We're basically running out of tools to combat an actual financial crisis. https://www.investopedia.com/terms/l/liquiditytrap.asp
Fiscal responses (having the government spend actual money, either on things like infrastructure it by just handing it out to the population, which will then largely spend that money as they see fit) rather than monetary policy responses (reduce rates and hope that people will borrow more) are known to work well in most cases.
The Corona virus situation is slightly different than the financial mess of 2008 because it involves actual potential supply constraints. This means that a higher rate of inflation may have to be accepted temporarily. But inflation has arguably been far too low for far too long anyway...
However, if we were to take aggressive action on Climate Change, there’s a lot of potential jobs there. A massive potential stimulus. Also, you know, public funding of basic research which could explore, I don’t know, pandemic response, new therapeutics, etc.
Like you said, ideological barriers are what’s keeping us stuck. But before we went all in on finance we had a pretty epic run last century of productivity fueled by public investment (think 1940-1970).
(Real) investment, in the sense of building up new productive capacity, is an important part of growing the economy. However, investment at least by the private sector cannot thrive in a vacuum. It needs a context of either existing or plausible demand. If the demand is missing, you'd be a fool to spend money on increasing productive capacity, i.e. you'd be a fool to invest.
Note the important emphasis on what kind of investment we're talking about. Unfortunately, the act of buying existing productive capacity (e.g. by buying stocks) is also called investing, and you have to be careful not to confuse the different meanings of the word.
Saving goes hand in hand with investment since by putting money in the bank it can be borrowed by entrepreneurs and they can hopefully do something productive with it. Merely spending it doesn't have that effect.
Spending is crucial because that's what signals where investment is needed / desirable. Furthermore, spending is what gives companies profits that can then be reinvested for sustained development. If there is no spending, then investment is simply pointless.
If investment happens in a vacuum, without regard for where the demand (which is nearly a synonym for spending) is, the investment will likely go to inefficient or useless projects.
Furthermore, the stated causality from saving to investment doesn't exist in our modern financial system. Banks create money out of nothing whenever they find a suitable borrower. Of course, a borrower is more likely to be suitable if they can demonstrate demand for their product - again, the importance of spending.
Sidenote: There is an equality of savings and investment in the national accounts (if you ignore the external sector), but that's just an after-the-fact accounting identity without any causal content. There's good reason to believe that, if anything, the causality goes from investment to savings. Either way, it's not an interesting causality. The real economic decisions, certainly the ones that lead to good allocation of capital, follow where the demand is.
Sidenote #2: Your stab at the government misses the point as well. Nobody is asking for the government to start investing in productive capacity for things that the private sector usually provides.
However, government could ensure that people have more disposable income. This leads to more spending, which encourages (and finances, via reinvested profits!) investment in order to satisfy the added demand. At the same time, it improves the quality of the demand signal, which helps achieve a better overall allocation of capital.
There are other useful things that governments could do, but this is an important and useful thing. The economy generally works well when people can just vote with their wallets. But one precondition is that there is money in those wallets.
There would be no growth because the money the people would be spending is the same the government took from the companies in the first place. It's like taking the fat out of a man and feeding it back to him.
The discussion was about fiscal stimulus.
(The answer is you have to increase immigration, and hire those people)
Do you not need a roof over your head, health insurance, a car, college education, etc? Inflation has been rampant, it's just not apparent in manufactured goods because the actual cost of production dropped rapidly with offshoring and technological progress. Without significant inflation, we would have seen a steady march down of consumer prices, as happened in computing.
The inflation has been offshored. China's rural population has been lifted out of poverty. What happens to the world economy when china runs out of cheap labor?
Let's go over Housing, healthcare, and education in turn:
- Housing, overpriced because the jobs are concentrated, stupid zoning, etc. We deserve dense cities but UBI means no job, no stave, which in the short term takes away the demand to move. Let's not rest on that and continue to stupid-suburb, but do take some refuge in that short term benefit of decreasing the necessity of people moving.
- Education, overpriced because of a shortage of work and a credentialist rat race. I'm all for people being educated---say a liberal arts that includes engineering not because it pays well but because one has to understand the machines that surround us to understand the modern human and social condition. But it's stupid to expect people to stuggle to acquire credentials that won't get them hired and won't actually help with the stupid jobs that get if they are hired.
UBI helps eliminate unproductive by removing the desperation that forces people to take them. The decreased demand for employment hopefully will end the credentialism rat race, lowering the cost of education. And the decreased drudgery of the education that remains should make the education better, and push employers to shoulder more of the remaining cost.
- Healthcare. Unlike the others this probably is less overvalued; avoiding being sick or getting well when sick is incredibly valuable to the individual, and thus I view the price gouging as inevitable. I don't think there is a market based solution to this one, but that's OK. Just do the universal thing and remove this from the market, and now its not subject to inflation in the same way. [The power of the state commands the supply to exist.]
I think much of healthcare could be solved if providers had to publish uniform prices and couldn't post-facto bill, you know, like every other business. Imagine going to the grocery store, paying at the register, and then two months later receiving a bill in the mail for the cashier's time!
Still, I am not opposed to single payer as a way forward - assuming it doesn't get transmuted into mandatory patronage of the same corrupt system. It's not like Medicare currently solves the underlying issues, it just absorbs the cost disease.
Basic income is a natural extension of quantitative easing. It will help people in rural areas, but do nothing for in-demand areas (being swallowed up by housing). I do agree it's much better than just giving the money to the banks though!
Direct infrastructure improvement - party on! Government "public works" is currently focused on the military, producing a surplus of chaos and misery abroad, while our infrastructure crumbles. I don't know that subsidizing suburban infrastructure fully makes sense, but I do know it's better than squandering the resources elsewhere.
The appraised value is just a signal how much collateral a bank can rely on for the loan, which is why most loans with good interest rates have a maximum loan to value ratio. Banks don't want to own houses, they want to own a piece of the borrower's future productivity, manifested as interest payments.
The limited housing/transit supply (due to zoning restrictions) coupled with concentrated job growth are what drives up housing costs.
So what you're really seeing is that physical infrastructure cannot keep up with the massive change in the US from a manufacturing and agricultural economy to a service and information economy.
Not in Hong-Kong. [1]
[1] https://edition.cnn.com/2020/02/26/economy/hong-kong-budget-...
Not really. This was extensively explored following the Great Depression, in part by Ben Bernanke, which is how we got QE. In summary, the Fed can buy more than just short-dated government bonds.
Moreover, "liquidity trap" doesn't refer to the central bank running out of tools per se. It refers to investors calling a central bank's bluff.
A classic example is a stagflation-facing central bank cutting rates. The cut spurs inflation. Investors figure that will force the central bank's hand into a rate hike shortly. As a result, they hold.
The cut thus fails to have an impact because the bank is perceived to be constrained. That doesn't apply here.
So long as the appearance of inflation never occurs.
What evidence is there that companies who previously bought stock and issued debt are low on cash?
Just to play devil's advocate, the world also rarely has an epidemic of this magnitude...
But even mr. Draghi might agree that right now the ECB is pretty powerless, given that it's rates are already below zero.
If you insist in fixing your home with your car jack, don't complain about the results.
https://www.business-standard.com/article/finance/can-banks-...
As long as other countries do business in USD and keep buying US debt, the party keeps going.
With fiat, you can spend as much as the combined purchasing power of all your citizens through money printing.
When you’re the reserve currency, that pool is extended to the purchasing power of many many countries.
That’s probably why, from a strategic POV, the US must remain the largest military force and continue to police the world.
With dollar hegemony, the US might even introduce new ways (like MMT) of sipping purchasing power of participants.
- sick pay for hourly employees for next year
- backstop airlines, event planning and travel businesses in some capacity
- offer Netflix rewards for vaccines, testing methods or other applicable things
- cover cost of insurance for massive testing
how about just massive testing. no insurance necessary
If a company temporarily can't manufacture something due to supply chain disruption, they could lose a lot of money and might need to borrow some. Getting by until things recover just got cheaper.
I'd guess there are probably similar issues for restaurants, the tourist industry, maybe construction?
But that assumes they're credit-worthy. It wouldn't help a company that can't borrow.
He's just trying to stimulus himself a re-election.
After that, yeah then it gets tough, but then again, maybe we get some actual fiscal stimulus which maybe buys the US some China style infrastructure!
And that's without considering that inflation is very low, so we can print our way out of some of it.
Printing your way out of debt is not a solution, ask Argentina. Eventually your investors will lose faith in the value of the money they're getting back in return and the currency will collapse.
1. I never said fiscal stimulus was guaranteed to return more than the interest to service the debt needed to pay for it. I said if it does that. My point is deficit spending == bad is not always true.
2. You didn't provide any facts or resources to prove that there exists no possible fiscal stimulus that could generate a greater return than the interest on the debt needed to pay for it.
If you want resources, Google it. You'll find plenty of information backing up the claim that it is possible for deficit spending to pay for fiscal stimulus to be a net benefit.
>You don't address the fact that the debt has gone up 300% over the last 20 years while the GDP is up only an average of 2.5% a year.
Why are you quoting a 20 year value for the debt, but a yearly value for GDP?
>Printing your way out of debt is not a solution, ask Argentina.
Instead of looking at Argentina, why don't you look to the US? We've been effectively printing money since 2008 and inflation hasn't come close to going out of control.
The US isn't Argentina, and saying look to Argentina is no better than people saying look to Somalia for an example of why small hands off government doesn't work.
Boomers are the ones who tell you to be scared of the debt. Same boomers tell me that gold is the best investment
In the real world, though, Congress decides where to spend the money - not based on any kind of return on investment calculation, but based on political calculations. So in reality, a positive return, if it happens at all, will only happen by coincidence.
There are two possibilities: If in 25 years there wil be enough real resources (machines, infrastructure, knowledge..) for covering all the needs of the people, the accumulate debt is not going to be a problem. If in 25 years there will not be enough real resources, the government finances are going to be irrelevant.
So, what is the best way to make sure there are going to be enough resources? investing in infrastructure and education or "saving" money?
Unless, you know, there are enough goods to support a lifestyle similar to that of the current generation but our kids can't buy them because all their productivity is going to pay the interest on our generation's (foreign-owned) debt. Or there would have been enough goods but we took that money we borrowed and used it to shift production toward things we want now, compromising the capital investment and maintenance which were needed to stay productive so that everyone's needs could be covered in the future.
Profitable investment is good, and it isn't necessarily wrong to go in debt to fund a good investment, but there is such a thing as malinvestment—investing in the wrong things, resulting in a net loss—and the more debt you take on the more your productivity is continually drained away and unavailable for either investment or consumption. Profitable investments will take place without subsidies, and if it isn't clear which kinds of investment will end up being profitable then it's better to save the funds until the situation becomes clearer rather than waste scarce goods and labor on a bad investment.