Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

Does QE Cause Wealth Inequality?

lynalden.com

Post reply on HN
Print view View original

271–280 of 287 posts

Re: Does QE Cause Wealth Inequality?

#271

Post by raxxorrax »

WalterBright wrote: post #98

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.

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.

Re: Does QE Cause Wealth Inequality?

#272

Post by sokoloff »

MisterMower wrote: post #264
sokoloff wrote: post #249

Earlier quoted context omitted.

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 stil…

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 b…

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...

Re: Does QE Cause Wealth Inequality?

#273

Post by imtringued »

MisterMower wrote: post #263
wussboy wrote: post #179

Earlier quoted context omitted.

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

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.

Re: Does QE Cause Wealth Inequality?

#274

Post by imtringued »

kranke155 wrote: post #45
88913527 wrote: post #29

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 remai…

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

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

Re: Does QE Cause Wealth Inequality?

#275

Post by imtringued »

RussianCow wrote: post #74
spamizbad wrote: post #21

Earlier quoted context omitted.

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 the…

> 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 m…

>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.

Re: Does QE Cause Wealth Inequality?

#276

Post by imtringued »

CuriousSkeptic wrote: post #181
Ericson2314 wrote: post #125

Earlier quoted context omitted.

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 inter…

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

I hope you mean yearly.

Re: Does QE Cause Wealth Inequality?

#277

Post by imtringued »

MisterMower wrote: post #265
whimsicalism wrote: post #64

Earlier quoted context omitted.

> 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.

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.

Re: Does QE Cause Wealth Inequality?

#278

Post by Clubber »

salawat wrote: post #237
whimsicalism wrote: post #162

Earlier quoted context omitted.

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.

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 thi…

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.

Re: Does QE Cause Wealth Inequality?

#279

Post by ed25519FUUU »

fdgsdfogijq wrote: post #246
short_sells_poo wrote: post #130

Earlier quoted context omitted.

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…

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 dec…

What specifically are you buying?

Re: Does QE Cause Wealth Inequality?

#280

Post by njarboe »

Ericson2314 wrote: post #182
njarboe wrote: post #175

Earlier quoted context omitted.

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.

Post reply on HN