement doesn't come off that way. Raising prices broadly makes everyone poorer, which is why the central bank should be fighting inflation with whatever tools they have. Back to the limitless JIT production. if that was true (and we had limitless delivery to where goods were needed) then yah, we wouldn't have inflation, I agree. What we have instead is high production capabilities that took a hit from the war and a much larger hit from Covid policies messing up factory production and all this being fed into a severely overloaded transport system with chokepoints at most ports causing backlogs. if you want the high JIT production and delivery to be true then you need to address the causes of it not being true and that is often (but not always) government. Government is standing in the way of breaking the unions and automating the ports, for example. Government is also standing in the way of new fossil fuel infrastructure that is desperately needed via extreme uncertainty in regulatory approval processes.

fnordpiglet 4y ago
Raising interest rates discourages capital investment which makes it harder to expand. It also makes businesses that float on warehouse credit less able to operate. Raising the cost of borrowing hurts anyone spending while rewarding those saving. since economic growth happens through increased spending, you can only shrink economic activity by encouraging saving. This makes everyone poorer because there’s simply less money available. Only those with excess capital to save benefit, but they really don’t benefit in an economic sense but in a notional sense. If the issue is supply can’t meet demand, you can either reduce spending or demand and increase savings or you can make capital expansion cheaper and encourage supply meeting demand. The former makes everyone poorer because the economy shrinks. The latter grows the economy, and makes everyone richer. Now I agree inflation is bad for everyone. But inducing a global recession is an ass backwards way to solve it. Expanding supply capacity and ability to deliver while reducing frictional cost of transportation solves it in a positive way. But either way won’t see results over night. It takes time for any of this to happen. But I’ll argue here that inducing a recession and economic downturn by rewarding saving and not spending leaves us at a worse place in 10 years than we would have been had we grown into the demand and rewarded capital expansion in the face of increasing demand. Note, I know there’s a morality in our culture around spending and saving as a concept, but I think these are entirely specious. You should save regardless of the reward structure to provide stability and a buffer against turbulence, and being parsimonious is IMO the actual moral imperative. Saving and spending in the above isn’t necessarily at an individual level but at a societal level. Saving is necessarily contracting economic activity by making capital expensive and removing currency from exchange for goods and services, and creating artificial incentives to save will lead to misery - layoffs, shrinking economic activity, declines in equity markets and the value of real goods relative to savings, etc, all of which is not beneficial to anyone in the long run. Inflation, unless followed on with expansion of currency to try to battle inflation, will resolve itself naturally either way. But letting supply and demand work out the price in the market and making capital cheap means more people and businesses will try to capture more of that extra demand. That’s good isn’t it? Usually markets overshoot so you would ultimately see a period of deflation, especially if a recession pops out, undoing the experienced inflation. But creating a recession to make people spend less and therefore decrease expansion and opportunity for growth is a truly awful strategy.
- snapplebobapple 4y ago
  You have a bunch errors in there. First paragraph: 1. Raising interest rates does not discourage capital investment equally. It raises the expected future value needed by an investment to justify going forward, so it discourages marginal/malinvestment. The all in podcast had a decent chart on why this is a good idea recently that showed investments when the market is this overheated losing pretty uniformly. 2. You confuse money with stuff. Generally, more stuff makes people richer, not more money. More money when there isn't enough stuff makes inflation. 3. More spending is currently how we measure growth but it's dangerous and incorrect to label growth coming from spending. Savings drives capital accumulation and capital drives efficiency gains/production gains, which means more ability to produce more stuff. It is easy to make this error because there are tons of things we can do that destroys the capital stock but drives spending in the near term to great medium/long term detriment. second paragraph: 4. This whole thing is basically wrong. Making credit cheaper only "solves" the problem if the credit expansion can grow the output of whatever the constraint(s) is(are) faster than it is growing demand for the constraint itself. This is both not gauranteed and not likely in this case given we were already basically at the zero bound interest rate and funding all sorts of insane startup ideas/company largess at the large companies. Higher interest rates reign in malinvestment, which is definitely happening right now and destroying demand from malinvestment is a very good thing. Third paragraph: 5. Do you think the economy wasn't trying to self correct in the way you describe and failing prior to interest rates being tightened? We had very extended and worsening inflation from the exact strategy you describe before the central bank finally flipped to tightening. If this actually worked we wouldn't be here. Fourth paragraph: 6. This is impossible to agree on because I would say the places that have taken this path to its logical conclusion ended in hyperinflation and economic death spiral and you will say those places weren't really trying what you propose. Fifth paragraph onward: 7. I obviously strongly disagree with you for non moral reasons so I don't see a lot of value addressing your morality arguments.
fnordpiglet 4y ago
Note, on government interference it’s hard to not point out the fed is a quasi governmental institution acting to contract the economy and induce a recession to deal with COVID and gas prices and wars and stuff. Doesn’t that play into your argument that these things are all made worse by governmental intervention?

fnordpiglet 4y ago

Raising interest rates discourages capital investment which makes it harder to expand. It also makes businesses that float on warehouse credit less able to operate. Raising the cost of borrowing hurts anyone spending while rewarding those saving. since economic growth happens through increased spending, you can only shrink economic activity by encouraging saving. This makes everyone poorer because there’s simply less money available. Only those with excess capital to save benefit, but they really don’t benefit in an economic sense but in a notional sense. If the issue is supply can’t meet demand, you can either reduce spending or demand and increase savings or you can make capital expansion cheaper and encourage supply meeting demand. The former makes everyone poorer because the economy shrinks. The latter grows the economy, and makes everyone richer. Now I agree inflation is bad for everyone. But inducing a global recession is an ass backwards way to solve it. Expanding supply capacity and ability to deliver while reducing frictional cost of transportation solves it in a positive way. But either way won’t see results over night. It takes time for any of this to happen. But I’ll argue here that inducing a recession and economic downturn by rewarding saving and not spending leaves us at a worse place in 10 years than we would have been had we grown into the demand and rewarded capital expansion in the face of increasing demand. Note, I know there’s a morality in our culture around spending and saving as a concept, but I think these are entirely specious. You should save regardless of the reward structure to provide stability and a buffer against turbulence, and being parsimonious is IMO the actual moral imperative. Saving and spending in the above isn’t necessarily at an individual level but at a societal level. Saving is necessarily contracting economic activity by making capital expensive and removing currency from exchange for goods and services, and creating artificial incentives to save will lead to misery - layoffs, shrinking economic activity, declines in equity markets and the value of real goods relative to savings, etc, all of which is not beneficial to anyone in the long run. Inflation, unless followed on with expansion of currency to try to battle inflation, will resolve itself naturally either way. But letting supply and demand work out the price in the market and making capital cheap means more people and businesses will try to capture more of that extra demand. That’s good isn’t it? Usually markets overshoot so you would ultimately see a period of deflation, especially if a recession pops out, undoing the experienced inflation. But creating a recession to make people spend less and therefore decrease expansion and opportunity for growth is a truly awful strategy.

snapplebobapple 4y ago
You have a bunch errors in there. First paragraph: 1. Raising interest rates does not discourage capital investment equally. It raises the expected future value needed by an investment to justify going forward, so it discourages marginal/malinvestment. The all in podcast had a decent chart on why this is a good idea recently that showed investments when the market is this overheated losing pretty uniformly. 2. You confuse money with stuff. Generally, more stuff makes people richer, not more money. More money when there isn't enough stuff makes inflation. 3. More spending is currently how we measure growth but it's dangerous and incorrect to label growth coming from spending. Savings drives capital accumulation and capital drives efficiency gains/production gains, which means more ability to produce more stuff. It is easy to make this error because there are tons of things we can do that destroys the capital stock but drives spending in the near term to great medium/long term detriment. second paragraph: 4. This whole thing is basically wrong. Making credit cheaper only "solves" the problem if the credit expansion can grow the output of whatever the constraint(s) is(are) faster than it is growing demand for the constraint itself. This is both not gauranteed and not likely in this case given we were already basically at the zero bound interest rate and funding all sorts of insane startup ideas/company largess at the large companies. Higher interest rates reign in malinvestment, which is definitely happening right now and destroying demand from malinvestment is a very good thing. Third paragraph: 5. Do you think the economy wasn't trying to self correct in the way you describe and failing prior to interest rates being tightened? We had very extended and worsening inflation from the exact strategy you describe before the central bank finally flipped to tightening. If this actually worked we wouldn't be here. Fourth paragraph: 6. This is impossible to agree on because I would say the places that have taken this path to its logical conclusion ended in hyperinflation and economic death spiral and you will say those places weren't really trying what you propose. Fifth paragraph onward: 7. I obviously strongly disagree with you for non moral reasons so I don't see a lot of value addressing your morality arguments.

fnordpiglet 4y ago

Note, on government interference it’s hard to not point out the fed is a quasi governmental institution acting to contract the economy and induce a recession to deal with COVID and gas prices and wars and stuff. Doesn’t that play into your argument that these things are all made worse by governmental intervention?