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The bailouts of 2008 led to a k shaped recovery just like the bailouts and stimulus of covid. People save money when times are hard, interest rates rise and un

The bailouts of 2008 led to a k shaped recovery just like the bailouts and stimulus of covid. People save money when times are hard, interest rates rise and unproductive ventures collapse, that is the homeostatic response of the economy and it is a healthy one; when productive ventures prove themselves, they are able to attract the investment of savers and use it to aquire capital goods etc. When you print money in an attempt to stimulate the economy, you are sending mixed signals to investors who now have to worry about inflation eating their savings, ecouraging them to spend or invest in often unproductive ventures. This response drives up the cost of consumer goods and allows those unproductive ventures to suck up the capital goods that would be better used elsewhere.

gruez 3y ago
The alternative of "economy goes bad -> people try to save money -> supply dries up -> economy goes even worse", as we saw in the great depression isn't great either.
- logicchains 3y ago
  The great depression wasn't caused by just people saving money. The US imposed massive trade tariffs prior to it, which as predicted by basic macroeconomics had a big negative impact. It also added price controls, even on labour, which again as predicted by basic econ prevented the market from clearing and led to mass unemployment (as deflation was happening, price floors prevented wages from following it, so in real terms wages were too high for employers to afford, causing mass unemployment). Those price controls BTW are why health insurance is tied to employers in the US: because companies at the time couldn't offer higher wages above the price ceiling, so instead compensated by offering benefits like insurance instead.
- Geisterde 3y ago
  The federal reserve admitted that their policies prolonged the great depression. People will buy the things that they need, resources will follow those needs because thats what people are actually buying. Some things might die, that is a reflection of society not actually caring very much about it, otherwise they would be buying it. This is in fact an attempt to re-organize the economy around specific things that wouldnt otherwise be supported by the market, with some crumbs left to curate votes. When people save, interest rates go up, freeing the capital goods needed for ventures that the market actually has a revealed preference for.
  - gruez 3y ago
    > The federal reserve admitted that their policies prolonged the great depression. their policies of what? Not engaging in stimulus? >People will buy the things that they need People buying the bare minimum also means there's little investment going on, which needless to say is bad for economic growth. >When people save, interest rates go up Why would that be the case? Interest rates are a reflection of the cost of money. When there's more money floating around, the cost of borrowing becomes cheaper, not more expensive. Or to put it another way: for every saver, there has to be a borrower. If there's more savers than borrowers, then the savers will have to compete with each other on price (ie. the interest rate they charge), driving them down.
    - logicchains 3y ago
      >People buying the bare minimum also means there's little investment going on, which needless to say is bad for economic growth. Not spending money indirectly contributes to investment. If you imagine 50% of the population suddenly decided to not spend any money for 10 years, and they hold 50% of all the money in circulation, in the short term this is essentially equivalent to burning 50% of the money supply, in that the reduction of the supply of money in the market leads to an increase in the value of money, which allows the people spending money at that time (including people making investments) to obtain more goods and services for their money.
      - gruez 3y ago
        But if the economy is going to shit, who are the people that are sticking their necks out by borrowing money to invest, rather than accumulating savings to weather the downturn?
        logicchains 3y ago
        >who are the people that are sticking their necks out by borrowing money to invest, rather than accumulating savings to weather the downturn Normal people aren't, but rich people (who don't face any real risk to their standard of living from a crash) are incentivised to "buy the low" while everything is cheap. And they can buy more thanks to the purchasing power that other currency holders temporarily forfeited by pulling their money out of circulation.

gruez 3y ago

The alternative of "economy goes bad -> people try to save money -> supply dries up -> economy goes even worse", as we saw in the great depression isn't great either.

logicchains 3y ago
The great depression wasn't caused by just people saving money. The US imposed massive trade tariffs prior to it, which as predicted by basic macroeconomics had a big negative impact. It also added price controls, even on labour, which again as predicted by basic econ prevented the market from clearing and led to mass unemployment (as deflation was happening, price floors prevented wages from following it, so in real terms wages were too high for employers to afford, causing mass unemployment). Those price controls BTW are why health insurance is tied to employers in the US: because companies at the time couldn't offer higher wages above the price ceiling, so instead compensated by offering benefits like insurance instead.
Geisterde 3y ago
The federal reserve admitted that their policies prolonged the great depression. People will buy the things that they need, resources will follow those needs because thats what people are actually buying. Some things might die, that is a reflection of society not actually caring very much about it, otherwise they would be buying it. This is in fact an attempt to re-organize the economy around specific things that wouldnt otherwise be supported by the market, with some crumbs left to curate votes. When people save, interest rates go up, freeing the capital goods needed for ventures that the market actually has a revealed preference for.
- gruez 3y ago
  > The federal reserve admitted that their policies prolonged the great depression. their policies of what? Not engaging in stimulus? >People will buy the things that they need People buying the bare minimum also means there's little investment going on, which needless to say is bad for economic growth. >When people save, interest rates go up Why would that be the case? Interest rates are a reflection of the cost of money. When there's more money floating around, the cost of borrowing becomes cheaper, not more expensive. Or to put it another way: for every saver, there has to be a borrower. If there's more savers than borrowers, then the savers will have to compete with each other on price (ie. the interest rate they charge), driving them down.
  - logicchains 3y ago
    >People buying the bare minimum also means there's little investment going on, which needless to say is bad for economic growth. Not spending money indirectly contributes to investment. If you imagine 50% of the population suddenly decided to not spend any money for 10 years, and they hold 50% of all the money in circulation, in the short term this is essentially equivalent to burning 50% of the money supply, in that the reduction of the supply of money in the market leads to an increase in the value of money, which allows the people spending money at that time (including people making investments) to obtain more goods and services for their money.
    - gruez 3y ago
      But if the economy is going to shit, who are the people that are sticking their necks out by borrowing money to invest, rather than accumulating savings to weather the downturn?
      - logicchains 3y ago
        >who are the people that are sticking their necks out by borrowing money to invest, rather than accumulating savings to weather the downturn Normal people aren't, but rich people (who don't face any real risk to their standard of living from a crash) are incentivised to "buy the low" while everything is cheap. And they can buy more thanks to the purchasing power that other currency holders temporarily forfeited by pulling their money out of circulation.