> the predominant Keynesian narrative is that spending drives the economy (hint: it doesn’t - capital investments do)
Without taking a side on the actual point: that's not a hint, that's just you stating what you happen to believe with no argument to back it up. It doesn't convince anyone who doesn't already agree with you.
It's also smugly dismissive of a particularly mainstream interpretation of the economy for a more obscure one, as if the author is privy to some information that key economists do not have.
That said, I would love to see the arguments and evidence in favor of either standpoint if anyone has some useful resources to that effect.
The standard argument about the role of demand and credit is quite straightforward: the economy consists of people buying and selling stuff. Capital investment plays a supporting role in ensuring a supply of stuff for sale in future (and in distributing money to buy that stuff with), but people will invest more if they anticipate lots of demand to buy their stuff in future and less if they don't. Both demand and investment keep the economy going, but anticipated future demand is essential to investment.
Therefore when demand is low across the whole economy, there is a rationale for govts/central banks either to directly boost demand by spending or indirectly lower the costs of capital investment by lowering interest rates. The evidence for and against the efficacy of certain interventions is basically the entire field of macroeconomics, but Keynes' General Theory is the starting point and something like Woodford's Interest and Prices: Foundations of a Theory of Monetary Policy or most undergrad macroeconomics textbooks more reflective of current practice.
Maybe there’s an argument from which markets move more quickly toward equilibrium. If you push the demand up for a slower part of it then the whole economy might tend to react more quickly than otherwise. Forgetting the specifics though.
From what I can tell there is no absolute rule that one economic theory always applies. You can consider these interpretations to be a collection of tools in a toolbox.
Some salesmen try to sell their own tool box set as the best that will solve all your problems when the truth is you must use the right tool for the right problem.
For example Austrian economics can be the right tool if you have an economy that is suffering from high inflation. Let's take a look at Greece [0]. Inflation peaked at 6% in 2008. You can call that high but most economies that suffer from the negative effects of inflation have double digit inflation. Inflation fell straight to -2% in 2014. It certainly doesn't look like the type of economy where Austrian economics would be the right tool.
However, if you were to use Austrian economics in say Argentina [1] you could certainly speed up the economic recovery. It certainly has a place on earth but not in most first world economies.
What does it even mean to "drive" the economy? I've always thought that's such a vague phrase that can denote a lot of different objective, mathematical concepts, depending on the speaker.
I think the author refers to increasing economic activity, employment and consumption. The article is quite poorly written, mostly a range of statements about how Keynes was wrong because I think so. The way out of the COVID crisis has been largely Keynesian for most countries (including the US). Without this boost to counter externalities such as a global pandemic, the impact to unemployment would have been much greater.
Way too early to say whether or not we've got our way out of covid with Keynesian inspired stimulus packages, and some point we'll all have to pay for those packages whether through taxes or inflation and we'll have to see whether or not the boost to the near term economy will stick.
If we find that unemployment does not improve quickly enough coming out of this we could be in for some pretty hairy downward spirals.
> Way too early to say whether or not we've got our way out of covid with Keynesian inspired stimulus packages
The cheques that were/are issued by the US Congress should not be thought of as stimulus packages (which they are not): they are disaster relief.
The economy (or economies, plural, of states considered individually) were put into a coma purposefully for health and safety reasons. It would be paradoxical to 'jump start' the economies when they have been shutdown at the same time.
The purpose of the cheques is that help those who cannot work, and draw an income, to pay the rent and purchase food. At least that is the opinion of folks like Ben Bernanke and Paul Krugman.
Some people are of course labelling them as "stimulus cheques", but that is incorrect: it is probably undesirable for people to go outside of their homes and try to do 'normal' stuff. At least not until vaccines are rolled out in volume.
Many countries already had income support for the unemployment without the need for additional cheques.
In Australia the government handed out $600 to individuals who were on income support, and I can guarantee some of those recipients went straight out and bought a 60" television. This would naturally stimulate some sales but do absolutely nothing beneficial in the long run because the rest of us will have to pay for it eventually.
> This would naturally stimulate some sales but do absolutely nothing beneficial in the long run because the rest of us will have to pay for it eventually.
Define "rest of us". The UK is still rolling forward debt from the 1700s and 1800s:
Unless your government has run budget surpluses sometime in its history, then the debt you have accumulated has probably never been paid off, but simply rolled forward. This generally isn't a probably as long as economic growth is higher than interest rates, which for AU look to be quite low:
So it's probably cheaper to pay off old debt with new debt. In Canada for example, even though we had an unprecedented CA$ 340B deficit, our total debt servicing costs will be lower over the next few years.
Inflation and tax increases. If you really think that this stimulus will not be used as an inexcuse to raise taxes/levies whatever upon the all of us you've been living under a rock. Whether or not countries have been carrying debt or not is irrelevant because that will not be the narrative.
Maybe raising taxes will be a good thing. In many countries it has been a race to the bottom for personal income taxes in return for constant budget cuts in healthcare and other services. Maybe if we had maintained higher taxes, we wouldn’t have struggled with ventilator capacity, PPE equipment and other essentials when the shit hit the fan. Hopefully we will learn from this and provide adequate funding to our healthcare services.
Top tax rates used to be 70% in US and CA post-WW2, and we had great economic growth; Clinton raised taxes and the doomsayers about economic catastrophe were wrong.
I'm with Piketty here and have no problem with more redistribution:
I would gladly see a decent amount of inflation (max 4%) over the obvious economic loss caused by unemployment. Unemployment is real and it hurts people directly. Consumer inflation merely reduces the relative wealth of the rich because wages catch up with consumer inflation. That's an absolutely tiny price to pay for a not broken economy.
Confidence to spend not hoard. Traditionally that’s just private money, but Keynesian and modern monetary theory extend it to public money too. Possibly over simplified.
To have transactions for goods and services. Anything that creates more transactions "drives" it. Generally the Keynesian view is that it is demand (for goods/services) that creates/drives activity.
If people are scared of losing their jobs (or have lost their jobs) they won't spend money because they may not have any more. If people are confident of their future prospects they'll be more likely to spend now because they have faith that they'll get more money later.
The best ELI5 of Keynesianism that I've come across:
> I would summarize the Keynesian view in terms of four points:
> 1. Economies sometimes produce much less than they could, and employ many fewer workers than they should, because there just isn’t enough spending. Such episodes can happen for a variety of reasons; the question is how to respond.
> 2. There are normally forces that tend to push the economy back toward full employment. But they work slowly; a hands-off policy toward depressed economies means accepting a long, unnecessary period of pain.
> 3. It is often possible to drastically shorten this period of pain and greatly reduce the human and financial losses by “printing money”, using the central bank’s power of currency creation to push interest rates down.
> 4. Sometimes, however, monetary policy loses its effectiveness, especially when rates are close to zero. In that case temporary deficit spending can provide a useful boost. And conversely, fiscal austerity in a depressed economy imposes large economic losses.
It's also not really an accurate summary of the Keynesian view, which is a theory about the business cycle, i.e. short-run fluctuations in the economy. Capital investment is important for the long run.
Neither are particularly critical in the long term. Economics is bound by diminishing returns, which dampens extremes. Minimal investment results in extreme returns, where extreme investment results in minimal returns. As returns compound the difference shrinks over time.
Really it’s mostly a question of short vs mid term results, in a world of feedback loops either can dominate.
What is the role of capital investments in economies that have evolved to a stage where highly impactful cognitive inputs are prized at ever-increasing premiums? SMEE and ASML lithography platforms differ not because one threw more capital investments at it than the other. This singular focus upon capital investments and capital flow (especially when it comes to share buyback machinations) in modern management finance practice reveals a "fight the last war" orientation.
Appropriate capital investment table stakes, now. Innovation isn't a machine you put capital investment tokens into until you get a breakthrough.
Isn't the author's statement here moot? Capital investment allows spending - assuming the recipient needs to spend the money; giving $1,000/month UBI to everyone 18+ years of age, you can bet 95%+ of them will spend it, it won't sit in a bank account, and it will lead to an ROI - even if that's personal development or quality of life improvement that will have cascading, lifelong productivity benefits to (including counter counter-productivity).
Does this author have vested, financial interest-motive in Bitcoin or other crypto-"currencies" - which centralized digital currencies (legitimately fiat, a better transparent version of)?
Edit to add: looks like they likely do, re: a project they list in this site's menu - oh, and in their about me: "Early Bitcoin adopter, now Bitcoin Cash supporter." Would it not have been best practice for the author to list their vested interests as they're writing about a competing product/offering?
Imagine if everyone countering the positive narrative (propaganda in part) perpetuated by the "army of HODLers" was financially incentivized to counter that narrative whenever they had a chance, and not only that but proselytized their position, Bitcoin et al would have never reached its position today and many people who bought into the hype - or even killed themselves because of their losses - would have not unnecessarily, unreasonably transferred their wealth to someone else; a true centralized digital currency could take the cash you transfer into the digital currency "out of circulation" instead of giving it to someone, Bitcoin et al similarly structured - the "army of HODLers" are akin to a religion that's financially incentivized - even Fred Wilson - https://avc.com/2019/04/orthodoxy/ - stated he dislikes the cult-like behaviour of some in their community, without realizing he's in the community but just taking a priest-like role where he's in a more refined position and better controls his behaviour/image.
I am glad higher profile individuals are starting to voice their opposition, dislike of Bitcoin et al - Elon Musk recently tweeting out "Bitcoin is almost as bs as fiat money;" https://twitter.com/elonmusk/status/1340588909974200321 - fiat currency can shift into a better system supported by immutable, transparent blockchain - but with centralized control so no shenanigans can occur hidden from other allied nations you're trying to fairly balance economies with, arguably who will all be democratically elected governments, democracies.
Edit to add: With the growing "army of HODLers" with more vested asset holders waiting for the value of Bitcoin et al to recover and then some - while chanting the mantra "HODL!" - we need to pay attention to counter regulatory capture that this newer industrial complex will work towards.
The biggest irony is that this hint contradicts the rest of the article. The author complains about central banks handing out too much money to consumers and doing helicopter money.
As far as I know no central bank gives you money to buy consumer goods, they give money to commercial banks who let you borrow money to buy real estate (an investment if you rent it out) or to your startup or existing business so that you can expand faster (also an investment). That's the end of the short list of things that the central bank does that had even a tiny chance of directly involving consumers and the vast majority of money does go into capital investments.
Finally there is QE where the central banks introduce money into capital markets directly. Again unless you are a retail investor you are not going to transfer that new money into consumer spending. The vast majority of retail investors have a small net worth which means most of the money is going to a minority of wealthy people. Those wealthy people own businesses and would rather earn even more money (capital investment again).
So, every time the author complained about the central bank following keynesian politics too much, they didn't...
If anything, there is too little keynesianism. Inflation is low because money isn't reaching consumers at all. Now that we have arrived at inflation we can put another piece of the article in perspective.
>Economists of the Austrian school understand, that the boom is the real problem and the economic crisis is the necessary and positive cleansing mechanism.
Consumer inflation is a positive cleansing mechanism, it tells you "you have to be at least this productive to break even". Companies whose returns are below inflation have to close up shop eventually. Why is that? Because there is a shortage of goods or workers and those few precious goods or workers should be used in the most efficient way. Except this isn't what is currently happening, there is an overabundance of goods and labor and therefore there is no need for any sort of economic cleansing in the name of efficiency. It's the biggest reason why austerity policy in Greece did not work as "advertised". Their unemployment rate was so high that no job or company could be considered too inefficient. Simply getting people to work is already success.
I'll take advantage of this to also talk about something unrelated to the article. Some capital owners argue that their wealth should not be taxed on inflation. Well, that would completely go against the idea of the cleansing mechanism and inflation would just be central bank money straight into the pockets of the rich (it already is to a large degree).
I don't really follow the argument presented here. Seems to be a proposal to have ultra austerity.
>Economists of the Austrian school understand, that the boom is the real problem and the economic crisis is the necessary and positive cleansing mechanism.
Keeping hundreds of millions of people locked inside their houses or in a 5- or 10-km radius is pretty close to modern serfdom, I mean, it definitely quacks and looks like serfdom to me. How else would you define modern serfdom?
Apparently we must apply these serfdom-like measures in order to win against the current pandemic, but that's a different discussion (one of effectiveness).
>Apparently we must apply these serfdom-like measures in order to win against the current pandemic, but that's a different discussion (one of effectiveness).
It's not just a discussion of effectiveness, it's a discussion of values. But proponents of the lockdowns try to avoid that by painting anyone who doesn't share their value system as evil or immoral. There's a good chunk of the population who think it would be immoral to violate people's rights to free movement and association even if a disease with a 5-10% death rate was going around, because human rights aren't conditional. E.g. people who follow some form of https://en.wikipedia.org/wiki/Deontological_ethics rather than a https://en.wikipedia.org/wiki/Utilitarianism -based value system.
Yes, because the greatest famines of the past 200 years, during the Great Leap Forward and holodomor, were caused by following extremist free market policies, not the opposite.
So ignorant that every implementation of socialism / communism, or any economic system that tried to control prices in some systemic way, starved or outright murdered vast amounts of humanity?
I love free societies and you should appreciate that capitalists allow the socialists to discuss revolution freely. Because if and when the socialists take over, I can guarantee they won’t afford the capitalists the same freedom.
... as we watch the most overtly socialist countries on earth (Cuba, China, Venezuela, North Korea) do exactly the same playbook of thought crime, murder, and torture?
Are you just gonna parrot shallow Cold War rhetoric or what? The authoritarian socialists countries inevitable end result is the reason why socialists today are firmly democratic.
If you are curious about socialist history, which I doubt, you will find plenty of democratic socialist writers flaming the authoritarians before, during, and after the USSR. Bertrand Russell's "The Practice and Theory of Bolshevism" is a good one.
Ah, so your version of socialism is just capitalism with some redistribution. The moment you let democracy vote on the direction of private capital, the entire system falls apart, but you seem to agree that leads to mass murder.
>They probably see anything causing the tide to rise all boats as erosion of their socioeconomic position.
How on Earth does inflation rise all boats when it's literally a wealth transfer from all currency holders to the money issuers and first spenders (banks and financial institutions)?
Personally I think both sides are totally right and also totally wrong.
Because we absolutely do need to print money to avoid millions of people living in the streets at this point.
But we also ARE going to be bankrupt by it.
And I think the way out is to recognize that the monetary system is dated and inadequate and create a new one. Unlikely they will do that, but I feel better mentioning it even though it will be ignored.
The new system would be digital and incorporate more real-world information and finer-grained control.
> If wealthy people want to live in a minimalist world they should become monks instead of trying to push others to live like they themselves can’t.
The people cheering on continuously increasing government debt are cheering on impoverishing their children and their children's children to temporarily bolster their own living standards. To me that seems disgusting, robbing the future to pay for excess in the present.
Only if the debt is going to be paid back. And I don't think it ever will.
Money is just a way of keeping track of how much of future output of civilization given entity deserves. If we decide that people who borrowed the money now don't deserve it then, puff, there's no debt, nothing to pay back, no burden on future taxpayers.
On the other hand the resources that we dig up now, burn, pollute... those are real theft robbing the future.
> that people who borrowed the money now don't deserve it then
Do you mean "people who loaned that money"? That is a lot of foreign governments who will refuse to keep loaning us more money which would mean we'd need to balance our budget pretty quickly, or face inflation.
Also, please realize that it is also lots of pensioners and also anyone expecting social security in the future [1].
What you're talking about isn't even Keynesian economics, it sounds like a form of monetary nihilism. We've been down that road before, and hyper-inflation is a real thing proven by history before [2].
Countries have whole net of iou-s between them and debts are not always expected to be paid back in full.
Some money borrowed comes from private market that you can disregard completely if you decide it was a bad idea and don't intend to repeat it in the future.
Yes. Hyperinflation is a thing but I wonder how high (stable) inflation you could have by just printing new money and using it to finance budget directly while preventing banks from inflating money supply with credit.
I'm not sure what the solution is, but I think assuming that because there's some monetary debt now it will all have to be paid back in the future is wrong because that's not what eventually is going to happen.
Sure, if you defraud people by borrowing money and promising to repay, but later reneging on that promise, you can temporarily get richer, especially if there is no justice system that can force you to repay that debt. This is the situation the US government is currently in. That can work. The problem is that once people are defrauded, the trust is lost, and you might not be able to borrow anything from them for a long time.
In fact, it’s worse: you’re not only losing trust on the bondholders whom you reneged to repay, but also most everyone else who observed it happening. You’ll be only left with people who will require handsome compensation for observably very real risk of not getting paid back.
So yes, our children will either have to repay all the debts we took, or default and lose immense amount of food will and trust that we are exploiting by borrowing at low rates. Either way, we are enriching ourselves at the expense of our children.
This [1] was in HN recently, and I honestly never understood the term "petro dollar" fully until I read it.
It does a pretty good job at explaining why the US can basically print money at will without facing inflation. Spoiler alert: people need to buy oil in dollars, but it cost us much of our domestic manufacturing base. I bring this up because the belief seems common at present that money is imaginary and that we've made so much of it without causing inflation is proof of this fact, but (as per the article) it's like a balloon as when you squeeze it, the air has got to go somewhere.
it's not that they don't think there should be economic booms, just that when they are artificially amplified by newly printed money, they tend to disproportionally benefit those who receive the new money first. And inevitably, those artificial booms are followed by artificially large contractions, which harm those at the bottom of the socioeconomic ladder the most.
In the UK the payments industry is absolutely dominated by about half a dozen banks. You can't offer a debit card, or sort/account codes cheaply and with a direct, low volume interface into payments. This means there is less competition and choice.
The Bank of England is consulting on a CBDC and people from small, nimble providers who can change their tech more cheaply than big incumbents are representing the view that a CBDC can open up the payments infrastructure for them. It is hard to imagine a better development for them, and consumers.
Less positively, the whole critique of Keynesianism was answered decades ago and it amazes me that this is still a debate. Facts are facts, people have lives and need to consume, optimising without regard to this is abstracting human consequences out of the equation and therefore morally abhorrent. The Austrian school is for people who don't need to live with the agony of unemployment or deprivation.
It is interesting that you should say that, because last year I tried to open an online (only) bank account. I live in the Netherlands and finally chose for N26, but I was surprised by the large amount of online banks in the UK. Like Monese, Monzo, Revolut, Starling, ANNA, Tide, etc etc
> This gives the central banks three very dangerous capabilities.
This can be said about any technological innovation since the cave age. It's evil because it could be used for evil. I, for one, don't appreciate this kind of arguments.
For me personally CBDC has two big advantages
- reduced risk (central banks can't go bankrupt)
- commercial banks invest my money on my behalf without me having any control over the process. CBDC is presumably just a store.
If Bitcoin becomes big enough I think central banks will make a major push to ban it because it would severely diminish their power. My concern is that in such a scenario our monetary freedoms would be severely curtailed, and we would slide further towards a centrally controlled economy.
I am not against commercial banks per se. But me not having to rely on bank deposits for day-to-day payments (I presume we all agree that nobody wants to carry cash around) will force banks to do a better job at attracting my money. Maybe they will have to give me a better interest rate and give me some knobs I can tune to control how my money is invested.
Technology can be a catalyst for increasing competition between banks. There might be another (regulatory) way to do it. Whichever gets us there faster.
> commercial banks invest my money on my behalf without me having any control over the process. CBDC is presumably just a store.
Central banks have been against direct accounts for retail for this reason, because they didn't want to be in the business of retail lending as well.
What would be the alternative there? It seems unlikely that central banks would go into the business of vetting and giving out small business loans. Could a commercial bank function with only giving out loans and no deposit (I guess it would get loans directly from the central bank instead of balancing its balance sheet with deposits?)
> Could a commercial bank function with only giving out loans and no deposit
As I mentioned in another comment, banks will have to do a better job at convincing me to open a deposit. Hopefully this will increase competition between banks and make them more transparent.
> As I mentioned in another comment, banks will have to do a better job at convincing me to open a deposit. Hopefully this will increase competition between banks and make them more transparent.
Not sure it makes sense, can they really compete against a "narrow banking" style bank? Why wouldn't narrow bank compete a better UI/services (and not offer any loans)?
> Not sure it makes sense, can they really compete against a "narrow banking" style bank?
Sure they can. They should be able to offer a better interest rate on their deposits.
"... new customers is one way, if not the cheapest way, to secure those reserves. Indeed, the current targeted fed funds rate—the rate at which banks borrow from each other—is between 0.25% and 0.75%, well above the 0.01% to 0.02% interest rate the Bank of America pays on a standard checking deposit.5 6 The banks don’t need your money; it’s just cheaper for them to borrow from you than it is to borrow from other banks." [0]
Why is that? why is it cheaper for banks to borrow from me than from other banks? I say it's due to the lack of competition.
> Why is that? why is it cheaper for banks to borrow from me than from other banks? I say it's due to the lack of competition.
The are many, many banks who will pay you something resembling the fed funds rate on a savings account (0.5% seems to be the number at the moment). Bank of America and other banks get away with paying 0.01% due to inertia and lack of consumer education.
If interest rates are kept near zero and central banks open deposit accounts, the role of the banking system disappears. Their main role is to allocate money based on their risk management framework, but if money costs zero this need is very diminished.
Central banks are attempting to prop up the banking system (through regulatory means) in light of WeChat and crypto currencies demonstrating a reduced need for the sector and the deposit services they offer.
Not to be pedantic but central banks can and do become insolvent! E.g. developing nations with dollar denominated debts. Central bankers will tell you they can’t go bankrupt but of course they have to say this as the whole system is based upon confidence and trust.
Indeed, there have been certain periods of time where privately issued money / bank deposits were “safer” than central bank or government issued currency. Also keep in mind that bank deposits are not a promise to pay base money as people mistakenly believe. It’s just that commercial banks are a market maker between their money and the government/base money and it just so happens that the exchange rate is 1:1 unless the solvency of the bank, central bank or government is brought into question.
Commercial banks also don’t “invest money”. Instead, they are in the business of swapping IOUs. When you get a loan, you swap your IOU (a debt from you to the bank - the bank’s asset) for the bank’s IOU (debt from the bank to you - bank’s liability). You do this because the bank IOU is readily accepted by everyone and yours isn’t. If you just have a deposit, you get it by swapping the IOU from another bank or an IOU from the government (notes and coins) for an IOU with the bank you hold a deposit with. Note that the deposit is not your money either.
> Commercial banks also don’t “invest money”. Instead, they are in the business of swapping IOUs. When you get a loan
Sure. But you don't simply get a loan. A bank (account manager) will make a decision whether they want to give you a loan (with a certain interest) or not. And I don't have any influence on that "decision". This is what I mean when I say "commercial banks invest my money on my behalf without me having any control over the process".
This is true! Sorry, I’m a bit of a nerd about this stuff. I was just making the point that, in accounting terms, the banks don’t invest money... they create and destroy it! Loan creation goes hand in hand with deposit creation and is a “grossing up” of the bank’s balance sheet. When the bank grants a loan, it also creates a deposit. So whilst I know it’s nice to think of “my money at the bank”, the reality is that your “money at the bank” is actually an IOU/deposit/debt that the bank previously created (when they granted a loan) and will, at some point, be destroyed when you or someone else pays back loan capital.
Reason being is that I somewhat take issue with economists of the Austrian school or “full reserve bankers” (eg author of OPs article) who fundamentally don’t understand what banks are and how they work. It’s incredible really, because if they took the time to write out the accounting journals for loan creation and destruction then they would, in a single moment, realise that much of what they advocate is in fact complete nonsense. Because, ultimately, banks don’t lend out base money... so they can’t possibly counterfeit it (as Mises claims). Banks also don’t have a special privilege to create “money”/IOUs - we can all do it and we do it all the time, It’s just that the bank’s money is widely accepted and ours is not.
>"commercial banks invest my money on my behalf without me having any control over the process"
This is completely wrong. Your money on your bank account doesn't exist. What you see is the number of dollars the bank owes you. Its a debt. They dont invest your money anywhere. It doesn't exist. When someone transfers "money" to you the bank subtractions debt from their account and adds it to yours. Its still the same debt they just owe it to someone else now. If they give you credit for example because you want to build a house. They create the credit out of thin air by putting the house on the balance sheet so they can give out credit worth as much as the house. You pay it back and the house is yours you dont pay and the house goes to the bank. Your own money is used first so the house is allays worth more than what the bank credited at any point in time. Nowhere does the bank need someone else's money to give you that credit.
Yes, money is debt and debt is money. That’s clear. But banks do like to attract new deposits cause it has an effect on how much credit they can create. They can’t just create infinite amount.
That's wrong. Read it again especially the last part "Nowhere does the bank need someone else's money to give you that credit."
They cant credit infinite amount because there is no infinite no-risk demand for credit. Banks dont give credit where there is a risk to lose. That's why startups need VC and not a bank credit. Banks attract certain deposit holders because they are future house builder or otherwise customers of something the bank actually makes profit with. They dont care about the money deposited but if its more its more likely to be a customer they can make profit with. So yes they are interested in you as a customer if you have money but not because you store it there and they want to use it for something. Its one of the most taught lies about how money and banks work.
(TLDR: most of the useful concepts from Austrian theory were incorporated into mainstream economics; what was left were some bold claims and a hostility towards maths and empiricism.)
https://econfaculty.gmu.edu/bcaplan/whyaust.htm
Austrian economics isn't hostile to maths; it follows a different value system based on ordinal, not cardial utility, which doesn't allow for interpersonal value comparisons. Mathematically speaking this system is actually more elegant, as it has one less assumption (no philosophical assumption that interpersonal value comparison is possible), but obviously in such a system fewer statements can be made.
The linked article explains in some detail how Rothbard dismissed much of neoclassical theory based on simply not understanding the maths was valid for both ordinal and cardinal utility preferences. And the philosophical difference is much greater than rejection of interpersonal utility comparisons (a position shared by many neoclassical economists and ethicists) or a dislike of modern algebraic formalism shared with many economists of all stripes but Mises' insistence that economics is "not quantitative" and should instead be a set of conclusions drawn from axiomatic statements about human behaviour. Mainstream economists have written a great deal about the limitations of models, structural flaws of certain models, and identifying the circumstances in which past performance is unlikely to be a guide to future results but only Mises insisted the act of looking at the data was 'childish play with figures'
Doesn't the very idea of the 'Central' in Central Bank Digital Currencies violate existential reasons and fundamental functions of digital currencies / cryptocurrencies?
This seems to be an attempt at corralling a market by offering something entirely unfit for purpose, but marketed as being backed by the ultimately trustworthy (for surface-level-only reasons of "well, we've gotten you this far") Central Banks, and therefore immune to failure.
What can it offer that doesn't already exist and also provide any consumer benefit?
The article seems to answer that: nothing, in fact, less than nothing.
Cryptocurrencies are anathema to Central Banks, so any embrace by the Central Banks must be looked at as a defensive reaction to a changing landscape.
Central Banks will use a digital currency but not a cryptocurrency. They need to be able to create it at will.
The point is to be able to easily zero an account. Paper money in your possession cannot be instantly destroyed without your permission. A digital currency could be used to induce monetary velocity...i.e. spend the money by Saturday or it is deleted. Or, if you are arrested for protesting the Government, your account is zeroed.
>> Doesn't the very idea of the 'Central' in Central Bank Digital Currencies violate existential reasons and fundamental functions of digital currencies / cryptocurrencies?
On the other hand, one might describe proof-of-work currencies as an attempt at corralling a market by offering something entirely unfit for purpose, but marketed really aggressively.
What purpose? If you're only interested in a transaction processing system I don't anyone thought that cryptocurrencies were going to be an efficient alternative to a centralized ledger.
Perhaps I’m missing something, but aren’t currencies mostly digital anyway?
I don’t actually know for sure, but surely the percentage of fiat money that exists as physical cash is pretty small? Similar for the percentage of transactions that happens physically.
yes, but currently only licensed financial institutions (e.g. banks) can hold accounts directly at a central bank. You, as a private person, can't. CBDC will give you that capability too.
The main difference is that physical money exists as a liability on the balance sheet of the central bank. That is special however. Because - as you say - most of the money in existence is digital. However that digital money - ie. your deposit - exists as a liability of a private bank. Meaning if that bank goes bust you are only guaranteed to get back the amount that is insured (probably something like $100k in the US).
Central bank digital currencies are just fancy PR for holding your current account at the central bank rather than a commercial bank. Which then means you don’t really need deposit insurance since if you’re concerned you’d park your money at the central bank.
Deposits in commercial banks can then be treated as bank risk capital - where the depositor always risks a loss.
This entire article is a conflation of two orthogonal arguments:
1. Austrian economics is right, Keynsian is wrong.
2. Central banks are introducing ledger based currencies to increase surveillance of consumers, using the strawman argument about China.
On 1), the pandemic has shown that government spending works to keep an economy from failing. The old inflation argument has been proven completely false. If anything, what has been proven is that a greater distribution of wealth is needed as Amazon and online wholesale and retail take over.
The boom in online sales is a superprofit, driven by a windfall that government public health measures closed other sales channels. Those profits should be subject to a windfall tax to reduce that concentration.
On 2) Central Banks are looking at ledger based currency as a way to allow more distribution channels beyond the existing retail banking network. It allows greater freedom for financial offerings by removing a layer of distribution.
In a way, ledger based currencies are the "Amazon" of money distribution by central banks. It allows them to push money out when needed to multiple outlets, while still maintaining regulatory control.
If anything, it's a "free but regulated market" at work.
You know that all the central banks are actually saying themselves they want to track? It's not even a secret, you can read it right on their websites. The EU bank and Commission use China as the example, check it out: https://www.europarl.europa.eu/RegData/etudes/STUD/2020/6487...
I am not sure where in the 47 pages you are reading that, I can find that the report is reccomending a european internet like the chinese to have higher growth in EU, and to foster european values "such as democratic values, data protection, data accessibility, transparency and user friendliness." Which I see rather pependicular to what you are saying it is telling. It should also be said that this report is not made by the european union, but for the european union by a 3rd party that got paid to make research for them. What it says, may or may not be influential to the future decicions of the EU.
> I am not sure where in the 47 pages you are reading that
From the document: "An added benefit of the increase in electronic payments is the reduction of shadow economy. Each year trillions of Euro flow in the shadow market unregulated and untaxed, leading to long term deficits. Traceability of electronic payments is much better than with cash, leading to more information on the flow of money. This information can be used to reduce tax evasion and make regulation easier, in turn reducing the shadow economy"
> It should also be said that this report is not made by the european union, but for the european union by a 3rd party that got paid to make research for them.
Signature right on the front page: "Policy Department for Economic, Scientific and Quality of Life Policies Directorate-General for Internal Policies."
This "third-party document" shit is a really embarrassing excuse. Can't the EU apologists think of something better?
Maybe someone external cooperated on that document - but it's still a document by the EU and for the EU just like any other, authored and published by a department of the Directorate-General for Internal Policies of the EU. I am sure they wouldn't have signed and published it if they disagreed with the content (or at least would have said so). You wouldn't try to claim that a law/regulation written by an external lawyer and published by the EU is actually not an EU document, right? Because there is a lot of that, e.g. the GDPR.
From the document: "The study lays out predictions for digital services in the next one to ten years and provides recommendations for action for the European Parliament in preparation for the Digital Services Act. This document was provided by the Policy Department for Economic, Scientific and Quality of Life Policies at the request of the committee on the Internal Market and Consumer Protection."
Anyways, this document is one of many, it's just the first I had a link to. The same points (and other, even more concerning ones) are made in many more.
> "such as democratic values, data protection, data accessibility, transparency and user friendliness."
Sure, just like the encryption backdoors are for the children, for the democracy and especially for transparency. Take these democratic values with you, I am not interested. The EU is really efficient in showing us why is democracy wrong.
> From the document: "An added benefit of the increase in electronic payments is the reduction of shadow economy. Each year trillions of Euro flow in the shadow market unregulated and untaxed, leading to long term deficits. Traceability of electronic payments is much better than with cash, leading to more information on the flow of money. This information can be used to reduce tax evasion and make regulation easier, in turn reducing the shadow economy"
That is an observation, not a policy thought up by politicians working at the Parliment.
>This "third-party document" shit is a really embarrassing excuse. Can't the EU apologists think of something better?
It is a study for politicians to take better decicions not policies to be implemented, for that you want to read the things like the meeting minutes not supporting analysis.
>Anyways, this document is one of many, it's just the first I had a link to. The same points (and other, even more concerning ones) are made in many more.
I would welcome linking to more, as long as they are not just studies, although interesting reading they do not dictate the policy.
>Sure, just like the encryption backdoors are for the children, for the democracy and especially for transparency. Take these democratic values with you, I am not interested. The EU is really efficient in showing us why is democracy wrong.
Well I am also welcoming more information about this as it sounds like something I want to read up on. The EU may be inefficient, and it could be a lot better, which is why I would welcome a discussion about it instead of making accusations without providing any sources to base your claims on.
> That is an observation, not a policy thought up by politicians working at the Parliment.
Once more, the document says: "The study lays out predictions for digital services in the next one to ten years and provides recommendations for action for the European Parliament in preparation for the Digital Services Act."
> It is a study for politicians to take better decicions not policies to be implemented, for that you want to read the things like the meeting minutes not supporting analysis.
Exactly! And they really took all of this very concerning advice to their hearts with the Digital Services Act.
> I would welcome linking to more, as long as they are not just studies, although interesting reading they do not dictate the policy.
> Well I am also welcoming more information about this as it sounds like something I want to read up on. The EU may be inefficient, and it could be a lot better, which is why I would welcome a discussion about it instead of making accusations without providing any sources to base your claims on.
Are you not watching the news? Even if not you could have easily used Google yourself, the document I linked gives more than enough keywords.
We're very lucky the EU is inefficient, otherwise there would be a totalitarian police state way worse than China or Russia sooner than tomorrow. Fortunately we got enough time to leave before the EU makes its latest moves.
No discussion is going to save this shit show, we're way past that. The DSA is going to be implemented soon and it's not going to be even a tiny bit better regardless of how much you talk about democratic values.
Sadly it can't be better. This union is not striving for freedom but the opposite.
For #2, what is the actual technical hurdle to more widespread distribution? I saw an idea that every citizen should just automatically have a checking account at their regional Fed. Why not that? It does not seem technically infeasible, and the fed could then do distribution by debiting their own accounts.
It is fun to speculate about this, because money is fundamentally information - imagine that a dollar is a "like".
The most fundamental hurtle to distribution is that people don't wanna! When you have a bunch of likes, giving them away sounds like a good idea, but in reality it means a) reducing your own value (unfairly), and b) increasing someone else's value (unfairly).
I personally have another solution, that I've never heard articulated, which I call "The Enough Number". It's a number you individually decide is enough for you, after which you will choose not to work any further (at least, not for money). This achieves a kind of de facto redistribution since, theoretically, someone else will step in to make the money the retiree is no longer making. Another way to put it is that it creates an artificial scarcity of competence, or it means that competence-for-hire decays over time in a way that is beneficial to society.
The only way for this to work, IMHO, is if you get some social status at Davos (free VIP entry for life? A medal?) for having a achieved Enough. Or maybe a publisher can arise, called "Enough Press" where such people can get a book deal.
FWIW my own Enough Number is $10M. This is still quite high but it reflects my upper-middle class sensibilities. This would be enough for a beautiful 1500 ft^2 house in Laguna Beach, a 30' wooden sailboat I partner on with a couple of neighbors, and I'd probably spend my time teaching neighborhood kids how to program and make things in a beautiful, sunny space filled with all kinds of very cool and dangerous components.
Politically, this helps focus me on the desired outcome, where the Earth is populated by people who routinely achieve Enough at 30, and spend most of their lives raising their kids, traveling, telling stories, eating good food, reading and writing. The really duty driven folk would find longer-term work at the EPA or the Justice Department or on space projects, etc. I would expect intellectuals to have the easiest time of it, because they could become adjunct professors. Celebrities and business people would struggle, I think, because the attention is the juice, and you can't every really have Enough!
Sure but what if your actions to protect them from a calamitous future actively result in that future happening?
The number of disasters that are a) small enough not to wipe us all out, b) large enough that it would wipe out a large fraction of us, and c) a large amount of money would have any influence being in one group or another, is very small, and they would be mostly political (possibly biological) disasters.
I mean, I could think of stranger stories than a humanity that was saved from total destruction by the actions of a few "crazy" billionaires that got together to make a livable moon base "just in case" in 2021, just before The Real Plague, a virulent strain of Covid-19, created a zombie apocolypse that almost wiped us out - except for the intrepid crew of Atlas-1 Moonbase, populated by the best of humanity: Bezos, Gates, Musk, Myrhvold, Trump, and a good chunk of the Saudi royal family. Or that was the plan, anyway, before the Chinese finally activated their APT and, at the last minute, replaced the passengers with CCP leaders and their families. (Satire aside, if humanity could "come back" from this unlikely scenario, then I'd say the excesses of the 20th and 21st century might even have been worth it. But really, the odds of any of this happening seem vanishingly small.
This wouldn’t work at all, and in fact would do opposite to what you want.
You are trying to solve the problem of scarcity. This scarcity manifests in people having not enough. And I’m not taking about your Enough, I’m talking about people having to think about how much mortgage they can afford, whether to buy groceries at Whole Foods, Safeway or Walmart, or whether they can make payment on their car. All of this happens because we don’t have unlimited abundance of everything, and we need to determine how products and services that are produced get distributed.
For this purpose, we use money , and the way it works is people can make money by various activities that almost always provide products and services that other people value, and they give you money in exchange. This can be entrepreneurship, but for most people it’s a job one does for wages.
Some jobs pay little, some pay a lot, and it seems that your idea is that there are not enough high paying jobs around, and so you want to increase availability of these jobs by having people working these jobs give them up early.
This is a well meaning, but terrible idea. The problem here is that its result is less things get produced, so in aggregate, we’re even less wealthy than before your plan. Your plan is strictly negative for the society. It might benefit some people who get to have a better job than they otherwise would, but the society is paying immense cost for this job.
A better alternative than destroys less (though still significant amount) value is to just tax the high earners and use the proceeds to subsidize low earners. This way, you can have low earners earn as much as they would have after switching to higher paying job in your “retire early when you have Enough”, but you’d have both high and low earner continue working, so more total value would be produced.
>> A better alternative than destroys less (though still significant amount) value is to just tax the high earners and use the proceeds to subsidize low earners. This way, you can have low earners earn as much as they would have after switching to higher paying job in your “retire early when you have Enough”, but you’d have both high and low earner continue working, so more total value would be produced.
In this better alternative why would high earners continue to earn high when they can just switch to become a low earner and eat the tax from the remaining high earners.
Yes, they could do that, which is why income taxes also destroy value. They’re just not as bad as directly incentivizing people to stop working altogether.
Most people will never get to their Enough number, so your point is moot. That is, even if by some miracle Enough caught on, and people did it, talked about it, and acted on it, not much would change except, at first, there would be a wave of retirements that, presumably, would open up positions for younger folks in the industry.
The reason you're wrong is that high earners are usually not actively producing things. The business leaders are making allocation decisions, which are removed from production by 2-5 levels of indirection.
Or, another way to look at it. All the good advice about growing rich talk about "passive income". That is, by definition, income you make despite not doing anything. The economy suffers not at all if such a person decides to do...anything with that money (other than consume it).
> The reason you're wrong is that high earners are usually not actively producing things.
I don’t know what background you are coming from, but rest assured that most high earners do produce significant value. Lawyers, doctors, software engineers, architects, the list could go on an on. To be sure, some people might make money in zero sum activities, and some might exploit information asymmetries to charge significantly more than their services would be worth in perfect information scenarios. But, by and large, high earners (defined as, say, top 5% of wage workers) most definitely do provide value, in excess of what they are actually paid. It is simply hard for millions of people to convince others to give them more money than they services are worth.
> Or, another way to look at it. (...)
I don’t actually understand your argument in this sections. Most good advice on getting rich is not focusing on “passive income”. Instead, it focuses on investment and on providing value by entrepreneurship. People talking about “passive income” usually mean by it a kind of investment that produces returns with little to no labor input required. Given the low cost of capital today, such investments don’t usually provide high returns, and so are highly unlikely to make one rich. They can provide nice income, to be sure, but that requires becoming rich in the first place.
A major gap is that while we can reason consciously as individuals about the values of goods and services, as an society/economy we price things unconsciously.
There are many jobs that have well agreed upon social value but we have no way to wire up the economy to pay them commensurately. Think of caregivers being paid $9 per hour to clean up Grandpa's sick, or teachers who can't spend their summers on improving their craft because they have to take a menial off-season position to stay afloat.
It also works on the other side-- I think you'd be hard pressed to find someone saying that top athletes and actors are worth eight figures a year on their contribution to society alone, but the market has bid them there.
A much more hands-on system of wage and price controls could at least come from a conscious decision-making process.
Regarding technical feasibility: I don't think the Fed has a system ready that could handle the amount of transactions and record keeping necessary for a system which is accessible to the public. They would need to buy such a system. But more importantly so called narrow banks are not in the interest of regulators and the current financial system. If customers could directly deposit at the Fed they would likely disintermediate regular banks (which leads to a bank run) and prevent them from doing their central function in the financial system (issuing credit). You would have to rethink the financial system and regulators are wary of such big changes. Matt Levine has a great article about it: https://www.bloomberg.com/opinion/articles/2019-03-08/the-fe...
Ah right, ha, that Matt Levine article is where I first saw this idea.
My point actually wasn't that this is a good idea, but that it's a superior idea to doing the same thing with a blockchain based ledger. All the problems you outline are true for the blockchain solution as well.
On 1: I think the final judgment is yet to be made. We don’t know how many businesses will keep going for how long and if there is just a delay in bankruptcies.
Also, inflation in consumer goods can show delayed as well. And assets are already inflated. It’s a bit too early to say with confidence, that the stimulus prevented the economy from failing.
> 1. Austrian economics is right, Keynsian is wrong.
At this point in history, how can anyone claim that Keynesianism is "wrong"?
> I would summarize the Keynesian view in terms of four points:
> 1. Economies sometimes produce much less than they could, and employ many fewer workers than they should, because there just isn’t enough spending. Such episodes can happen for a variety of reasons; the question is how to respond.
> 2. There are normally forces that tend to push the economy back toward full employment. But they work slowly; a hands-off policy toward depressed economies means accepting a long, unnecessary period of pain.
> 3. It is often possible to drastically shorten this period of pain and greatly reduce the human and financial losses by “printing money”, using the central bank’s power of currency creation to push interest rates down.
> 4. Sometimes, however, monetary policy loses its effectiveness, especially when rates are close to zero. In that case temporary deficit spending can provide a useful boost. And conversely, fiscal austerity in a depressed economy imposes large economic losses.
I'm sure that there are nuances in the model that can be more or less accurate, but the idea that (aggregate) demand drives economic activity, and that (central bank) interest rates and government (stimulus) spending effects economic activity seems fairly certain. Especially with everything we've seen over the last ~20 years: Fed-driven US real estate bubble, post-2008 economic recovery, lack of inflation due to low/zero rates even with lots of "printing money", austerity caused economic slowdowns (in the EU).
It's been one giant economics petri dish of experiments. How has Keynesianism failed? Non-K folks were predicting all sorts of problem, and yet the Ks were saying 'it'll be fine':
> We believe the Federal Reserve's large-scale asset purchase plan (so-called "quantitative easing") should be reconsidered and discontinued. We do not believe such a plan is necessary or advisable under current circumstances. The planned asset purchases risk currency debasement and inflation, and we do not think they will achieve the Fed's objective of promoting employment.
Like most of Krugman's blogs, he's over-simplifying for a mass audience.
Full-employment is very easy to achieve for the government, if that is the government's only goal. Create artificial demand for ditches to be dug, and then hire people to dig those ditches. The fundamental question is not how to generate artificial demand, but how to generate artificial demand that succeeds at generating useful value.
Now, that spectrum has a range of answers. Sometimes you don't really care about value, or you take value on faith, e.g. when constructing public infrastructure works. They put people to work, get people spending, and everyone agrees that the country is in dire need of infrastructure improvements right now. There are, however, two non-infrastructure extremes: a) spending money on strong companies that will become stronger (instead of failing due to temporary unavoidable circumstances), but if anyone knew for sure which companies these were, the government wouldn't need to spend any money at all, investors would step in and pocket the profits. Then there's b) spending money on weak companies that would've failed in a year or two anyway, and emergency bailouts only forestalls the inevitable, wasting money and time and creative potential for nothing.
Now most companies are on a spectrum, which means that the strategy of such wide-spectrum spending is to offset the losses of boosting weak companies with the gains made by strong companies, overall.
Will it work at generating (net) useful value? Maybe. If so, then the currency is tied up in the extra value generated, and we'll avoid inflation. If not, then we have far more currency in circulation for the same amount of value, and prices will go up in tandem. Jury's still out.
> Full-employment is very easy to achieve for the government, if that is the government's only goal.
This is a bit black-and-white: full employment may not be the end-goal of stimulus spending and the government generally, but rather simply just getting the ball rolling. Pre-pandemic there wasn't much need of stimulus, and certainly no need of the December 2017 tax cut (TCJA) that was supposed to "pay for itself" per its proponents, given the state of the economy and unemployment rate:
Now that isn't the only measure of 'success', but if the unemployment rate is (say) >8%, then spending money on 'non-useful value' work, so that people can pay rent and buy food, isn't such a bad thing in the short-term (IMHO).
Some certainly argue for full-employment all the time, but that's a separate discussion than the general idea of raising aggregate demand to 'induce' economic activity.
> Now, that spectrum has a range of answers. Sometimes you don't really care about value, or you take value on faith, e.g. when constructing public infrastructure works. They put people to work, get people spending, and everyone agrees that the country is in dire need of infrastructure improvements right now.
Because the Fed measures inflation by CPI. The price of gas and groceries. Nothing makes for a more unstable economy than a working class who can't afford food and mobility.
Ah, so the Fed does not measure house price rises, mortgage payment increases as inflation. if a person becomes homeless as they can't afford shelter there is still no inflation as per CPI.
I can’t speak as to how accurate it is compared to real life.
What I know is CPI figures don’t and can’t incorporate volatility. For example, I assume healthcare expenses will skyrocket, and government assistance such as Social Security will be reduced. Therefore, I act as if life will be more and more expensive.
Looks like essentials like food and shelter are rapidly outpacing the lower class' ability to pay for them. So my guess is food stamps and housing stipends will grow as wealth concentrates into the hands of those who own/produce them.
Across all food items, or specific ones? According to the BLS CPI report for the Chicago area[1], food prices has only increased 5% in the past year. If you drill down to the specific food categories on page 5, none of the food categories are anywhere close to 200% figure you claimed.
Just my anecdote - I usually shop at Kroger owned stores (various brand names depending on your region of the US). Their "normal" prices are about the same as any other non-discount grocer like Safeway, but they're very aggressive with large discounts for store "members" who use their tracking card.
For example, when I shop, I'm not that particular to specific brands, so if I'm buying soup or cereal, I will always choose the one that is on sale that week, usually around half price (e.g B1G1). I end up paying about 60% of what a normal customer pays who is loyal to specific brands no matter if they're on sale or not.
What I've noticed is that the normal prices haven't really gone up all that much, but the discounts are very small and there are far fewer of the really good ones (e.g. $3 per lb. of chicken, the $0.99 carton of eggs, half price cheese, B1G1 soups, etc).
Thus, I'd say my grocery bill has gone up about 50% or more in just the last year, whereas it had really held stead for the last decade.
This is, of course, on top of home prices in my area nearly doubling in 10 years when considering increased taxes, HOAs, repair costs, etc.
The Austrian answer to such a crisis has been tried early in the 20th century after the Great Depression. Spending was reduced but the government was still running a balanced budget. "Outright leave-it-alone liquidationism was a common position, and was universally held by Austrian School economists." [1] Mainstream consensus is that if the Fed had expanded their balance sheet immediately and government had reduced taxes and increased spending the crisis would have been much less severe - but this only started when WWII broke out and the war had to be financed.
The depression and the “Austrian” response implemented are vastly oversimplifying it. For starters the widespread tariffs and outright ban and seizure of gold should tell you this is not what an Austrian would do.
You pointing out two policy measures which are not according to the Austrian school doesn't invalidate the argument that the response was Austrian rather than Keynesian. The seizure of Gold was to prevent a further contraction in credit because the dollar was still on a gold standard. I'm not defending gold confiscations (nor am I in favor of a gold standard) but without this measure the crisis would likely have been even worse. The tariffs were politically motivated (to strengthen American manufacturers - neither Keynesian nor Austrian) and intended to stoke inflation.
Depends, if the central bank can keep to inflate its balance sheet and absorb most of the additional debt of corporations and the public without creating inflation then nobody will actually have to pay. If there is inflation then that means the purchasing power of savers (ppl with bonds as their main asset) will be reduced (ie. savers will pay).
>> Depends, if the central bank can keep to inflate its balance sheet and absorb most of the additional debt of corporations and the public without creating inflation then nobody will actually have to pay
Just wondering how is it possible for them to do this without raising inflation. Simply allocating all the debt on their balance sheet means they have erased the debts of the corps/public by increasing the money circulation isn't it? Then inflation will happen?
So far it hasn't because the additional money has remained in financial markets and just lead to higher valuations (lower yields, higher share prices, startup valuations and housing prices). It hasn't really lead to increased spending via the wealth effect - which would be required for actual inflation.
Giving people money for nothing is not providing value for effort. This is doomed to fail. Every single extra dollar printed is pure inflation rather than wealth creation. All of the things people really want inflate while marginal crappy goods decline in quality and remain affordable. Housing, quality education, childcare, high quality food (think Whole Foods), good clothing and shoes - all of this stuff gets more expensive. If a UBI is ever implemented we will have a vast underclass of people barely surviving despite their “free money” and the wealthy will continue to get ever wealthier.
> If a UBI is ever implemented we will have a vast underclass of people barely surviving despite their “free money” and the wealthy will continue to get ever wealthier.
That’s why there would need to be a wealth/income tax to redistribute in order to provide the UBI in the first place.
I don’t know enough about various -isms, but I would posit there is some space between “redistributing all wealth and no individual benefits” and “every man for himself”.
Right now many central banks and countries, especially the US are actually exercising a third economic philosophy: monetarism (which the federal reserve board members are historically staunch supporters of)[1].
On 1) How can you say the inflation argument has been proven wrong? Since the financial crisis in 2008 houses in Austria have more than doubled in prices.
I find your arguments very naive. You entirely ignore the misuse of governmental power - history has shown us. Also please consider that increasing the money supply steals money (the value of money) from everyone's checking account over the long term. At the same time consider that QE money is not retrieved by the people who need it most (see cantillon effect).
>houses in Austria have more than doubled in prices
Inflation measures the general price level in the economy (in the form of a basket of goods), not the prices of individual commodities. The inflation in Austria has been at a steady 1-3%[1] over the last decade, roughly in line with inflation targets. Housing prices have risen, like in many other regions, due to a lack of supply of housing in the market, not changes in the money supply.
These vague rants about governmental power are exactly what makes it to read any of these Mises articles with a straight face, it is nothing else but libertarian ideology.
>Housing prices have risen, like in many other regions, due to a lack of supply of housing in the market, not changes in the money supply.
Don't you think demand/supply is strongly impacted by the actions taken by the FED or ECB (eg interests - since 2008 it's difficult to find better investment objects than real estate or Gold in order to retain the asset's value - loans are pretty cheap).
>These vague rants about governmental power are exactly what makes it to read any of these Mises articles with a straight face, it is nothing else but libertarian ideology.
Does that mean you are sure the government won't use interest rates as a mean for controlling the economy? Wouldn't you feel very bad when being forced to spend your money in order to not be punished with negative interest rates? Without cash you won't even be able to escape. Negative interest rates are just one example. I'm sure that this is happening if we don't act.
I can't see why you consider such things vague rants.
The supply of housing isn't impacted by monetary policy. If people were free to built, then demand for housing could be satisfied rather than seeing these increases in price. Increases in money supply don't increase prices if output rises, only if more money chases the same amounts of goods. Which again, is not happening as born out by data.
>Does that mean you are sure the government won't use interest rates as a mean for controlling the economy?
The central bank, which acts independently, and not the government, uses interest rates to control the economy, but that's the point. It's a good thing, not a bad thing. If we had the digital currency in question and the central bank can send everyone two thousand bucks during a pandemic induced depression to stabilize demand rather than completely sound policy being held hostage by politics we would all be better off. We are right now literally living through a situation that shows what the benefit of such tools would be.
>If people were free to built, then demand for housing could be satisfied rather than seeing these increases in price. Increases in money supply don't increase prices if output rises, only if more money chases the same amounts of goods.
But that's the problem: housing isn't like most goods (eg. TVs) that can be produced in a factory in quantities so massive that everyone can have one. The same can't be said of housing, or more specifically land eg. there's only so many space for a semi-detached house within 30 minutes driving distance of the bay area.
> Which again, is not happening as born out by data.
> increasing the money supply steals money (the value of money) from everyone's checking account over the long term.
It's worse than that.
If inflation was uniform and instantaneous, expanding the money supply would just result in a corresponding change in all prices and account balances. It'd be like trying to redefine the litre in order to get more gas from the pump. As such, the state wouldn't bother trying to change it.
Inflation "works" insofar as it allows those who receive the new money earlier to buy goods before the suppliers realize their prices are too low for the new money supply, and in so doing drive up the prices faced by those who receive the new money later. The aggregate effect is to transfer money from those who receive the money last to those that receive it first (banks, financial institutions, forex, etc.)
To me it seems a little similar to when I introduced my manager to the idea of agile programming 17 years ago or something. He understood the "faster iteration" part and didn't hear anything else really. Here they have the idea of making a currency "digital" but just see it as mainly enabling the broken model they currently have.
Personally I think something like solutions built on Ethereum 2.0 have the potential to really integrate more real-world information and finer-grained control for society.
Money is fundamentally a technology and it should be a high technology.
But like with everything else, there are extreme differences between the outcome of divergent designs.
Note that citizens can now pick individually and separately if they want to be Keynesian (USD) or Austrian (BTC/ETH/Gold).
1. This is illustrated by a 50 year old who paid off their $500k house. They sell, keep the cash for 23 months until they move across the country to buy a new house.
2. They could store their $500k in USD w/money printing and be a Keynesian. Money printing dilutes and they can buy less.
3. Another similar couple stores their $500k in BTC or cryptGOLD, as a non-money printing Austrian.
Imagine if each person in society is picking individually if they want to be an Austrian or Keynesian based on the currency they select. Costs of USD money printing will be paid by a smaller and smaller group of people as more and more move off of USD.
Both Bitcoin and gold have experienced devaluation. This illustration seems to be analogous to the physics spherical cow - there are other factors that determine the value of gold, BTC, and dollars besides supply.
For example, if the 50 year old bought all their Bitcoin in January 2018, and sold them to buy their new house in January 2020, they would have been very, very disappointed.
Why do cryptocurrency proponents bring up negative interest rates as a problem of conventional central banking?
“Hard” assets like gold and BTC by definition can’t be used for fractional reserve banking and instead must be warehoused (or you bury your good in the back yard and hope nobody steals it). Hence yiu are typically paying someone to warehouse your gold (there’s a fair amount of literature on this) or paying for a public wallet, rather than having the bank pay you. How is that any different from paying he central bank to sell you a bond?
BTC and gold absolutely can be used for fractional reserve banking. Gold was used for this purpose for millennia. Private banks store gold and make loans in bank notes backed by hard currency, and provided there isn’t a run on the bank, wealth is created. This is banking 101 and has been completely warped by central banking system with fiat currency printing, to the point where normal banks don’t even serve a real purpose anymore other than to decentralize allocation of capital a bit and outsource the vetting of loans. But these could all be done by the central bank at this point and the fact normal banks exist at all is because of history.
CB's have jumped the shark with CBDC's… decentralized self stabilizing stable coins are already being used for loan origination in emerging markets for farmers where traditional banks (who CB's are reliant upon in every jurisdiction) have had no interest… this is the type of thing I was waiting for when I jumped into BTC back in 2012…
Moral hazards of TBTF/TBTJ and propping up zombies can only get you so far…
The author of this articles apparently thinks the money supply is increased by the central banks. This is not correct. Banks are the real money printers. Central banks may issue cash but banks can issue credit based on someone else's debts.
> Central banks may issue cash but banks can issue credit based on someone else's debts.
If you mean deposits, then you're describing fractional reserve banking, and the central bank sets the reserve ratio for those commercial banks, thus the central bank is still in control.
Only if one think's there is no rehypothication going on of collateral (i.e. someone else's debts in the form of government bonds, corporate bonds of all grades, or even stock [which are liabilities on corporate balance sheets]) that is on deposit with some party…
Ofc the central bank is in control that's the whole point of the central bank. But the central bank does not single-handedly control the money supply it controls the value to other currencies by buying/selling stuff to maintain a somewhat stable local currency. Which is more or less the main task of a central bank.
But commercial banks multiply the money supply by creating credit out of thin air.
Fractional reserves are just a trick to prevent a collapse when a bank run happens. It doesn't change the way the system works. Also fractional reserve have been abolished in most places because they are essentially useless if bank runs are physically no longer possible because people dont use or want cash anymore and they think the money they have is on that plastic card. The people are no longer capable of creating shortages. The digital debt balances can be moved around however much people want the bank does not need any reserves for that.
This entire comments section reminds me of every econ discussion I've seen on the web for the past 25 years: wall-to-wall hubris. So, allow me to throw two more tires on this fire:
"The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design."
"It is no crime to be ignorant of economics, which is, after all, a specialized discipline and one that most people consider to be a ‘dismal science.’ But it is totally irresponsible to have a loud and vociferous opinion on economic subjects while remaining in this state of ignorance."
179 comments
[ 3.1 ms ] story [ 301 ms ] threadWithout taking a side on the actual point: that's not a hint, that's just you stating what you happen to believe with no argument to back it up. It doesn't convince anyone who doesn't already agree with you.
That said, I would love to see the arguments and evidence in favor of either standpoint if anyone has some useful resources to that effect.
Therefore when demand is low across the whole economy, there is a rationale for govts/central banks either to directly boost demand by spending or indirectly lower the costs of capital investment by lowering interest rates. The evidence for and against the efficacy of certain interventions is basically the entire field of macroeconomics, but Keynes' General Theory is the starting point and something like Woodford's Interest and Prices: Foundations of a Theory of Monetary Policy or most undergrad macroeconomics textbooks more reflective of current practice.
Some salesmen try to sell their own tool box set as the best that will solve all your problems when the truth is you must use the right tool for the right problem.
For example Austrian economics can be the right tool if you have an economy that is suffering from high inflation. Let's take a look at Greece [0]. Inflation peaked at 6% in 2008. You can call that high but most economies that suffer from the negative effects of inflation have double digit inflation. Inflation fell straight to -2% in 2014. It certainly doesn't look like the type of economy where Austrian economics would be the right tool.
However, if you were to use Austrian economics in say Argentina [1] you could certainly speed up the economic recovery. It certainly has a place on earth but not in most first world economies.
[0] https://tradingeconomics.com/greece/inflation-cpi [1] https://tradingeconomics.com/argentina/inflation-cpi
If we find that unemployment does not improve quickly enough coming out of this we could be in for some pretty hairy downward spirals.
The cheques that were/are issued by the US Congress should not be thought of as stimulus packages (which they are not): they are disaster relief.
The economy (or economies, plural, of states considered individually) were put into a coma purposefully for health and safety reasons. It would be paradoxical to 'jump start' the economies when they have been shutdown at the same time.
The purpose of the cheques is that help those who cannot work, and draw an income, to pay the rent and purchase food. At least that is the opinion of folks like Ben Bernanke and Paul Krugman.
Some people are of course labelling them as "stimulus cheques", but that is incorrect: it is probably undesirable for people to go outside of their homes and try to do 'normal' stuff. At least not until vaccines are rolled out in volume.
In Australia the government handed out $600 to individuals who were on income support, and I can guarantee some of those recipients went straight out and bought a 60" television. This would naturally stimulate some sales but do absolutely nothing beneficial in the long run because the rest of us will have to pay for it eventually.
* https://en.wikipedia.org/wiki/Federal_aid_during_the_COVID-1...
> This would naturally stimulate some sales but do absolutely nothing beneficial in the long run because the rest of us will have to pay for it eventually.
Define "rest of us". The UK is still rolling forward debt from the 1700s and 1800s:
* https://www.theguardian.com/business/2014/oct/31/uk-first-wo...
* https://www.theguardian.com/business/blog/2014/oct/31/paying...
Unless your government has run budget surpluses sometime in its history, then the debt you have accumulated has probably never been paid off, but simply rolled forward. This generally isn't a probably as long as economic growth is higher than interest rates, which for AU look to be quite low:
* https://ca.investing.com/rates-bonds/australia-government-bo...
And interest rates have been (generally) falling for Western European countries for 700 years (with some gyrations):
* https://www.visualcapitalist.com/700-year-decline-of-interes...
So it's probably cheaper to pay off old debt with new debt. In Canada for example, even though we had an unprecedented CA$ 340B deficit, our total debt servicing costs will be lower over the next few years.
I'm with Piketty here and have no problem with more redistribution:
* https://en.wikipedia.org/wiki/Capital_in_the_Twenty-First_Ce...
We're living in another Gilded Age.
To have transactions for goods and services. Anything that creates more transactions "drives" it. Generally the Keynesian view is that it is demand (for goods/services) that creates/drives activity.
If people are scared of losing their jobs (or have lost their jobs) they won't spend money because they may not have any more. If people are confident of their future prospects they'll be more likely to spend now because they have faith that they'll get more money later.
The best ELI5 of Keynesianism that I've come across:
> I would summarize the Keynesian view in terms of four points:
> 1. Economies sometimes produce much less than they could, and employ many fewer workers than they should, because there just isn’t enough spending. Such episodes can happen for a variety of reasons; the question is how to respond.
> 2. There are normally forces that tend to push the economy back toward full employment. But they work slowly; a hands-off policy toward depressed economies means accepting a long, unnecessary period of pain.
> 3. It is often possible to drastically shorten this period of pain and greatly reduce the human and financial losses by “printing money”, using the central bank’s power of currency creation to push interest rates down.
> 4. Sometimes, however, monetary policy loses its effectiveness, especially when rates are close to zero. In that case temporary deficit spending can provide a useful boost. And conversely, fiscal austerity in a depressed economy imposes large economic losses.
* https://krugman.blogs.nytimes.com/2015/09/15/keynesianism-ex...
Really it’s mostly a question of short vs mid term results, in a world of feedback loops either can dominate.
Appropriate capital investment table stakes, now. Innovation isn't a machine you put capital investment tokens into until you get a breakthrough.
Does this author have vested, financial interest-motive in Bitcoin or other crypto-"currencies" - which centralized digital currencies (legitimately fiat, a better transparent version of)?
Edit to add: looks like they likely do, re: a project they list in this site's menu - oh, and in their about me: "Early Bitcoin adopter, now Bitcoin Cash supporter." Would it not have been best practice for the author to list their vested interests as they're writing about a competing product/offering?
Imagine if everyone countering the positive narrative (propaganda in part) perpetuated by the "army of HODLers" was financially incentivized to counter that narrative whenever they had a chance, and not only that but proselytized their position, Bitcoin et al would have never reached its position today and many people who bought into the hype - or even killed themselves because of their losses - would have not unnecessarily, unreasonably transferred their wealth to someone else; a true centralized digital currency could take the cash you transfer into the digital currency "out of circulation" instead of giving it to someone, Bitcoin et al similarly structured - the "army of HODLers" are akin to a religion that's financially incentivized - even Fred Wilson - https://avc.com/2019/04/orthodoxy/ - stated he dislikes the cult-like behaviour of some in their community, without realizing he's in the community but just taking a priest-like role where he's in a more refined position and better controls his behaviour/image.
I am glad higher profile individuals are starting to voice their opposition, dislike of Bitcoin et al - Elon Musk recently tweeting out "Bitcoin is almost as bs as fiat money;" https://twitter.com/elonmusk/status/1340588909974200321 - fiat currency can shift into a better system supported by immutable, transparent blockchain - but with centralized control so no shenanigans can occur hidden from other allied nations you're trying to fairly balance economies with, arguably who will all be democratically elected governments, democracies.
Edit to add: With the growing "army of HODLers" with more vested asset holders waiting for the value of Bitcoin et al to recover and then some - while chanting the mantra "HODL!" - we need to pay attention to counter regulatory capture that this newer industrial complex will work towards.
As far as I know no central bank gives you money to buy consumer goods, they give money to commercial banks who let you borrow money to buy real estate (an investment if you rent it out) or to your startup or existing business so that you can expand faster (also an investment). That's the end of the short list of things that the central bank does that had even a tiny chance of directly involving consumers and the vast majority of money does go into capital investments.
Finally there is QE where the central banks introduce money into capital markets directly. Again unless you are a retail investor you are not going to transfer that new money into consumer spending. The vast majority of retail investors have a small net worth which means most of the money is going to a minority of wealthy people. Those wealthy people own businesses and would rather earn even more money (capital investment again).
So, every time the author complained about the central bank following keynesian politics too much, they didn't...
If anything, there is too little keynesianism. Inflation is low because money isn't reaching consumers at all. Now that we have arrived at inflation we can put another piece of the article in perspective.
>Economists of the Austrian school understand, that the boom is the real problem and the economic crisis is the necessary and positive cleansing mechanism.
Consumer inflation is a positive cleansing mechanism, it tells you "you have to be at least this productive to break even". Companies whose returns are below inflation have to close up shop eventually. Why is that? Because there is a shortage of goods or workers and those few precious goods or workers should be used in the most efficient way. Except this isn't what is currently happening, there is an overabundance of goods and labor and therefore there is no need for any sort of economic cleansing in the name of efficiency. It's the biggest reason why austerity policy in Greece did not work as "advertised". Their unemployment rate was so high that no job or company could be considered too inefficient. Simply getting people to work is already success.
I'll take advantage of this to also talk about something unrelated to the article. Some capital owners argue that their wealth should not be taxed on inflation. Well, that would completely go against the idea of the cleansing mechanism and inflation would just be central bank money straight into the pockets of the rich (it already is to a large degree).
>Economists of the Austrian school understand, that the boom is the real problem and the economic crisis is the necessary and positive cleansing mechanism.
Here is good intro materials to his very rational economic theories https://mises.org/economics-beginners
Apparently we must apply these serfdom-like measures in order to win against the current pandemic, but that's a different discussion (one of effectiveness).
It's not just a discussion of effectiveness, it's a discussion of values. But proponents of the lockdowns try to avoid that by painting anyone who doesn't share their value system as evil or immoral. There's a good chunk of the population who think it would be immoral to violate people's rights to free movement and association even if a disease with a 5-10% death rate was going around, because human rights aren't conditional. E.g. people who follow some form of https://en.wikipedia.org/wiki/Deontological_ethics rather than a https://en.wikipedia.org/wiki/Utilitarianism -based value system.
I love free societies and you should appreciate that capitalists allow the socialists to discuss revolution freely. Because if and when the socialists take over, I can guarantee they won’t afford the capitalists the same freedom.
You should know your enemy better than lazily repeating Cold War rhetoric. 99% of all socialists today are firmly democratic.
If you are curious about socialist history, which I doubt, you will find plenty of democratic socialist writers flaming the authoritarians before, during, and after the USSR. Bertrand Russell's "The Practice and Theory of Bolshevism" is a good one.
The demand for austerity is a fetish of power abuse and discharge of guilt by claiming only the best motives.
Disgusting.
Austerity is part of the recipe for turning a country into a failed state-see Greece.
How on Earth does inflation rise all boats when it's literally a wealth transfer from all currency holders to the money issuers and first spenders (banks and financial institutions)?
Because we absolutely do need to print money to avoid millions of people living in the streets at this point.
But we also ARE going to be bankrupt by it.
And I think the way out is to recognize that the monetary system is dated and inadequate and create a new one. Unlikely they will do that, but I feel better mentioning it even though it will be ignored.
The new system would be digital and incorporate more real-world information and finer-grained control.
The people cheering on continuously increasing government debt are cheering on impoverishing their children and their children's children to temporarily bolster their own living standards. To me that seems disgusting, robbing the future to pay for excess in the present.
Money is just a way of keeping track of how much of future output of civilization given entity deserves. If we decide that people who borrowed the money now don't deserve it then, puff, there's no debt, nothing to pay back, no burden on future taxpayers.
On the other hand the resources that we dig up now, burn, pollute... those are real theft robbing the future.
Do you mean "people who loaned that money"? That is a lot of foreign governments who will refuse to keep loaning us more money which would mean we'd need to balance our budget pretty quickly, or face inflation.
Also, please realize that it is also lots of pensioners and also anyone expecting social security in the future [1].
What you're talking about isn't even Keynesian economics, it sounds like a form of monetary nihilism. We've been down that road before, and hyper-inflation is a real thing proven by history before [2].
[1] https://www.cbpp.org/research/social-security/policy-basics-....
[2] https://en.wikipedia.org/wiki/Hyperinflation
Yes. Thank you for the correction.
Countries have whole net of iou-s between them and debts are not always expected to be paid back in full.
Some money borrowed comes from private market that you can disregard completely if you decide it was a bad idea and don't intend to repeat it in the future.
Yes. Hyperinflation is a thing but I wonder how high (stable) inflation you could have by just printing new money and using it to finance budget directly while preventing banks from inflating money supply with credit.
I'm not sure what the solution is, but I think assuming that because there's some monetary debt now it will all have to be paid back in the future is wrong because that's not what eventually is going to happen.
In fact, it’s worse: you’re not only losing trust on the bondholders whom you reneged to repay, but also most everyone else who observed it happening. You’ll be only left with people who will require handsome compensation for observably very real risk of not getting paid back.
So yes, our children will either have to repay all the debts we took, or default and lose immense amount of food will and trust that we are exploiting by borrowing at low rates. Either way, we are enriching ourselves at the expense of our children.
It does a pretty good job at explaining why the US can basically print money at will without facing inflation. Spoiler alert: people need to buy oil in dollars, but it cost us much of our domestic manufacturing base. I bring this up because the belief seems common at present that money is imaginary and that we've made so much of it without causing inflation is proof of this fact, but (as per the article) it's like a balloon as when you squeeze it, the air has got to go somewhere.
[1] https://www.lynalden.com/fraying-petrodollar-system/
The Bank of England is consulting on a CBDC and people from small, nimble providers who can change their tech more cheaply than big incumbents are representing the view that a CBDC can open up the payments infrastructure for them. It is hard to imagine a better development for them, and consumers.
Less positively, the whole critique of Keynesianism was answered decades ago and it amazes me that this is still a debate. Facts are facts, people have lives and need to consume, optimising without regard to this is abstracting human consequences out of the equation and therefore morally abhorrent. The Austrian school is for people who don't need to live with the agony of unemployment or deprivation.
Also, the only two among that list that I know to be actual banks - rather than prepaid card providers - are Monzo and Starling.
Adoption seems to be small though.
This can be said about any technological innovation since the cave age. It's evil because it could be used for evil. I, for one, don't appreciate this kind of arguments.
For me personally CBDC has two big advantages
- reduced risk (central banks can't go bankrupt)
- commercial banks invest my money on my behalf without me having any control over the process. CBDC is presumably just a store.
That sounds like a failure of politics and regulation; something that technology is a good workaround for, but a poor solution.
Technology can be a catalyst for increasing competition between banks. There might be another (regulatory) way to do it. Whichever gets us there faster.
Central banks have been against direct accounts for retail for this reason, because they didn't want to be in the business of retail lending as well.
What would be the alternative there? It seems unlikely that central banks would go into the business of vetting and giving out small business loans. Could a commercial bank function with only giving out loans and no deposit (I guess it would get loans directly from the central bank instead of balancing its balance sheet with deposits?)
As I mentioned in another comment, banks will have to do a better job at convincing me to open a deposit. Hopefully this will increase competition between banks and make them more transparent.
Not sure it makes sense, can they really compete against a "narrow banking" style bank? Why wouldn't narrow bank compete a better UI/services (and not offer any loans)?
https://www.econlib.org/why-does-the-fed-oppose-narrow-banki... explores a bit that part and the arguments against it.
Sure they can. They should be able to offer a better interest rate on their deposits.
"... new customers is one way, if not the cheapest way, to secure those reserves. Indeed, the current targeted fed funds rate—the rate at which banks borrow from each other—is between 0.25% and 0.75%, well above the 0.01% to 0.02% interest rate the Bank of America pays on a standard checking deposit.5 6 The banks don’t need your money; it’s just cheaper for them to borrow from you than it is to borrow from other banks." [0]
Why is that? why is it cheaper for banks to borrow from me than from other banks? I say it's due to the lack of competition.
[0]https://www.investopedia.com/articles/investing/022416/why-b...
The are many, many banks who will pay you something resembling the fed funds rate on a savings account (0.5% seems to be the number at the moment). Bank of America and other banks get away with paying 0.01% due to inertia and lack of consumer education.
commercial loan rates are nowhere near zero. I don't see what it has to do with CBDC.
But in any case, this still has the issue that it would be a massive institution, if it had to review all small business loans.
Indeed, there have been certain periods of time where privately issued money / bank deposits were “safer” than central bank or government issued currency. Also keep in mind that bank deposits are not a promise to pay base money as people mistakenly believe. It’s just that commercial banks are a market maker between their money and the government/base money and it just so happens that the exchange rate is 1:1 unless the solvency of the bank, central bank or government is brought into question. Commercial banks also don’t “invest money”. Instead, they are in the business of swapping IOUs. When you get a loan, you swap your IOU (a debt from you to the bank - the bank’s asset) for the bank’s IOU (debt from the bank to you - bank’s liability). You do this because the bank IOU is readily accepted by everyone and yours isn’t. If you just have a deposit, you get it by swapping the IOU from another bank or an IOU from the government (notes and coins) for an IOU with the bank you hold a deposit with. Note that the deposit is not your money either.
Sure. But you don't simply get a loan. A bank (account manager) will make a decision whether they want to give you a loan (with a certain interest) or not. And I don't have any influence on that "decision". This is what I mean when I say "commercial banks invest my money on my behalf without me having any control over the process".
Reason being is that I somewhat take issue with economists of the Austrian school or “full reserve bankers” (eg author of OPs article) who fundamentally don’t understand what banks are and how they work. It’s incredible really, because if they took the time to write out the accounting journals for loan creation and destruction then they would, in a single moment, realise that much of what they advocate is in fact complete nonsense. Because, ultimately, banks don’t lend out base money... so they can’t possibly counterfeit it (as Mises claims). Banks also don’t have a special privilege to create “money”/IOUs - we can all do it and we do it all the time, It’s just that the bank’s money is widely accepted and ours is not.
This is completely wrong. Your money on your bank account doesn't exist. What you see is the number of dollars the bank owes you. Its a debt. They dont invest your money anywhere. It doesn't exist. When someone transfers "money" to you the bank subtractions debt from their account and adds it to yours. Its still the same debt they just owe it to someone else now. If they give you credit for example because you want to build a house. They create the credit out of thin air by putting the house on the balance sheet so they can give out credit worth as much as the house. You pay it back and the house is yours you dont pay and the house goes to the bank. Your own money is used first so the house is allays worth more than what the bank credited at any point in time. Nowhere does the bank need someone else's money to give you that credit.
They cant credit infinite amount because there is no infinite no-risk demand for credit. Banks dont give credit where there is a risk to lose. That's why startups need VC and not a bank credit. Banks attract certain deposit holders because they are future house builder or otherwise customers of something the bank actually makes profit with. They dont care about the money deposited but if its more its more likely to be a customer they can make profit with. So yes they are interested in you as a customer if you have money but not because you store it there and they want to use it for something. Its one of the most taught lies about how money and banks work.
(TLDR: most of the useful concepts from Austrian theory were incorporated into mainstream economics; what was left were some bold claims and a hostility towards maths and empiricism.) https://econfaculty.gmu.edu/bcaplan/whyaust.htm
Austrian economics isn't hostile to maths; it follows a different value system based on ordinal, not cardial utility, which doesn't allow for interpersonal value comparisons. Mathematically speaking this system is actually more elegant, as it has one less assumption (no philosophical assumption that interpersonal value comparison is possible), but obviously in such a system fewer statements can be made.
This seems to be an attempt at corralling a market by offering something entirely unfit for purpose, but marketed as being backed by the ultimately trustworthy (for surface-level-only reasons of "well, we've gotten you this far") Central Banks, and therefore immune to failure.
What can it offer that doesn't already exist and also provide any consumer benefit?
The article seems to answer that: nothing, in fact, less than nothing.
Cryptocurrencies are anathema to Central Banks, so any embrace by the Central Banks must be looked at as a defensive reaction to a changing landscape.
The point is to be able to easily zero an account. Paper money in your possession cannot be instantly destroyed without your permission. A digital currency could be used to induce monetary velocity...i.e. spend the money by Saturday or it is deleted. Or, if you are arrested for protesting the Government, your account is zeroed.
It does.
What purpose? If you're only interested in a transaction processing system I don't anyone thought that cryptocurrencies were going to be an efficient alternative to a centralized ledger.
I don’t actually know for sure, but surely the percentage of fiat money that exists as physical cash is pretty small? Similar for the percentage of transactions that happens physically.
yes, but currently only licensed financial institutions (e.g. banks) can hold accounts directly at a central bank. You, as a private person, can't. CBDC will give you that capability too.
Deposits in commercial banks can then be treated as bank risk capital - where the depositor always risks a loss.
1. Austrian economics is right, Keynsian is wrong.
2. Central banks are introducing ledger based currencies to increase surveillance of consumers, using the strawman argument about China.
On 1), the pandemic has shown that government spending works to keep an economy from failing. The old inflation argument has been proven completely false. If anything, what has been proven is that a greater distribution of wealth is needed as Amazon and online wholesale and retail take over.
The boom in online sales is a superprofit, driven by a windfall that government public health measures closed other sales channels. Those profits should be subject to a windfall tax to reduce that concentration.
On 2) Central Banks are looking at ledger based currency as a way to allow more distribution channels beyond the existing retail banking network. It allows greater freedom for financial offerings by removing a layer of distribution.
In a way, ledger based currencies are the "Amazon" of money distribution by central banks. It allows them to push money out when needed to multiple outlets, while still maintaining regulatory control.
If anything, it's a "free but regulated market" at work.
From the document: "An added benefit of the increase in electronic payments is the reduction of shadow economy. Each year trillions of Euro flow in the shadow market unregulated and untaxed, leading to long term deficits. Traceability of electronic payments is much better than with cash, leading to more information on the flow of money. This information can be used to reduce tax evasion and make regulation easier, in turn reducing the shadow economy"
> It should also be said that this report is not made by the european union, but for the european union by a 3rd party that got paid to make research for them.
Signature right on the front page: "Policy Department for Economic, Scientific and Quality of Life Policies Directorate-General for Internal Policies."
This "third-party document" shit is a really embarrassing excuse. Can't the EU apologists think of something better?
Maybe someone external cooperated on that document - but it's still a document by the EU and for the EU just like any other, authored and published by a department of the Directorate-General for Internal Policies of the EU. I am sure they wouldn't have signed and published it if they disagreed with the content (or at least would have said so). You wouldn't try to claim that a law/regulation written by an external lawyer and published by the EU is actually not an EU document, right? Because there is a lot of that, e.g. the GDPR.
From the document: "The study lays out predictions for digital services in the next one to ten years and provides recommendations for action for the European Parliament in preparation for the Digital Services Act. This document was provided by the Policy Department for Economic, Scientific and Quality of Life Policies at the request of the committee on the Internal Market and Consumer Protection."
Anyways, this document is one of many, it's just the first I had a link to. The same points (and other, even more concerning ones) are made in many more.
> "such as democratic values, data protection, data accessibility, transparency and user friendliness."
Sure, just like the encryption backdoors are for the children, for the democracy and especially for transparency. Take these democratic values with you, I am not interested. The EU is really efficient in showing us why is democracy wrong.
That is an observation, not a policy thought up by politicians working at the Parliment.
>This "third-party document" shit is a really embarrassing excuse. Can't the EU apologists think of something better?
It is a study for politicians to take better decicions not policies to be implemented, for that you want to read the things like the meeting minutes not supporting analysis.
>Anyways, this document is one of many, it's just the first I had a link to. The same points (and other, even more concerning ones) are made in many more.
I would welcome linking to more, as long as they are not just studies, although interesting reading they do not dictate the policy.
>Sure, just like the encryption backdoors are for the children, for the democracy and especially for transparency. Take these democratic values with you, I am not interested. The EU is really efficient in showing us why is democracy wrong.
Well I am also welcoming more information about this as it sounds like something I want to read up on. The EU may be inefficient, and it could be a lot better, which is why I would welcome a discussion about it instead of making accusations without providing any sources to base your claims on.
Once more, the document says: "The study lays out predictions for digital services in the next one to ten years and provides recommendations for action for the European Parliament in preparation for the Digital Services Act."
> It is a study for politicians to take better decicions not policies to be implemented, for that you want to read the things like the meeting minutes not supporting analysis.
Exactly! And they really took all of this very concerning advice to their hearts with the Digital Services Act.
> I would welcome linking to more, as long as they are not just studies, although interesting reading they do not dictate the policy.
Start here: https://ec.europa.eu/digital-single-market/en/digital-servic...
> Well I am also welcoming more information about this as it sounds like something I want to read up on. The EU may be inefficient, and it could be a lot better, which is why I would welcome a discussion about it instead of making accusations without providing any sources to base your claims on.
Are you not watching the news? Even if not you could have easily used Google yourself, the document I linked gives more than enough keywords.
We're very lucky the EU is inefficient, otherwise there would be a totalitarian police state way worse than China or Russia sooner than tomorrow. Fortunately we got enough time to leave before the EU makes its latest moves.
No discussion is going to save this shit show, we're way past that. The DSA is going to be implemented soon and it's not going to be even a tiny bit better regardless of how much you talk about democratic values.
Sadly it can't be better. This union is not striving for freedom but the opposite.
The most fundamental hurtle to distribution is that people don't wanna! When you have a bunch of likes, giving them away sounds like a good idea, but in reality it means a) reducing your own value (unfairly), and b) increasing someone else's value (unfairly).
I personally have another solution, that I've never heard articulated, which I call "The Enough Number". It's a number you individually decide is enough for you, after which you will choose not to work any further (at least, not for money). This achieves a kind of de facto redistribution since, theoretically, someone else will step in to make the money the retiree is no longer making. Another way to put it is that it creates an artificial scarcity of competence, or it means that competence-for-hire decays over time in a way that is beneficial to society.
The only way for this to work, IMHO, is if you get some social status at Davos (free VIP entry for life? A medal?) for having a achieved Enough. Or maybe a publisher can arise, called "Enough Press" where such people can get a book deal.
FWIW my own Enough Number is $10M. This is still quite high but it reflects my upper-middle class sensibilities. This would be enough for a beautiful 1500 ft^2 house in Laguna Beach, a 30' wooden sailboat I partner on with a couple of neighbors, and I'd probably spend my time teaching neighborhood kids how to program and make things in a beautiful, sunny space filled with all kinds of very cool and dangerous components.
Politically, this helps focus me on the desired outcome, where the Earth is populated by people who routinely achieve Enough at 30, and spend most of their lives raising their kids, traveling, telling stories, eating good food, reading and writing. The really duty driven folk would find longer-term work at the EPA or the Justice Department or on space projects, etc. I would expect intellectuals to have the easiest time of it, because they could become adjunct professors. Celebrities and business people would struggle, I think, because the attention is the juice, and you can't every really have Enough!
From what little I've seen it can just as often amplify their own destruction or bad habits.
The number of disasters that are a) small enough not to wipe us all out, b) large enough that it would wipe out a large fraction of us, and c) a large amount of money would have any influence being in one group or another, is very small, and they would be mostly political (possibly biological) disasters.
I mean, I could think of stranger stories than a humanity that was saved from total destruction by the actions of a few "crazy" billionaires that got together to make a livable moon base "just in case" in 2021, just before The Real Plague, a virulent strain of Covid-19, created a zombie apocolypse that almost wiped us out - except for the intrepid crew of Atlas-1 Moonbase, populated by the best of humanity: Bezos, Gates, Musk, Myrhvold, Trump, and a good chunk of the Saudi royal family. Or that was the plan, anyway, before the Chinese finally activated their APT and, at the last minute, replaced the passengers with CCP leaders and their families. (Satire aside, if humanity could "come back" from this unlikely scenario, then I'd say the excesses of the 20th and 21st century might even have been worth it. But really, the odds of any of this happening seem vanishingly small.
You are trying to solve the problem of scarcity. This scarcity manifests in people having not enough. And I’m not taking about your Enough, I’m talking about people having to think about how much mortgage they can afford, whether to buy groceries at Whole Foods, Safeway or Walmart, or whether they can make payment on their car. All of this happens because we don’t have unlimited abundance of everything, and we need to determine how products and services that are produced get distributed.
For this purpose, we use money , and the way it works is people can make money by various activities that almost always provide products and services that other people value, and they give you money in exchange. This can be entrepreneurship, but for most people it’s a job one does for wages.
Some jobs pay little, some pay a lot, and it seems that your idea is that there are not enough high paying jobs around, and so you want to increase availability of these jobs by having people working these jobs give them up early.
This is a well meaning, but terrible idea. The problem here is that its result is less things get produced, so in aggregate, we’re even less wealthy than before your plan. Your plan is strictly negative for the society. It might benefit some people who get to have a better job than they otherwise would, but the society is paying immense cost for this job.
A better alternative than destroys less (though still significant amount) value is to just tax the high earners and use the proceeds to subsidize low earners. This way, you can have low earners earn as much as they would have after switching to higher paying job in your “retire early when you have Enough”, but you’d have both high and low earner continue working, so more total value would be produced.
In this better alternative why would high earners continue to earn high when they can just switch to become a low earner and eat the tax from the remaining high earners.
Or, another way to look at it. All the good advice about growing rich talk about "passive income". That is, by definition, income you make despite not doing anything. The economy suffers not at all if such a person decides to do...anything with that money (other than consume it).
I don’t know what background you are coming from, but rest assured that most high earners do produce significant value. Lawyers, doctors, software engineers, architects, the list could go on an on. To be sure, some people might make money in zero sum activities, and some might exploit information asymmetries to charge significantly more than their services would be worth in perfect information scenarios. But, by and large, high earners (defined as, say, top 5% of wage workers) most definitely do provide value, in excess of what they are actually paid. It is simply hard for millions of people to convince others to give them more money than they services are worth.
> Or, another way to look at it. (...)
I don’t actually understand your argument in this sections. Most good advice on getting rich is not focusing on “passive income”. Instead, it focuses on investment and on providing value by entrepreneurship. People talking about “passive income” usually mean by it a kind of investment that produces returns with little to no labor input required. Given the low cost of capital today, such investments don’t usually provide high returns, and so are highly unlikely to make one rich. They can provide nice income, to be sure, but that requires becoming rich in the first place.
I have to conclude you aren't arguing in good faith.
There are many jobs that have well agreed upon social value but we have no way to wire up the economy to pay them commensurately. Think of caregivers being paid $9 per hour to clean up Grandpa's sick, or teachers who can't spend their summers on improving their craft because they have to take a menial off-season position to stay afloat.
It also works on the other side-- I think you'd be hard pressed to find someone saying that top athletes and actors are worth eight figures a year on their contribution to society alone, but the market has bid them there.
A much more hands-on system of wage and price controls could at least come from a conscious decision-making process.
No, prices are information. Money is a unit of measure. Fucking around with money results in misinformation.
My point actually wasn't that this is a good idea, but that it's a superior idea to doing the same thing with a blockchain based ledger. All the problems you outline are true for the blockchain solution as well.
Also, inflation in consumer goods can show delayed as well. And assets are already inflated. It’s a bit too early to say with confidence, that the stimulus prevented the economy from failing.
At this point in history, how can anyone claim that Keynesianism is "wrong"?
> I would summarize the Keynesian view in terms of four points:
> 1. Economies sometimes produce much less than they could, and employ many fewer workers than they should, because there just isn’t enough spending. Such episodes can happen for a variety of reasons; the question is how to respond.
> 2. There are normally forces that tend to push the economy back toward full employment. But they work slowly; a hands-off policy toward depressed economies means accepting a long, unnecessary period of pain.
> 3. It is often possible to drastically shorten this period of pain and greatly reduce the human and financial losses by “printing money”, using the central bank’s power of currency creation to push interest rates down.
> 4. Sometimes, however, monetary policy loses its effectiveness, especially when rates are close to zero. In that case temporary deficit spending can provide a useful boost. And conversely, fiscal austerity in a depressed economy imposes large economic losses.
* https://krugman.blogs.nytimes.com/2015/09/15/keynesianism-ex...
I'm sure that there are nuances in the model that can be more or less accurate, but the idea that (aggregate) demand drives economic activity, and that (central bank) interest rates and government (stimulus) spending effects economic activity seems fairly certain. Especially with everything we've seen over the last ~20 years: Fed-driven US real estate bubble, post-2008 economic recovery, lack of inflation due to low/zero rates even with lots of "printing money", austerity caused economic slowdowns (in the EU).
It's been one giant economics petri dish of experiments. How has Keynesianism failed? Non-K folks were predicting all sorts of problem, and yet the Ks were saying 'it'll be fine':
> We believe the Federal Reserve's large-scale asset purchase plan (so-called "quantitative easing") should be reconsidered and discontinued. We do not believe such a plan is necessary or advisable under current circumstances. The planned asset purchases risk currency debasement and inflation, and we do not think they will achieve the Fed's objective of promoting employment.
* https://economics21.org/html/open-letter-ben-bernanke-287.ht...
Full-employment is very easy to achieve for the government, if that is the government's only goal. Create artificial demand for ditches to be dug, and then hire people to dig those ditches. The fundamental question is not how to generate artificial demand, but how to generate artificial demand that succeeds at generating useful value.
Now, that spectrum has a range of answers. Sometimes you don't really care about value, or you take value on faith, e.g. when constructing public infrastructure works. They put people to work, get people spending, and everyone agrees that the country is in dire need of infrastructure improvements right now. There are, however, two non-infrastructure extremes: a) spending money on strong companies that will become stronger (instead of failing due to temporary unavoidable circumstances), but if anyone knew for sure which companies these were, the government wouldn't need to spend any money at all, investors would step in and pocket the profits. Then there's b) spending money on weak companies that would've failed in a year or two anyway, and emergency bailouts only forestalls the inevitable, wasting money and time and creative potential for nothing.
Now most companies are on a spectrum, which means that the strategy of such wide-spectrum spending is to offset the losses of boosting weak companies with the gains made by strong companies, overall.
Will it work at generating (net) useful value? Maybe. If so, then the currency is tied up in the extra value generated, and we'll avoid inflation. If not, then we have far more currency in circulation for the same amount of value, and prices will go up in tandem. Jury's still out.
This is a bit black-and-white: full employment may not be the end-goal of stimulus spending and the government generally, but rather simply just getting the ball rolling. Pre-pandemic there wasn't much need of stimulus, and certainly no need of the December 2017 tax cut (TCJA) that was supposed to "pay for itself" per its proponents, given the state of the economy and unemployment rate:
* https://fred.stlouisfed.org/series/UNRATE
Now that isn't the only measure of 'success', but if the unemployment rate is (say) >8%, then spending money on 'non-useful value' work, so that people can pay rent and buy food, isn't such a bad thing in the short-term (IMHO).
Some certainly argue for full-employment all the time, but that's a separate discussion than the general idea of raising aggregate demand to 'induce' economic activity.
> Now, that spectrum has a range of answers. Sometimes you don't really care about value, or you take value on faith, e.g. when constructing public infrastructure works. They put people to work, get people spending, and everyone agrees that the country is in dire need of infrastructure improvements right now.
Yeah:
* https://www.npr.org/2018/05/15/611389675/why-its-infrastruct...
* https://www.theverge.com/2020/3/10/21173209/infrastructure-w...
* https://www.infrastructurereportcard.org
https://www.bls.gov/opub/hom/cpi/
I can’t speak as to how accurate it is compared to real life.
What I know is CPI figures don’t and can’t incorporate volatility. For example, I assume healthcare expenses will skyrocket, and government assistance such as Social Security will be reduced. Therefore, I act as if life will be more and more expensive.
[1] https://www.bls.gov/regions/midwest/news-release/2020/pdf/co...
For example, when I shop, I'm not that particular to specific brands, so if I'm buying soup or cereal, I will always choose the one that is on sale that week, usually around half price (e.g B1G1). I end up paying about 60% of what a normal customer pays who is loyal to specific brands no matter if they're on sale or not.
What I've noticed is that the normal prices haven't really gone up all that much, but the discounts are very small and there are far fewer of the really good ones (e.g. $3 per lb. of chicken, the $0.99 carton of eggs, half price cheese, B1G1 soups, etc).
Thus, I'd say my grocery bill has gone up about 50% or more in just the last year, whereas it had really held stead for the last decade.
This is, of course, on top of home prices in my area nearly doubling in 10 years when considering increased taxes, HOAs, repair costs, etc.
[1]: https://en.wikipedia.org/wiki/Great_Depression#cite_ref-Rand...
Are you saying there is nothing to be paid by current and future generations for this.? The system will take care of itself somehow?
Just wondering how is it possible for them to do this without raising inflation. Simply allocating all the debt on their balance sheet means they have erased the debts of the corps/public by increasing the money circulation isn't it? Then inflation will happen?
That’s why there would need to be a wealth/income tax to redistribute in order to provide the UBI in the first place.
1. https://www.clevelandfed.org/en/newsroom-and-events/speeches...
I find your arguments very naive. You entirely ignore the misuse of governmental power - history has shown us. Also please consider that increasing the money supply steals money (the value of money) from everyone's checking account over the long term. At the same time consider that QE money is not retrieved by the people who need it most (see cantillon effect).
Inflation measures the general price level in the economy (in the form of a basket of goods), not the prices of individual commodities. The inflation in Austria has been at a steady 1-3%[1] over the last decade, roughly in line with inflation targets. Housing prices have risen, like in many other regions, due to a lack of supply of housing in the market, not changes in the money supply.
These vague rants about governmental power are exactly what makes it to read any of these Mises articles with a straight face, it is nothing else but libertarian ideology.
[1]https://www.statista.com/statistics/375291/inflation-rate-in...
Don't you think demand/supply is strongly impacted by the actions taken by the FED or ECB (eg interests - since 2008 it's difficult to find better investment objects than real estate or Gold in order to retain the asset's value - loans are pretty cheap).
>These vague rants about governmental power are exactly what makes it to read any of these Mises articles with a straight face, it is nothing else but libertarian ideology.
Does that mean you are sure the government won't use interest rates as a mean for controlling the economy? Wouldn't you feel very bad when being forced to spend your money in order to not be punished with negative interest rates? Without cash you won't even be able to escape. Negative interest rates are just one example. I'm sure that this is happening if we don't act.
I can't see why you consider such things vague rants.
>Does that mean you are sure the government won't use interest rates as a mean for controlling the economy?
The central bank, which acts independently, and not the government, uses interest rates to control the economy, but that's the point. It's a good thing, not a bad thing. If we had the digital currency in question and the central bank can send everyone two thousand bucks during a pandemic induced depression to stabilize demand rather than completely sound policy being held hostage by politics we would all be better off. We are right now literally living through a situation that shows what the benefit of such tools would be.
But that's the problem: housing isn't like most goods (eg. TVs) that can be produced in a factory in quantities so massive that everyone can have one. The same can't be said of housing, or more specifically land eg. there's only so many space for a semi-detached house within 30 minutes driving distance of the bay area.
> Which again, is not happening as born out by data.
Source?
It's worse than that.
If inflation was uniform and instantaneous, expanding the money supply would just result in a corresponding change in all prices and account balances. It'd be like trying to redefine the litre in order to get more gas from the pump. As such, the state wouldn't bother trying to change it.
Inflation "works" insofar as it allows those who receive the new money earlier to buy goods before the suppliers realize their prices are too low for the new money supply, and in so doing drive up the prices faced by those who receive the new money later. The aggregate effect is to transfer money from those who receive the money last to those that receive it first (banks, financial institutions, forex, etc.)
Personally I think something like solutions built on Ethereum 2.0 have the potential to really integrate more real-world information and finer-grained control for society.
Money is fundamentally a technology and it should be a high technology.
But like with everything else, there are extreme differences between the outcome of divergent designs.
1. This is illustrated by a 50 year old who paid off their $500k house. They sell, keep the cash for 23 months until they move across the country to buy a new house.
2. They could store their $500k in USD w/money printing and be a Keynesian. Money printing dilutes and they can buy less.
3. Another similar couple stores their $500k in BTC or cryptGOLD, as a non-money printing Austrian.
Imagine if each person in society is picking individually if they want to be an Austrian or Keynesian based on the currency they select. Costs of USD money printing will be paid by a smaller and smaller group of people as more and more move off of USD.
For example, if the 50 year old bought all their Bitcoin in January 2018, and sold them to buy their new house in January 2020, they would have been very, very disappointed.
“Hard” assets like gold and BTC by definition can’t be used for fractional reserve banking and instead must be warehoused (or you bury your good in the back yard and hope nobody steals it). Hence yiu are typically paying someone to warehouse your gold (there’s a fair amount of literature on this) or paying for a public wallet, rather than having the bank pay you. How is that any different from paying he central bank to sell you a bond?
Moral hazards of TBTF/TBTJ and propping up zombies can only get you so far…
If you mean deposits, then you're describing fractional reserve banking, and the central bank sets the reserve ratio for those commercial banks, thus the central bank is still in control.
"The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design."
"It is no crime to be ignorant of economics, which is, after all, a specialized discipline and one that most people consider to be a ‘dismal science.’ But it is totally irresponsible to have a loud and vociferous opinion on economic subjects while remaining in this state of ignorance."