Fed Ends Zero-Rate Era • Hacker News Board

Re: Fed Ends Zero-Rate Era

#341

Post by brc » Thu, Dec 17, 2015, 11:06 AM UTC

RobertoG wrote: post #339

brc wrote: post #114

Earlier quoted context omitted.

Consumer demand is meaningless. Trying to push it is like trying to push a string. Demand is an artefact of production. Unless your economy is producing, you won't increase quality of life and wealth for all citizens. This point is obvious, but gets completely lost in all the frenzy around 'stimulating demand'. To buy something, first you have to produce something worthy of exchange. Everyone has to start from this p…

Why would you produce something for what there is not demand? Is not this the first lesson for start ups? searching for a market-product fit? Do you agree that the goal of a business is profit? Ergo, is the prediction of profits what create production. This is the core of the capitalist system, isn't it? If a business don't see profit in its future, the rational thing to do is decrease production and, more important,…

I don't think you understand my point.

I'll reiterate: 'To buy something, first you have to produce something worthy of exchange'.

To understand this, don't immediately jump to the business level, think of it at the individual level. If I want to buy something, first I have to produce something worthwhile, so I can exchange that thing for the other. It's unlikely that the exchange is going to be direct (barter) and it will take place using the medium of currency.

I think your understanding of demand is slightly askew from the economic definition of demand.

Entrepreneurism is precisely what you have described - the creation of new products where future consumption is uncertain. It is vitally important as an agent of change in any economy - and incidentally is the first victim to central planning.

But that is incidental to the issue of requiring production before consumption. If I want something, first I have to make/do something which has value for someone else, then they can trade the thing that they made/did and that I value. We are both better off, wealth has grown. The issue here is that people think that just giving currency to one of us so we buy the thing off the other is the key to growth. When it is patently obvious that 'stimulating demand' by giving someone money can't possibly grow wealth (and the economy in the same way).

Re: Fed Ends Zero-Rate Era

#342

Post by brc » Thu, Dec 17, 2015, 11:19 AM UTC

SapphireSun wrote: post #334

brc wrote: post #256

Earlier quoted context omitted.

Well, that's still not true. Savings are put to use by investing - either by the saver or someone else on their behalf (capital markets/banks). The savings further production by being used by someone else. Keynes had to kill the idea that production is the foundation of growth in an economy. He did this by implanting the idea that production is irrelevant, all you needed as spending (the fantasy of aggregate demand).…

Hmm, I think you're mostly right, but here's the thing. If you put consumer money in the bank, then it goes to investment in additional production. Loans to businesses allow them to staff up and/or purchase capital equipment. However, if in the aggregate, the base consumer purchasers don't have any cash, they won't be buying things from those businesses. What you are saying sounds so easy, but if it were, there would…

I don't think recessions can be avoided. Irrational actions and malinvestment by unskilled capital allocators virtually guarantees ups and downs in industries. Fiat currencies with fixed pricing (centrally set interest rates) exacerbate the problem by allowing mispricing of money leading to misallocation of resources. My belief is that the approach of fixing interest rates leads to overswings in the business cycle which are bigger than otherwise would be.

The issue is you'd have to - and get everyone else to - understand that periods of high interest rates and periods of low wages would periodically happen. But people expect wages to never fall and are conditioned to fixed interest rates. As lowering wages is unacceptable the solution is to cut positions, which arguably makes things worse as no job is worse than a lower payment on an existing job. So we are doomed to business cycles for the foreseeable future.

The key thing I believe most people miss is that they believe that 'economic stimulus' in terms of under priced interest rates, government borrowing and foolish spending and other tricks comes at no cost. But there is a very real cost, and that is misallocated production - building value-destroying 'bridges to nowhere' and burdening of future income with excess taxation to repay debt.

There are those who say that a sclerotic economy - such as most countries have had for going on 7 years now - is better than a short, sharp contraction. You can compare the experiences of Japan - flat growth for two decades - or countries like Estonia and Latvia which had massive contractions but bounced back to strong growth relatively quickly. How much that impacts the safety and stability of society may be related to social cohesion and personal savings.

Probably the best answer is that governments keep a rainy-day-fund, and when credit contracts due to external shocks, the government gives a temporary tax receipts holiday and spends the savings. Such a strategy would allow people to have confidence going into an economic contraction but wouldn't indebt the government to the future. But it is fantasy-land to expect any politician to design such a scheme and resist the temptation to raid it for votes.

Re: Fed Ends Zero-Rate Era

#343

Post by RobertoG » Thu, Dec 17, 2015, 11:31 AM UTC

brc wrote: post #341

RobertoG wrote: post #339

Earlier quoted context omitted.

Why would you produce something for what there is not demand? Is not this the first lesson for start ups? searching for a market-product fit? Do you agree that the goal of a business is profit? Ergo, is the prediction of profits what create production. This is the core of the capitalist system, isn't it? If a business don't see profit in its future, the rational thing to do is decrease production and, more important,…

I don't think you understand my point. I'll reiterate: 'To buy something, first you have to produce something worthy of exchange'. To understand this, don't immediately jump to the business level, think of it at the individual level. If I want to buy something, first I have to produce something worthwhile, so I can exchange that thing for the other. It's unlikely that the exchange is going to be direct (barter) and i…

"When it is patently obvious that 'stimulating demand' by giving someone money can't possibly grow wealth"

But this is not the claim. The claim is somebody trying to buy something with money create demand. We all agree that money is different of real wealth.

Even in an alleged two persons barter economy I could buy from you with a promise of something in the future. If the promise is good enough you could even start producing more.

And this is not even the correct framework, because what we are talking are systemic problems in modern economies that don't map well to hypothetical two persons barter economies.

Re: Fed Ends Zero-Rate Era

#344

Post by crdoconnor » Thu, Dec 17, 2015, 1:33 PM UTC

canicode wrote: post #322

crdoconnor wrote: post #244

Earlier quoted context omitted.

I'm not at all concerned about economists who are "for" or "against" the minimum wage. They can hold whatever opinions they want if they don't lie. It's the economists who poorly design studies with the intent of demonstrating that it either causes prices to rise uncontrollably (which it doesn't), causes unemployment to rise (which it also doesn't) and who pointedly never, ever, ever look at the effect it has on prof…

Please read this: https://www.reddit.com/r/explainlikeimfive/comments/3ulzdy/e... Raising the minimum wage WILL increase unemployment. That's Economics 101. Companies are going to find ways to fire people, or give them fewer hours. Raising the minimum wage to something like $15 would be ludicrous.

Econ 101 is "look at what happened in Australia". The commenter addresses that actually but his response is really lame. "Things are just different there". Uh huh.

Actually this is pretty much a model for what would happen to McDonalds in the US:

http://uk.businessinsider.com/mcdonalds-in-australia-vs-amer...

Re: Fed Ends Zero-Rate Era

#345

Post by cheald » Thu, Dec 17, 2015, 2:11 PM UTC

dsr_ wrote: post #50

roymurdock wrote: post #28

Fed raising interest rates 0.25% and setting a goal of "normal" 2% by 2018 means little to nothing. Market already priced the miniscule rate hike in as the move was widely expected, and move did nothing to assure markets that the Fed is in control, or set credible, measurable goals for future hikes. Fed can continue to push on the supply side of money at the bank/institutional level all it wants. We need the Federal…

If you want to stimulate aggregate demand at the consumer level, you need more people to have good jobs, so they can make money, so they can spend money. This would represent a reversal of the trend since 1970 towards greater income inequality. It is not clear to me that anyone is doing anything about that (except, of course, in the negative sense.)

Income equality has jack-all to do with absolute income levels. The richest getting richer at a pace greater than others doesn't mean that others aren't making money. Real income is up for all quintiles since the 1970s, as are consumption expenditures. Real income is up quite a lot more for the upper quintiles, but since we don't operate in a zero-sum economy, that doesn't require that it be down for other people.

Re: Fed Ends Zero-Rate Era

#346

Post by [deleted] » Thu, Dec 17, 2015, 3:21 PM UTC

someguydave wrote: post #309

eli wrote: post #133

Earlier quoted context omitted.

That seems like something that reasonable people could disagree about.

I'm not so sure. Wouldn't the principal-agent problem ( https://en.wikipedia.org/wiki/Principal%E2%80%93agent_proble... ) cause one to think that government spending is going to yield fewer returns than private investment?

[deleted]

Re: Fed Ends Zero-Rate Era

#347

Post by crdoconnor » Thu, Dec 17, 2015, 3:24 PM UTC

canicode wrote: post #323

crdoconnor wrote: post #320

Earlier quoted context omitted.

It hits profits first and hardest. Raise it significantly and it also causes prices to rise. Raise it to stupendous levels (in the US probably > $40-50 hr) and it eventually causes unemployment. Realistically speaking, though, most arguments are over minimum wage hikes that only affect profits and won't even have a minimal effect on prices. $10 -> $12 isn't even going to cause prices to rise, let alone have an effect…

If something is going to have an effect on profits, you can bet on the fact that a company will fight against it, hard. Because SHOCKER the point of a business is to generate PROFITS . I think you're wrong in thinking that businesses will just give up, and take lower profits. No. They're going to cut hours, fire anyone they can, etc. to maintain their existing profit levels.

If you have a laser like focus on maximizing profit (and supposedly most businesses do), you've already fired everybody you can and cut all the hours you're able to already.

But no, they don't just sit there and take it. They pile money into think tanks and advertising campaigns in order to try to sway public opinion (see above).

One of my favorite tactics is when they pretend that robots that do minimum wage jobs all cost $minimum wage + $1 and raising wages is simply going to make them all go out and buy those magical robots.

Re: Fed Ends Zero-Rate Era

#348

Post by snikeris » Thu, Dec 17, 2015, 5:15 PM UTC

brc wrote: post #249

cubano wrote: post #236

Earlier quoted context omitted.

> To buy something, first you have to produce something worthy of exchange. Everyone has to start from this point. But so many people from the Marxist-leaning schools just don't and refuse to, because at its core this belief destroys pretty much every argument they make about moving from a market-based system to a collective one.

Sure. The Marxism school of thought is one of fantasies, of free lunches from artful arrangement of resources. The problem is that this persistent belief stretches from hard core far-left socialist/communists right up to the centre right of political thought (though I despise the left/right denomination, I use it here to illustrate fashionable thinking). Eventually, beliefs will have to change - anything that can't g…

Where should I begin reading if I wanted to know more?

Re: Fed Ends Zero-Rate Era

#349

Post by refurb » Thu, Dec 17, 2015, 5:19 PM UTC

virmundi wrote: post #308

refurb wrote: post #290

Earlier quoted context omitted.

So tax capital income twice? Once at the business and once for shareholders? That's the reason why we have low capital gains tax.

Yes. The shareholders are rent-seeking. They should be taxed as if it was normal income. They don't provide an real value to the company, its output or consumers. For the most part, they are a determent to all outside themselves (specifically their holdings).

Shareholders don't provide value? Then why do companies sell stock? That makes no sense.

Re: Fed Ends Zero-Rate Era

#350

Post by daveguy » Thu, Dec 17, 2015, 6:12 PM UTC

dragonwriter wrote: post #326

daveguy wrote: post #311

Earlier quoted context omitted.

I have made a comment or two recently about how unlikely AGI/superintelligence is in the next 50+ years. Those comments received a net positive response. I don't think HN is as biased toward AGI as you might think. Then again automation in labor tasks doesn't require AGI --just specialized programs that work well. Advanced automation is very likely to have an impact in the next 5-10 years.

Advancing automation in labor has been having a progressive effect for several decades, and will to all evidence keep doing so for the foreseeable future.

That's a good point. I should have said "a more significant impact". It could be argued that the impact of the last decades were offset by increased support role and tech jobs. I think in 5-10 will be when a lot of the current tech and support jobs also get filled by automation. Or where its an "automation of creativity" where you don't have a broad general intelligence, but you do have programs that present a few good options that could be considered creative depending on the domain.