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> The purpose of stimulus was to prevent those from looking even worse and causing more permanent damage to the economy. In that regard it's been a huge success; somewhere above, Keynes is smiling. In exchange for that we've got only 5%ish inflation, driven partly by a newly-tight labour market in which people can actually negotiate incomes upward, and partly by a big spike in natural gas prices? I would absolutely take it.

Me too. I would take that deal again.

As I recall, for a few weeks in early-to-mid 2020, the world was in the grip of fear, consumers everywhere had drastically cut their spending, and businesses everywhere were in free fall. Government intervention stopped the free fall. I know of several small and midsize businesses that briefly considered Chapter 11 and of one billionaire who had his lawyers draft personal bankruptcy filings during those few weeks. Every CEO and business founder I know took out a PPP loan -- and no one repaid it. The moment government money started flowing, everyone changed their tune. I'm 100% sure that, had it not been for all that government intervention (fiscal and monetary), we would be in the throes of a horrific Great Depression right now.

That said, I think there will likely be two significant costs to all the "mopping up" to be done by central banks (stopping their purchases of government bonds to replace holdings that mature, reducing the pool of capital available for buying government bonds, and raising rates): (1) asset prices are likely to decline, perhaps significantly (that is what has happened in other periods of voluntary/involuntary monetary tightening throughout history), and (2) we will likely have to suffer through a normal recession -- much better than a Great Depression, but still, not fun.

I would take inflation that can be managed over the alternative that could have happened had the government not intervened. However and if I understood things correctly, it appears that banks, financial entities and ultra rich individuals got money absolutely for free; no strings attached. The rest of the population got stimulus checks , asset prices appreciation followed by inflation which will eventually eat away any appreciation at best if not do more damage. I don’t think society will appreciate this deal in the long run. Desperate politicians and ideologues will exploit this imbalance.

> banks, financial entities and ultra rich individuals got money absolutely for free

[citation needed]: please distinguish between gifts and loans, bearing in mind that a loan written off other than in bankruptcy can be counted as a gift.

There is a big problem that most of the consumer spending goes through Jeff Bezos who gets to keep a percentage of it, but that's not the same as directly giving him money, and happens regardless of the stimulus or not.

That's a very simplistic (and ideological) view.

World's leading country in inflation, Venezuela, has terrible wages.

Inflation makes people overworked, by forcing them so sell under fair price. Wages are sticky, prices are not.

That salaries are picking up doesn't mean real salaries have improved. They have not.

Be careful. There's a big difference in impact of modest inflation like in the US at the moment vs hyperinflation.

The Fed handled the monetary side of the pandemic reasonably well. Inflation overshot a bit, yes. But it's far cry compared to when they caused a slowdown in the housing market to become the Great Recession in 2008-ish.

Yes, it's exactly the same but different speeds.

People with savings and salaries got a nice 7% wealth tax this year

The government, with it's massive 20 trillion dollar debt, got a nice 7% write down on the debt, so they can quickly spend this voucher again in a matter of weeks.

As someone with student loans and a mortgage, I got a 7% write down but a 18% pay bump this year! Hope I get it for several more years to come

No, it's just the Philips curve: https://www.khanacademy.org/economics-finance-domain/macroec... ; understanding and using that is how Western central banks have tamed inflation and reduced the impact of the business cycle.

Venezuela (and almost all the classic hyperinflation cases) are forex crises. You can't print foreign currency, which you need to buy goods on the international market; and the collapse by mismanagement of Venuela's oil industry and any other export industries means that the currency is just going to keep devaluing as the trade fails to balance.

> That salaries are picking up doesn't mean real salaries have improved.

It is however a necessary condition for real salaries to improve that nominal salaries improve. Which needs a tight labour market.

> driven partly by a newly-tight labour market in which people can actually negotiate incomes upward

This is the big point I think the title article is missing. And I think its going to take some time for the bubble to pop, they tend to be self-sustaining, but it may shift its focus off of Peloton and the winners early in the pandemic. I wouldn't bet against TSLA right now.

There's likely to be another boom later this year as Omicron goes away (even if we get another wave later) driven by positive emotions. Right now all the animal spirits are maximally negative and they're pretty poised for a reversal.

The Fed also won't act sharply enough to spike unemployment this year.

I agree they had to spend the money to prevent a depression. I don’t think anyone is here contesting the amount of money unleashed. However, I am really disappointed with where that money went. It went into “non-productive” assets and activities.

I contest the amount: it was excessive.

I’m confused what you mean by non-productive in this sense. In my country, the vast majority of aid money was in the form of massive “loans” to companies that were later forgiven presumably to avoid them going under/bankrupt.

A lot of money in the US went to businesses through the PPP and similar programs. That was mostly a good thing as far as keeping businesses from closing or laying off workers. But I think pumping up non-productive assets was the second-order effect, where tons of stimulus money that people didn’t need immediately got dumped into speculative stocks, real estate, etc. the alternative would have been keeping it in savings accounts earning 0.01% while you saw all your friends “getting rich” YOLOing on meme stocks.

Non productive would be referring to stimulus checks and child tax credit money in the US, you will hear stories about families making 10-15k and using it for Disney trips, all that did was incentivize not working and paying of people that made the decision to have to many kids. It’s also caused the bottom of he job market to see increased pay while the middle and upper markets get pay decreases in the form on inflation. All in all not worth it IMO.

My understanding was that the stimulus checks and child tax credit were not remotely a majority of the money spent; that most of it went to corporations.

Bolstering the bottom of the distribution in advance of inflation/recession seems like an amazing outcome to me.

My problem is - there are sooooo many things that need done in this country.

I am not sure why everyone thinks it is cruel and unusual punishment to ask people to do some of those things that need done (burying power lines in cities, as one example) in exchange for money.

Why is it so barbaric to give people a job? Theoretically, there are plenty of low-skilled workers that could've been trained to do needed skilled work during this time - instead of waiting 3 months for low-skilled labor demand to pick back up.

Now - for the rest of their lives - they could be high skilled laborers. Instead, we paid people to just wait.

I agree that it was better than doing nothing.

Agreed. We desperately need a few large scale public projects. But the country (US) is so divided that no one’s going to agree to anything that selectively benefits one region over another.

Our large scale public projects always seem to end up being villified due to massive overuns, nepotism, embezzlement, and at best mismanagement. It typically benefits one small area too. If we want public opinion to change on these efforts, we need to change the track record to build trust for bigger and bigger projects.

It's hard to argue that the space program was only good for Florida.

Or that the Manhattan Project was only good for New Mexico and Washington.

You are right to point out that MIC related projects like those helped society. And so did the internet, obviously. But infrastructure projects like the big dig are far more common at various scales across the US. Typically they increase the value of land owned by sponsors or relatives of sponsors of the effort, or hire a series of contractors with relationships to the sponsor.

Considering that the Big Dig was financed on super low interest rates - my understanding mostly in ~2000-2004 dollars (which have turned into $0.5 or less and are headed lower) - it really wasn't THAT bad of a deal.

It'll cost ~$21Bn total with financing - but that goes until 2038: https://www.google.com/amp/s/www.boston.com/uncategorized/no...

That comes out to ~$500M a year - which sounds absurd - but that pretty massively benefits ~500k+ people per year. That's ~$1000 per person per year - which still sounds absurd - until you factor in that half of that will be paid in $0.5 and a quarter of that might be paid in $0.25 or less.

And then when you factor in that that monstrous highway is gone forever, and Boston will likely be around much longer than another ~20 years - it honestly doesn't sound like a bad deal.

NYC's second avenue subway - at ~$3Bn per stop - if each stop increases ridership by ~30k people - which generates ~$48M per year in revenue, which is theoretically ~30% less than the ongoing maintenance cost (https://media4.manhattan-institute.org/sites/default/files/f...) - is pretty similar.

IIUC - currently MTA runs at loss of about $7 per month per resident. That seems like an absolute bargain even for people who don't take the train. The reduction in traffic and cars should be worth way more than that to most people in NYC.

Conceptually, I agree with you - but the reality is that many of the skilled jobs you describe take a long time to get trained. Power line technician is a 4 year apprenticeship.

Lack of state capacity, really: there is no way that level of labor mobilization could have happened, and people would have screamed about it every step of the way. The US absolutely hates anything that looks like government expansion, unless it has camo on it.

I suppose it could have been the 1037th Non-Combat Plumber Division and everyone would have been fine with that.

This isn't far fetched.

Militaries in other countries are evolving to do more public works and less defense / offense.

A lot of the infrastructure to facilitate it (the hiring, training, coordination, etc) is there.

> to prevent those from looking even worse and causing more permanent damage to the economy.

What makes you think that temporary measures will avoid a permanent impact on the economy ? These measures only delayed the impact.

Keeping people out of unemployment is good. Longer spells of unemployment make skills 'rust'.

inflation is 7%ish, not 5%ish. but generally translates to much higher cost of living increases for the middle class

And massive payrises to boot

For those able to change jobs or find jobs in the <1yr window yes, for the rest, pay adjustment largely didn't meet inflation, so they got a pay cut. And those that were saving to buy a house or car saw the price of those things shoot away from their efforts while those savings lost value. I also worry that those who took jobs for massive raises will be on shakey ground afterwards. And those that hired in before or after resenting them for it.

And a large drop in the real value of outstanding debts, which is great for the mortgage-holding, non-credit-extending middle class

I don't really buy inflation at 7%. If you drill into the numbers it's mostly (1) energy prices returning to pre-covid levels and (2) huge increases in new & used cars due to chip shortages. The rest of the numbers are a more pedestrian 2-4%

Unemployment would have fallen regardless, because the April 2020 spike was 100% triggered by politicians ruling activity restrictions

As soon as the restrictions were lifted, companies started hiring again

It was never ever ever a demand problem, only of supply.

Unfortunately, people are too ideological and blind to diagnose issues correctly.

Your assertion assumes that demand would not have contracted in April 2020 absent government intervention, which seems suspect. Unless you believe no one would have adopted any pandemic precautions absent activity restrictions, thereby averting any demand drop in, say, the entertainment and hospitality sectors.

Demand reflects consumption opportunities

People kept receiving salaries, and unemployment benefits. So financial position and income of families was always strong

There's no precautionary savings cycle.. People engaged in financial risk taking by buying houses like never before

> People kept receiving salaries, and unemployment benefits. So financial position and income of families was always strong

I'm confused; weren't you arguing above that unemployment concerns shouldn't have motivated government spending because the drop in demand was artificial? You can't bolster that position by saying that the demand stayed strong because of unemployment benefits and salaries that went out despite people staying home; those spending categories (PPP loans and enhanced unemployment benefits) were a government subsidy to keep demand from cratering.

> There's no precautionary savings cycle.. People engaged in financial risk taking

The personal savings rate tripled in early 2020: https://fred.stlouisfed.org/series/PSAVERT

Monetary stimulus went pretty well, and it's essentially free and reversible. Fiscal stimulus was a waste of real resources.

Fiscal tightening doesn't do anything about inflation. See eg the fiscal cliff of 2013 for an example.

Monetary and fiscal are largely equivalent

specially when the central bank has the tendency to print money to buy government debt, so public solvency is never an issue

You can easily reverse monetary stimulus: just sell those assets that the central bank bought.

You can't really reverse fiscal stimulus. Once you paid people to dig holes and cover them again, you can't really get that money back.

Yes, public solvency is not an issue for governments that borrow in their own currency. But that's a separate concern.

> Once you paid people to dig holes and cover them again, you can't really get that money back.

That doesn't matter though? If someone's unemployed, their labor is wasted, and you can't get it back. The money spent is not destroyed, it re-enters the economy when the workers you gave it to immediately spend it, and comes back to the government when they pay income or sales tax.

You can reverse fiscal stimulus by putting up taxes.

> The money spent is not destroyed, it re-enters the economy when the workers you gave it to immediately spend it, and comes back to the government when they pay income or sales tax.

Be careful to keep the nominal and the real separate.

Destroying money is great! The Fed can just print more to make up the difference.

Equivalently buying stuff from China, and China hoarding the money they got forever is great, too. You got stuff, and the Chinese only got some database entries.

> If someone's unemployed, their labor is wasted, and you can't get it back.

Yes. (Though the leisure they enjoy isn't necessarily completely worthless. But let's ignore that for now.)

And we find that in general the private sector makes more productive use of people's labour (in real terms). Especially when compared not to the day-to-day running of existing civil servants, but to make-work schemes.

The Fed 'printing' money increases private sector spending and private sector employment.

> You can reverse fiscal stimulus by putting up taxes.

Taxes don't remove the money from the hands of the people you paid to dig the holes and cover them up again.

More importantly: taxes have substantial deadweight losses. Taxes cause real productivity losses.

(Just to be clear: I'm all in favour of financing the government from taxes that have low or zero deadweight losses, like property taxes or land value taxes.)

Selling assets from the central bank balance sheet on the open market has no deadweight losses.

> You can easily reverse monetary stimulus: just sell those assets that the central bank bought.

You can do that.... but watch the markets tumble and the interest rates skyrocket... and the politicians and bankers panic!

Maybe, but that's a different issue.

Seems the opposite to me, especially when if you add post-2010 to the data set:

There was hardy any useful stimulus in the US post-2008 because Obama (D) was in the Whitehouse and the GOP-controlled Congress didn't want to help him out. So it was mostly just monetary policy (Fed) that did things, and it was a long slog of pain to get unemployment down and get the economy going.

With COVID we had monetary policy (as before) but also fiscal policy (Treasury), and I think that fewer people suffered economically. Especially since the Fed can only work 'internal' to the financial system, but it takes the Treasury to get cheques-in-hands.

(Certainly the two scenarios are not directly compatible, but it seems obvious to me that fiscal can have more direct impact on regular people's lives, e.g., average savings rate increased.)

The 2008-ish recession saw the Fed pay banks to keep money off the market. No wonder that economic activity remained sluggish.

For the 2020 recession, you had the Fed drop reserve requirements for bank, and move to average inflation targeting, and in general move much more aggressively.

See also Japan: since the 1990s they had a long history of fiscal stimulus and monetary tightness. When Abe came to power a few years ago, he loosened monetary policy, and the Japanese nominal GDP started to grow again.

And unloading treasury held securities.