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Comment by mrbombastic | Hacker News Reader

I buy this outline but honest question, was the massive covid stimulus avoidable? I rode a bicycle around NYC during the early days of covid and it was a ghost town, like not a person on the streets in a city of 8 million. On the weekend I took a ride up state for a hike and virtually every business was closed on the way. It seemed inevitable at that point the economic consequences of this were going to be massive and I am kind of amazed it took this long. It feels easy to say these steps got us in this mess but I am wondering what the alternative was?

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> I am wondering what the alternative was?

When an economy stops producing services and goods, somebody is going to need to reduce their consumption of said goods eventually. The question is just, who that is. Another poster above mentioned three ways a government can balance their budget: spending less, raising more, decreasing real value of debt by inflation. Each of those has a target "audience", which suffers the most when pulling that lever.

For inflation (if not combined with compulsory loans), it's the middle class.

Pick your poison.

The trouble is that a large chunk of the media has basically lied about this and told people that no, they'd be able to consume just as much as before if it wasn't for the evil profiteering corporations and the mega-rich stealing from them. They've done things like point to the increase in wealth of the super-rich "during the pandemic" to prove that ordinary people have become poorer because the money they deserve was "siphoned off" (never mind the fact that wealth does not represent services and goods that are available to buy and their measurements conveniently start at the bottom of the pandemic-induced drop in share prices) or run breathless headlines about how profits at grocery stores have doubled and this proves profiteering is responsible for price increases when the profit margins of those companies goes from 1% to 2%.

Fact remains that wealth inequality has increased enormously over the last decades. This is a big economic issue that deserves journalistic coverage.

If you don't want to frame it in terms of "evil" or "profiteering" that's fine.

But this issue is important. The expected consequence of inequality is reduced economic output (in terms of utility). It leads to inefficiency. I feel this is a perspective that's not stressed enough.

Can you elaborate? How does the existence of a rich person somewhere else reduce my economic output?

Growing inequality without growing GDP means you became poorer.

Even if we assuming they magically appeared and you did not become poorer: will never own an asset in your life, they can price you own of a house, land, shares, etc.

> Growing inequality without growing GDP means you became poorer.

For example: Bill Gates comes along with Microsoft, and sells Windows to businesses worldwide, who all benefit. Why is GDP not growing? And even if it magically doesn't grow, how has that made me poorer?

Why are you conflating growth in inequality during the pandemic with entrepreneurship?

Did GDP grow during the pandemic? Did dozens of Bill Gates's spawn?

How did you even get the idea that Bill gates has increaeed inequality? Thousands of people were able to get a well paid job or start a business, inequality probably decreased on average.

Bill Gates increased inequality by having a giant amount of money relative to almost everyone else.

The ideal market maximizes utility production because economic actors expose their utility gain by pricing commodities. The assumption is that price and utility are similar.

But when there is wealth inequality this assumption breaks down. A person with large wealth can offer higher prices for less utility compared to a less wealthy individual.

This biases markets to satisfy wealthy individuals, overall reducing total utility production.

This is too simple, and misleading, as it leaves out tiered pricing.

A slightly better seat on an airplane is 10x the price of economy seats. Without those seats, economy seats would cost much more each.

A slightly better car spec is 2x the price of the base model. Without the better spec model, the base model would cost much more.

Additionally, just the development of new technology is often for the wealthy first, as it's prohibitively expensive, and then as manufacturing techniques work out the tech filters to a large group of people. E.g. Tesla cars; computers; pretty much everything, really.

Is your point that wealthy people subsidize air travel by paying relatively more for the space on the plane?

That's a perfect example of when inequality biases a market to produce suboptimal outcomes.

Why?

Because if people wouldn't be willing to spend to pay the cost of an airplane ticket in perfect market conditions, then them not buying a ticket is the optimal allocation of resources.

If they then buy a ticket in current market conditions, that's an example of a suboptimal allocation of resources.

Same goes for the car example.

> Because if people wouldn't be willing to spend to pay the cost of an airplane ticket in perfect market conditions, then them not buying a ticket is the optimal allocation of resources.

Sorry, you've lost me. How do you define perfect market conditions?

It's a common concept in economic theory: https://en.m.wikipedia.org/wiki/Perfect_competition

It requires a bunch of idealizing conditions that never holds in practice. But it's still useful to study what effects deviations from perfect competition has on efficiency.

Think about it like this: subsidies lets you buy something you don't actually want, that's inefficient.

For subsidies to make sense, they need to compensate some other deviation from perfect competition. For example, it can make sense to subsidize green energy because fossile fuels has external costs not accounted for by the market.

But the fact that a rich individual is willing to pay your air ticket is not a good reason to subsidize something.

An intuitive example: A rich guy enters a bar and yells "free ice cream for everyone!". That's nice. But if the same cash were distributed among the guests, some would've gotten beers and some wine. But when faced with the choice "pay for beer or get free ice cream" everyone choose ice cream despite that being a suboptimal allocation of resources.

Thanks for elaborating. It seems now I don't understand your definition of efficiency. People choosing free ice cream over costly beer doesn't strike me as a loss of efficiency.

"Efficiency" is total Utility produced with the available resources.

> People choosing free ice cream over expensive beer doesn't strike me as inefficient.

But it is!

With the total available resources we have two options:

All get beer. Or all get ice cream.

Total utility (value/happiness/whatever) is maximized when everyone gets beer.

When resources are unevenly distributed, ice cream is subsidized, and all get ice cream.

When resources are evenly distributed everyone can make the choice themselves, and they get beer.

Clearly "resources evenly distributed" had the better outcome.

Ah! I understand. I agree that if you do that once, it works one time. But as soon as you take the money they all gave to the bartender and redistribute it, to maximise happiness, and they all buy more beer, you might start to spot where this falls down as a useful model, mightn't you?

I haven't said anything about redistributing wealth.

The point is not that redistribution is a good idea. The point is that wealth inequality makes the economy less efficient, and that it is something we should take into consideration.

Redistributing wealth might also make the economy less efficient, that's an argument that can be made.

From where I stand, it seems the inefficiency caused by wealth inequality is too rarely discussed relative to its harmful impact.

The problems caused by redistribution/taxes etc. are otoh extremely often raised.

Fair point - you didn't mention redistribution.

But I do think your argument of efficiency is not persuasive, as the definition of utility relies on people making choices they never regret, or that don't harm their total lifetime utility.

E.g. some people might want to take that money and save it, and if you come back to the situation in a year's time they now have more money than the people that bought beer. Now there's wealth inequality and they can buy something the others can't. Viewing the original situation in microcosm makes buying beer the "efficient" thing to do, but it also makes the second scenario less "efficient".

Do you know where media does the same? In Argentina. Blaming businessman for inflation is very common here.

> The trouble is that a large chunk of the media has basically lied about this and told people that no, they'd be able to consume just as much as before if it wasn't for the evil profiteering corporations and the mega-rich stealing from them

Not a lie at all, corporate profits are the largest driving factor behind inflation over the past couple of years:

https://www.epi.org/blog/corporate-profits-have-contributed-...

Corporations are always greedy and always trying to maximize the amount of money they can get for their goods and services. This has been true since forever.

Corporations raising prices is a response to inflation, not the cause of it.

When the levy breaks and the town floods, don't blame the river for being a river. Blame the engineers that built the levy.

> Corporations raising prices is a response to inflation, not the cause of it.

Sorry, that's wrong. Corporations are taking advantage of the perception of supply chain disruptions to excuse price gouging. Supply chain shortages led to a 1-2% bump in inflation pushing it to 3-4%. Corporations then bumped prices 3-4% which raised inflation even more, pushing it to 7-9%.

If corporations were raising prices in response to increases in costs, their profits would remain flat or only slightly increase. That's not what the data shows.

And for raising more its usually also the middle class. Generally, middle class is a convenient target.

What you are describing are the real physical consequences of a global pandemic.

What is QE? How can financial stimulus limit the physical consequences of businesses closing?

QE can only redistribute wealth. This is an axiom. If we are lucky/played our cards well, this redistribution results in a more efficient economy overall. For example, because it alleviates overly risk adverse behavior by market actors.

However, QE also reduces market efficiency by polluting the price signal. For example, by increasing wealth inequality.

I feel this is a common misunderstanding. QE is treated like some magic wand to improve economic measures such as stock market valuations and profits.

When the fed/gov uses tools like quantitative easing it should be obligatory for journalists to ask: "Why do you think this redistribution of wealth results in net positive impact on the economy?".

Probably not. The size of the QE has been too big, and more mistakes have been made but that's only natural. What annoys me is the fact that the CB's feel the need to keep lying about this. The whole sticking "transitory" story, while no one in their right mind thought the inflation was transitory (at least for a short period) is the best example but there are many more. You simply can't shut down the economy for months without having a recession.

Put a shield around the most vulnerable and their carers, until there was a vaccine for them and leave everyone else, especially the young, to continue their lives as normal.

Easily said now, however.

Can't see that as ever working.

There'd be no practical way to shield the vulnerable or the carers and beyond that if it's left to run rampant in the wider population eventually the medical system is overwhelmed and collapses.

> There'd be no practical way to shield the vulnerable or the carers

The shielding system was an official policy in the UK

https://www.local.gov.uk/sites/default/files/documents/SHIEL...

> left to run rampant in the wider population eventually the medical system is overwhelmed and collapses.

The risk of hospitalisation was low around the 30s and younger.

> The shielding system was an official policy in the UK

Yeah, it still didn't and doesn't work though. Carers will have families, they'll have children in school, they'll potentially have more than one job. You can't shield the "carers" so you can't shield the vulnerable outside of a wider scale lockdown. Lockdown was the only thing that stopped case numbers going up till the vaccine came along.

> The risk of hospitalisation was low around the 30s and younger.

The average age in the UK is 40. So pretty much half the population would need to completely isolate from the other half while the younger half lived their lives as normal.

yeah, not going to happen.

> Lockdown was the only thing that stopped case numbers going up till the vaccine came along.

Really? The graphs I have seen show cases declining even before lockdowns were imposed.

> The average age in the UK is 40. So pretty much half the population would need to completely isolate from the other half while the younger half lived their lives as normal.

The advice would have been the same, work from homes where possible. There was already the concept of "bubbles".

> Really? The graphs I have seen show cases declining even before lockdowns were imposed.

Likely because people were voluntarily locking down.

Unless you deal with schools, there are no "bubbles" or not ones that really work. Do you send teachers into schools who are in the vulnerable group? Or do you close the schools? If you close the schools you may as well do a full lockdown because so many people will have to be at home to look after their children.

The idea you can lockdown half the population by age just doesn't work because society doesn't separate itself out neatly by age.

The age of 40 is interesting - is it from the Economist's model[0]? I don't know how accurate it is, but I would say comorbidities look a lot more serious than a general age-based approach.

[0] https://www.economist.com/graphic-detail/2021/03/13/our-covi...

People always point to "comorbidities" but many of the comorbidities in covid's case were things like "being overweight", you know, most of the population?

I'm not sure how globally applicable that point is, although it could be. Do you have a link to any stats? How do you define "overweight"?

Most wealthy countries are getting fat, and non wealthy countries have tons of other fun things that are common but would be considered "comorbidities" like parasites, or asthma (including pollution induced asthma)

Sure, but did you have a look at the infographic? It's quite helpful in telling you what it considers comorbidities.

And the UK had one of the highest COVID death rates in first world countries.

It's approximately what Sweden did. By most accounts, it worked better than what it's neighbors did (which more closely resembles what most states in the US did).

Peasants have unemployment insurance. If government is supposed to pay something on top of it, why do we even have unemployment benefits to begin with?

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