Aggregate Demand Management: "pass a law allowing the Fed to cut checks"
March 16, 2014 9:41 AM Subscribe
Free Money for Everyone - "A wacky-sounding idea with surprisingly conservative roots may be our best hope for escaping endless, grinding economic stagnation." (via)
Money creation in the modern economy - "The majority of money in the modern economy is created by commercial banks making loans. Money creation in practice differs from some popular misconceptions — banks do not act simply as intermediaries, lending out deposits that savers place with them, and nor do they 'multiply up' central bank money to create new loans and deposits. The amount of money created in the economy ultimately depends on the monetary policy of the central bank. In normal times, this is carried out by setting interest rates. The central bank can also affect the amount of money directly through purchasing assets or 'quantitative easing.' "
Standing on the shoulders of cryptocurrency giants - "We start with HG Wells, who envisioned an entirely borderless open-ledger accounting system in his book The Shape of Things to Come (which also envisioned an age of abundance), written in 1933."
Bitcoin's future could become the internet of money - "Some want ownership of devices—a car, say—to be represented by a Bitcoin, or a tiny fraction of it. The car would work only when turned on with a key that includes the Bitcoin token. This would make managing ownership of and access to physical assets much easier: the token could be sold or rented out temporarily, enabling flexible peer-to-peer car-rental schemes. Such 'smart property' would turn the blockchain into a global registry of ownership in physical assets."
Silicon Valley is turning our lives into an asset class - "In the past few decades, Wall Street has made finance a central feature of both the global economy and of our everyday lives – a process often described as 'financialisation'. Silicon Valley, almost contemporaneously, has done the same for digital media technologies... Having disrupted Madison Avenue, the likes of Google and Facebook – armed with better data, better engineers and better databases – will disrupt Wall Street next. Silicon Valley companies sit on a trove of data about our most banal daily pursuits. And the kind of data that they gather will only grow more diverse, as the Faustian bargain that we first accepted in our browsers – letting strangers monitor what we do online in exchange for nominally free services – will be accepted in many other domains, especially as the rise of the 'internet of things' makes daily interaction with sensors, screens and other data-capturing devices unavoidable... In knowing your routes, your daily patterns and your contacts, Google has a far better picture of risk – for example, the odds that you will have an accident or default on a mortgage – than any insurance company or bank. And, in having unmediated access to you via your phone, Google can also sell you insurance or make you an offer for your personal data on the go, using a price point that you are most likely to accept."
Expert takes on Capital in the Twenty-First Century
To boost the economy, spread the wealth - "Redistribution is overall pro-growth. On average, across countries and over time, the things that governments have typically done to redistribute do not seem to have led to bad growth outcomes, unless they were extreme. And the resulting narrowing of inequality helped support faster and more durable growth."
Money creation in the modern economy - "The majority of money in the modern economy is created by commercial banks making loans. Money creation in practice differs from some popular misconceptions — banks do not act simply as intermediaries, lending out deposits that savers place with them, and nor do they 'multiply up' central bank money to create new loans and deposits. The amount of money created in the economy ultimately depends on the monetary policy of the central bank. In normal times, this is carried out by setting interest rates. The central bank can also affect the amount of money directly through purchasing assets or 'quantitative easing.' "
Standing on the shoulders of cryptocurrency giants - "We start with HG Wells, who envisioned an entirely borderless open-ledger accounting system in his book The Shape of Things to Come (which also envisioned an age of abundance), written in 1933."
Bitcoin's future could become the internet of money - "Some want ownership of devices—a car, say—to be represented by a Bitcoin, or a tiny fraction of it. The car would work only when turned on with a key that includes the Bitcoin token. This would make managing ownership of and access to physical assets much easier: the token could be sold or rented out temporarily, enabling flexible peer-to-peer car-rental schemes. Such 'smart property' would turn the blockchain into a global registry of ownership in physical assets."
Silicon Valley is turning our lives into an asset class - "In the past few decades, Wall Street has made finance a central feature of both the global economy and of our everyday lives – a process often described as 'financialisation'. Silicon Valley, almost contemporaneously, has done the same for digital media technologies... Having disrupted Madison Avenue, the likes of Google and Facebook – armed with better data, better engineers and better databases – will disrupt Wall Street next. Silicon Valley companies sit on a trove of data about our most banal daily pursuits. And the kind of data that they gather will only grow more diverse, as the Faustian bargain that we first accepted in our browsers – letting strangers monitor what we do online in exchange for nominally free services – will be accepted in many other domains, especially as the rise of the 'internet of things' makes daily interaction with sensors, screens and other data-capturing devices unavoidable... In knowing your routes, your daily patterns and your contacts, Google has a far better picture of risk – for example, the odds that you will have an accident or default on a mortgage – than any insurance company or bank. And, in having unmediated access to you via your phone, Google can also sell you insurance or make you an offer for your personal data on the go, using a price point that you are most likely to accept."
Expert takes on Capital in the Twenty-First Century
The influence of the wealthy on democratic politics and on how we think about merit and reward presents formidable obstacles. Fierce international competition for the rich and their dollars leads Piketty to believe that without a serious countermovement, capital taxation will trend toward zero. Inequality is becoming a "wicked" problem like climate change—one in which a solution must not only overcome powerful entrenched interests in individual countries but must be global in scope to be effective.Inequality is weighing on growth and fueling political instability - "A severely skewed income distribution harms the pace and sustainability of growth over the longer term. It leads to an economy of exclusion, and a wasteland of discarded potential."
Nonetheless, it is capital taxation, and ultimately global capital taxation, that Piketty sees as the eventual solution. Taxing only consumption and labor income violates the notion that citizens should finance the commonwealth on the basis of their ability to pay. A global capital tax—modest, progressive, based on transparency—could reinforce the fraying link between economic standing and individual contributions toward vital collective activities. Moreover, halting progress in this direction has already taken place, as rich countries seek—without great success so far—to crack down on the tax havens and corporate financial engineering that increasingly make taxes voluntary for the superrich. Because wealth is still so concentrated in advanced industrial nations, agreements that covered citizens of and transactions within Europe and North America would go a long way toward bringing these activities into the open. A modest tax on the largest fortunes might also encourage more productive uses of capital, gradually taxing away big estates with small returns.
Piketty suggests that the pressures for change will eventually prove overwhelming. Either ever-richer capitalists will tear one another apart in the race for diminishing returns, or the rest of society will rise up and impose a fairer framework. For a book that insists on the primacy of politics, however, Piketty has relatively little to say about how—with organized labor weakened, moneyed interests strengthened, and anti-government forces emboldened—the kind of political movement necessary for a fairer future will emerge.
To boost the economy, spread the wealth - "Redistribution is overall pro-growth. On average, across countries and over time, the things that governments have typically done to redistribute do not seem to have led to bad growth outcomes, unless they were extreme. And the resulting narrowing of inequality helped support faster and more durable growth."
ops, title quote got cut off: "pass a law allowing the Fed to cut checks... to the American people"
posted by kliuless at 10:10 AM on March 16, 2014 [1 favorite]
posted by kliuless at 10:10 AM on March 16, 2014 [1 favorite]
And as Alexander Hamilton warned about fiat money - once the voters figure out that they can award themselves money from the Treasury, the gig is up.
So you mean by voters here, you're referring to lobbyists and corporations, right? Because this is what is actually happening. Do you know about agricultural subsidies? Corn ethanol?
I'll take universal income over corporate welfare any day of the week.
posted by hobo gitano de queretaro at 10:37 AM on March 16, 2014 [43 favorites]
So you mean by voters here, you're referring to lobbyists and corporations, right? Because this is what is actually happening. Do you know about agricultural subsidies? Corn ethanol?
I'll take universal income over corporate welfare any day of the week.
posted by hobo gitano de queretaro at 10:37 AM on March 16, 2014 [43 favorites]
There are other ways to get money in the hands of people who will spend it, raise the minimum wage to a living wage and peg it to inflation.
posted by Mick at 10:38 AM on March 16, 2014 [4 favorites]
posted by Mick at 10:38 AM on March 16, 2014 [4 favorites]
Piketty's thesis seems interesting, and the notion of a property tax compelling the highest, best use of property is interesting. That said, I think it's more likely than not that the US would need a constitutional amendment to levy such a tax, which makes the likelihood of the tax being enacted pretty close to zero.
posted by jpe at 10:43 AM on March 16, 2014
posted by jpe at 10:43 AM on March 16, 2014
Current inequality might be better explained as a non-free market where the rich are hoarding their money under virtual mattresses and workers are forced to sell their labor at an artificially low rate.
The rich aren't hoarding because they're afraid they might have to go without. There's more than enough wealth for everybody. They're hoarding because they don't want any challenges to their power.
posted by anemone of the state at 10:49 AM on March 16, 2014 [15 favorites]
The rich aren't hoarding because they're afraid they might have to go without. There's more than enough wealth for everybody. They're hoarding because they don't want any challenges to their power.
posted by anemone of the state at 10:49 AM on March 16, 2014 [15 favorites]
And as Alexander Hamilton warned about fiat money - once the voters figure out that they can award themselves money from the Treasury, the gig is up.
I thought bullshit quotes from founding fathers was strictly something your conservative relatives on Facebook do.
posted by empath at 12:08 PM on March 16, 2014 [16 favorites]
I thought bullshit quotes from founding fathers was strictly something your conservative relatives on Facebook do.
posted by empath at 12:08 PM on March 16, 2014 [16 favorites]
> the notion of a property tax compelling the highest, best use of property is interesting.
Many local property taxes are already that way all over the country. "Highest and best use" is defined as "generates the most money," which is to say "bulldozed and developed." If people are going to have their property taxed as if it were bulldozed and developed, you can be sure they're going to do their level best to see that it is bulldozed and developed.
Legal fictions are where the law goes mad.
posted by jfuller at 12:22 PM on March 16, 2014 [1 favorite]
Many local property taxes are already that way all over the country. "Highest and best use" is defined as "generates the most money," which is to say "bulldozed and developed." If people are going to have their property taxed as if it were bulldozed and developed, you can be sure they're going to do their level best to see that it is bulldozed and developed.
Legal fictions are where the law goes mad.
posted by jfuller at 12:22 PM on March 16, 2014 [1 favorite]
"In 2008, George W. Bush and Nancy Pelosi engineered the tax rebate stimulus, in which everyone received a check in the mail—paid for, eventually, with fresh new money. Studies have found that this stimulus worked quite well"
Not all studies. Here's one response to a similar program back in the 70s; the answer to the title is "no", or at least "Only if the households regard it as a permanent change, rather than a one time windfall"; Here's another summary article by the second author looking at similar tax programs up until 2001.
posted by damayanti at 12:25 PM on March 16, 2014
Not all studies. Here's one response to a similar program back in the 70s; the answer to the title is "no", or at least "Only if the households regard it as a permanent change, rather than a one time windfall"; Here's another summary article by the second author looking at similar tax programs up until 2001.
posted by damayanti at 12:25 PM on March 16, 2014
Here are arrayed so many big arguments about grand processes, it's hard to choose a particularity to consider or comment on; so I'm going to take the easy way out and focus on one rather obvious thing, from the Economist article on Bitcoin:
[a system like Bitcoin] is the first workable solution to one of the more nagging problems of the digital realm: how to transfer something of value from one person to another without middlemen having to make sure that the item is not copied or, in the case of money, spent more than once?
I hate it when sneaky writers do things like this. They define this situation as a "nagging problem" but decline to explain whose problem that is, which is really the point when you're talking about distribution of value! Cutting middlemen out of cash transfers is entirely about saving money, and I strongly suspect that the companies developing technologies for this aren't looking to save the money of anyone who really needs it.
Further "to whose benefit?"-inducing statements from this breathless digital economy evangelism:
Such “permissionless innovation”, in the jargon, should in time result in a cornucopia of applications. Bitcoin’s technology could be used to transfer ownership both in other currencies and of any kind of financial asset. This, in turn, would allow the creation of decentralised exchanges which let asset holders trade directly. And money could be “programmed” to come with conditions: for instance, it might be released only if a third person agrees.
All of these developments would have the effect of strengthening control and manipulation over access to resources than currently attains, it seems, despite the vague color of de-centralization and disruption that the topic often entails. If money can be programmed with conditions, that feature will inevitably be used as a weapon against poor people by the wealthy to further micromanage their lives and decision-making, to the financial benefit of people and institutions who will have no such restrictions placed on them.
Some want ownership of devices—a car, say—to be represented by a Bitcoin, or a tiny fraction of it. The car would work only when turned on with a key that includes the Bitcoin token. This would make managing ownership of and access to physical assets much easier: the token could be sold or rented out temporarily, enabling flexible peer-to-peer car-rental schemes. Such “smart property” would turn the blockchain into a global registry of ownership in physical assets.
Again, who has problems with "managing ownership of and access to physical assets"? People who already own them, by definition. What about the majority of mankind, who don't own very much at all and can largely manage access through informal means? This kind of manipulation of social relations under the guise of mere technological innovation should be carefully interrogated, Ownership of and access to assets and resources is arguably the fundamental site or ne plus ultra of instantiated social power, and so it makes a lot of sense to be extremely conservative about sweeping changes to basic structures until the question of who benefits and who pays is addressed if not settled.
posted by clockzero at 12:32 PM on March 16, 2014 [6 favorites]
[a system like Bitcoin] is the first workable solution to one of the more nagging problems of the digital realm: how to transfer something of value from one person to another without middlemen having to make sure that the item is not copied or, in the case of money, spent more than once?
I hate it when sneaky writers do things like this. They define this situation as a "nagging problem" but decline to explain whose problem that is, which is really the point when you're talking about distribution of value! Cutting middlemen out of cash transfers is entirely about saving money, and I strongly suspect that the companies developing technologies for this aren't looking to save the money of anyone who really needs it.
Further "to whose benefit?"-inducing statements from this breathless digital economy evangelism:
Such “permissionless innovation”, in the jargon, should in time result in a cornucopia of applications. Bitcoin’s technology could be used to transfer ownership both in other currencies and of any kind of financial asset. This, in turn, would allow the creation of decentralised exchanges which let asset holders trade directly. And money could be “programmed” to come with conditions: for instance, it might be released only if a third person agrees.
All of these developments would have the effect of strengthening control and manipulation over access to resources than currently attains, it seems, despite the vague color of de-centralization and disruption that the topic often entails. If money can be programmed with conditions, that feature will inevitably be used as a weapon against poor people by the wealthy to further micromanage their lives and decision-making, to the financial benefit of people and institutions who will have no such restrictions placed on them.
Some want ownership of devices—a car, say—to be represented by a Bitcoin, or a tiny fraction of it. The car would work only when turned on with a key that includes the Bitcoin token. This would make managing ownership of and access to physical assets much easier: the token could be sold or rented out temporarily, enabling flexible peer-to-peer car-rental schemes. Such “smart property” would turn the blockchain into a global registry of ownership in physical assets.
Again, who has problems with "managing ownership of and access to physical assets"? People who already own them, by definition. What about the majority of mankind, who don't own very much at all and can largely manage access through informal means? This kind of manipulation of social relations under the guise of mere technological innovation should be carefully interrogated, Ownership of and access to assets and resources is arguably the fundamental site or ne plus ultra of instantiated social power, and so it makes a lot of sense to be extremely conservative about sweeping changes to basic structures until the question of who benefits and who pays is addressed if not settled.
posted by clockzero at 12:32 PM on March 16, 2014 [6 favorites]
Many local property taxes are already that way all over the country.
yep, and Piketty's contention is that this logic should be applied to all assets. In the absence of a wealth tax, the wealthy can rely on smaller returns from less risky imvestments. They are the financial asset equivalent of the residential holdout in a commercial district.
posted by jpe at 12:35 PM on March 16, 2014
yep, and Piketty's contention is that this logic should be applied to all assets. In the absence of a wealth tax, the wealthy can rely on smaller returns from less risky imvestments. They are the financial asset equivalent of the residential holdout in a commercial district.
posted by jpe at 12:35 PM on March 16, 2014
"During the Great Depression the common refrain was that there was no production problem, the problem was a lack of demand. If consumers had cash everything would be solved - temporarily. You do not effect any structural changes in this way - the new cash trickles up just like the old cash did."
So much wrongness.
The argument then, and now, was that the problem wasn't structural, which has a particular meaning (and not some handwaving "you know, a problem in the system, man"), but, as you say, a lack of demand.
Digging and refilling holes, helicopter drops, or just printing and handing out money, are thought to be solutions to the problem of insufficient demand because this kind of demand shortfall is thought to be a vicious cycle, and so injecting income to the consumer will break that cycle. If you don't think this is possible, then you also can't believe that intervention could solve a supply-side shortfall by something that breaks that equivalent vicious cycle. Which, oddly, conservatives tend to believe when they advocate for government action that increases capital investment.
So that the cash will "dry up" is irrelevant. The point isn't to permanently increase the demand baseline; it's to break a vicious cycle of expectations that is stifling demand.
As was the case then and now, these demand shortfall that become vicious cycles are a product of a financial crash that both spreads panic (and thus economic pessimism) and limits access to credit. These things cause both consumers and producers to switch to "saving" from "spending" as a matter of prudence in the face of uncertainty, and this, in turn, is a self-fulfilling prophecy as this depresses economic activity and causes lay-offs and income stagnation. Which further lowers demand, and so on. This is known as the paradox of thrift. Everyone being thrifty at once ends up making everyone poorer.
A "structural" economic problem is one where resources are genuinely misallocated (not lying fallow, but misallocated), and that can be both investment and labor. But such structural problems have very clear signs, because by definition they are disparity in sectors of the economy. So persistent unemployment that is structural would show high unemployment in one economic sector, but unmet labor demand and increasing wages in another. One could have made a case for a short while that there was a structural imbalance with a misallocation to residential housing, but that time has long passed. But I know you didn't intend "structural" to mean what it really means, it just sounded good.
posted by Ivan Fyodorovich at 2:50 PM on March 16, 2014 [6 favorites]
So much wrongness.
The argument then, and now, was that the problem wasn't structural, which has a particular meaning (and not some handwaving "you know, a problem in the system, man"), but, as you say, a lack of demand.
Digging and refilling holes, helicopter drops, or just printing and handing out money, are thought to be solutions to the problem of insufficient demand because this kind of demand shortfall is thought to be a vicious cycle, and so injecting income to the consumer will break that cycle. If you don't think this is possible, then you also can't believe that intervention could solve a supply-side shortfall by something that breaks that equivalent vicious cycle. Which, oddly, conservatives tend to believe when they advocate for government action that increases capital investment.
So that the cash will "dry up" is irrelevant. The point isn't to permanently increase the demand baseline; it's to break a vicious cycle of expectations that is stifling demand.
As was the case then and now, these demand shortfall that become vicious cycles are a product of a financial crash that both spreads panic (and thus economic pessimism) and limits access to credit. These things cause both consumers and producers to switch to "saving" from "spending" as a matter of prudence in the face of uncertainty, and this, in turn, is a self-fulfilling prophecy as this depresses economic activity and causes lay-offs and income stagnation. Which further lowers demand, and so on. This is known as the paradox of thrift. Everyone being thrifty at once ends up making everyone poorer.
A "structural" economic problem is one where resources are genuinely misallocated (not lying fallow, but misallocated), and that can be both investment and labor. But such structural problems have very clear signs, because by definition they are disparity in sectors of the economy. So persistent unemployment that is structural would show high unemployment in one economic sector, but unmet labor demand and increasing wages in another. One could have made a case for a short while that there was a structural imbalance with a misallocation to residential housing, but that time has long passed. But I know you didn't intend "structural" to mean what it really means, it just sounded good.
posted by Ivan Fyodorovich at 2:50 PM on March 16, 2014 [6 favorites]
I thought bullshit quotes from founding fathers was strictly something your conservative relatives on Facebook do.
They're probably not quoting Alexander Hamilton, unless they're big fans of central banking and debt spending (or Federalists)
posted by RobotVoodooPower at 3:21 PM on March 16, 2014 [2 favorites]
They're probably not quoting Alexander Hamilton, unless they're big fans of central banking and debt spending (or Federalists)
posted by RobotVoodooPower at 3:21 PM on March 16, 2014 [2 favorites]
Some want ownership of devices—a car, say—to be represented by a Bitcoin, or a tiny fraction of it. The car would work only when turned on with a key that includes the Bitcoin token. This would make managing ownership of and access to physical assets much easier: the token could be sold or rented out temporarily, enabling flexible peer-to-peer car-rental schemes. Such “smart property” would turn the blockchain into a global registry of ownership in physical assets.
guys, I think I've figured out how to stop old people driving!
posted by the agents of KAOS at 4:16 PM on March 16, 2014 [5 favorites]
guys, I think I've figured out how to stop old people driving!
posted by the agents of KAOS at 4:16 PM on March 16, 2014 [5 favorites]
They're probably not quoting Alexander Hamilton, unless they're big fans of central banking and debt spending (or Federalists)
The point is that it is a bullshit, didn't say that quote no matter to what founder it is attributed.
posted by absalom at 7:54 PM on March 16, 2014 [2 favorites]
The point is that it is a bullshit, didn't say that quote no matter to what founder it is attributed.
posted by absalom at 7:54 PM on March 16, 2014 [2 favorites]
it just sounded good
I think his use of "structural" is appropriate even if he's not addressing issues of structural unemployment that capital E, Economists talk about.
He's talking about (I think) a problem with the underlying assumption that aggregate demand can be helped by a timely make-work/helicopter/printing. Instead of the alternative idea that demand is fundamentally mismatched with capital return's desired production levels.
I think you know all this Ivan, but it doesn't make his use of "structural" incorrect.
posted by Reasonably Everything Happens at 8:26 PM on March 16, 2014
I think his use of "structural" is appropriate even if he's not addressing issues of structural unemployment that capital E, Economists talk about.
He's talking about (I think) a problem with the underlying assumption that aggregate demand can be helped by a timely make-work/helicopter/printing. Instead of the alternative idea that demand is fundamentally mismatched with capital return's desired production levels.
I think you know all this Ivan, but it doesn't make his use of "structural" incorrect.
posted by Reasonably Everything Happens at 8:26 PM on March 16, 2014
I think William Gibson was right. The Socialism is already here — it's just not very evenly distributed.
posted by vicx at 11:48 PM on March 16, 2014 [3 favorites]
posted by vicx at 11:48 PM on March 16, 2014 [3 favorites]
At this point classical Keynesianism appears completely subverted by the kleptocrats. And the subservient middle class will happily accept all the bullshit just to retain a tiny leg up over the masses.
There is afaik only one real solution to the new dollars trickling up : Spread the necessary work around more equally by shortening the work week and eliminating FLSA exemptions for non-owners. And reduce unnecessary work, like management, finance, administration, etc.
posted by jeffburdges at 7:22 AM on March 18, 2014 [1 favorite]
There is afaik only one real solution to the new dollars trickling up : Spread the necessary work around more equally by shortening the work week and eliminating FLSA exemptions for non-owners. And reduce unnecessary work, like management, finance, administration, etc.
posted by jeffburdges at 7:22 AM on March 18, 2014 [1 favorite]
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And as Alexander Hamilton warned about fiat money - once the voters figure out that they can award themselves money from the Treasury, the gig is up.
posted by three blind mice at 10:03 AM on March 16, 2014 [4 favorites]