Comment by sgt101 | Hacker News Reader

Comment by sgt101 | Hacker News Reader

QE is proving to be a very inefficient way to inflate the economy. The idea was that the banks would take the capital and lend it to corporations for productive investment, but I see no sign of this - the money is being laundered through dividends and financial engineering to the 0.1%

If I were the next president I would establish a national investment bank and use it to undertake infrastructure improvement / development by US companies in both the US and abroad (because stimulating the economy else where would be pretty useful to the US as well). I would mandate that the fed would have to invest in the national bank first and the national bank would be allowed to bail out other banks (with "liquidity") only if it received substantial near term reward from the investment (therefore definitely only liquidity).

The problem with this operation by the fed is that every banks finance department has priced it in for this quarter, so they're all going with the begging bowl now - moral hazard write large!

> QE is proving to be a very inefficient way to inflate the economy. The idea was that the banks would take the capital and lend it to corporations for productive investment, but I see no sign of this - the money is being laundered through dividends and financial engineering to the 0.1%

Even if we accept your premise that that is what is happening, what is it that you think the 0.1% are doing with that money? They're doing one of two things:

1. Reinvesting it in other companies, who are then using that capital to invest in their business.

2. Buying goods and services from companies who use that revenue to invest in their business.

> If I were the next president I would establish a national investment bank and use it to undertake infrastructure improvement / development by US companies in both the US and abroad (because stimulating the economy else where would be pretty useful to the US as well).

Why do we need to establish a national investment bank to undertake infrastructure projects? The federal government undertakes infrastructure projects all the time.

> I would mandate that the fed would have to invest in the national bank first and the national bank would be allowed to bail out other banks (with "liquidity") only if it received substantial near term reward from the investment (therefore definitely only liquidity).

Are you aware that the US government made a very healthy profit by bailing out the banks in 2008[1]?

> The problem with this operation by the fed is that every banks finance department has priced it in for this quarter, so they're all going with the begging bowl now - moral hazard write large!

That's...actually exactly the point of it. There is no 'moral hazard' here. The fed wants the market to anticipate its actions, and react to them pre-emptively. This allows the fed to actually do less than they otherwise might have to. If the Fed's goal is to drive rates down to a certain point, and the market knows they'll spend the money to do it, the market will do it for them. That's how arbitrage works. This is the system working exactly as intended.

1. https://www.washingtonpost.com/business/economy/bailout-high...

Unemployment is low but wages aren't going up. Then again, wages haven't increased in the last thirty years.

Lack of wage growth is where the perception of societal stratification and divergence is coming from.

How is that related to what I said?

The point of all of this intervention is to increase the well being of the individual through higher wages (specifically, purchasing power) relative to our global peers. The same sort of wage growth that happened organically in the US for most of the 19th and 20th century.

I agree that that is one of the points of it, sure. I think that's compatible with what I said.

This is effectively equivalent to "trickle down economics." Ie, if we give money to the rich, they will use it to buy things or to invest, thereby growing the pie for everyone.

Of course, merely saying "trickle down" is enough to get a big laugh out of all but most co-opted of economists. It has repeatedly failed to achieve its stated objectives, and you just have to look at the wealth gap between the 99%, the 1%, and the .01% over the last 10 years to see what the actual effect is.

> This is effectively equivalent to "trickle down economics." Ie, if we give money to the rich, they will use it to buy things or to invest, thereby growing the pie for everyone.

Trickle down economics is a theory about who benefits from giving money to the wealthy. I'm not making any statements about who benefits. What I am saying is that when some companies return cash to shareholders, other companies receive that cash in the form of either revenue or investment. This is how the economy works. It is, more or less, a closed system.

The wealthy are also pouring money into lobbying and PACs to hold onto their power and influence. Is that productive use of capital? Well, it is for them!

I don't care that they invest, I don't care that they buy stock. Regular people would buy stock and give to charity too, if they could. This level of wealth concentration is toxic to our society, full stop.

You have to look at not just what things look like, but also what things could look like, if we didn't have so much power concentrated among so few, with so little oversight.

> The wealthy are also pouring money into lobbying and PACs to hold onto their power and influence. Is that productive use of capital? Well, it is for them!

a) The amount of money spent there is actually quite low, considering the wealth of the people involved, and the presumptive benefits.

b) So what? My point isn't to argue about where the benefits flow. My point is that the capital is being re-invested (politicians receiving bribes have the same two choices: spend money or invest it).

> I don't care that they invest, I don't care that they buy stock. Regular people would buy stock and give to charity too, if they could. This level of wealth concentration is toxic to our society, full stop.

You could be right. But what does that have to do with QE or this thread? And even ignoring that, exactly what is the mechanism by which wealth inequality destroys society? People make claims like this a lot. But they never actually trace it out. It's just taken as a given that it's a bad thing.

> You have to look at not just what things look like, but also what things could look like, if we didn't have so much power concentrated among so few, with so little oversight.

I'm not really sure what this means. Where is the power concentrated, exactly? Do you think that the Koch brothers have substantial unaccountable power? My guess is that they don't think so. Everything they do is scrutinized, and we certainly don't have the kind of economy they want. If there is so much unaccountable power, it doesn't seem to be doing them much good.

> a) The amount of money spent there is actually quite low, considering the wealth of the people involved, and the presumptive benefits.

The amount of money spent is not limited to legal campaign contributions. There are also PACs, media spending (submarines, astroturfing, etc.), and other ways that money can influence public opinion on some issue. You can't really quantify this, but I'd be surprised to find anyone who would disagree that wealth itself will buy political power on its own without money ever changing hands. Here is a good example of what I'm talking about:

https://image.businessinsider.com/585b1865ee14b6b2008b4b24?w...

> You could be right. But what does that have to do with QE or this thread?

QE benefits people with access to capital by propping asset prices. The people with access to capital are wealthy. Who benefits when real estate goes up -- renters or homeowners? Who benefits when the stock market goes up -- people with a wealth manager or people living paycheck-to-paycheck?

> I'm not really sure what this means. Where is the power concentrated, exactly?

Power is concentrated among wealthy people. This is true in general, but specifically I'm talking about a very small number of people who have a huge say in media, politics, etc. It is not scrutinized; the media ensures that. Yes, I think anyone with Koch-degree wealth has a huge amount of unaccountable power. There will always be inequality, but there are degrees of difference. At $5,000,000 of wealth, you might be able to get the mayor on the phone (that's a very generous upper cap on lifetime earnings from labor). With $1,000,000,000, you certainly can get a senator. For an example, you can look at the Wisconsin Foxconn debacle. [1] This is the type of leverage over government that billions of dollars can buy. It is legal.

[1] https://en.wikipedia.org/wiki/Foxconn%27s_Wisconsin_plant

It's quite easy to see how wealth inequality is corrosive: make a list in descending order of wealth inequality by country, and look at which countries are where on that list. There's some noise, but for the most part, well-functioning democracies are concentrated at the bottom.

> The amount of money spent is not limited to legal campaign contributions. There are also PACs, media spending (submarines, astroturfing, etc.), and other ways that money can influence public opinion on some issue. You can't really quantify this, but I'd be surprised to find anyone who would disagree that wealth itself will buy political power on its own without money ever changing hands. Here is a good example of what I'm talking about:

I'm aware of that. This is a thorough explanation of my view:

https://slatestarcodex.com/2019/09/18/too-much-dark-money-in...

> QE benefits people with access to capital by propping asset prices. The people with access to capital are wealthy. Who benefits when real estate goes up -- renters or homeowners? Who benefits when the stock market goes up -- people with a wealth manager or people living paycheck-to-paycheck?

QE does, sort of, inflate asset prices. It also lowers interest rates, which makes it cheaper for people to buy homes. QE does a lot of things, and summarizing it as "inflates asset prices" is too simplistic. QE is usually undertaken, in part, so that people living paycheck to paycheck can continue to receive that paycheck, rather than being fired.

> Power is concentrated among wealthy people. This is true in general, but specifically I'm talking about a very small number of people who have a huge say in media, politics, etc. It is not scrutinized; the media ensures that. Yes, I think anyone with Koch-degree wealth has a huge amount of unaccountable power. There will always be inequality, but there are degrees of difference. At $5,000,000 of wealth, you might be able to get the mayor on the phone (that's a very generous upper cap on lifetime earnings from labor). With $1,000,000,000, you certainly can get a senator. For an example, you can look at the Wisconsin Foxconn debacle. [1] This is the type of leverage over government that billions of dollars can buy. It is legal.

I certainly agree that there is some concentration of power. The Koch brothers and Bill Gates have a lot more influence than I do, and I would guess more than you do too. But how much more, exactly? It doesn't seem like all that much, to be honest.

> It's quite easy to see how wealth inequality is corrosive: make a list in descending order of wealth inequality by country, and look at which countries are where on that list. There's some noise, but for the most part, well-functioning democracies are concentrated at the bottom.

I think you're confusing correlation and causality, there though. Certainly in autocratic societies, you're going to have huge wealth disparity, because the rulers are rich. But the causality is flowing from autocracy onto inequality. I don't see much evidence that inequality causes autocracy, though.

> "QE is proving to be a very inefficient way to inflate the economy."

QE was never intended to inflate the economy. It was intended to inflate a price bubble in financial assets, particularly equities. It has been super successful and broadly speaking is working as designed. (At transferring value from society at large to the rich via this asset price bubble).

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