Earlier quoted context omitted.
My monetary economics professor in grad school was teaching a paper and told us that when the authors claim it's obvious, that means it's not obvious. So he wrote out the derivation over the weekend and gave us a four-page, single-spaced handout with all the equations behind that single "obvious" result.
This is way off topic but hopefully it will get allowed because I think you have the expertise to help: It seems to me that the widely accepted practice of market stimulation by interest rate intervention has the cost of destroying price discovery. Also, that it is a primary cause of wealth inequality. These relationships seem to me actually obvious: push down DCF denominators and valuations go up, inefficient busine…
* https://www.themoneyillusion.com/the-league-of-monetary-cran...
* https://www.themoneyillusion.com/mishkins-revealing-omission...
His blog is great. Mainstream, orthodox macroeconomics. Well written, useful, and entertaining. Read the whole thing, in chronological order:
* https://www.themoneyillusion.com/page/932/
I graduated with a B average in economics, so I can't address this head on, but here's my understanding of the mainstream perspective:
1. Never reason from a price change: Prices go up, therefore people buy less? To the contrary, this begs the question of, why did prices go up? The causation is backwards: demand goes up, and then prices respond.
2. For example: "Low interest rates are generally a sign that money has been tight, as in Japan; high interest rates, that money has been easy." -Milton Friedman. The demand for money goes up (for whatever reason), the fed responds by increasing the supply of money, then interest rates fall.
3. Interest rates and inflation are nominal, thus don't impact relative prices (ie price discovery). Deflation/hyperinflation do have real effects though.
4. High/low, easy/tight is relative to market expectations. Successfully targeting the interest rate (or NGDP/aggregate demand) isn't market "stimulation" but keeping things on track, in a do no harm manner. And deviating does harm (ie business cycles).
5. Mainstream macro says money is neutral in the long run, non neutral in the short run. This might be what you're looking for: the effect of short term non neutrality of money on relative prices across the overall economy.
So, if the downward pressure on DCF denominators is an economy wide phenomenon (ie inflation), then it's still the same say top 10% of businesses that survive. The missing link for me is: what's pushing up the value of inefficient businesses more than efficient businesses (or apples)? What distorts prices specifically and systematically in favor of inefficient businesses, vs. against or randomly/unpredictably?
Now, let me go off the rails a bit re: wealth inequality. I think it's mostly just technology. There's just more and more stuff every year, and that sort of accretion, mix and stir with meritocracy, kleptocracy, plain old statistical randomness, network effects, what-have-you, lead to not just more wealth inequality, but inequality in general, and really just more overall diversity.
The space of possibilities is just expanding at an incredible rate, together with the population, so there's a lot more room. And, I think it's natural for the distribution of people to be diffuse across the space. And, more people across a wider space, it's harder to consolidate, especially upward (eg Mao moved us in the wrong direction). Markets + technology do bring up the floor (hunger, shelter, etc), but we're still a ways off from the floor or the ceiling hitting our biological limits, ie post scarcity a la Iain M Banks' The Culture.