3 ms·

> Unless he's trying to push real wages down, which would be quite the radical position to take. If he's not trying to push real wages down, then what's the pr

by Aunche 3y ago

> Unless he's trying to push real wages down, which would be quite the radical position to take. If he's not trying to push real wages down, then what's the problem? People were being hurt more by inflation than they were helped with increasing wages, so it makes perfect sense to prioritize inflation reduction over nominal wage growth. The Fed was happy with keeping low interest rates during the wage growth the occurred during from 2012-2020 because inflation was also low. > why should the Fed be responding to real wages dropping by raising interest rates? My point is that they were more interested in reducing inflation than they were about moderating wage growth. That real wages ended up increasing is evidence of this. > there was a lot going wrong at the time, most of which is probably more causal to the crisis than central bank policy There is a lot going wrong when an unhealthy person dies from a heart attack. I certainly wouldn't characterize the lack of a coronary bypass surgery as "causal," but that's the only actionable thing a surgeon has the power to do. No matter the cause an a medical emergency, the first goal is to keep blood circulating in your body, so you don't end up with cascading problems like organ failure. The same goes for monetary policy. If the economy continues to spiral downward despite conventional measures, why wouldn't you resort to more aggressive interventions? > But it is almost self-evident that easy credit leads to waste, easy credit can only encourage resources getting redirected to economically marginal activity. So you agree that we've been long overdue for higher interest rates?

roenxi 3y ago
> If he's not trying to push real wages down, then what's the problem? Yeah fair point. I suppose what I'm thinking is that the Fed doesn't have any tools that create real wealth, they only control monetary policy. That can only have one of two effects - adjusting the value of the dollar relative to the real economy and causing reallocation of resources. The policy levers are consistently set to shuffle wealth from labour capital holders, with a particular focus on bondholders and pumping money into credit markets. They shouldn't have their finger on the scales like that; it isn't fair and there is no reason to think it is efficient or productive. It does reallocate away from wages but I don't expect to see that in short term statistics. > People were being hurt more by inflation than they were helped with increasing wages Nothing changed recently. Picking on, say, average hourly earnings [0]; that isn't keeping up with the M2 [1]. It hasn't even doubled in 20 years. People are becoming worse off. Inflation adjusted wages aren't a reasonable way of measuring wellbeing because they measure against consumer price inflation and that builds in an assumption that people don't accumulate assets and prepare for their own retirement. Their policy has been making people worse off for decades. They spend a lot of time calibrating it so the damage isn't evident day-to-day. > [heart attack analogy] I suppose I can't argue that directly because arguing about an analogy doesn't make sense. But I will say that if we start - for the sake of argument - with the assumption that the Fed didn't cause the depression, then the argument falls apart because they didn't prevent it and depression not recurring isn't evidence that their policy is helping. Something else introduced a cause and removed the cause. Probably Congress. So the policy of crisis management in 2024 doesn't make sense. If we take the antithesis of that and accept that Fed policy was a contributing factor to the depression, we'll note that the time period when they set it up was before the money supply contracted, so the policy mistake was more likely overexpansion of the money supply. I'll accept that inflationary policy might sometimes be appropriate, the idea that deflation = great depression is unsupported. If deflation causes the economy to collapse, that means the pre-deflationary policy was building an economy that was prone to collapse. Which is stupid policy and also what the Fed spends most of its day setting up. > So you agree that we've been long overdue for higher interest rates? Yeah. I'm arguing that the central bank inflation policy is bad. Since their policy is implemented using interest rates, it seems reasonable to say that I always think they are setting interest rates too low. Indeed, the idea that a committee 'sets' interest rates is a major bone of contention. Setting a price by committee action is a bad idea in every other other market and there isn't evidence it works well in this one either. Extraordinary claims need extraordinary evidence. [0] https://fred.stlouisfed.org/series/CES0500000003 https://fred.stlouisfed.org/series/CES0500000003 [1] https://fred.stlouisfed.org/graph/?g=DTpB https://fred.stlouisfed.org/graph/?g=DTpB

by Aunche 3y ago

roenxi 3y ago

> If he's not trying to push real wages down, then what's the problem? Yeah fair point. I suppose what I'm thinking is that the Fed doesn't have any tools that create real wealth, they only control monetary policy. That can only have one of two effects - adjusting the value of the dollar relative to the real economy and causing reallocation of resources. The policy levers are consistently set to shuffle wealth from labour capital holders, with a particular focus on bondholders and pumping money into credit markets. They shouldn't have their finger on the scales like that; it isn't fair and there is no reason to think it is efficient or productive. It does reallocate away from wages but I don't expect to see that in short term statistics. > People were being hurt more by inflation than they were helped with increasing wages Nothing changed recently. Picking on, say, average hourly earnings [0]; that isn't keeping up with the M2 [1]. It hasn't even doubled in 20 years. People are becoming worse off. Inflation adjusted wages aren't a reasonable way of measuring wellbeing because they measure against consumer price inflation and that builds in an assumption that people don't accumulate assets and prepare for their own retirement. Their policy has been making people worse off for decades. They spend a lot of time calibrating it so the damage isn't evident day-to-day. > [heart attack analogy] I suppose I can't argue that directly because arguing about an analogy doesn't make sense. But I will say that if we start - for the sake of argument - with the assumption that the Fed didn't cause the depression, then the argument falls apart because they didn't prevent it and depression not recurring isn't evidence that their policy is helping. Something else introduced a cause and removed the cause. Probably Congress. So the policy of crisis management in 2024 doesn't make sense. If we take the antithesis of that and accept that Fed policy was a contributing factor to the depression, we'll note that the time period when they set it up was before the money supply contracted, so the policy mistake was more likely overexpansion of the money supply. I'll accept that inflationary policy might sometimes be appropriate, the idea that deflation = great depression is unsupported. If deflation causes the economy to collapse, that means the pre-deflationary policy was building an economy that was prone to collapse. Which is stupid policy and also what the Fed spends most of its day setting up. > So you agree that we've been long overdue for higher interest rates? Yeah. I'm arguing that the central bank inflation policy is bad. Since their policy is implemented using interest rates, it seems reasonable to say that I always think they are setting interest rates too low. Indeed, the idea that a committee 'sets' interest rates is a major bone of contention. Setting a price by committee action is a bad idea in every other other market and there isn't evidence it works well in this one either. Extraordinary claims need extraordinary evidence. [0] https://fred.stlouisfed.org/series/CES0500000003 https://fred.stlouisfed.org/series/CES0500000003 [1] https://fred.stlouisfed.org/graph/?g=DTpB https://fred.stlouisfed.org/graph/?g=DTpB