Comment by candiodari | Hacker News Reader

Comment by candiodari | Hacker News Reader

After close to 8 years with zero or negative interest rates (QE is a form of negative interest rates), there's 2 things causing this:

Anything -reasonable and otherwise- has been tried. Mostly on the taxpayer's dime.

A number of industries, most famously big parts of the US oil industry, but they won't be alone, are bad ideas that people really, really, really want to see working. Therefore those companies have been using capital injections for profits. It should be called a Ponzi scheme, but in some ways it isn't.

A lot of companies have been using credit and capital to do what every economist assumes they use profits and free cash flow for : pay dividends and share buybacks. In reality for quite a few companies free cash flow has been steadily worsening since 2015 or so.

So we have the double whammy of the government making it VERY cheap for huge companies to try every idea under the sun, which of course they have partially used to make it impossible for others to try (e.g. Uber, Deliveroo and Domino's pizzas have used capital to beat every reasonable delivery company on price, the idea being to become the next Amazon, and of course, they have not become the next Amazon. And I would say that Amazon itself is also a "become monopoly - then jack up prices" play that so far hasn't even succeeded in part 1 of that. Their stock has done well, not because Bezos has kept his promise, but because of his reports of progress).

So has every idea been tried ? Of course not. But due to sustained easy credit it has become very hard to try new ideas. Those of us working for huge companies best prepare for a few leaner years.

> But due to sustained easy credit it has become very hard to try new ideas.

If anything low interest rates and easy credit make it easier to raise capital and explore new ideas.

Unfortunately when rates are kept artificially low to avoid financial catastrophe, resources are misdirected into ventures that should never have been funded in the first place, and we kick the financial can down the road. As they say, necessity is the mother of invention, and right now we need necessity (resource constraints/challenges to the status quo) more than ever.

>Unfortunately when rates are kept artificially low to avoid financial catastrophe, resources are misdirected into ventures that should never have been funded in the first place, and we kick the financial can down the road.

Untrue. Rates are not kept low for an explicit purpose of "avoiding catastrophe." They are kept low to encourage borrowing.

Resources are never "misdirected," as both the lender and the borrower must agree on the venture. This system allows for experimentation and innovation. As someone sitting on the sidelines, it is easy to call many investments - usually after they fail to produce ROI - failures that should not have been funded in the first place.

However, the economy is a cyclical process. Your comment projects your thinking that it works as an equilibrium, which has never been the case. Eventually, speculation dies down, rates increase, borrowing deceases, saving increases, companies repair balance sheets... etc.

Then the cycle begins again.

QE, in conjunction with the Fed dropping FRR to 0% for 6 years, was a direct response to the financial collapse of 2007-8. Obviously policymakers weren't going to explicitly say - "wow guys we screwed the pooch on this one, time to lower rates and inject liquidity to help banks (and the business/individuals they lent to) clean up their balance sheets full of mispriced, risky assets and avoid financial catastrophe" - but sometimes you need to read between the lines.

There is being (equilibrium) and there is becoming (cycles away from/towards equilibrium). The economy is always becoming, but it is striving towards a pure state of equilibrium where supply and demand in every market are working to equal one another, but never getting there.

> Resources are never "misdirected," as both the lender and the borrower must agree on the venture.

That's not what "misdirected" means. In economics, "misdirected" investment is investment into unproductive things. It doesn't matter whether the lender and borrower agreed with a bad idea; if it's a bad (unproductive) idea, the investment in that idea is still misdirected.

Now, you're right that after the fact, it's easy to call what wasn't clear at the time. But the flip side is also true: In the heat of the moment (when you think there's a lot of money to be made), it can be hard to see what will be blindingly obvious after the fact - that this is actually a really bad investment.

Low rates increase borrowing, which tends to lead to asset inflation, which in turn will make the rich richer. That in turn might incentives some to put more of their excess capital to work in riskier ventures.

Eh... "those who have the gold make the rules", including what kind of ideas to pursue.

American, and SV in particiular, tends to be very predictable and focuses and exploits ideas that capitalize on labor and work already available in some form. Examples are the so-called "innovations" in social networking, search advertisements, automated profiling (presumably for advertis etc), open source, yada yada yada

I disagree on Amazon. They have pricing power (many consumers won't price compare), and they are profitable. They may be heavily investing in new businesses with their profits, but the main business is still throwing off cash.

Also , with regards to retailers , pricing power looks quite different - raising profit margins from 2.5%(like walmart's, a great business) to say 5% doubles your profit.

Can Amazon create enough incentives for people to pay that extra 2.5% ? probably. And even if you're a penny pinching customer, without prime etc, Amazon can offer you a personalized price, comeptitive with everybody.

Personalized prices are difficult to manage, partly because they can be gamed, and partly because it's bad PR.

I'm trying to enable it on a larger scale with https://icanpriceit.com/. But that's explicitly opt in: you name the price, and understand that you won't get a better price than you put in. You're trading the possibility of even lower prices for the ability to name your own price and have us fulfil it if it's within our minimum margin.

I can't see Amazon doing it, at least not within the next couple of years.

>I would say that Amazon itself is also a "become monopoly - then jack up prices" play

I think this is an important misconception. Amazon, Uber, Lyft, Grubhub, and pretty much the entire on-demand economy doesn't intend to raise prices.

They expect technology to reduce costs while they keep prices fixed. The details aren't even important, but there's a consensus out there that transportation is going to _somehow_ get a lot cheaper. The two main driving forces seem to be self driving vehicles (duh) and electric vehicles. EVs are expensive luxuries/green tech now, but as the battery costs keep dropping you'll soon have extraordinarily low maintenance, cheap to run vehicles that are way more efficient than internal combustion in the low speed, stop and go regime of delivery driving.

That's how I've always seen these markets anyway. It just doesn't make sense for the plan to be "monopolize then exploit" - short of hardcore regulatory capture or something that seems too transparently flawed to attract so much effort and investment.

>QE is a form of negative interest rates

Incorrect. This kind of thinking is what gets central banks throwing money at problems, expecting results, and seeing none. QE is literally buying bonds.

QE is fiscal policy; rate increases/decreases are monetary policies.

Didn't read the rest of your post. I'm sure you have a point. But the above misconception is troublesome and dangerous if pushed upward into policy.

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