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What policy at the face of it is stupid? Intentionally suppressing wages? Because that's clearly not what the Federal Reserve is intending if you read their sta

by Aunche 3y ago

What policy at the face of it is stupid? Intentionally suppressing wages? Because that's clearly not what the Federal Reserve is intending if you read their statement with their full context. Since they increased interest rates, inflation adjusted wages went from negative to positive. The basics of monetary policy isn't hard to understand. If the economy contracts, you decrease interest rates. If inflation gets too high, you increase interest rates. This much is entirely uncontroversial.

rolling_st 3y ago
I’d guess massive deficit spending funded in large part by central bank which did not have the cash? Which then artificially sets interest rates, etc. Hot take: Jerome Powell knows the current state is very bad and what he needs to do will be bad. He wants to have the guts to do it. Market/politicians will hate him. We’ll see if he can do it.
roenxi 3y ago
To me the big ones are * Their core aim that prices should be rising exponentially. * That the best tool to achieve that aim is dumping money into asset markets. * That their tell for when to stop giving money asset owners is when they see evidence that it is trickling over into wages, at which point the party ends because the wrong people are getting handouts. All of those ideas are obviously stupid. Their approach to monetising the US debt for the last 20 years is also highly questionable; the obvious way that ends is painfully. And it also does them no favours that when the outcomes of their activities become obvious to voters, they try to blame COVID and Russia. Sure COVID and Russia can cause problems, but they aren't responsible for sustained systematic price increases. If it was external shocks, we'd see prices snap back down again as the market adjusts. But the fact is that the US is mainly the victim of its own policies. Their press release is playing politics as opposed to being straightforward.
- Aunche 3y ago
  > That their tell for when to stop giving money asset owners is when they see evidence that it is trickling over into wages, at which point the party ends because the wrong people are getting handouts. This is just wrong. As, I pointed out earlier, there was no evidence that lower interest rates were trickling into wages at the time. Inflation adjusted earnings were down and reversed when interest rates got increased. https://fred.stlouisfed.org/series/LES1252881600Q https://fred.stlouisfed.org/series/LES1252881600Q I agree that excessive quantitative easing is widening the wealth gap, but that problem is that without it, we'd probably have another Great Depression. Like you said, the US is the victim of it's policies and policies are made by the elected politicians. You don't blame the surgeon for the side effects of coronary bypass surgery. You blame the patient who can't stop eating barrels of pork.
  - roenxi 3y ago
    > there was no evidence that lower interest rates were trickling into wages at the time There was, that is what prompted Powell's comment. Unless he's trying to push real wages down, which would be quite the radical position to take. > Inflation adjusted earnings were down and reversed when interest rates got increased. I'm not exactly sure in context what you're saying with that. Since it is obvious that inflation-adjusted earnings won't show inflation trickling into wages, I'm assuming this is an implicit suggestion that the Fed raises interest rates when wages drop. That seems like an interesting position though, so maybe you should unpack it a little bit - why should the Fed be responding to real wages dropping by raising interest rates? > ... but that problem is that without it, we'd probably have another Great Depression... This is what I mean by just-so stories. People act like there is one variable that led to the great depression and it was interest rates/monetary policy. That is just an indefensible position - the great depression literally only happened once and it is unreasonable to ignore the literally thousands of variables that go into an economic crisis. This isn't an argument. It is barely even evidence. We can state without any reference to evidence that the worst crisis in US history was also the worst managed one, and a quick skim of the Wiki page will reveal that there was a lot going wrong at the time, most of which is probably more causal to the crisis than central bank policy [0]. People point to one crisis, don't even explain what they thought the problem was and pretend like they've somehow demonstrated that only permanent inflation can ward off the Satan. The really weird part to me is I don't think that is the consensus position among the economists because their whole job is studying that sort of complex situation and they tend to lean very laissez-faire in their outlooks. The fact that the take-away from the Depression was "we just have to shovel money into asset markets. No other options. We tried everything, the alternatives are the worst!" is suspicious, to put it mildly. [0] The monetarists have a strong point that reductions in the money supply will cause all the metrics to go down. It is far less obvious that is a crisis. Metrics should go up and down. If anything the crisis is when the monetary supply goes up too quickly, but nobody is forced to recognise economic damage while that is happening. But it is almost self-evident that easy credit leads to waste, easy credit can only encourage resources getting redirected to economically marginal activity.
    - Aunche 3y ago

by Aunche 3y ago

rolling_st 3y ago

I’d guess massive deficit spending funded in large part by central bank which did not have the cash? Which then artificially sets interest rates, etc. Hot take: Jerome Powell knows the current state is very bad and what he needs to do will be bad. He wants to have the guts to do it. Market/politicians will hate him. We’ll see if he can do it.

roenxi 3y ago

To me the big ones are * Their core aim that prices should be rising exponentially. * That the best tool to achieve that aim is dumping money into asset markets. * That their tell for when to stop giving money asset owners is when they see evidence that it is trickling over into wages, at which point the party ends because the wrong people are getting handouts. All of those ideas are obviously stupid. Their approach to monetising the US debt for the last 20 years is also highly questionable; the obvious way that ends is painfully. And it also does them no favours that when the outcomes of their activities become obvious to voters, they try to blame COVID and Russia. Sure COVID and Russia can cause problems, but they aren't responsible for sustained systematic price increases. If it was external shocks, we'd see prices snap back down again as the market adjusts. But the fact is that the US is mainly the victim of its own policies. Their press release is playing politics as opposed to being straightforward.

Aunche 3y ago
> That their tell for when to stop giving money asset owners is when they see evidence that it is trickling over into wages, at which point the party ends because the wrong people are getting handouts. This is just wrong. As, I pointed out earlier, there was no evidence that lower interest rates were trickling into wages at the time. Inflation adjusted earnings were down and reversed when interest rates got increased. https://fred.stlouisfed.org/series/LES1252881600Q https://fred.stlouisfed.org/series/LES1252881600Q I agree that excessive quantitative easing is widening the wealth gap, but that problem is that without it, we'd probably have another Great Depression. Like you said, the US is the victim of it's policies and policies are made by the elected politicians. You don't blame the surgeon for the side effects of coronary bypass surgery. You blame the patient who can't stop eating barrels of pork.
- roenxi 3y ago
  > there was no evidence that lower interest rates were trickling into wages at the time There was, that is what prompted Powell's comment. Unless he's trying to push real wages down, which would be quite the radical position to take. > Inflation adjusted earnings were down and reversed when interest rates got increased. I'm not exactly sure in context what you're saying with that. Since it is obvious that inflation-adjusted earnings won't show inflation trickling into wages, I'm assuming this is an implicit suggestion that the Fed raises interest rates when wages drop. That seems like an interesting position though, so maybe you should unpack it a little bit - why should the Fed be responding to real wages dropping by raising interest rates? > ... but that problem is that without it, we'd probably have another Great Depression... This is what I mean by just-so stories. People act like there is one variable that led to the great depression and it was interest rates/monetary policy. That is just an indefensible position - the great depression literally only happened once and it is unreasonable to ignore the literally thousands of variables that go into an economic crisis. This isn't an argument. It is barely even evidence. We can state without any reference to evidence that the worst crisis in US history was also the worst managed one, and a quick skim of the Wiki page will reveal that there was a lot going wrong at the time, most of which is probably more causal to the crisis than central bank policy [0]. People point to one crisis, don't even explain what they thought the problem was and pretend like they've somehow demonstrated that only permanent inflation can ward off the Satan. The really weird part to me is I don't think that is the consensus position among the economists because their whole job is studying that sort of complex situation and they tend to lean very laissez-faire in their outlooks. The fact that the take-away from the Depression was "we just have to shovel money into asset markets. No other options. We tried everything, the alternatives are the worst!" is suspicious, to put it mildly. [0] The monetarists have a strong point that reductions in the money supply will cause all the metrics to go down. It is far less obvious that is a crisis. Metrics should go up and down. If anything the crisis is when the monetary supply goes up too quickly, but nobody is forced to recognise economic damage while that is happening. But it is almost self-evident that easy credit leads to waste, easy credit can only encourage resources getting redirected to economically marginal activity.
  - Aunche 3y ago