Does QE Cause Wealth Inequality? | Hacker News Reader

Does QE Cause Wealth Inequality?

lynalden.com

212 pointspaulsb269 comments

When many people have few assets, and few people have many, and you cause the value of assets to go up, the nominal gap between two is larger, but the relative amounts are the same. This is basic math. Suppose we have two individuals who experience 25% growth due to QE:

Person A: $1,000 * 25% growth = $1,250

Person B: $1,000,000 * 25% growth = $1,250,000

Originally, the wealth gap between A and B was 1000:1. It remains 1000:1 after the asset appreciation. However, because wage income has long been stagnant, it becomes increasingly difficult for the poorer person to play catch up, because labor income can't scale in the way capital can. Both the proportional change and real change are worth considering when it comes to setting public policy.

Thomas Picketty - didn’t he show returns on assets far outgain salary growth ?

That was his thesis, but it's since been questioned/refuted:

https://www.imf.org/external/pubs/ft/wp/2016/wp16160.pdf

> Using a sample of 19 advanced economies spanning over 30 years, I find no empirical evidence that dynamics move in the way Piketty suggests. Results are robust to several alternative estimates of r-g.

https://www.economist.com/briefing/2019/11/28/economists-are...

http://davidsplinter.com/AutenSplinter-Tax_Data_and_Inequali...

> Top income share estimates based only on individual tax returns, such as Piketty and Saez (2003), are biased by tax-base changes, major social changes, and missing income sources. Addressing these issues requires numerous assumptions, especially for broadening income beyond that reported on tax returns. This paper shows the effects of adjusting for technical tax issues and the sensitivity to alternative assumptions for distributing missing income sources. Our results suggest that top income shares are lower than other tax-based estimates, and since the early 1960s, increasing government transfers and tax progressivity resulted in little change in after-tax top income shares.

I am not familiar with any complete refutation of his work. Some questions here and there

Piketty on Góes's IMF paper:

> Piketty's response[55] noted, however, that Góes used measures of income inequality rather than wealth inequality, and inappropriately took the interest rate on sovereign debt as his index of the rate of return on capital, which makes his results not commensurate with those of Piketty's study.

* https://en.wikipedia.org/wiki/Capital_in_the_Twenty-First_Ce...

[55] FR: https://www.lesechos.fr/2016/09/thomas-piketty-repond-a-letu...

Yeah the Auten-Splinter research is the most contemporary critique, relative to the 2014 IMF paper, and is the one that's most widely accepted now. Piketty, Saez, et al have yet to really address anything there.

Yields have gone down as assets go up. Interest has gone down. Only land follows that pattern.

Compounding returns makes growth exponential. When you look at it that way the rich guy is just further up the curve, but you're on the same trajectory.

In your simple example (25% returns annualised) he's only 31 years ahead!

Don't you just feel better now?

Let's do the math for compounding returns. Suppose 7% growth for 30 years, same Person A and B:

$1000 * (1.07 ^ 30) = 7,612.25

$1,000,000 * (1.07 ^ 30) = 7,612,255.04

Proportionally, It's still 1000:1. So we see compounding doesn't change the relative difference. But now we're getting to absolute gap that's simply uncoverable by wage income, unless you can land in the professional management class, which effectively sets its own wages (board members voting for compensation packages for one another).

If wages also go up by 7% then the absolute gap definitely is uncoverable by wage income.

Sure, they often don't but the reason they don't has little to do with QE. After all, the entire point of QE and monetary stimulus in general is central banks are concerned that not enough jobs are being created and real wage cuts and layoffs will result. And in that scenario where credit is expensive and businesses are looking at layoffs, our wealthy investor is still getting 7% returns, just from offering expensive short term credit to struggling businesses rather than seeing the long term shareholder value of thriving businesses rise. But the worker is even further from catching them up, because they're struggling to find a job.

Sure, they'll always be ahead, but 1000x as wealth sounds pretty impossible compared to 'a lifetime or so of compound returns'.

Most people only need to build a $2-3M pot to be financially independent, be able to stop working, and still live better than most working Americans, which is the biggest quality of life improvement there is in acquiring wealth.

The utility of wealth falls off a cliff pretty quickly. Replacing a $200K/yr salary from passive income in perpetuity with a good level of certainty would require a pot of $6-7M

At 7% (above inflation), most people still need to spend 30 years saving 30% of their salary before they can reach a level (30x) that can replace it. 15% over 40 years also works.

This is 100% correct, however for the person with less money they are going to be spending a much larger percentage of their funds each month than the richer one. So in reality the richer person will accelerate ahead and the ratio will get worse for the poor person every year.

now account for $500 cost of living. or $100, which is lower than almost anywhere in the world. A will be broke while B won't even notice.

This is the real issue. Excess cash poured into and competing for assets. Having 90% of your money available to invest vs 10% creates a massive difference in real outcomes.

That's the logical hypothesis, but the article we're commenting on seems to show that it's more complicated.

FTA:

"The logical case for why the Fed’s activities cause wealth concentration is that low interest rates and high levels of QE tend to boost asset prices, such as stocks and real estate, which are primarily owned by the wealthy. By making homes and stocks more expensive and unaffordable, it widens the wealth gap between those who owned those assets before the Fed began its QE vs those who were not yet significant asset holders when this occurred. There are other more nuanced arguments, but let’s start with that one, because that’s the main one.

If that’s the case, and QE is indeed a powerful force for wealth concentration, we should see that the nations that have the lowest interest rates and that have performed the most QE relative to their GDP, have the highest levels of wealth inequality, right?

In reality, we find the opposite.

...

The regions that did the most QE relative to their GDP, and that have had lower interest rates for longer, have less wealth inequality, not more, as measured by the ratio of the mean wealth divided by the median wealth.

If the prior theory was true, we should have seen the opposite. More of a correlation, rather than an inverse correlation.

...

I’m not making the argument that QE reduces wealth concentration, because that’s not the case either. Instead the point is, it’s complicated. QE and interest rates by themselves are significantly uncorrelated (or even inversely correlated) variables vs how much wealth concentration a country has, when comparing between countries.

That is an uncommon view, but that’s simply how the math works out. Clearly we need to look at the nuances."

It seems like many people in this thread are missing that poor people are often underwater in debt, so lower rates help them.

There is a reason most of the farmer uprisings in the early US were over wanting more inflation rather than deflationary policy that made the value of their debt payments higher.

poor people don't get lower rates. they get payday loans and 19% credit cards, or a tent.

inflation is "good" for debts if your budget is otherwise balanced and your income rises apace, but if either is not the case inflation will only depress purchasing power.

historical farmer revolts were interested in higher inflation because they had land, a real asset, and sold crops, real commodities, that provided appropriate income. modern poor people generally have zero assets.

>they get payday loans and 19% credit cards, or a tent.

The rates for those are still lower than they otherwise would be.

payday loan APR is generally around 300% to 700%. this is not a rate set by a market, it is the claw of a predator, useful only to deal a killing blow.

A lot of states have capped those rates relative to prime.

which simply reinforces the idea that it's not a market. credit cards, too, are generally capped.

the rate always maxes out the legislated cap. so it's not really dependent.

Yes the market power is also one sided, capping the rate also doesn't really help without guaranteeing more access to credit.

The best thing is:

a) UBI, just hand out a tiny bit of money to make poor people more liquid, because liquidity kills, not insolvency

b) postal banking, because even shittier than a payday loan is high fee check cashing without a pretense of debt!

Poor people hopefully at the point can save up a paychecks worth of buffer in their bank account, and don't need postal bank loans to replay payday loans.

Rates are set by a market.

It's interesting how even as formal christianity is in decline, the moral constructs that it popularized (distaste for usury, protestant emphasis on liberty over well-being) morph into new forms.

"Can I borrow $10? I'll pay you back $11 next week."

There, you've just committed the sin of collecting 14,000% APR.

You can't compare payday loans to things like mortgage rates or bond returns. It's a market, but it's a very different niche. It's like comparing the cost of mineral water at the grocery star to the cost per gallon of your tap water.

> poor people don't get lower rates. they get payday loans and 19% credit cards, or a tent.

Rates are relative, looser money absolutely translates to lower rates, even for poor people. Claiming otherwise is (social) science denial.

> modern poor people generally have zero assets.

Poor and lower class people are often deeply in debt. Many poor people will even have homes with very large mortgages outstanding, and without a route to paying it down. The median black person in Boston, for instance, (not to conflate race and poverty, it is just an illustrative statistic that comes to mind) has $8 to their name. That does not mean they literally only have $8 in a wallet somewhere, but it does mean half of those people are underwater in debt. This is before you even start looking at mortgages. I'm assuming that is not unique to Boston.

That is actually very analogous to the situation we are finding ourselves in. Tighter policy would increase the real value of the payments that poor people have to make on their homes, etc.

Poor people don't have mortgages. In a non-shit city they shouldn't even have cars (a depreciating asset won't do them any good).

Pay check to pay check can mean literally that. Money comes in, money goes out. There is no buffer. UDP not TCP life :D.

> Rates are relative, looser money absolutely translates to lower rates, even for poor people. Claiming otherwise is (social) science denial.

This hypothesis presumes that loans are priced exclusively based on cost.

However, all products and services are priced based on willingness to pay, and profit is the delta between cost of delivering it and what customers are willing to pay.

Price gouging runs rampant on credit cards because they are designed to gouge their users. The credit card adoption and payment customer experiences are extremely smooth and free from any resistance to the point where you can pretty much find yourself with a new credit card in your pocket without knowing how. However, avoiding charges and interest payments is extremely hard by design, specially when compared with debit cards. Customers cannot escape these charges, and with low income customers they syphon a relatively large portion of the little disposable income they have.

Farmers needed loans to get them between harvests, and those were also quite usurious. The land was in relative abundance (even with the "end of the frontier"), so it's not like it was the sort of anchoring asset that middle class home-ownership today is crocked up to be.

But you are right that poor assets or debts are not enough to explain how interests rates are supposed to help or hurt them. The idea is very roughly that lower interest rates unlock investment which causes them to have jobs.

The traditional first approximation is regular people live entirely off income and have no meaningful assets or debts, and rich people don't work and just have assets and debts, live off profits/dividends, or even just loans with their appreciating assets as collateral. It is "class as calculus" as I wrote more about in another comment.

> The idea is very roughly that lower interest rates unlock investment which causes them to have jobs.

Let's be honest here, this is just a neoliberal fantasy that amounts to a liberal equivalent of trickle-down:. Enrich the rich and the $ (via "jobs") will make it magically to the Lower classes.

Yes, but sadly the idea is less controversial with rich institutions (who presumably buy much of the treasury bonds) than it is with rich people/households.

> It seems like many people in this thread are missing that poor people are often underwater in debt, so lower rates help them.

...only if inflation rates are on the way up (ie. higher than expected). on the way down (ie. inflation is lower than expected), they lose out.

Maybe the more meaningful question is, "Why are poor people often in debt?" And how would we address that?

Debt isn't always bad. It's a powerful tool (leverage), and bankruptcy shouldn't have a stigma.

We need people to be financially educated. We teach calculus in schools but very little on finance. Perhaps that's changed since I was in high school, but for me, it was non-existent.

Debt should be for doing interesting things. Like if you are expanding your business. It shouldn't be needed in the steady state. Poor people don't do interesting "events" economically be definition! Truly, to be poor is "stuff happens to you", not "you happen to stuff". The vast majority of people should not need loans.

If we want people to be more "creative" we should achieve that with firstly with more leisure team for hobbies. No faux-entrepreneurship hustle culture. No trying to "acculture the poor" with extrinsic rewards, when rich kids have the luxury of not having the intrinsic rewards beaten out of them. Let people have hobbies. Let people involve their neighbors and pool their UBIs for the bigger-scale ones. Let no one need debt to survive.

We should go "common core" on calculus. The essence to understanding economics right is stocks vs flows, and even if people never learn "this method of solving integrals, they should be able to see a graphed function, and draw it's rough derivative and integral. It's an essential skill. They should also know how to ride bikes and kinesthetically learn this stuff on hills. It is an essential toolkit of thinking, no symbols or formalism needed or wanted.

> Debt isn't always bad.

I know the mantra of our financial system that creating debt also creates opportunity, but that is certainly detached from reality if used to form a general rule. For a average Joe, debt is exclusively bad. For states? They have more possibilities. But at that point we are talking about completely different forms of debt.

And perhaps the answer is to make borrowing more costly and saving more profitable through higher interest rates.

I'm not sure how higher interest is supposed to help them. According to your logic, payday lenders are doing poor people a favor.

If you asked people 20 years ago they would say compounding interest that massively exceeds inflation is evil. Nowadays people are worried about low interest being a problem because of their wholly incomplete model of economics that doesn't even address unavoidable natural monopolies like location.

The land market is inherently inefficient. That fact was papered over by high interest rates. Instead of paying the landlord huge sums, you paid the banks huge sums. Now that interest isn't going to the banks it's going to the landlord again.

The solution is obvious. Tax monopoly rights with a pigovian tax. The mythical free market in consumer goods only exists because of well written property laws. The mythical free market in land doesn't exist because the existing property laws are written extremely poorly.

Until next month, when person A has $0 compounding at 25%, and person B has $1 249 000 compounding at 25% (a.k.a. cost of living).

as is traditional in brief economic analysis, time is not accounted for here.

Your scenario is missing the very common case where people have exactly zero assets. If you take that (common) case into consideration it is very clear that both the nominal gap and the relative gap increases.

It doesn't necessarily, but there are some issues to think about:

1) Interest rates that are low mean that middle-class savings accounts don't grown in size. QE requires low interest rates as I understand it.

2) MMT is linked to QE but guess what, an oligarchic system isn't going to distribute QE capital to middle class and poor people, it's going to go into the pockets of the ruling class.

In any case, you really can't trust the corporate economists, and their performance before the 2008-2009 economic crash is proof of that. It's as bad as if the entire climate science community had predicted global cooling and we got global warming instead - clearly, the scientific community would conclude that their models are fundamentally flawed.

This of course is why economics professors are safely enclosed in university business departments, so they don't have to face constant ridicule from real scientists.

> QE requires low interest rates as I understand it.

It’s the other way around. QE lowers interest rates; that’s the main purpose. The idea is that low interest rates force investment in risky ventures (since safe ones are offering low yields) and those risky investments on net will generate excess economic growth.

The problem being, of course, that those risky investments were considered "risky" for a reason. A fair assessment, in the absence of forced incentives, would say they're more of a net liability than a net asset. Better than having your funds confiscated, perhaps, but otherwise not worth considering. When they fail (as many of them inevitably will) those failed investments result in waste and economic decline, not growth. And as usual the less-sophisticated investors will bear the lion's share of the losses.

I wouldn’t say that people are entitled to a safe investment option that offers a decent yield, but on the other hand I’m also skeptical of more than a decade of what was supposed to be extraordinary intervention.

I also wouldn't say that anyone is entitled to a safe investment option, but they are entitled to non-interference—which includes the various rules and regulations which keep people (and especially those with less resources) tied to the US Dollar even as it's diluted at an ever-increasing pace. And without those rules and regulations anything remotely like QE would be a quick route to economic (and political) suicide, rather than the slow-but-inevitable decline we see today.

I think it would be great if cash was a safe option. I.e. the rates offered would be higher than inflation, so that the value of cash is not eroded. QE leads to people investing in riskier assets, treating stocks like a savings account, which to me does not seem right.

I agree and think the QE from March 2020 only lead people to believe that stocks are safe assets. Then again if The Fed keeps printing, maybe it all just keeps going.

The QE from multiple times in previous decades should also work to help believe stocks are safe assets. And why wouldn’t it? As long as USA is relatively stable compared to other countries, and USD is desirable relative to other currencies, then I think it is reasonable to consider low cost broad market index funds to be inflation protected savings accounts on a 3+ year investment horizon.

> those risky investments on net will generate excess economic growth.

Economic growth comes from increased consumer spending. Not from investment. We will all learn that lesson very soon.

This is the most frustrating thing about the current situation. We finally juiced the economy in a way that we've created a supply side constraint for the first time since at least 2000! People finally feel free to quit their jobs and demand higher wages! Of course, if you're a media company owner who's friends with other billionaires, you don't like this. So all of the coverage has been almost exclusively negative. Biden isn't helping himself by appearing to do nothing, but there's a lot of upside here.

That's right, the only thing PE is accomplishing is to inflate asset valuation, but the increase in economic activity is very marginal without robust consumer spending.

It's a combination of both.

Consider Rivian which just went public at ~80B valuation (on revenue of 0, mind you). They raised ~10B dollars through investor capital and can now use that to create factories, hire employees and so on. Further, they can issue more shares down the line to finance their growth.

I agree that consumer demand is required to grow aggregate revenues/earnings, and create a stably higher economy. But in theory using investment capital to invest into productive capacity puts upwards pressure on wages, thus longer term consumption.

However, when capital is misallocated it may not result in productive growth.

That’s a pretty silly thing to say in such a blanket way. R&D creates entire new segments of the economy.

The mainstream economic theory genuinely believed that handing out central bank securities would work just as well as, say. adjusting a UBI or normal fiscal policy. Yes, it's a suspiciously convenient idiocy --- especially because they also think wealthy households spend less (even if they don't think wealthy bussinesses do something similar) --- so certainly it's not something that can be completely fixed without a fight, but that doesn't mean all trying to "fix the policy-academic consensus" is useless.

For example, Republican Jerome Powell is no Pinko, but under his watch the fed has become less closed minded about that "full employment" should look like. This is good, and is precisely because that and the pandemic checks that we are seeing great bottom half wage gains (in real terms too) and increased strikes.

So yes, ultimately you can't trick "the man" with new ivory tower shit, but you can at least attack the straw mans and deflections. Maybe the best theory of change is to create new pandemics so they will have to print more checks to defend the system, and eventually, one of those strike waves will be the revolution :D. (Is this conservationism? I don't think so, because it's about the system's response to a bad thing making "working class lives" better not worse.)

> revolution

Revolutions almost always result in prolonged mass violence. Most often of the horrific, needless, and soul shattering kind. A sampling of recent revolutions: the Bolshevik Revolution, the French Revolution, Cambodian civil war/Khmer Rouge takeover, Nazi takeover of Germany, Chinese Communist Revolution, the Cuban Revolution, etc etc.

I propose a new heuristic for my fellow HN'ers: if someone pines for revolution, its a very good signal that they are poorly acquainted with history or that they are a sociopath.

Should I do a :D and /s? I obviously don't want more pandemics and bloody revolution --- I am sure I will be the one getting guillotined, for one.

The best case --- if it works --- is "non-reformist reform" as the European social democracies were planning. Some Marxists think it was doomed to fail because you can't avoid the antagonisms. I think they were merely prudish about printing money (especially Germans), and if drank more Post-Keynsian kool-aid (and let in more immigrants not as an underclass like in America), we would all be Socialist already.

Immigrants are much more of an underclass in Europe than they are in America.

Immigrants mainly just don't exist in Europe to the same degree. They are culturally more shat on there, but materially better off as they get more safety net, and aren't the backbone of the shitty service industry like here.

Letting in immigrants while you are trying to reduce working hours is a good idea because a) moral b) you are trying to show off you have the best society, let people vote with their feat c) you still need to make investments so being able to have total working hours go up while per-capita working hours goes down is good. Especially if there is a tech/productivity lag where you don't get fully automated dank shit for a few years after you make labor scarce

Letting in immigrants as beneath-the-table workers while trying to lower working hours means you get apartheid not utopia, so yeah, it's bad. The thing that makes America less bad is at least the elite likes to overwork itself for cultural reasons so the rat race is just as stupid but less unfair than it would otherwise be.

Well, is it better to be let in and provided with services (what the US does) or kept out and in an impoverished country?

I don't know! :)

The best-of-both-worlds is what I want. The first decently country to let in immigrants while reducing working hours is going to crush everyone else with a strong, more technologically- and culturally-advanced society. I am excited to see it happen.

(incidentally a very vague materialist take on why the soviet union sucked is it began too underdeveloped, and in the rush to do more work they ended up too military-industrial. A lot of people say "not enough consumption" but you ought to connect it being able to let demand "pull" investment rather than centrally "push" investment. More consumer goods or less working hours are somewhat equivalent once you are (post-)industrialized.)

Germany alone has taken in more refugees than the entirety of USA. USA is not immigration friendly at all for those who really need it.

https://www.unhcr.org/refugee-statistics/

Edit: Btw, I think the poster above meant the millions of undocumented immigrants living in USA without full rights.

Refugee is not synonymous with immigrant.

The US has admitted more than 1.2 million refugees (I believe the number is closer to 3 million), this chart only counts refugees under UNHCR mandate.

Yes good thing Merkel did that. But they also are crazy austrians and crazy anti-nuclears.

"Syrians good, Greeks bad, let's breed Neo-Nazis with austerity so Syrians bad soon too. Oh and more coal." Is that really net good?!

No comment on the GP, but many of the revolutions you are listing marked the end of feudalism and monarchic rule.

I think it is difficult to say now that those were necessarily horrific and needless, without considering the horrors experienced daily under feudal/serf systems.

Moreover, the selection of revolutions you have put together seems one-sided. It was revolution that gave people in Britain the vote, it was (at least partially) revolution that ended apartheid in South Africa and white minority rule in much of Africa writ large, etc. etc.

The black plague eventually broke feudalism, and if Manchin doesn't completely cuck us Covid-19 might eventually break neoliberalism.

not in eastern europe it didn't :) feudalism was ongoing when the february revolution occurred.

Yes that was not suspicious material. We'll see if there is a revolution in the freed up land of the next world war's peripheral looser, whether they are more appropriately developed.

> difficult to say now that those were necessarily horrific and needless

The Khmer Rouge killed 1.5 to 2 million (or 25%!!!!) of all Cambodians. Pretty tough to argue that the deaths of 25% of any population is anything but needless and horrific, particularly when you learn about Pol Pot's insane and homicidal policies. Imagine if every 4th person you know were dead in the next 5 years because a guy had a plan to... make our lives better by ruining them indefinitely for some distant vision of Utopia.

The Nazis are truly astronomical in terms of both death count and evil. They successfully created an actual hell on Earth.

Stalin's regime is estimated to have killed 20 MILLION of his own people. I wonder if the murdered would say, "Yeah, but its worth it in the end because no more monarchy!"

Mao's derangements are estimated to have resulted in 45 MILLION dead Chinese. That's 45,000,000. Again, I wonder if their surviving loved ones felt better off? Mom was beaten to death for being "a capitalist", but at least we don't have to worry about that darned monarchy anymore! How would you feel if your Mom was beaten to death? How would you feel if your brother or sister were summarily executed based on an accusation? What if you saw your child needlessly starve to death? These aren't just numbers. These are real human lives extinguished for political ends.

Etc. Etc. Etc.

Your logic is truly deranged. Revolutions are really, really, really bad for everyone, and the vulnerable, weak, and poor are not exempt. Most of them can usually just count on good old fashioned starvation in their near futures as the revolutionaries lurch from one disastrous or insane policy to the next. If they don't starve, there's a good chance the revolution will at some point purify them anyway.

So, I'll point you back to my suggested heuristic.

> Stalin's regime is estimated to have killed 20 MILLION of his own people. I wonder if the murdered would say, "Yeah, but its worth it in the end because no more monarchy!"

> Mao's derangements are estimated to have resulted in 45 MILLION dead Chinese.

Both of these death estimates are primarily due to starvation (not murder and not the result of violent revolution decades earlier) and are based off of differential estimates of population (ie. counting declining births as deaths, etc.).

Most importantly, they are not comparative with famine deaths prior to these revolutions under the feudal system. Integrated over time, those deaths almost certainly outnumber the deaths due to these events. Moreover, many of those who died post-revolution would never have even had the chance to be born in a feudal society given how many children died of starvation etc. during those times.

Tens of millions of people die of easily preventable deaths (no water, no food, etc.) in the status quo every year. Those numbers were even worse under feudalism. Do those not get to be counted against the non-revolutionary status quo?

> Integrated over time

You buried the lede. Death per unit time is extremely important. And yes, huge numbers died of starvation as the result of revolutionary, utopian (and insane and nonsensical) policies. But the starvation deaths were the direct result of the violence and insanity. The two cannot be decoupled. So, I certainly would "count" them. I think most people would.

Is there an argument about how the deaths per unit time went down in those countries post-revolution?

> many of those who died post-revolution would never have even had the chance to be born

I'm not ceding this point, but hypothetically, by your logic, these were just bonus lives whose horrible ends shouldn't count?

> Tens of millions of people die of easily preventable deaths

Yes, this is the default state of nature and thus humanity. Violent, cataclysmic revolution is almost never the best (or even a good) solution. There are limited examples of success, but what sane person would bet their life on it?

I think, fundamentally, the problem with violent revolution is that its leaders are most often ideological zealots who are ill-equipped to lead a nation. They tend to think the same tools that gained them power (violence) will yield effective results in governance. Or, and I think this is a more likely explanation, they are probably just sociopathic, power-crazed murderers.

There are plenty of examples of economic revolution that were totally bloodless. For example, over a period of 10 years in the early 1900s, Sweden transformed itself from one of the most explicitly censitarian regimes that history has known (people who owned more property literally had their vote counted more times) into one of the most social-democratic regimes in Europe.

Yugoslavia deserves an honorable mention on your list.

Tito is pretty dope though as these regimes go though. https://en.wikipedia.org/wiki/History_of_computer_hardware_i... is also neat.

> The mainstream economic theory genuinely believed that handing out central bank securities would work just as well as, say. adjusting a UBI or normal fiscal policy.

[citation needed]

"Mainstream economic theory" states, AFAICT, that once the monetary side of things has done what it can, you need to proceed to Step 4, fiscal stimulus:

> I would summarize the Keynesian view in terms of four points:

> 1. Economies sometimes produce much less than they could, and employ many fewer workers than they should, because there just isn’t enough spending. Such episodes can happen for a variety of reasons; the question is how to respond.

> 2. There are normally forces that tend to push the economy back toward full employment. But they work slowly; a hands-off policy toward depressed economies means accepting a long, unnecessary period of pain.

> 3. It is often possible to drastically shorten this period of pain and greatly reduce the human and financial losses by “printing money”, using the central bank’s power of currency creation to push interest rates down.

> 4. Sometimes, however, monetary policy loses its effectiveness, especially when rates are close to zero. In that case temporary deficit spending can provide a useful boost. And conversely, fiscal austerity in a depressed economy imposes large economic losses.

* http://krugman.blogs.nytimes.com/2015/09/15/keynesianism-exp...

* https://archive.md/O67TO

Can you provide a link to the "mainstream economic theory" that you are referring to that says otherwise?

Krugman is the best-sounding stuff of the mainstream. Since that what you brought up, I would start with https://www.crisesnotes.com/paul-krugman-functional-finance-... . Arguable Krugman is so good about not saying terrible stupid shit, that it might come at at cost of not being internally consistent or acknowledging when his views in fact change.

Krugman at least was a "New Keynsian", which is a very complicated confused thing in the way the neoclassical parts and keynesian pieces are mashed together. I mostly subscribe to the Post-Keynesian stuff, which makes a lot more sense to me, and is more embracing of the weird/humanities side of Keynes. https://vebaccount.substack.com/p/the-post-keynesian-worldvi... is a good primer, and really that person's entire corpus is a gem of really good writing. For something that (at least in the last few years) is much more grounded, try http://jwmason.org/the-slack-wire/.

Now you might say that the opposition's views of the mainstream is an unfair place to begin. To that, I say just look at the shit Larry Summers says.

I'm not really sure that "mainstream economic theory" genuinely believes or believed that monetary policy alone is a substitute for fiscal policy (in particular, redistribution via taxation - UBIs, capital endowments, equitable investments in education, etc.). I think instead there's a willingness to handwave away all the thorny details of taxation and outsource decision-making to non-democratic institutions (i.e. central banks) rather than really tackle these sorts of challenges head on.

I mean, it's hard to say what the mainstream says, especially cause it's the biggest, and currently in a collapsing concensus more empiricism until the storm passes phase.

But I don't think adding more caviets to the bad old stories is going to cut it. People need narratives, and if you say "supply curve up, demand curve down, many astrices" you are biasing a certain simplification when people inevitably need narratives.

Really what we need to do is run more big policy experiments at the fed. The more wild policy swings there are, more more politics feels alive, and better are empiracism is. The micro empiracism today is good but barely econ. (It's sort of abstract social science do a tiny thing and then stats.) The macro empiracism is still frequently quite bad, where better data would help but clearer trends from legit experiments would help even more.

> Really what we need to do is run more big policy experiments at the fed.

I totally disagree with this. Big social policy involves/requires taxation, and a robust debate around what kind of tax regime we want to have in order to support those social policy objectives. The Fed can't collect taxes, and it doesn't involve robust debate because it's not democratic.

> it doesn't involve robust debate because it's not democratic.

Fair.

Let me step back a bit, I do agree the undemocratic fed is ultimately bad. But I also wouldn't want to subsume it to congress in today's state, because FTPT, Senate, and supermajorities are not democratic, and ensure no experiments + tiny overtone window of things where are actually.

I like democracy, but the problem is democracy in its current US form (parliamentary system is better but EU constitution is fucked and causes similar problems) is best at interpolating the options that have been presented. If the democratizing happens with out expanding the "doing" overtone window, it's like 100% exploitation not exploration, and we are also kinda fucked.

It's frustrating because alternative democratic methods would probably be great for experimentation. Highly ideological parliament + independent civil service + sortition for skepticism is an exciting potential brew.

> Big social policy involves/requires taxation

No it actually doesn't, because "potential output" barely exists and to the extent it does we are nowhere near it. We can print money, and if there is inflation we can fix bottlenecks --- like WTF why isn't the port of Los Angelis twice is big by now with tons of extra rail freight capacity?

When there is no obvious benefit, and labor force participation is actually high (vs the headline unemployment rate which is widely acknowledged to be bullshit) then, and only then, do we need to worry about reducing demand across the board with taxes.

> I like democracy, but the problem is democracy in its current US form (parliamentary system is better but EU constitution is fucked and causes similar problems) is best at interpolating the options that have been presented.

I agree with you that there are some decidedly undemocratic elements to many "democratic" systems (such as the ones you've mentioned), and to be clear I wish that was not so. But these same democratic systems have historically not just expanded the overton window, but exploded it: the advent of progressive taxation in the early 20th century; the advent of high income tax rates in the 1930s-1950s; the social welfare states that most social-democratic European governments erected in the 1950s-1970s (and the skeletal welfare state the United States erected at the same time) - just to name a few.

> We can print money, and if there is inflation we can fix bottlenecks

We can't just print money to the extent that's required for the really big policy changes. You want a UBI? A universal capital endowment? Free health care? These things require significant revenue to sustain year after year after year. I don't think that's necessarily a problem, there just isn't a free lunch. And the US is the most likely to be able to get away with it: there are plenty of nations that don't entirely control their monetary policies (EU countries, for example)

> But these same democratic systems have historically not just expanded the overton window, but exploded it

It seems when the rate of change is endogenously high, things have happened in the US, but now with more stagnation the many veto points strikes harder.

> We can't just print money to the extent that's required for the really big policy changes.

I still disagree.

Free healthcare especially can save money because the current thing is so inefficient --- though in the first few years I expect the backlog of "deferred maintenance" to get in the way.

Unpayed UBI is scarier, but I think we can still try it. There might an awkward adjustment period, but I wouldn't be surprised if it his a new steady state.

> And the US is the most likely to be able to get away with it

Yes

Last thing to consider is the MMT reversal scenario, where the technocrats just worry about reaching "potential", and quantitative stuff ensuring enough spending and taxing, and the politicians decide the qualitative stuff, and also what level of inflation is acceptable -- because it is still a subjective decision somewhat.

In particular, doing a UBI first might be the best way to force higher taxes: people will fight harder to keep their existing UBI than they will to get a UBI in the first place, so with inflation vs loosing it vs more taxes or JG (which is supply and demand of a sort), the latter options might have a better shot.

> The mainstream economic theory genuinely believed that handing out central bank securities would work just as well as, say. adjusting a UBI or normal fiscal policy.

No, it didn’t.

Mainstream economic theory (or even the major heterodox theories) has never held that monetary policy is a sufficient substitute for fiscal policy in general, and mainstream economists in the US (of all stripes, though they differ on what fiscal policy should be) are always complaining about Congress not taking what they see to be appropriate fiscal action and leaving the economy to the Fed and monetary policy.

The mainstream in the last 10 years is down with more fiscal spending in the form of investment, but that is still supply side. They are not down with "aggregate demand being structurally low, even between recessions".

Also the theory has not kept up. A lot of people spout decent ideas and do decent empiracle stuff, but the theory is not reformed and opposed to those conclusions so they just ignore it.

Really, the crazy Chicago people to their credit were always more honest about what the mainstream theory actually said. The saltwater people were rather two-faced in making sure they sounded less rediculous but not having an epicycle-free theory underpinning their more reasonable suggestions.

I don't understand how higher interest rates on savings accounts would meaningfully impact the middle class.

The median savings account balance is just $5,300[1]. And the thing about savings accounts is that they generally do get spent down periodically - they typically aren't used to continuously squirrel away cash for decades, so you're not compounding interest over the long term. You might save for 5 years and then do a big spend-down to purchase a car, a house, home repair, medical emergency, etc.

So, if the savings interest rate is a paltry 1%, that's just $35. But if it were 5%, it's $265 -- Except now you're paying 1-2 points more on a mortgage, student, and/or car loan. The median household debt is something like $59,000: roughly 10x the amount in savings.

So, you make $230 more in savings interest at the cost of thousands of additional interest payments.

Reducing QE and making debt more expensive seems to benefit a very narrow group of individuals who have the means to store large amounts of cash in safe liquid assets and don't carry significant debts relative to their income. Everyone else is worse off.

[1]https://advisorsmith.com/data/average-savings-account-balanc...

You get what you incentivize. We are currently incentivizing debt over savings, so that's what we get.

When I was in college, the bank would give something like 6-7% on savings. If I had a million dollars in the bank I could comfortably live off that interest for life. Now if I put a million dollars in the bank, I lose wealth due to inflation, so I'm incentivized to put it in a fund or something now, which is a lot riskier than bank interest.

> Now if I put a million dollars in the bank, I lose wealth due to inflation, so I'm incentivized to put it in a fund or something now, which is a lot riskier than bank interest.

Yes, people investing in productive enterprise is actually better for real output, prices, and generally overall welfare.

It's certainly good for the shareholders to have more money in the market, I'm not sure about the others. I know I'd much rather have a solid 6-7% interest return than a flaky market return.

> I know I'd much rather have a solid 6-7% interest return than a flaky market return.

And college debt holders, mortgage holders, generally impoverished people would rather have lower rates on the debt that they have.

They'd also rather have jobs, which again comes with more investment.

They'd also like to have a higher quality of life, again which comes with more investment in capital/production/real output.

>generally impoverished people would rather have lower rates on the debt that they have.

Generally impoverished people aren't granted lower rates because of the credit system. They typically pay usury rates. Only people with existing assets / collateral get low rates.

>They'd also rather have jobs, which again comes with more investment.

Generally impoverished people have shit jobs, that's why they are generally impoverished. Also, investment leads to automation and offshoring which actually lowers jobs.

>They'd also like to have a higher quality of life, again which comes with more investment in capital/production/real output.

If investment in capital/production/real output helps impoverished people, it's very little. It generally helps already wealthy people.

You're looking at stuff from a textbook macroeconomic position. In the realistic / microeconomic world, things aren't as you are portraying them.

1. If you get higher interest rate returns, how do you think that is being paid for if poor people aren't getting higher rates?

2. Unexpectedly lower interest rates increase employer competition in the labor market, raising wages. This is well studied.

3. The quality of life of a poor person in the US is unimaginably better than that of someone ranked relatively the same 100 years ago. That is due to investment.

Denying those massive quality life improvements is absurd, although increasingly popular in our out-of-touch political climate.

>1. If you get higher interest rate returns, how do you think that is being paid for if poor people aren't getting higher rates?

Loans to business, home loans, etc. Education loans really weren't a big thing because education used to be subsidized. Also, poor people aren't the only source of ROI on loans. They're quite lucrative though because they seldom are able to pay the principal and are an endless source of interest payments.

2. Unexpectedly lower interest rates increase employer competition in the labor market, raising wages. This is well studied.

Yet wages have been largely stagnant for 40 years, how do you account for that? Got links?

https://www.epi.org/publication/charting-wage-stagnation/

3. The quality of life of a poor person in the US is unimaginably better than that of someone ranked relatively the same 100 years ago.

I'm interested in how you are measuring this. Got any links? How about the quality of life from someone 40 years ago before neoliberalism?

>Denying those massive quality life improvements is absurd

Which quality of life improvements are you referring to? Are you being intentionally vague? I mean we can buy cheap plastic crap from China, but that's at the expense of US manufacturing jobs, isn't it? Food certainly isn't cheaper. Healthcare and housing isn't either. So yes, if you believe buying cheap disposable stuff from overseas is a massive quality of life improvement, then ok. Take a stroll down middle America and tell me how good they have it. I know lots of towns with boarded up main streets because all the manufacturing went overseas. That's where the investment went.

Again, you're quoting macroeconomic theory when microeconomic conditions on the ground subvert any gains in macroeconomic theory.

How does investment drive up wages when labor investment is say 90% overseas or automation?

Not going to keep responding to someone who is skeptical of the claim that life for the average person is better in 2019 than it was in 1919. Our starting points are so off that I don't think we could have a productive conversation.

Take care, believe what you want I guess.

people certainly seem to be eating better and less sedentary in 2019. oh wait..

I'd be interested though. While you say priors are off, I'd be very interested in quantifying how off if the two of you wouldn't mind indulging a fool's curiosity.

Like I've met people who could actually give a convincing argument that cars haven't necessarily been the unambiguous tradeoff many believe them to be throw knock on effects in infrastructure and planning.

However, there is also the qualitative look at things as well. Numbers in absolute magnitude we're lower back then, so maybe there's something psychological at work with the larger numbers. There was also a smaller population, lower hanging fruit, the attraction of some level of unknown.

The thing I find most interesting in these disengagements is that they always occur right before people come to terms with "oh, I have to actually lay out my priors." Which is generally, in my experience, where the root of every fundamental misunderstanding is to be found.

So the absolute general term "people were better off in 2019 than they were in 1919, and this was because of investment," is what I was arguing against. It really depends on how you quantify it and what metrics you use.

For example, farmers with land in 1919 could at least live off it and make a living and feed a family off say 40 acres. Many farmers had their own land and would subsequently start losing it in the 1920s-today due to increase efficiency of farming which requires more land to make the same amount of money. I would argue farmers certainly were better off in 1919 than today, at least in terms of net income.

Now, today, that same family doesn't own land, is probably living in an apartment working for a company that is looking for ways to be more efficient through automation and outsourcing. It's very possible they are struggling to feed their family off a single income, so they have to have dual income. It's very possible one or both lose their job for an extended period of time due to market fluctuation. It's very possible they lose their apartment. I would argue that if that family had 40 acres in 1919, they wouldn't be as dependent on someone else for their livelihood, if nothing else, and could at least feed themselves. Any ability to feed themselves today if all that happened would be due to government programs, not market investment.

Generally when people say "people are better off now ...", they are talking about technology. For example indoor plumbing and electric. Everyone has it now and it's relatively cheap. Back then it was a luxury. So as far as that goes, I would say people have it better today than in 1919. Perhaps not the average poor person on Skid Row who doesn't benefit from indoor plumbing or electricity. I would argue that the proliferation of indoor plumbing and electricity was more government spending / investment than market investment though.

Computers weren't a thing back then, so that doesn't really apply. Again back to agricultural efficiency, computers harmed the average/poor farmer and only helped the large land owners.

Also keep in mind a lot of people were farmers in 1919.

Help me understand the mechanism for point 2.

Why would lower rates lead to increased competition for labor? Or higher wages?

Increased wages follow increases in productivity. I can see lower rates spurring businesses to invest in equipment that would increase productivity, but the experience over the past decade has been quite the opposite: productivity growth has slowed despite historically low rates.

What do you think banks do with your money, exactly?

Loan it out? What is your real question? I would rather not play Plato to your Socrates in a comment thread.

The point is that your money gets invested in productive enterprise in any case, no matter if it's done through equity financing or credit financing; so if you take out money from your savings account and buy shares then that does not really change the total amount of investment in the economy.

Yes, both of those are increased with lower rates. My point remains exactly the same.

Consumers buying is what drives production. Not investment.

> better [...] prices, and generally overall welfare.

How does investment do that? Plenty examples of the opposite can be found. I find those claims baseless.

Investment and low rates drives wages which drives consumption.

Investment also shifts aggregate supply to the right, which causes more output.

> Investment and low rates drives wages which drives consumption.

I know this is Economics 101, but is there any evidence that this actually happens in practice?

Savings does exactly that. You’re money doesn’t just sit in the bank, the bank loans it out to people engaging in economic activity, businesses that want to expand, buy inventory, etc.

In our fractional reserve system your saved money literally sits in the bank. The debtor gets fresh money and when he repays the loan the money disappears into thin air.

It's important that people delay consumption so that there is enough room for investments but european countries are running well below capacity. Savings mostly affects inflation rather than the nominal amount of money that can be lent out.

No, banks create money when they make a loan, they don't lend out deposits. Loans are constrained by risk and by reserve requirements set by central banks.

https://www.bankofengland.co.uk/-/media/boe/files/quarterly-...

Was there ever a time where a savings account of $1M both provided a livable income over many decades and didn’t lose value to inflation?

What were inflation rates while savings rates were 6-7%?

Sure, say I had $1M in the bank in 1996, it would yield ~$70K which would provide a comfortable living situation both then and today. Inflation was around 2-3%, which is generally the target.

>lose value to inflation

Inflation always erodes money of course, so there was never a time when that didn't happen when there was inflation.

The question is whether the inflation exceeds interest. With index funds it generally doesn't, but I'm not sure about a savings account. Right now inflation easily beats a high interest savings account, but I'm not sure about 1996.

If you took $70K to pay taxes and spend every year, your million would slowly dwindle (CD rates were in the 5-6% range)

At 3% inflation, that $70K/yr would lose half its purchasing value in the span of 24 years of your retirement. (It also would cease yielding $50-70K per year over that time as well, but that’s with the benefit of hindsight and you could lock in the rate with a longer term CD at retirement. That still leaves you with half the purchasing power though.)

I don’t think savings accounts have ever been a reasonable way to invest the bulk of your money for future retirement.

You’re double counting that $70k. That’s interest on the $1M. Assuming rates stay at 7%, you’d get that $70k every year. You are correct that $70k wouldn’t go as far today due to inflation. But $70k per year was great money in 1996.

Related, my dad and a buddy invested $10k in a CD that yielded 21% back in 1984 I think. If the rates are high enough CDs can be an excellent investment. They’re basically risk free. My bank is offering 0.6% currently. Real rates are very negative right now.

CD rates barely beat inflation over time. The amount of money that you could remove from the account in a year and leave the principal untouched (in inflation-adjusted terms) is given by the real rate of return. That’s not 7% in the mid-90s (the nominal rate wasn’t even 7%)

In order to leave purchasing power untouched, you need to grow the account by the nominal inflation rate and leave that for next year (especially in the context of having “a comfortable living situation then and today” over a near-30-year period.)

https://www.putnam.com/literature/pdf/II514-59fb3e978431513e...

The Treasury sells savings bonds that are at 7.12% right now. It's not the same thing as a savings account and you can't put a million dollars in, but you can still get a good interest rate on smaller amounts.

>The Treasury sells savings bonds that are at 7.12% right now.

source? yields top out at 2.05% right now. https://www.treasury.gov/resource-center/data-chart-center/i...

https://treasurydirect.gov/indiv/research/indepth/ibonds/res...

This is good to know. I wasn't aware of this website. However, you can't live off of 7.12% on a limit of $10k electronic bonds.

I do wish savings accounts still had high interest rates and there wasn't so much incentive to invest in riskier assets like stocks.

"For the first six months you own it, the Series I bond we sell from November 2021 through April 2022 earns interest at an annual rate of 7.12 percent. A new rate will be set every six months based on this bond's fixed rate (0.00 percent) and on inflation."

As someone who's never bought bonds before, how do I know the 7.12% won't change after the 6 months of the locked rate to the 0.00% and whatever pittance they decide to toss my way in an attempt to account for inflation?

Sincere question, I don't know anything about anything.

7.12% is about as low as it's been:

https://treasurydirect.gov/indiv/research/indepth/ibonds/res...

That's not what that chart is saying.

That's the coupon rate paid by a bond bought at that time (in the late 90s the bonds paid a real return of 3%, which when added to the current 7.12% inflation rate gives a nominal return of 10.12% for the next 6-months).

The rate of those bonds was 3.5% just a month ago, and historically averages around 2%.

Okay, but now you're talking about using monetary policy to change American culture away from consumption and more towards saving. I'm not sure such change is politically sustainable.

And what we have today (steeply negative real rates) is?

> Except now you're paying 1-2 points more on a mortgage, student, and/or car loan.

When interest rates go down, house prices tend to climb proportionately as more people take advantage of the lower mortgage rates. The same goes for cars to a lesser degree. So unless you buy a house at the very beginning of an interest rate transition (before the market has settled), the rate won't have as drastic an effect on your monthly payment as you're making it seem. You can also refinance later if you buy when rates are high, but you can't lower your principal.

Also, interest rates affect other types of investments that people carry, such as retirement accounts.

I don't know what the cumulative effect of all of this is, though, so I won't claim that your overall point is incorrect.

The house price rise adversely affects only the people buying their first home over the period interest rates are unusually low, which is obviously a small proportion of homeowners. If you've already paid your principal, it's unchanged, but the value of your asset has increased and monthly payments have gone down for those on variable rate mortgages.

Even if you're a first time buyer affected by the price rise, you're better off with a high monthly payment to own a higher value house than a high monthly payment to transfer more interest to people who are wealthier than you.

>When interest rates go down, house prices tend to climb proportionately as more people take advantage of the lower mortgage rates.

The real estate market is inefficient by design (look at Californian zoning). If you made it just as efficient as other consumer goods the problem would be gone. The problem isn't interest rates. It's the inability of the market to respond to them. In theory lower interest would just mean bigger and more dense construction as taller buildings become easier to finance.

In practice people figured out that if they do "sound zoning" the increased amount of money will flow in a handful of pockets. The same is true with "sound money" where the value the economy produces grows as the population grows and becomes more productive while the amount of money stays the same and therefore benefits hoarders.

The boring answer is a land value tax.

I rarely see this spelled out, but in the more modern thinking, the working class are "creatures of flows", and the capitalist class are "creatures of stocks": i.e. the latter has meaningful assets, but the former subsists on wages.

Obviously this is just an approximation, but "class is calculus" is a very useful mental model.

By that ones, yes, the vast majority of people have negligible liquid savings. So the interest rate doesn't directly matter. Yet, the rich also "own the means of production" --- i.e. real assets, which also doesn't get inflated away. So it doesn't obviously matter for them. So what does it effect?

The essential original Keynesian insight (what most of the factions since might agree on), is that since the point of owning things in Capitalism as money, even if you aren't holding cash, the interest rate effects how easy it is to invest, but also what investments are productive w.r.t doing nothing. This spooky shit is what is supposed to give monetary policy it's power.

The differences in opinion in those factions come down to whether there is always enough to invest in, and access to credit is the limiting factor, or not. The Post-Keysnians would say relying on monetary policy alone is stupid, because (to distill in a parable) if no one can buy your stuff, it doesn't matter how cheap the factor is it's not worth it. That's when directly employing people (jobs guarantee) or handing out helicopter money can make a difference --- it's "root" demand, not some spooky shit effecting supply.

Back to the calculus stuff, an interesting idea is https://en.wikipedia.org/wiki/Demurrage. This is "inflation for stocks not flows". In short, we want money at rest to go bad, so rich people and instutions are forced to spend and we don't grind to a halt via the paradox of thrift. But we don't want people's wages to inflate away, because they certainly cannot bargain hard enough to get enough raise to keep up. Demurrage is wonderfully hamfisted in trying to do the former but not the latter --- money at rest becomes less money, money flows retain their purchasing power.

Money at rest is not taxed (yet, in the US) and money that flows is. The state is going to promote the flow of money because it means more money flows to them.

What? The state can print all the money it wants. There are plenty of corrupt politicians but let me tell you that does not create more desire to pull in money sheesh.

This money-sucker beaurocracy stuff makes for more sense with e.g. CIA selling drugs rumors than taxation. This isn't some bullion-based monarchy we live in.

In the US currently, the state can borrow, not print, as much as the Fed will purchase, which seems to be unlimited amounts at the moment. Not sure what happens if we get worse inflation and the Fed wants to combat it by raising interest rates. US debt payments will balloon to be a huge part of the budget, which will necessitate borrowing more money.

This isn't some bullion-based monarchy where you can just debase the silver currency with some copper to deal with your monetary problems.

So a monthly redistribution of, say, 10% of the money supply as public dividend would take care of that no?

> money supply

Be careful this is a dangerous notion: with today's form of fiat concurrency there is net 0 money!

> redistribution

Likewise the "re" is sketchy. The state can pull money in, and take it out. Keeping those balanced because metal bullion skeuomorphisms is confusing. Our insistence that all money is debt is "double entry accounting fetishism" and also needlessly confusing.

Distribution is good. "re" implies some sort of 0 sum, when the fact that the nominal need not be zero sum, and the future us uncertain and full of possibilities, and this is the true beauty of Capitalism we should embrace even as we are sanguine about all the terrible parts.

The methodology in https://www.gc.cuny.edu/CUNY_GC/media/LISCenter/pkrugman/ler... is much better. The state can print money. The state can destroy money. The state can issue securities. The state should not subscribe to any theory a priori, but simply do the simplest thing the achieve agreed-upon goals, and avoid agreed-upon bad things. Theory can be developed afresh, and with far better empiricism, by basing it on actual experiments of the state trying out different levers and seeing what happens.

Only a wealth of practical experience will overcome the highly politicized disputes. We will never achieve consensus while tiny gamut of the policy space is explored.

-------

That is my long-winded way of saying I (think I agree) agree, but please find a different way to say it :).

Yeah, with money supply I actually was thunking of some vague future approach rather than the current setup. Be that some crypto thing, or the intriguing Sovereign Money[1] proposal.

And as for redistribution, I suppose just “printing” money into peoples account would more or less have the intended effect as well. I do suspect a 10% inflation rate would lead to simple logistics costs as the nominal amounts kept changing.

But yes, if only more policy was evidence based…

[1] https://assets.kpmg/content/dam/kpmg/is/pdf/2016/09/KPMG-Mon...

Nice link! Thanks. Very into centralizing the boring parts of banks as a utility like that, and just letting private banks do their funny stuff without captive regular people, but didn't no Iceland was thinking about it somewhat seriously.

I hope you mean yearly.

> Interest rates that are low mean that middle-class savings accounts don't grown in size.

So far as I recall, interest rates on savings accounts have never been greater than inflation. That is, the money stored in a savings account would not grow in real terms. That's true with or without QE.

QE doesn't require low rates. The causality works in the other direction. QE suppresses rates. QE could be done at any level of rates, with the exception of if long duration was too low or even negative I which case it may become politically or practically infeasible

> MMT is linked to QE

No, its not. MMT rejects the fiscal/monetary dichotomy as fiction, and tends to prefer more targeted (traditionally “fiscal”) stimulus, without typical fiscal constraints, because it views the only real constraints on “fiscal” actions as monetary effects; QE is blunt stimulus that respects the classic monetary/fiscal divide that MMT argues against.

An important takeaway from the wealth inequality chart: every time that wealth inequality has substantially decreased in recent history was during a recession.

Staving off recessions at all costs for political reasons is a horrible policy. Market cycles are natural; we don't live in a perfect world. Market forces clearing out the inefficiencies/rebalancing power in the economy is better for long term capital allocation in society than socializing losses or printing money to rescue stock indices.

I agree that maybe allowing market downturns to occur is probably a good thing.

That said, an equally reasonable interpretation of your observation is that maybe inequality is not itself a problem. More inequality doesn't necessarily mean that the poor are worse off than they would be with less inequality.

I wonder if we are collectively making a mistake to treat stock ownership as wealth. Stock prices going down reduces wealth inequality, but does that actually help anyone?

Regardless of what you treat it is, inequality of ownership of the major enterprises in the US is worth addressing.

I do think the US needs substantial reform of how ownership and corporate governance currently works in our system.

The problem is that people who became temporarily wealthy but would have lost wealth through misallocation of capital are allowed to keep their wealth and repeat their misallocations instead of allowing new, potentially better capital allocators access to large opportunity (low asset prices).

Is inequality the base thing we care about? Or is it only an instrumental way of accessing overall welfare, which is the thing we actually care about?

If the latter is true, it seems like causing recessions in order to reduce inequality is at least somewhat akin to to cutting off the nose to spite the face.

It's massively taken off during the lost previous 10 years horrible recovery. Read https://www.employamerica.org/ or Roosevelt interest stuff for why it's essential to have tight labor markets solve these problems --- more essential than ending all speculation.

The fact that the last 10 years were exceptionally weak labor markets and yet lots of speculation shows that the two are less coupled than people might think. There it was bad, but that doesn't mean the decoupling can't also work for good. The solution is:

1. Bboost demand enough so labor markets are tight -- and today "inflation" is not a problem but rather the result of trying to run a shitty poor-repair material economy that has gotten too use to low demand and cheap later. Whenever there is a recession, boot UBI, or run a job guarantee doing all that feel good low-intensity stuff. It's not like we are low on work to be done with global warming!

2. With the business cycle now constrained to merely be a speculation cycle (real people get fed regardless), think of new creative ways to go after that. For example, when there is too much speculation, limit financial assets as collatoral for loans. No more bitcoins as collateral for loans to pay for the the mining electricity in times like this. But maybe shit like that is OK in other times.

It's analogous to the forest fires. Recessions, like smaller forest fires, help clear out the dead weight. New entities are able to grow in the wake. By aggressively staving off recessions, the smaller fires are suppressed but it leaves an ever-increasing mass of dead weight ("zombie companies"), eventually leading to an uncontrollable fire

Well... the people who have a job and lose it in a recession (and many do) really don't care whether overall wealth inequality is going down. They're being destroyed financially; they don't care that the rich are also taking damage.

This. The 20% haircut to the value of the companies' equity is a paper difference to their wealthy majority shareholders. But the 10% of staff they lay off have no income at all, and the remaining staff don't exactly feel better off because their bosses are poorer either. Levelling down isn't any sort of solution to wealth inequality.

If there were no other options besides asset stimulus and doing nothing, I may agree with you. But we can do other things (like UBI) that improve equality of opportunity, provide a safety net, and are probably net positive to the overall value of the economy in the long run (compared to the modern bailout/asset inflation economy, anyway).

But during a labor shortage, that’s largely moot. Whatever staff gets fired, if they’re remotely competent, can walk down the street and get a job at a better performing company with ease.

Sure, but you're replying to a comment about policy for recessions, not for when the job market's looking great for everyone, so it's bringing up labor shortages that's moot. People weren't walking down the street to get jobs at any sort of company with ease in 2008, or in the middle of lockdown.

I thought this chart captured the modern economic angst really well:

https://www.lynalden.com/wp-content/uploads/dollar-crisis-in...

Concretely shows how one income used to be able to easily cover a family's expenses.

And how today a one income family is worse off today than 40 years ago in absolute terms.

And how the biggest family cost increase is healthcare, followed by college.

Things that have all been discussed in depth, but clarifying to see them on one simple chart.

That chart shows median male income and includes the cost of college. Median male income is weighed down by non-college educated men, who are very likely not paying for college.

https://www.bls.gov/emp/images/ep_chart_001.png

Men with a bachelor's degree make a median of 68k/year

Yearly income drops to 52k for men with an associate's degree.

Drops to 47k with some college education.

Drops to 41k with just high school education.

https://en.m.wikipedia.org/wiki/Educational_attainment_in_th...

Very Joseph Schumpeter of you [creative destruction]. He seems to have lost his influence over the controllers of the various central banks since 2008 financial crises.

The author took way too long to introduce what the abbreviation QE in this context means. It's only in the 5th paragraph. It's generally not a great idea to use an unclear acronym in the title. If you really must, at least do the reader the curtesy of defining it up front, rather than making them dig for it. To someone who's non-American and likely does not keep an eye on the FED, QE isn't likely going to be they way they've seen the idea expressed. You can know what Quantitative Easing is without immediately recognizing QE out of context in a title.

If you don't already understand what QE in this context is, it is unlikely you will be able to fully understand the rest of this article.

You can know what Quantitative Easing is without immediately recognizing QE out of context in a title.

> If you don’t already understand what QE in this context is

The title arguably is not sufficient to make completely clear what context is being referenced. (Combined with the source it might be, for those familiar with the source, but that’s beside the point on HN.)

I mean “Does Queen Elizabeth cause wealth inequality” is a perfectly valid question, too.

This is my point exactly. The term QE means so many things. Even a person who knows what Quantitative Easing is, might not catch that it means that. My first assumption was that this was some sort of equity investment like Private Equity, often called PE.

“quantitative easing” for those who are curious.

Those who typically visit Lyn Alden’s blog and follow her news letter (as well as her target audience) already know what QE stands for.

Besides, now a days with fed so much in the news I suspect it’s becoming widely known which is a good thing.

Yes, that makes sense for those in the US, but the FED does not really factor into the thinking of, for instance, a German. The argument of "if you read the blog you know what it means" somewhat falls flat when the link is posted on HN for people who don't already read the blog to see. Quantitative Easing isn't just an American thing, and plenty of Germans might know it as Quantitative Easing, but have never seen it called QE for various reasons (it's QL in German for sake of example).

>The argument of "if you read the blog you know what it means" somewhat falls flat when the link is posted on HN for people who don't already read the blog to see.

I don't understand your complaint here. The author (Lyn Alden) is not the person who posted it here on HN.

In any case, she's an American writing about USA policy where her audience already knows what "QE" is. Seems unreasonable that she should predict that a German on HN would be irritated by it.

You're right, I wasn't making a point about the author, just how the comment I was replying to didn't make sense given the context. I might have replied to the wrong comment. There was one which was saying something to the effect of "you would know what it means if you can understand the article".

My core point is you can know what Quantitative Easing is while still not immediately recognizing QE as its abbreviation. For example, I thought this was going to be about some sort of Qsomething Equity, since I've seen PE to mean Private Equity.

pretty sure if you follow their blog then you're pre-supposed to already have an interest in finance. and therefore should know the basic concept of QE. It's like expecting a programming blog to explain a for loop.

not sure its the authors fault it got posted here

I think you can know what Quantitative Easing is, without realizing what QE means. Even advanced research journals read by scientists only will do something like this: Quantitative Easing (QE) in the opening. For the point that she had no idea it would be posted here, you're correct, but stuff like this does not help pick up new readers. My first thought was this was going to be about some sort of equity investment system, like Private Equity, also called PE.

> the FED

“Fed” (Federal Reserve), not “FED”.

FED (in all caps) is a common way to refer to the Federal Reserve, as is the Fed. Don't ask me why.

IME its common in two groups of people:

1. American anti-Fed conspiracy theorists, and

2. Non-Americans who see the #1 without understanding the nature and assume its a standard US usage.

My personal exposure is a python method from a quant library called get_FED()

I read ZeroHedge occasionally, and I've never seen it spelled "FED" there. I'm wondering where you find conspiracy theorists who type it like that.

More kooky places than ZH. Which by the way is not as bad as you probably think it is.

"On This “Atom Bomb”- Anniversary, You’re Being Lied To About Hiroshima" was published by ZH. I would say denying that nuclear weapons and nuclear power are hoaxes is a bit off the wall.

For anyone who is a fan of Lyn, I highly recommend you follow her friend Luke Gromen.

He's been doing some excellent analysis over the last few months and is one of the few people producing this kind of content who can match Lyn's depth and breadth.

One podcast I liked: https://m.youtube.com/watch?v=csf4fdV-EOQ

This reminds me of when after WW2 ended in Germany, the old German Mark was repudiated and became worthless. It was replaced with the new Mark, and every German was given the same number of new Marks to jump start the economy.

Within a week, the people who had money before the repudiation had money again, and the people who didn't didn't.

Anywhere to read more about this?

I heard it from people who lived through it. They're all dead now. Wish I had a better reference.

That happened but didn't take assets into account. People that still had them profited very well. There was also a "Lastenausgleich", the English article is quite bad though:

https://en.wikipedia.org/wiki/Lastenausgleich

Especially the quote about it being the source of the rapid growth period is a bit ridiculous in my opinion.

If you increase the amount of USD, the USD cost of anything that isn't USD goes up. So, a lot of the market gains, housing gains, crypto gains, etc, are at least in some part to do with all of these countries increasing their money supplies. So anybody that has wealth kept in anything other than the inflating currencies is going to win, and anybody who either has savings only in fiat or is paid primarily in fiat is going to lose out.

So, yes, of course it causes wealth inequality. The rich can afford to bail on a currency while it balloons.

This is the interesting thing, and the whole premise of MMT (Modern Monetary Theory), the currency being the reserve currency is not prone to devaluation relative to other currencies which allows them to keep printing USD and in effect exporting their inflation, all until someday something replaces the currency as a reserve. The inequality comes from this excess cash in the market with nowhere productive to be spent on, people merely invest it in the assets they were already going to invest in, driving up asset prices (creating asset bubbles).

All in all, this is mostly a question of policy (not in terms of typical market regulation through interest rates, money supply etc.) and not only market mechanisms. Individuals with a high "wealth concentration" have a lot more power to pursue their goals ("gain [more] wealth [concentration], forgetting all but self"). Not only economic power, but -most importantly- power to enforce their interests politically. Most western country (especially the US) policies of the last decades pretend to do something for citizens with a low "wealth concentration", but in the end just favor the rich. Analyzing this trend only in economic terms and closing ones eyes (ears and mouth) regarding systematic political manipulation is hypocritical.

Did you read the article? The entire thesis is that monetary policy (what you call "market regulation through interest rates, money supply etc") is not the primary driver of inequality, but rather it's fiscal policy (what you call political interests).

TIL that „The Federal Reserve […] is an institution that is mostly privately owned by banks“

Maybe my view is too European on that, but are Americans aware their federal money supervision system is run by banks and how can they possibly be okay with that?

> Maybe my view is too European on that, but are Americans aware their federal money supervision system is run by banks [...]

Honestly, most Americans aren't even aware that monetary policy is a "thing".

> and how can they possibly be okay with that?

I'd argue that we aren't. The US Constitution explicitly gives Congress the power to "coin Money".

The current reading of that phrase is that it only applies to metallic coins, not paper money. Congress then set up the legal structure around the Federal Reserve Bank system - and it's more complicated than "privately owned banks" in practice, due to the blurring of the lines between "public" and "private", and the prescribed structure of the Fed that is at least partially under direct Congressional oversight.

I'll also point out that the US has had multiple monetary systems since its inception, and the Federal Reserve System has only existed for about a century.

> I'd argue that we aren't

It's been a hot-button issue since it was created. If it's characterized as a system run by a bunch of bankers with greedy fingers on the tap, it sounds terrible- if it's a system to stabilize the economy, or any number of its other arguably beneficial purposes, it mightn't sound so bad.

All of this things can be true, but without deep knowledge of the system (does anyone really understand all of the interactions?), it's hard to weigh the tradeoffs and so easy to jump to conclusions. I appreciate the desire for the relative simplicity of things like the gold standard.

Just reading this article has made me reconsider my opinions on the matter (I was pretty certain QE was a primary mover driver of wealth centralization going in). My intuition tells me there is a lot of misleading correlation here, given how interlinked all these systems are.

It's owned by banks but run by government appointees. Most Americans who watch the news and follow finance understand it's a public-private hybrid structure. As Lyn notes, this isn't unusual. Many national banks are not owned by the government, including Swiss National Bank.

Lyn Alden always has great analysis.

She is the best. Her premium membership is worth it.

> The Fed’s role has expanded over the years, and its decisions often seem opaque and arbitrary. A small number of unelected people in a room dictate the price of money for a country of 330 million people, and can create new reserves out of thin air, or destroy reserves from the system.

I'd much rather there be a liquid democracy voting system where maybe every person w/ a degree in economics gets 1 vote, I'd trust 10k economics majors over 10 rich/wealthy bank owners led by the Rothschilds.

I hate acronyms that are not spelled out right at the beginning. Just sayin'

QE has been a topic of mainstream news for a good decade now. Just sayin'.

TMBT but FWIT TLA's WHW and EHW but JK.

It's pretty simple to understand.

If I have a money printing machine, the first people to gain will be my friends. The second group will be my friends' friends.

They will go around buying up all the stuff worth having. Pretty soon those items will go up in value. A lot. Anyone outside my circle of friends will quickly find these items very expensive.

Boom. Asset Bubbles.

Central bank reserves aren't "legal tender".

The USA is quite different than anywhere else in that:

1) Vast social inequality from issues arising from the ex-slave population and undocumented migrants, which creates a big 'long tail' of social malaise, cost, and limited productivity.

and 2) On the high-end, the US has a lot of truly exceptional talent doing truly world-leading things and having a truly global impact, or in other words, they are in some ways 'earning' very high returns.

Imagine if Germany were the size of the US: no historical ethnic issues, and more institutional conglomerates instead of newer, cutting edge companies (i.e. more BMW's not more Ubers and AirBnBs').

What would that look like, even with the Seignurage of currency etc?

I think inequality would be a lot less.

I think the author makes some great points, but they just don't overcome the fundamentally different situation that the US is in vis-a-vis everyone else.

Inequality is innate to our reality. As far as resources go (e.g. land), we live in an anisotropic zero-sum world. Inequality between entities is inevitable in such worlds regardless of economic policy, and becomes more notable as more entities come to exist.

It really feels like we are at the end of the road and the Fed is damned if they end QE (deflation and market crash) and dammed if they don't (very high inflation). Ray Dalio does a great job describing the end of the the "long-term debt cycle" and differentiates it from a typical "business cycle" that we are all familiar with [1]. The scary thing he describes is the end of a fiat money system, which will resemble a bank run, but for goods and services rather than for dollars.

[1] https://www.linkedin.com/pulse/money-credit-debt-ray-dalio

A run on goods is demand gone wild, aka hyperinflation.

Pair this with the reduction of ownership of ANY real assets/goods in the general population.

I can't trade my Netflix account for food. I cannot lease my Spotify account to someone for income. I rent my house.

I think when you get down to the nitty-gritty, most people actually "own" some furniture, some clothes, and a car. If a crisis actually struck, what goods or services could you actually leverage to survive off of?

From Lyn's past article on Japan it is showed that over the past "lost" decades in Japan, the private sector debt has been dramatically reduced while the public sector debt has taken it's place. I really wish she looked into that for this topic.

It's not just the QE, it's not just the lowered interest rates. You need to look at the balance of the money supply compared to the GDP. In America corporate and public debt are ballooning, and that's a direct result of Fed policy. In Japan, even with low interest rates and public debt super high, their money supply is in balance, and so their equality is balanced.

I keep reading between the lines that the fiscal policies are incentivising and prioritising innovation and higher education and knowledge work, and getting rid of manual labor by automation or outsourcing. Seems like a good thing, the way she is phrasing it is like a conspiracy by the "elite" that just decided to sabotage a prosperous large working class for no particular reason. Technological advancement must play a big part in this.

You are reading incorrectly. Her argument is that the fiscal policies are disincentivizing all labor, which indirectly incentivizes industries that have less dependency on labor, whether skilled or unskilled. She also does not phrase it as a conspiracy to sabotage the working class for no reason, she claims that this is a side effect of maintaining USD as the global reserve currency, a system which benefits some people and afflicts others.

Qe causes all asset prices to rize in value. That include home loans which also expand. Most people loan to these home. Stock assets rize in price. Yet again higher proportion of these assets tends to be owned by richer classes.

Probably yes? Poorer people do not have assets and their wage isn't as dynamic to keep up with inflation.

Quantitative Easing will continue on until all the boomers are happily retired. Give it another 3-6 years, then the Fed is going to "get religion" and you will want to hold hard assets. Until then... its stocks and crypto on a moon mission.

Why do you say 3-6 years, I'm curious?

I'm actually borrowing that from a podcast I listened to, [ a really good listen here, yewtu.be/watch?v=YyprUlzIpog he mentions this point at 20 minutes 10 seconds ... ]

He surmises that the government will encourage the FED to preserve QE until the baby-boomers are finally set and retired. Then the FED will 'get religion' and taper down

Sounds interesting, I'll check it out, thanks.

The thing is we want less stupid speculation and asset bubbles and yet the economy is running far below potential, with the "tight labor markets" right now just a glimpse of how it was before (and probably a fleeting one if the inflation class warriers have their way like in the 1970s).

To fix both problems --- because we need to stop just making ourselves poorer and less coordinated with prudish neoliberalism --- we should probably try to get experimental with monetary policy. Having the Fed tweak a UBI instead might help.

Remember, the way that capitalism is supposed to work is that demand validates investment. Easy credit from banks to big institutions with poor consumers is stupid because too many investments still look bad! Hand out cash, and then businesses can chase the people's demand, rather than trying to create the demand all weird post-modernly.

No more throwing easy money at startups waiting for them to finally be profittable 10 years later. Yes more making the poorest better off and letting the resulting supply-chain bottlenecks show where investment is actually needed. If there's no current bottleneck, you aren't trying hard enough!

I'm still yet to understand how a lot of relatively poorly paid work that probably still needs to be done, gets done under UBI.

UBI leads to people not doing particular jobs because sitting at home on UBI with less but enough money is preferable. Which means those jobs have to pay more, which leads to inflation which leads to UBI raising to keep up with inflation... repeat?

> Which means those jobs have to pay more

The assumption being made here is "all other things being equal". All other things are never equal.

I am no economist but couldn't it be that raising pay in few sectors does not cause inflation? I would think that depends on what the people receiving more money spend it on. If they only spend it on things where we have no bottleneck and there is still excess capacity, how would that create inflation? Inflation should only happen if the increased paycheck is used to compete for scarce resources/products. So I think predicting inflation requires a more detailed analysis, especially you need to have a cycle of increased prices and pay.

> I'm still yet to understand how a lot of relatively poorly paid work that probably still needs to be done, gets done under UBI.

To flip it around, right now we keep a huge number of people so immerserated they will do all sorts of bullshit for a little wage. Is that a solution?

My personal belief is that there is huge potential technical progress, but it is stuck in the research phase and cannot get to development because with so much weak cheap labor, there is no reason to automate. But with UBI, and people able to say "no, fire me I don't care", that will shift, and suddenly those investments will become valid. I am very excited for that as a programmer.

To restate, Andrew Yang and his ilk have it dead backwards: It's not UBI because unemployment apocalypse, it's unemployment utopia because UBI.

However, say I am dead wrong, and technology doesn't pick up the ball. We might have to cut back on certain luxuries that are no longer affordable. We might also need to "ration" certain un-fun jobs with like a chore rotation --- think civilian 3 years guaranteed service. But this seems good. This is the type of stuff that keeps society honest and fair, and I think will rebuild ties between humans.

Besides these 2 options, the 3rd view is society needs to exploit certain people, hereditary for maximal learned helplessness, to function, and there is no alternative. You can believe that, but you better be honest to yourself if you do.

It won't. It's only poorly paid because there's a power imbalance - the tradeoff is "do shit work for shit money, or starve to death".

UBI removes the "or else clause". Which will fundamentally shift how we pay for work - instead of overvaluing rare skills, we will value willingness to do the work that needs to get done.

It doesn't necessarily lead to inflation because UBI doesn't automatically mean all jobs will pay more. There's a likelihood that many BS jobs will go away - i.e. nobody will want to be a bagging clerk in supermarkets, because you couldn't pay enough to make it worth people's effort without exceeding (vastly) the return that having bagging clerks produces.

You'll still have people cleaning sewage lines, because civilization literally rests on that. It'll be a well-paid job suddenly.

That's as intended, as far as I'm concerned.

I haven't seen a baggage clerk in years here in Canada.

Probably just an extra person to pay, tbh - and there's also starting to be quite a few self-checkouts, with some places like Dollarama having entirely self-checkout operations.

We're going to see a lot of these jobs just replaced with machines, and reasonably so - which is also why UBI is going to be increasingly necessary as the years pass.

If I get $1000 a month from UBI, and I have a minimum wage job, I'm still working. Because now I will have even more money! But I might be more likely to quit my job for factors other than money - e.g. I'm going to be less likely to take shit from a bad manager. Maybe this means bad managers will start to get fired?

People will want to work, but when UBI exists then people can shop around for better jobs. If the jobs disappear, so what. A lot of people talk about fast food jobs, but honestly this disappearing would be a net benefit to society. If UBI means people have to cook for themselves, and can now, why is that bad?

Overall, maybe if we have UBI then a lot of "crappy jobs" can simply become part of the gig economy, which would be far less exploitative if it didn't trap people into being the sole source of income. Imagine if shifts at Walmart, restaurants, etc. had Uber-style apps. Need extra money? Go work a few, or work as many as you want. Don't want to? Fine, stay home or do whatever.

UBI doesn't work under any circumstances. And you don't need it besides. The better managed welfare states of Europe such as Austria, Germany, Finland or Sweden, have already figured out how to operate relatively good systems. No UBI needed.

The approach that will work in the US is a system of income crediting targeted at lower wage workers. And that will still push up their cost of living, for housing and lower priced used vehicles in particular (which will result in the left attempting aggressive rent controls in cities, which will largely backfire).

It's irrational to give everyone a universal basic income. Scale a wage credit for poorer workers and reduce it as you go up the income brackets. Instead of earning $10/hr, it's $15/hr with the credit; instead of $12/hr, it's $16/hr; instead of $15, it's $18/hr. Make the floor $15; shift the federal minimum wage up to $10. Spend the time and money necessary to research what setup - what bracketing - will work best for the present US economy, and then fix it to be adjusted every few years.

It will also put pressure on wages above those workers. It'll ripple through the pay scales. People just beyond the cutoff will be the most unhappy.

* why not shift the minimum wage up to $15? Because if a worker's labor isn't worth $15/hr, they have no place in the labor force. If you use a credit system, their labor may be worth $7-$10/hr, and they can be subsidized up to eg $15/hr or whatever makes sense. A high minimum wage is regressive by comparison, it chops people off at the knees if their labor value isn't high enough.

The best way to achieve that is a negative income tax. If you earn below a certain income you get a payment (not just no tax). That makes it reasonably easy to avoid the "welfare cliff" as you create smaller brackets and slowly move from negative to positive tax rates, likely with a reasonably large band where you neither owe taxes or get a payment. It would need to be combined with government calculating monthly or quarterly payments to avoid feast at tax time and famine the rest of the year.

It would need to come with a strong education on tax brackets and a good online calculator for people to figure out their true income. Way too many people don't understand progressive taxation and think moving up a bracket means they pay a higher rate on all their income, not just the portion that falls into the higher bracket.

> That makes it reasonably easy to avoid the "welfare cliff" as you create smaller brackets and slowly move from negative to positive tax rates

NIT, in the idealized form (which is exactly a UBI + income tax system) always has positive marginal rates (its semi-realization in the US EITC does have negative marginal rates over some ranges, which brings back—or exacerbates, since EITC coexists with other welfare programs which also have cliffs—the welfare cliff effect.)

Why is it irrational? in a way it is creating liquidity (the additional funds will be spent in different ways by those in different socio-economic groups). Why does there need to be a cut-off the whole point of it being Universal for it to work, there should not be anyone just above the cut off as its in addition to their existing salary, this is a problem that exists in the current welfare states, where those earning just above cutoff earn similar to those on welfare.

For the cycle you propose the increase in inflation would have to be equal or greater than the increase in pay.

If there's an increase in wages and the increase in inflation in response is lower then there's and effective wage increase despite the inflation. Which is simply the desired outcome.

An increase in inflation that matches or outpaces an increase in wages should only happen if wages are 100% of the cost of goods/services. So the cycle you propose should be a non-issue.

Right now i feel that we've been so scared to increase wages that we've simply made wages pointless altogether. Assets from second hand cars, to houses, to shares are all skyrocketing in value. I can't imagine people working for minimum wage and looking at the value of the house they rent go up by 10x more than their salary each month and thinking this is ok. We've been so scared of increasing wages because of inflation fears yet we've allowed all the QE to go into assets. It's led to an imbalance of wages compared to the cost of assets. There's a need for market correction from the government to get wages back in line with the value of assets and as long as any forced increase in wages isn't leading to inflation that outpaces the increase it's a perfectly reasonable solution to pursue.

The current "inflation" thing is not so much due to asset inflation, but due to poor people finally seeing some gains, and the global production capacity still recovering.

Before now, there still was a large amount of QE, and yet little inflation or wage gains. Now, the labor market finally gets tight, bottom half real income goes up, inequality shrinks. But our global supply chains were bred on austerity, tuned to low demand, bean-counter efficient over resilient, and can't keep up.

In particular, your minimum-wage protagonist has a better 2020 and 2021 than 2019.

The current inflation freakout is anti-fiscal- and anti-monitary; it just wants to go back to 2019 and is thus little but evil class warfare, intentionally or not. The right thing to do is to keep the labor tight while finding some completely separate way to discipline the speculation in land, stocks, and crypto (in order of increasing being a farce).

UBI isn't unemployment. Less desirable jobs won't need to pay more: income will be in addition to UBI.

The only jobs that will need to raise their wages are those that were exploitative to begin with: the ones that rely on people not even having the resources to seek better work.

> I’m still yet to understand how a lot of relatively poorly paid work that probably still needs to be done, gets done under UBI.

UBI does not exist in a vacuum, it replaces means-tested welfare programs which reduce benefits for additional work. It may also replace or reduce minimum wage, UBI proponents disagree rather strongly over whether it should do this; very broadly those most Left UBI supporters stend to oppose displacing minimum wage and Right Libertarian UBI supporters tend to support it doing so, but that’s not exactly accurate (for instance, I’m a left-leaning UBI supporter, and I support it displacing minimum wage on about a $2000/yr offsets $1/hr of ideal minimum wage basis, so that an early stage, immature UBI would not completely replace minimum wage, but a mature livable UBI would.)

By replacing means tested welfare it reduces worker disincentives to low-paying work, and by reducing/eliminating minimum wage, if it does that, it reduces barriers to work which might be mutually beneficial to employer and employee but not viable given minimum wage.

Enabling work that status quo welfare systems inhibit is a major argument for UBI.

If particular work genuinely needs to get done, inflation will necessarily drive the real value of UBI down while demand drives the real compensation for the work specific work up until the combination causes a sufficiently large number of people to be motivated to do the work in question. The work for which that is not true does not, almost by definition, need to be done.

What do you think of moving medicaid funds to UBI? I ask because I doubt young people will spend their UBI money on health insurance.

YES

Yes.

Anymore questions?

How have people not caught onto this yet?

When the Fed prints money, its a guaranteed bet that assets go up. The rich use their wealth and huge amounts of leverage via financial instruments to generate massive returns. This has been going on for a long time. Literally all you need to do is throw your whole bank account into call options. Working a 200k-300k a year job is almost a waste of time with how much money they are printing. This is how the wealthy see it, your small paycheck (yes 300k a year is small) is a joke within the context of financial leverage.

Just to reiterate, you are better off risking everything in financial markets and sitting at home watching those assets very closely than you are working.

Can you elaborate on how one can use call options to make a 200K/year job a 'waste of time'?

The fed keeps printing money and inflating assets. You can generate 200k a year much easier by "risking" it in the markets. You are wasting your life for a pittance that can be made easily in the markets. This is how rich people think, its only the lower classes that somehow think they are being paid a fair wage

I dunno about that. Even if you could make consistent gains, most people probably don't have the disposition to trade options long term. It's extraordinarily stressful and definitely a ticket to an early grave. A 200k IT job is a lot easier lol

The wage of the average professional worker cannot be made "easily" in the markets by someone with the wealth of the average professional worker.

There are a lot of people trying to spread the idea that making tons of money off of the stock market is "easy." My guess is that this is in part encouraged by the market makers. Lots of dumb people who think they can get rich off of options make for good arbitrage opportunities.

I believe he's referring to the widely recognized truism where money printer go brrrrr and stonks only go up.

Borrow the maximum you can and invest it. There's very little interest to pay on loans right now and has been for about 13 years now. In the meantime assets have skyrocketed in value. Unless there's a change in policy and a crash is allowed it won't change. Put all the money into old fashion shares and housing. No need to risk it on options or anything like that.

Hindsight shows the stock market has more than doubled in 10years and interest has been at <3% for even small players in that time. Those who borrowed after the 2008 crash needn't work today. Now this is of course hindsight. But the conditions that allowed this to continue for 13 years are still ongoing which is a cause for alarm.

> Borrow the maximum you can and invest it

> Unless there's a change in policy and a crash is allowed it won't change.

And if a crash is allowed, declare bankruptcy, unable to get a mortgage in the foreseeable future and go back to work (with the same income, if you can), right?

I acknowledge the risk and the hindsight. My belief is that with so many playing this game and a precedent of too big to fail any hint at a correction will be met with even more QE to counteract it at this point.

It's a gamble on policy and could go wrong but it does have some thought put into it.

Throwing your whole bank account into call options would be an extremely risky thing to do. But that doesn’t invalidate your point that capital accumulation of wealthy people generally far outweighs any amount of money they would make from their labor. It doesn’t have to be call options though, with enough wealth even interest from T-bills would dwarf a $300k salary.

You are still missing the point. With QE, the call options are far less risky than they look. It has been this way for over a decade. People somehow cant get it into their heads, when the fed prints money, assets go up. Capitalists are having an all you can eat buffet while everyone else thinks the only thing they can do is put 3k into the SPY every month. Its a joke

Yes, in "normal times" of the past decade, when you invest in call options, you are basically being compensated for discounting the risk of a crash at any particular moment.

But there's no free lunch - the risk you are taking is being priced in, but sometimes the actually risky thing does happen.

This line you keep repeating about "only the lower classes" xyz while the "true rich" have some deep wisdom is belied by the fact that rich people become not-so-rich trading options every day.

It's straight out of the "this one trick they don't want you to know about" advertising playbook.

I don’t think I am missing the point. If you had gone all in on call options in Feb 2020 you’d have lost 100% of your money (depending on expiration)

Yep. Source: I'm long TQQQ.

Same. It is hilarious that it is more of an index like investment at this point.

SOXL since April 2020 based on pretty much the same thesis. Imagine how much fun I'm having.

Why buy call options? Why not just buy and hold equities?

Why settle for 20% returns when you can get 500% returns? Only the lower classes are so risk averse. The rich understand that QE essentially strips risk from the markets

You can do the same with levered ETFs or futures, if you want to be levered to the hilt, at least do it with instruments where you don't run the risk of ending up losing everything even if the equities go up.

Because call options are a form of financial leverage, which is how the rich are getting much richer as the fed prints money

Call options are a rubbish way to do this, please don't spread this misinformation. If you want leverage, just buy the futures.

If you are thinking about punting your entire income into options on single stocks, and don't know what you are doing, just stop right there. You can easily lose everything even in a bull market.

Yeah, that's kind of my thought here too. It honestly feels like the only reliable way to make huge stacks of money with calls/puts is knowing stuff that ought to qualify you as an "inside trader".

I bought AMD Jan 2023 $90 options for $13 earlier in the year when AMD was trading ~$80. So the breakeven price is $103 by Jan 2023 which I found not very risky looking at the accelerating EPS growth.

Look how much I'm up by buying close to the money options instead of buying shares at $80: https://i.imgur.com/vYHl1LY.png

This has been depressingly true for my small manufacturing business. Manufacturing revenue is respectable and profitable, but our free money from trading with surplus cash has us absolutely swimming in money.

Of course, it’s really easy for us to borrow money at negative cost. We’re basically making stuff because it’s fun.

Dont disagree with what you said, but why does the system work like that? It happened when we went off the gold standard. The banks now operate in imaginary terms. The reality is that since it's now imaginary, taxation doesnt exist. It can't exist, in fact the government must now give you money/services in excess of the taxation.

If you aren't rich, you have a net negative taxation. The only people who pay taxes are the people who dont pay taxes, they can pass on the taxation cost to others. It's also why there will be a constant anti-taxation pressure. Why the rich will always be getting a tax cut. The not-rich already dont pay taxes or at least receive more than they pay. The only people who can receive cuts are the rich.

The problem is that to avoid taxation, you put your investments into inflationary immune things. Real-estate, markets, bitcoin. Inflation is what pays for everything. Nobody is paying or even balancing budgets anymore. The only limit there will be inflation keeping the percentages in check. Jeff Bezos or Elon Musk arent billionaires, they simply have significant debt holding inflationary immune.

Call options are a bad move to participate in equity upside, unless you are working on single stocks. There's little upside convexity at the index level. This is doubly true for someone who doesn't know how options work. You can easily end up out of the money with your entire option punt and lose everything even though equities go up (just not enough for your bet). Furthermore, the last couple of years the underlying indices realized better risk adjusted returns than almost any option strategy could hope for. If you want leverage, you can just buy the futures.

Probably you are correct. But that illustrates my point even more, I have made absurd amounts of cash by believing in the power of QE and the FED. Its not rocket science, its just accept that the fear mongering of "you are too dumb to use leverage" is false. But I will say, I have had huge returns on QQQ calls. Its working just fine for me to buy LEAPs 10-20% out of the money.

You can certainly make a lot of money on options, but the behavior may be non-obvious to someone who doesn't have experience with them. If you buy a 10% OOM call and the market stays flat, you end up losing the entire investment even though the underlying hasn't moved. Do you know how does that 10% relate to the current implied or realized volatilities, are you actually buying the optimal strikes or have just gotten lucky? If this was just a fraction of your portfolio, then it's no harm done, but if you repeatedly punt your entire portfolio into OOM options, you are running a serious tail risk of being completely wiped out even if the market goes up!

Options absolutely are rocket science. The actual pricing is anything but obvious and requires undergraduate level math. More advanced models require graduate level math and focused study. Yes, making money on stocks is easier than ever, but please for the love of God at least use something like levered ETFs or futures and don't bet the entire farm. The bubble is going to pop. Inflation is picking up, and the moment central banks step off the gas pedal (which they will have to), there's going to be a de-leveraging. Retail will almost always end up holding the bag one way or another.

You can generally get 2-3x leverage with futures or ETFs as well and they are a linear instrument with obvious payoff characteristics. Informed players absolutely know and track the amount of flows that these super leveraged retail traders are injecting. Make no mistake, you are being monitored and trades are being done in anticipation of the flows you'll generate. And once the bubble pops and you are forced to liquidate, you are going to be liquidating at a really bad price.

Again, I understand the risks. I about 15xed my starting principal from bottom in march 2020. My approach is to put all of my eggs in one basket and then watch the basket closely. While your post is rational, I can only say that OOM call buying continues to work out extremely well. And thats the point, it goes against every reasonable investing rule, but works extremely well. In some ways it is the truly rational decision to combat wage debasement (precipitated by asset inflation and fed money printing). The typical profile of what is too risky (OOM call buying), simply no longer applies when there is a FED backstop. People need to understand this, as surely many wealthy people and traders in NYC do.

During the last FED meeting, when they double downed on transitory inflation, it was a heavily dovish outlook. Right then and there I went all in, and made a massive profit. The markets continue to hang on their every word, theres no reason to overthink it, when the FED speaks dovishly, believe them and buy calls.

What specifically are you buying?

When the tide turns you'll get fucked fast following this strategy

Well duh!

Print lots of money

Give it to people who have lots of money (banks)

The rich get richer.

What is so hard to understand about that?

The powers that be decided that an increase in wealth disparity was a price worth paying to keep economic activity happening (that and inflation, interest rates could well balloon over the next decade).

An alternative was to print lots of money and give it to poor people. That would still have cause inflation, but improved wealth disparities.

But the powers that be do not have that sort of power.

> The rich get richer.

It depends on if assets appreciate disproportionally more than wages. Remember that poor people have few assets, so they're not getting left behind any more than if there weren't QE. Also remember that the benchmark is actually if there weren't QE. Suppose covid caused a depression because of a lack of Fed intervention. How would people have fared, then?

I have opinion on this either way. My point is that it's complicated and hard to say.

Really? Wages are spent so to not depreciate.

Those that use debt to buy assets, hence face interest costs, could suffer terribly if interest rates outpace the value of their assets. An asset price crash would burn then badly (as happened in London property market, if memory serves, in the 1990s)

Mortgages in the UK aren't like in the US, even now it's rare to have more than a 5 year fix, meaning you buy a property and, if interest rates go up, and prices crash, you're left on the "standard variable rate" 5 years later, paying 10-15%, leading to repossessions (especially if it happens now after 13 years of 2% mortgages), further dropping prices.

You can't even remortgage onto a new fix if you're unlucky because the crash wipes out your equity, and you owe more than the property is worth, and in the UK you can't even simply hand the keys back.

London average prices went from £80k for an average house price in Jan 1990 and did drop, to £65k by 1992, down 18%. It had recovered to £80k by 1996, and reached £128k by December 1999.

Prices continued to increase until 2008 when they reached a high of £298k in October 2007, before dropping back to £245k, another 18% drop. Prices had recovered to their 2007 peak 5 years later, by April 2012, then continued to inflate up £487k in August 2017, where they've been relatively flat, only increasing 8% in the last 4 years.

Over that 27 year period house prices increased an average 6.5% per year, with most of that 'value' going to those who leveraged their equity and bought properties to rent out in the late 90s and early 00s. That house price inflation wasn't driven from QE though, but from increased ability for people to pay (partly lower interest rates, but mainly because of increased amount of household budget being available to pay rent as more and more families have two full time working professionals, and younger people live in more and more crowded house shares)

I was ten years out by memory!

Thanks for that

It is reasonable to assert that current asset inflation is due to concentration of wealth generally and COVID stimulation specifically.

Generally as the rich get richer they run out of consumption opportunities and must put money somewhere. They buy assets and drive up the prices.

Here (Aotearoa) COVID stimulation was not given to banks, but consumption opportunities for anybody with money have decreased, hence asset inflation.

We can expect a "correction" if history is anything to go by. It could be a crash (like 1929 or 2008) more likely stagnation in prices and inflation in other sectors (as in the 1970s and 1990s here)

Prediction is hard. Especially of the future

Is this a surprise to anyone? It's simple logic/cause-and-effect. The sooner we move away from fiat money and interest based finance, the better.

It is well known that in the future, it won’t matter how many factories (or other hard assets) your nation has.

To succeed, a nation will have citizens that know all TikTok dances by heart and their metaverse avatars own most of the legendary NFT items.

Hence I am confident that the US is on the right path!

It's so sad to see people blame one of the few parts of government still managed by competent people. Blaming the Federal Reserve for things like inflation or wealth inequality is like blaming a cardiac surgeon on side effects of a triple bypass operation. The fault doesn't lie on the expert who needs to resort to increasingly aggressive interventions to maintain some semblance of stability. It lies on the patient to can't help but endlessly gobble pork.

The real "money printing" occurs when Congress decides to fund trillions in spending on debt. The Fed flipping a switch to convert that debt into digital dollars is just something their job obligates them to do. Unlike the government, the private sector can't decide to borrow as much as it likes without impunity. With the government swallowing up a large fraction of the liquidity, in a world without QE, interest rates would skyrocket and the private sector would fall into a downward spiral and we would head straight to another Great Depression.

Well isn't the issue here that The Fed enables the reckless behavior of congress by sterilizing the deficits?

Yes the root cause is the politicians spending tons of money to get re-elected and running up deficits but they shouldn't be able to get away with it and keep kicking the can down the road.

To your last point - of course it's obvious that interest rates are suppressed and if they were allowed to rise it would cause a depression. But if they were not there would be less mal-investment and the zombie companies propped up by debt would soon collapse. It's not that this wouldn't cause pain in the short term but that you can't just eliminate reality and it's going to happen sooner or later. The longer you delay the worse the ultimate recession might be.

> Well isn't the issue here that The Fed enables the reckless behavior of congress by sterilizing the deficits?

Well doctors enable unhealthy people to live unhealthy lifestyles, but nobody blames them for that. They can't just say, "I won't give you blood thinners until you go on a diet." Yes, politicians ought to face consequences, but that is not up to the Fed. It is up to the voters to demand better candidates rather than point their fingers at the Fed.

> It's not that this wouldn't cause pain in the short term but that you can't just eliminate reality and it's going to happen sooner or later.

It worked out during the Great Depression because all of our rival powers were completely destroyed by WWII. We won't be so lucky this time. China is poised to overtake the US as the top superpower if our economy collapses. In a couple decades, this might not be the case, as they will be facing severe demographic problems.

> It worked out during the Great Depression because all of our rival powers were completely destroyed by WWII. We won't be so lucky this time. China is poised to overtake the US as the top superpower if our economy collapses. In a couple decades, this might not be the case, as they will be facing severe demographic problems.

Pretty much, yep

Read the article! This is discussed in detail, in addition to the effects of USD being a global reserve currency. Most of the commenters here appear to have not read the article.

I did skim through the article, and don't have any complaints about it. I'm mainly referring to the survey results where 2/3 of her audience believe that the Fed is the primary cause of wealth inequality. The article does refute this, but you shouldn't be blaming this on monetary policy in the first place.

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