What evidence is there that Fed policy ever did any good? Why do we worship the Fed chairman?

[Togo]

So the BURDEN OF PROOF is on the one proposing to do such an act which we know would be harmful if done on a large scale but which we cannot prove empirically would be harmful if done on a small scale.

Why shouldn't this be a universal principle of law applying to all areas of economics?

Because, as I showed, it is a not a universal principle.

You haven't given a case where this rule does not apply.

He has, so have I, you've not addressed any of them.

Instead of claiming you did something back there, why not just do it again. Give an example where we should give in to someone's demand for something which we know would be a net harm if done on a large scale but which they are demanding to be done just for them on a limited scale and so they claim it must be OK.

Listening to you?

You've certainly not mentioned the evidence or proof you're supplying for the adoption of your burden of proof rule.

The rule should be adopted, or actually is already practiced somewhat, because it is a precaution against someone who wants something that is really for very LIMITED benefit and comes at a cost that is greater than the likely benefit.

There is a DANGER of this happening, or rather, it already happens a lot. We give in to some activist group, special interest, or ideological camp, who wants to impose some costly program onto us which will not produce a social benefit great enough to justify that cost. Aren't there many examples of this?

So by having this general rule, we prevent enactment of some such costly program. We require the proponents to prove that it would be a net benefit if done on the limited scale they propose. Since we know it would be harmful if done on a large scale, we are entitled to be suspicious of it also being a net harm if done on a small scale, because we have many examples of this, due to the temptation we have of seeing some limited direct benefit to be gained but not seeing the overall cost that comes with it, or the downside or negative side effects.

So why shouldn't we demand first that they prove there is no harm in doing this on the limited scale? The rule doesn't prevent a legitimate program that would provide a net benefit, because in that case the promoters of it are able to give the evidence and prove the merits of the limited program.

Don't policy-makers already do something like this anyway, at least partly?

Sort of. What they do is to judge policies on the evidence of their merits. What you're suggesting is subtly different, that particular kinds of action should be subject to proof of benefit before being permitted or else be banned outright, but to not apply this principle where you think it wouldn't be suitable. In other words, to hold policies you don't like the sound of to an arbitrarily higher standard.

The primary drawback of such 'universal rules' becomes obvious when you compare them to considering ideas on their merits - they serve only to allow the dismissal of ideas without considering them, and such really only help if you're trying to implement an unthinking bias away from certain kinds of action.

This kind of attempt at burden-shifting bias is mostly clearly seen in some of the nuttiest ideologes on the web. The author of TimeCube (www.timecube.com/) regularly challenges anyone to disprove his theory, often offering large cash prizes. Jack Chick is a regular in arguing that people have to accept his conclusions if an alternative can't be proved.

Or does the rule not apply to itself?

How is this rule harmful if done on a large scale? Where has a rule like this done damage?

Frequently. It paralyses government action by trying to pretend that action can only be taken when it is uncontrovertially correct. Imagine how you'd feel if the opposing view were taken, that private individuals and companies could take no action whatsoever unless they could prove to others that the action they intended to take was of net benefit. Sound less appealing? Yet all I've done is switch the actors around, and suddenly it's an unconsciable attack on the freedom to act.

 

[Lumpenproletariat]

Another example to add to my laundry list of "high-level net harm = low-level net harm" is that of government grants.

Shouldn't all recipients of government grants have to prove that their particular project will produce a net benefit for society? We know not ALL seekers of government grants can be indulged with taxpayer funding. Beyond some obvious limit point it becomes more harm than good.

This means there should be no government grants at all, or, those seeking such grants must prove that their "research" or "art" offers a net public benefit and is therefore more worthy than that of the other seekers of government grants. If they can't prove this, they are not entitled to their grant.

It should be obvious that many government grants went to waste on projects that offered little or no public benefit. Why were these grants ever issued? Because someone said, "Oh hell, it's only $50,000 or $20,000 or whatever -- that's not going to bust the budget." And so because the amount is small or it's a small-scale item, it is thought to be no net harm.

It's an illusion that there's no net harm. If a million of these grants would be too much, or not worth the cost, then 10 or 20 of them is also too much and not worth the cost. At the least, each grantee must be required to prove the necessity and the net public benefit to be gained from his or her individual grant, and show that if this benefit were multiplied by a million, then it would be worth a million times greater funding figure.

Thus, the burden of proof is on the one demanding the low-level funding allocation which we know would be a net harm if it were done beyond a certain high level.

 

[NobleSavage]

Don't diss on www.timecube.com !!!

 

[Lumpenproletariat]

#76


Wiploc

You haven't given a case where this rule does not apply. Give an example of something that we know would be a net harm if done on a large scale but that we should allow to be done on a small scale without requiring any evidence from the proponents that it would not also be harmful if done on the small scale. Unless you can give an example of this, you cannot say this isn't a "universal" principle, or a legitimate rule that should always apply.

Ventilation. Two examples:

Houses: If you don't let some air flow into a house, everybody in there will eventually suffocate. But if you let too much air in, then heating and air conditioning will be expensive and ineffective.

People: If you never inhale, you die. But if you hyperventilate you will become mentally and medically distressed.

With these examples you're ignoring my phrase "without requiring any evidence from the proponents that it would not also be harmful if done on the small scale."

In your example, you're a proponent for "ventilation" on a small scale, i.e., air flow into the house and breathing. But you are giving evidence for the need for these two forms of limited ventilation. Presumably there is evidence that people will suffocate with no air flow in the house and that they will die if they don't breathe. So this proves the need for the ventilation on the smaller scale.

To show that the rule does not apply, you must give an example where we should allow something on a small scale that would be harmful on a large scale but NOT require any evidence or proof from those who promote doing it on the small scale.

All I'm saying is that there is a special burden of proof on those who advocate doing something on a small scale that we know would be harmful if done on a large scale. If they can make the case that it would be a net benefit on the small scale, as you just did in your example above, then they have complied with the rule.

To reiterate our main topic, I'm saying the Fed never made any such case for QE or for suppressing interest rates or for promoting an inflation rate above zero. All they have to do is present a case similar to the case you just made above for why we need to have ventilation on a small scale even though it would be harmful on a large scale.

Everyone responding here keeps repeating that the case was made somewhere, but no one actually makes the case or quotes someone who made the case.

 

[Playball40]

Can we not forget that the economy fluctuations are not just a product of monetary policy (Fed) but of fiscal policy as well. You could have the perfect Fed policy and never know it due to the actions of Washington.

 

[Lumpenproletariat]

#80


laughing dog

You are confusing "large" with "larger than" and "small" with "smaller than". For example, 1 trillion larger is than 0.9 trillion and smaller than 1.1 trillion. Was QE of 1 trillion large or small?

Can we relate these points/arguments to our topic?

The Fed dumped about 1 trillion into the economy over a one-year period. Was this good for the economy? They claim it was but offer no proof. They do not make the case that the economy was made better from this than it would have been if they had not done this increase of money circulation.

But what EVERYONE agrees with is that if they had dumped 2 or 3 trillion into the economy, that would have been a net harm to the economy.

That 1 trillion was small compared to what the Fed could have done, because it could have dumped in far more than only 1 trillion. They are claiming that the "smaller" amount was appropriate, or not too much, but that 2 or 3 trillion would have been too much.

I'm asking how they know that even the 1 trillion was not too much. They have not answered this question, or rather, they have not given evidence that the 1 trillion was harmless even though everyone agrees that 2 or 3 trillion would have been harmful.

Where is the evidence that the 1 trillion was not also harmful in the same way the 2 or 3 trillion would have been? Even though it would have been LESS harmful, is it not still the case that it was harmful, or a NET harm, just as a 2 or 3 trillion dumping would have been harmful? Just because something is LESS harmful does not change the fact that it is harmful.

Here would be evidence that "economic stimulus" works:

There are 2 countries which are virtually alike in every possible way we can observe. Except there is one difference -- Country 1 injects an "economic stimulus" every time most recognized "economists" say it is needed, and Country 2 never enacts an "economic stimulus" (i.e., an infusion of money into the economy without raising tax revenue to pay for it), and this continues for many years......

In other words, there is no evidence you will accept, since your standard is impossible in the real world.

No, the standard doesn't have to be as strict as the above, where 2 conditions are virtually alike in every possible way except for one single difference. However, as more variables enter into the comparison and cannot be accounted for in the calculation, then the less reliable is the evidence or the proof.

I'm not saying that the only proof ever possible is one where we have 2 countries that are exactly alike in every way. However, that is the ideal, and a good proof, relying on empirical data, is one which tries to eliminate as many variables as possible. And the Fed or its devotees have yet to make this effort when pretending they have proved the net benefit from the 1 trillion QE.

It is possible to prove the need for more funding to fill potholes using the above standard. We can see the damage to vehicles as the potholes increase. We can make good estimates of the cost to society from this damage and compare this to the cost of getting that repair work done.

Legitimate public needs and government programs generally try to comply with the above standard, perhaps usually do comply, because the comparisons are possible and the variables are sufficiently accounted for. The standard I'm proposing here is not really new. We already follow it, but we should follow it more stringently than we do, and there are too many cases, such as the actions of the Fed, where the standards of evidence and proof are virtually ignored.

Even uncompetitive jobs that are paid more than they are worth? You did not make the case why it is necessary to save every job, no matter how uncompetitive or overpaid it might be.

Maybe you did prove that QE saved some such uncompetitive wasteful jobs. But you didn't prove how doing that makes the economy better . . .

Even though you are now shifting the goalposts from "creating jobs" to "saving worthwhile jobs", it should be obvious that saving people's jobs during a recession helps them.

Of course it helps those people, and other people have to pay for it. Imposing a cost on some in order to provide a subsidy to others is not necessarily good for society. The "jobs" that are beneficial to society are the ones that serve the market without having to be subsidized by imposing artificial costs onto consumers or taxpayers or others who are victimized by the Fed's or Congress's inflationary policies and/or additional debt.

It permits them to keep working and spending and saving.

But only by penalizing the working and spending and saving of others. Explain why it's good to disrupt the spending and saving practices of everyone else in order to prop up the spending of these ones whose uncompetitive jobs were saved.

But your comment indicates a real lack of understanding of the workings of monetary policy. QE's main purpose was to stabilize the financial system and to keep interest rates low.

What "lack of understanding" are you talking about? I've asked repeatedly why it's good to suppress interest rates. So by "understanding," you mean questioning this practice of suppressing interest rates? Anyone who asks why this is good is lacking "understanding" and needs what? to be reprogrammed to agree with this dogma that interest rates have to be suppressed?

Instead of accusing the doubters of lacking "understanding," why don't you for once give an answer to the question that has been repeated over and over? i.e., Why is it good to suppress interest rates?

Can't you understand that there may be some doubters out here who don't subscribe to your religious dogma that interest rates have to be suppressed? What we're lacking is not "understanding" but answers from the dogmatists who keep shoving this down our throat. There are millions of Americans who would like to save a little and get a small return. Why do you want to punish these people? What sin are they committing by wanting to save their money instead of spending it and going into chronic debt as you are promoting with these ideological theories about the need for low interest rates and high inflation?

There's often no "data" to prove something. There's also logic. There is nothing scientific about making a religion out of meaningless or non-existent data. You use the evidence or logic that exists. You don't demand "data" when none exists that is relative to what you're trying to prove.

Logic does not usually work when one is talking about human activity.

Yes it does. Supply-and-demand is a rule that contains logic. As the supply increases, the price goes down, all else being equal. Or if the demand increases, then the price goes up if the supply remains the same. And so on. This is "logic" explaining how humans typically behave. There are many examples of applying logic to human behavior, to predict how humans will behave and explaining why they do what they do. It's not necessarily based on empirical "data."

You don't have "data" to prove that global warming is causing the recent weather disasters that have occurred. But there is good reason to believe it is a factor. When you can't control all the variables, you have to rely on other reasoning than just meaningless "data" that doesn't tell you what caused what.

You are right - at this point we don't have data that undeniably proves that global warming is causing the recent weather disasters. And that is a problem because there are many people who are unwilling to do anything without such proof.

We do have some "proof" just like we have "proof" that minimum wage is doing net harm. Because we know generally that the increased CO2 emissions are likely to reach a point of causing the kind of damage that we're seeing with some of the extreme weather conditions. We can't prove empirically the cause-effect connection, but we can reasonably assume a connection based on logic. Since those emissions can be expected to cause some results like this, and we see some such results, we can reasonably assume that the CO2 emission are a likely cause of it.

You don't need to have empirical "data" in order to draw reasonable conclusions about what is causing what. We have probability, and we can say something appears more and more probable, without having the empirical "data" to prove it.

Environmentalists can rely on probability and logic arguments to show the CO2 cause-effect condition, without needing empirical "data" to prove that these particular emissions over here caused that particular hurricane over there.

We should demand "proof" that A caused B, but this doesn't necessarily mean empirical "data" and also not absolute certainty, but a reasonable probability. If we required 100% certainty for every decision, we might never be able to act.

No, we have no experience to show that it would have been worse without QE . . .

We have no experience in most places of no traffic lights and this level of traffic.

Perhaps not empirical "data" in the strict sense. But we know from logic, and some good predictions of human behavior, what it would be like with no traffic lights and what it would be like with excess traffic lights at every intersection. We can easily predict what would happen. That kind of logic would be sufficient to prove the need for a particular act. The Fed and its devotees do not offer that kind of logic to prove the need for QE or the need to suppress interest rates.

And we do have the Great Depression when monetary policy did not act.

That was a period of DEflation. You can prove the need for greater money supply if the inflation rate goes below zero.

The only empirical "data" needed in order to make those decisions is simply a reliable measure of the general price level change. If it's clearly below zero, then you have a case to increase the money circulation by some means. However, no one has shown that suppressing interest rates is the best way to do it.

No, that's not my example. I'm talking about paying them [blackmailers/extortionists] off in order to bribe them not to do the damage they are threatening. I'm saying nothing about cases where they are paid as a trick to catch them . . .

Doesn't matter. Paying them off gives authorities another avenue to try and track them down. It is not my fault that your example logically rebuts your claim.

My "claim" is that it is always a net harm to pay off blackmailers/extortionists for the purpose of preventing them from carrying out their threat, but that if this is done for some other purpose, like tricking them and catching them, and the probability of this trick working is very high, that's something different and is not included in the type of blackmail/extortion scenario I'm referring to (the most common kind) where the payoff is done to appease the blackmailer/extortionist.

This common scenario of paying off blackmailers/extortionists is a net harm as more and more victims of blackmail/extortion yield to the demand of the blackmailer/extortionist. And it is also an increased net harm in each individual case, even though it is not possible to measure the damage done in any one isolated case, and that particular victim might imagine that there is no harm in their one case.

Biodegradable waste and thermal pollution can pose real threats to an aquatic ecosystem. Both are taken seriously in the real world.

Then we agree that someone who wants to do this kind of pollution on a small scale should first have to prove that it would not be a net harm. As the principle I'm proposing requires. I thought you offered this example earlier as an argument against this principle. But apparently you meant to support the principle I'm proposing here, that anything we know would be harmful on a large scale should also be assumed as a net harm on a small scale, unless the one proposing to do it proves otherwise. And this obviously applies to all cases of pollution. So on this point you agree with the principle I'm advancing.

I'm referring to toxic substances. These are obviously harmful when dumped on a large scale, and so we should assume there is also net harm if it's done on a small scale, even if there is no empirical "data" to prove it.

. . . my examples of water pollution show your claim is false.

How does my principle above ("we should assume there is also net harm if it's done on a small scale") not apply to water pollution? What is "false" about saying that someone who proposes to pollute the water on a small scale should have to first prove that there would be no net harm from it?

 

[laughing dog]

Can we relate these points/arguments to our topic?

The Fed dumped about 1 trillion into the economy over a one-year period. Was this good for the economy? They claim it was but offer no proof. They do not make the case that the economy was made better from this than it would have been if they had not done this increase of money circulation.

But what EVERYONE agrees with is that if they had dumped 2 or 3 trillion into the economy, that would have been a net harm to the economy.

I don't know if everyone agrees with that. I don't even know if the Fed agree with that.

That 1 trillion was small compared to what the Fed could have done, because it could have dumped in far more than only 1 trillion. They are claiming that the "smaller" amount was appropriate, or not too much, but that 2 or 3 trillion would have been too much.

And the Fed could have dumped at less as well. I don't know if the Fed claimed anything of the sort. I suspect the Fed was worried about going to far without knowing where that limit was. They were trying to strike a balance.

I'm asking how they know that even the 1 trillion was not too much.

I would guess they believe that (rather than know it) because inflation did not accelerate.

They have not answered this question, or rather, they have not given evidence that the 1 trillion was harmless even though everyone agrees that 2 or 3 trillion would have been harmful....

I don't know if they have or have not answered your question. And I don't know that everyone agrees that 2 or 3 trillion would have been harmful.

No, the standard doesn't have to be as strict as the above, where 2 conditions are virtually alike in every possible way except for one single difference. However, as more variables enter into the comparison and cannot be accounted for in the calculation, then the less reliable is the evidence or the proof.

I'm not saying that the only proof ever possible is one where we have 2 countries that are exactly alike in every way. However, that is the ideal, and a good proof, relying on empirical data, is one which tries to eliminate as many variables as possible. And the Fed or its devotees have yet to make this effort when pretending they have proved the net benefit from the 1 trillion QE.

It is possible to prove the need for more funding to fill potholes using the above standard. We can see the damage to vehicles as the potholes increase. We can make good estimates of the cost to society from this damage and compare this to the cost of getting that repair work done.

Legitimate public needs and government programs generally try to comply with the above standard, perhaps usually do comply, because the comparisons are possible and the variables are sufficiently accounted for. The standard I'm proposing here is not really new. We already follow it, but we should follow it more stringently than we do, and there are too many cases, such as the actions of the Fed, where the standards of evidence and proof are virtually ignored.

Then you should be able to answer the question of "What evidence would you accept". So far, you have given an impossible standard and then given a rather nebulous explanation of a relaxed standard.

Of course it helps those people, and other people have to pay for it. Imposing a cost on some in order to provide a subsidy to others is not necessarily good for society. The "jobs" that are beneficial to society are the ones that serve the market without having to be subsidized by imposing artificial costs onto consumers or taxpayers or others who are victimized by the Fed's or Congress's inflationary policies and/or additional debt....

You shifted to goal posts to "beneficial jobs". Of course, you have no a priori way of identifying beneficial jobs, and whether markets weed out the worthless ones depends on a number of empirically based and sometimes questionable assumption, and hindsight is 20-20. So your particular criticism seems rather moot. Especially in a situation when the economy is going in the tank. It is analogous to complaining about that the way someone is bailing water out of a sinking boat might be getting some people wet.

What "lack of understanding" are you talking about? I've asked repeatedly why it's good to suppress interest rates. So by "understanding," you mean questioning this practice of suppressing interest rates? Anyone who asks why this is good is lacking "understanding" and needs what? to be reprogrammed to agree with this dogma that interest rates have to be suppressed?

Well, for one thing, you completely ignore the stabilization of the financial system goal in your responses. And keeping interest rates low during a recession helps those firms and consumers borrow funds which can be spent to help bring the economy out of the recession faster. This is a well-known channel of monetary policy.

Can't you understand that there may be some doubters out here who don't subscribe to your religious dogma that interest rates have to be suppressed? ...

I understand there are doubters who recognize their lack of knowledge and who are serious about learning. I also recognize there are ideologically based doubters who are base their doubts on persistent ignorance and ideology.

There are millions of Americans who would like to save a little and get a small return. Why do you want to punish these people? What sin are they committing by wanting to save their money instead of spending it and going into chronic debt as you are promoting with these ideological theories about the need for low interest rates and high inflation?

And there are millions of Americans who wish to work or stay working so they can eat. Why do you want to punish these people? What sin are they committing by wishing to stay alive?

Yes it does. Supply-and-demand is a rule that contains logic. As the supply increases, the price goes down, all else being equal. Or if the demand increases, then the price goes up if the supply remains the same. And so on. This is "logic" explaining how humans typically behave. There are many examples of applying logic to human behavior, to predict how humans will behave and explaining why they do what they do. It's not necessarily based on empirical "data."

But people do not always behave "typically" which makes the application of "logic" as proof rather dicey.

We do have some "proof" just like we have "proof" that minimum wage is doing net harm. Because we know generally that the increased CO2 emissions are likely to reach a point of causing the kind of damage that we're seeing with some of the extreme weather conditions. We can't prove empirically the cause-effect connection, but we can reasonably assume a connection based on logic. Since those emissions can be expected to cause some results like this, and we see some such results, we can reasonably assume that the CO2 emission are a likely cause of it.....

And yet, "we" do not act on that "knowledge" because a significant portion of the population does not accept that as "proof". As to the rest of your argument, "probability" is usually based or derived from empirical data.

That was a period of DEflation. You can prove the need for greater money supply if the inflation rate goes below zero.

The only empirical "data" needed in order to make those decisions is simply a reliable measure of the general price level change. If it's clearly below zero, then you have a case to increase the money circulation by some means. However, no one has shown that suppressing interest rates is the best way to do it.

There are many who disagree that you have a case to increase the money supply when there is deflation. And you keep thinking there are ways to increase the supply of money without "suppressing interest rates" which shows a deep ignorance of monetary economics and policy: the two (increases in the money supply and "suppressing" interest rates) go hand in hand, all other things equal.

My "claim" is that it is always a net harm to pay off blackmailers/extortionists for the purpose of preventing them from carrying out their threat, but that if this is done for some other purpose, like tricking them and catching them, and the probability of this trick working is very high, that's something different and is not included in the type of blackmail/extortion scenario I'm referring to (the most common kind) where the payoff is done to appease the blackmailer/extortionist....

Your claim ignores that paying off kidnappers can have two aims/outcomes: return of the hostage and tracking of the kidnappers. So, your kidnapping example does not show what you claim.

Then we agree that someone who wants to do this kind of pollution on a small scale should first have to prove that it would not be a net harm. As the principle I'm proposing requires. I thought you offered this example earlier as an argument against this principle. But apparently you meant to support the principle I'm proposing here, that anything we know would be harmful on a large scale should also be assumed as a net harm on a small scale, unless the one proposing to do it proves otherwise. And this obviously applies to all cases of pollution. So on this point you agree with the principle I'm advancing.

No, I offered it to show your example was poorly designed.

 

[Lumpenproletariat]

#81


Togo

So why shouldn't we demand first that they prove there is no harm in doing this on the limited scale? The rule doesn't prevent a legitimate program that would provide a net benefit, because in that case the promoters of it are able to give the evidence and prove the merits of the limited program.

Don't policy-makers already do something like this anyway, at least partly?

Sort of. What they do is to judge policies on the evidence of their merits.

Right. So, why shouldn't the Fed also give evidence for the merits of their policies, like QE and suppressing interest rates?

What you're suggesting is subtly different, that particular kinds of action should be subject to proof of benefit before being permitted or else be banned outright, but to not apply this principle where you think it wouldn't be suitable. In other words, to hold policies you don't like the sound of to an arbitrarily higher standard.

The principle is: ANYTHING, no matter what it sounds like to me or anyone else, which we know would be a net harm if done on a large scale, should be presumed to also be a net harm on a small scale unless those who promote it prove otherwise.

The principle is to be applied to ALL cases equally, with no arbitrary selection of certain policies to be treated any different than others. What is wrong with this principle, as stated here, minus any "subtle" undercurrents or psychic vibes you think you feel bouncing around in the aether or the cosmos somewhere.

How about the principle above, as stated, and nothing more. Why isn't this a good universal rule?

The primary drawback of such 'universal rules' becomes obvious when you compare them to considering ideas on their merits - they serve only to allow the dismissal of ideas without considering them and . . .

No, the dismissal of ideas AFTER considering them and finding that they threaten more harm than benefit. But not the dismissal of ideas that meet the reasonable requirement that there be more benefit than harm.

What is the difference between this principle, as stated above, and that of "considering ideas on their merits"? or "considering" them?

How is proving that something is a net benefit rather than net harm different than considering something on its merits?

The term "net harm" and "net benefit" is used because something can have some good points about it and yet still be a net harm. Don't you agree that something being proposed has to do more than just provide a limited benefit to a few, if it's a public policy that everyone has to pay for? Can't there be a limited benefit to something which still would be an overall net harm to society? Shouldn't we take account of this and require the proponent to show that the total benefit is greater than the total harm?

Shouldn't we require more than just that there is this limited benefit to some particular group, when we know that there might also be a cost that is imposed onto everyone else? So "considering the merits" should have to include a consideration of the costs and whether these costs are small enough or if maybe they go too high. Right?

. . . really only help if you're trying to implement an unthinking bias away from certain kinds of action.

How is asking someone to show the benefits of what they propose "an unthinking bias away from certain kinds of action" unless you mean those kinds of action which would do more harm than benefit? Why shouldn't there be a "bias" against any actions which would end up doing more harm than good? Isn't it OK to be biased in favor of making things better rather than worse? in favor of benefit and against harm?

We're talking here mainly about public actions or policies, like those of the Fed or the Congress. Which of these actions should be exempt from needing to be proved beneficial by those who propose to do them?

This kind of attempt at burden-shifting bias is mostly clearly seen in some of the nuttiest ideologes on the web. The author of TimeCube (www.timecube.com/) regularly challenges anyone to disprove his theory, often offering large cash prizes. Jack Chick is a regular in arguing that people have to accept his conclusions if an alternative can't be proved.

I'll have to check him out.

Each individual crusade or cause has to be judged individually on the arguments they present. You cannot generalize that EVERYONE who claims to be right or claims to know the Truth or claims to have a good theory MUST ipso facto be wrong just because they make such claims. You have to take each crusader individually, one at a time, and do the argument in each individual case. In some cases they are wrong and in other cases they are right, or partly right. You can't slosh them all into one heap and brand them all as nutcases just because they have a strong viewpoint.

Or does the rule not apply to itself?

How is this rule harmful if done on a large scale? Where has a rule like this done damage?

Frequently. It paralyses government action by trying to pretend that action can only be taken when it is uncontrovertially correct.

But what's an example where it prevented a particular needed action?

How would this rule prevent potholes from being filled? or other necessary infrastructure needs from being addressed? or anything where the proponents have a good case to make? Shouldn't they be able to make a good case before we agree to their demands?

It is the opposite of this rule which poses the danger: The blank check which allows anything to be enacted provided there is enough pressure from high places or from the street mob.

What is the "paralysis" we experience currently in public policy?

The worst case is the failure to do needed infrastructure work and failure to address some environmental threats. What is causing these failures? It is not a principle like I'm proposing here. It is a stubborn public which doesn't want to pay taxes and doesn't want its "jobs" threatened.

The religion of "jobs! jobs! jobs! jobs! jobs! jobs!" is a big part of the problem which today prevents needed action.

Even the infrastructure is victimized by the "jobs! jobs! jobs! jobs!" syndrome, because whenever it comes up, the answer is always: It doesn't create enough jobs! We need to stimulate the Private Sector -- that's where the REAL jobs are. And also: But the infrastructure jobs take too long. We want our jobs NOW!

And of course the environmental needs are also threatened by the "jobs! jobs! jobs! jobs! jobs! jobs!" fanaticism. To the point that the environmentalists are always feeling guilty and trying to pretend that they will create lots of "GREEN jobs" to appease the "jobs" fanatics. How pathetic!

But it is not the requirement that policies proposed must be questioned to determine if they would be more harm than good that is preventing progress. Good reasoning and questioning and judging the merits of the program are not what prevent the needed ones from being acted upon. We need to have a screening process that prevents wasteful programs. Giving a blank check to the Congress is no solution to anything.

Imagine how you'd feel if the opposing view were taken, that private individuals and companies could take no action whatsoever unless they could prove to others that the action they intended to take was of net benefit.

This mostly is the case now. In the private sector there is more questioning of measures to be taken, because they are spending their own money, and so there is a more critical attitude toward any proposal, because if they get it wrong they have to pay the cost. People are more critical when it's their own money they are spending.

Sound less appealing?

No, it's already the case, and it should be. Or if it's not the case somewhere, it should be. This is a good rule for private as well as public decision-making.

Yet all I've done is switch the actors around, and suddenly it's an unconsciable attack on the freedom to act.

If you mean the state should supervise all private decision-making and force everyone to justify every decision by its cost-benefit standards, then obviously that would be a disaster, because the decision-makers should always be those closest to the issues being decided upon.

The rule proposed here is not about who the decision-makers should be. But it does apply to private decision-making, and the private decision-makers should follow this rule in choosing what actions to take. They should require the proponents to prove the need. And if they know the action would be a net harm if done on a large scale, they should assume it would also be a net harm if done on a small scale, and the proponents of the act should have to prove otherwise.

 

[Lumpenproletariat]

The long-term good vs. the short-term quick-fix feel-good "economic stimulus"

#87


laughing dog

The Fed dumped about 1 trillion into the economy over a one-year period. Was this good for the economy? They claim it was but offer no proof. They do not make the case that the economy was made better from this than it would have been if they had not done this increase of money circulation.

But what EVERYONE agrees with is that if they had dumped 2 or 3 trillion into the economy, that would have been a net harm to the economy.

I don't know if everyone agrees with that.

I think everyone posting in this thread agrees with that. Or, they think it would have been too risky to do it and agree it was better not to risk it, because there's a likelihood it would have done more harm than good.

If I'm wrong, let them post their statement that the Fed should have increased QE to 2 or 3 trillion over a one-year period.

I don't even know if the Fed agrees with that.

So you think the Fed does not agree with its own policy, or that it thought QE should have been more than the 1 trillion but chose a figure which was not the best for the economy, and so chooses an action which it believes is not the best one for the economy. So, what do you think is their secret hidden agenda if not to do what's best for the economy?

That 1 trillion was small compared to what the Fed could have done, because it could have dumped in far more than only 1 trillion. They are claiming that the "smaller" amount was appropriate, or not too much, but that 2 or 3 trillion would have been too much.

I don't know if the Fed claimed anything of the sort.

You mean they claimed the 1 trillion was not appropriate? it should have been more?

I suspect the Fed was worried about going too far without knowing where that limit was. They were trying to strike a balance.

How do we know "that limit" was not zero? How do we know that any QE, however small, would be a net benefit? Why isn't zero the proper balancing point?

I'm asking how they know that even the 1 trillion was not too much.

I would guess they believe that (rather than know it) because inflation did not accelerate.

But didn't it cause inflation to be higher than it would have been otherwise? Why was that good? If that little extra inflation, maybe something like 1.6% instead of only 1.4% is no big deal and was worth it for all the wonderful "jobs" it "created" or "saved," then why wouldn't an additional 1 or 2 trillion QE have also been good? Why should they worry about a tiny percent increase of inflation from that if they didn't worry about the tiny inflation increase from 1 trillion QE?

They have not answered this question, or rather, they have not given evidence that the 1 trillion was harmless even though everyone agrees that 2 or 3 trillion would have been harmful . . .

I don't know if they have or have not answered your question.

So you don't know of the Fed ever giving any reason to believe that the 1 trillion QE was good for the economy. That's my point. They should have to give a reason before they tinker with the economy by dumping money in and causing extra inflation, or even propping up the current inflation rate. Someone should give a reason why it's so important to prop up the inflation rate above zero.

Or if it's no big deal, as some might suggest, then why only 1 trillion? Why shouldn't the Fed give its reasons for choosing this figure and explain how they know this produces a better outcome? And if they don't know what outcome it produces, then why do they do it? Should they do something without having a good reason to believe it produces a good outcome?

I'm not saying that the only proof ever possible is one where we have 2 countries that are exactly alike in every way. However, that is the ideal, and a good proof, relying on empirical data, is one which tries to eliminate as many variables as possible. And the Fed or its devotees have yet to make this effort when pretending they have proved the net benefit from the 1 trillion QE.

It is possible to prove the need for more funding to fill potholes using the above standard. We can see the damage to vehicles as the potholes increase. We can make good estimates of the cost to society from this damage and compare this to the cost of getting that repair work done.

Legitimate public needs and government programs generally try to comply with the above standard, perhaps usually do comply, because the comparisons are possible and the variables are sufficiently accounted for. The standard I'm proposing here is not really new. We already follow it, but we should follow it more stringently than we do, and there are too many cases, such as the actions of the Fed, where the standards of evidence and proof are virtually ignored.

Then you should be able to answer the question of "What evidence would you accept".

For something like QE or "economic stimulus" I confess it is difficult to state what the standard of evidence has to be. Although in an ideal "guinea pig" scenario where all the variables are controlled I have given the standard.

But for ordinary government actions I have given examples of the standard, such as for infrastructure or for military needs, etc. I think it is up to the proponents of "economic stimulus" to explain what the standard is for the evidence. They are the ones who have to prove that their scheme will make the economy perform better rather than worse. The ideal condition is given, where all the variables are controlled. Let them show that they are really trying to control all the variables and are trying to find a model close to the ideal one of totally controlled variables. The burden of proof is on them to develop the standard of evidence and show that we have a reliable scientific procedure for measuring the outcomes and proving that we're getting a net beneficial result rather than a net harmful result

If we do not have the methodology in place for measuring the empirical results, then we can only rely on logic or "common sense" to judge QE and "economic stimulus," and by this kind of reasoning, I think the conclusion is that it probably produces more harm than good.

The basic QE or "economic stimulus" reasoning is that if we dump this extra money into circulation it creates new jobs. And it follows that if a sudden influx of money is present the employers will hire some new workers.

But the flaw is that this also causes inflation. There is no immediate new production to match the sudden increase in demand, and so prices have to rise as a result. This then depresses the demand back to where it was before and there is no net change. When this happens either the new jobs will disappear, falling back to the same level as before, or still more money can be pumped into circulation to sustain those new jobs.

So therefore, all the "economic stimulus" can do is cause some short-term new jobs which then can be maintained into the future only by having constant new QE or "stimulus" money pumped in periodically to sustain those initial jobs that were created. And so billions or even trillions of dollars keep getting pumped into circulation over many years or decades all for the purpose of sustaining those original jobs that were created back there at the beginning when the first "stimulus" was done.

Or the jobs can be increased by increasing the new "stimulus" money in the future, so that the "stimulus" money influxes have to keep increasing, such as higher and higher deficits, to keep the artificial jobs going and perhaps increasing to keep up with the increasing demand for jobs. But only by higher and higher debt or inflation caused by the increasing "stimulus" injections.

Where does the empirical evidence contradict the above, or prove that we can get the benefits of the "stimulus" like QE or higher deficits and not get the above result of ever-increasing debt or inflation? Or that the "stimulus" inputs can be ended without losing those jobs that were created with the first "stimulus"?

So far, you have given an impossible standard and then given a rather nebulous explanation of a relaxed standard.

I think it should be the same standard of evidence that is followed by promoters of infrastructure and other ordinary government programs. Show the costs and the benefits. If QE and "economic stimulus" are incapable of being held to this standard, then we must assume they cannot produce the benefits the proponents claim. It's not the fault of the standards for evidence that "economic stimulus" cannot meet the test of reason.

Of course it helps those people, and other people have to pay for it. Imposing a cost on some in order to provide a subsidy to others is not necessarily good for society. The "jobs" that are beneficial to society are the ones that serve the market without having to be subsidized by imposing artificial costs onto consumers or taxpayers or others who are victimized by the Fed's or Congress's inflationary policies and/or additional debt . . .

You shifted to goal posts to "beneficial jobs".

You mean your demand for jobs refers to jobs that are not beneficial? like makework jobs?

Of course, you have no a priori way of identifying beneficial jobs . . .

For the private sector, the identification is easy, because a profit-making company has an incentive to eliminate unnecessary jobs. So we can trust the companies to make those decisions.

For the public sector it is more difficult, because we need public services, but the incentive to eliminate the unnecessary jobs is much less. So it's a constant problem of trying to distinguish and to eliminate the unnecessary jobs. If you don't agree with this, then are you saying that ALL "jobs" are good for the economy, without any need to ever eliminate the unnecessary ones?

So, e.g., the bridge to nowhere and other pork jobs were all good for the economy, and your "economic stimulus" policy is simply that anything that gets people into something that looks like a job, even if it's makework, is good and is what our economy needs? Is that what "economic stimulus" means? Just get those unemployed riff-raff off the streets any way imaginable? Just get them into those babysitting slots, no matter what it takes? Just put them into those slots and call it "jobs! jobs! jobs! jobs!"?

. . . and whether markets weed out the worthless ones depends on a number of empirically based and sometimes questionable assumption . . .

You mean the questionable assumption that companies like to increase their profits and reduce their costs? This is questionable? Don't you think this urge to increase profits and reduce costs will lead to eliminating unnecessary jobs? Why would it lead them to limit necessary jobs that increase the company's profits?

. . . and hindsight is 20-20. So your particular criticism seems rather moot. Especially in a situation when the economy is going in the tank. It is analogous to complaining about that the way someone is bailing water out of a sinking boat might be getting some people wet.

Translation: Let's not worry about whether those "jobs" are "necessary" or a net benefit to the employer or to the consumers or taxpayers. Or whether they are producing some value in proportion to their cost. All that matters is that in these tough economic times, when the boat is sinking, we have to get those riff-raff off the streets no matter what it takes, and get them into those babysitting slots, which is all that really matters.

I've always suspected that this is what "economic stimulus" really means in the final analysis. You are demonstrating that this is the case.

. . . you completely ignore the stabilization of the financial system goal in your responses.

"stabilization" for whom? Isn't it destabilizing to artificially drive down interest rates so that people can no longer save for the future? How is that not destabilizing? Why isn't the market left to itself to set the interest rates so people can earn maybe 2% or so also a form of stabilization of the financial system?

And keeping interest rates low during a recession helps those firms and consumers borrow funds which can be spent to help bring the economy out of the recession faster.

Oh, so we haven't had enough borrowing? We need more debt? That's the solution to bad times? Drive up debt higher and higher and cause more defaults and bankruptcies. Sure, that makes a lot of sense! Poke the consumers, like prodding cattle, to get them to spend and spend and spend and borrow and borrow and borrow more and more in order to create more "jobs! jobs! jobs! jobs! jobs! jobs!" and keep it going like an addiction.

So it's this obsession with "jobs! jobs! jobs!" that makes it necessary to cause all these distortions in the economy. Maybe there's something wrong with your "jobs! jobs! jobs!" religion. It's an addiction that has to be pumped up again and again on into the future with further injections to keep the "jobs" going that were artificially caused back with the first "stimulus" fix. That was only the beginning of the addiction.

This is a well-known channel of monetary policy.

Yes, this ongoing addiction is well-known. What's missing is any evidence or proof that this addiction has made our economy better off than it would have been if we had never become addicted in the first place. Had we not, we would not have our current 17 trillion debt and the interest payments we have to keep paying on it far into the future.

Can't you understand that there may be some doubters out here who don't subscribe to your religious dogma that interest rates have to be suppressed?

I understand there are doubters who recognize their lack of knowledge and who are serious about learning. I also recognize there are ideologically based doubters who are base their doubts on persistent ignorance and ideology.

So those who persist in questioning your "jobs!" religion and don't convert to it must have a character flaw to doubt the truth of your "jobs!" and "economic stimulus" dogmas.

There are millions of Americans who would like to save a little and get a small return. Why do you want to punish these people? What sin are they committing by wanting to save their money instead of spending it and going into chronic debt as you are promoting with these ideological theories about the need for low interest rates and high inflation?

And there are millions of Americans who wish to work or stay working so they can eat.

So again, a "job" is really a babysitting slot to get or keep uncompetitive workers off the streets? It's not to get needed work done, but to provide the income to those job-seekers, as a form of charity, done out of pity for them.

Those who want to save are not asking for pity or charity or handouts, as your job-seekers are who demand artificially-created "jobs" that the rest of us have to pay for with higher deficits and inflation. You're demanding CHARITY for them. But those who want to save are just asking to be left alone, and to not have artificial manipulation of the money that drives up prices and debt which punishes everyone, in order to provide these charity jobs.

Why do you want to punish these people?

So then you oppose the market "punishing" those who are less competitive? So we should not let any business fail, we should bail out everyone, because if they fail to do well in the market, then they are being "punished"? Who should not be bailed out based on your premise that anyone struggling to survive in the market is being unfairly "punished" and must be rescued?

What sin are they committing by wishing to stay alive?

Their "sin" is that they are less competitive, like an uncompetitive business, and the market rewards and penalizes all the producers according to their performance, and these "sinners" you're talking about are ones whose performance level and value in the market is very low. And why shouldn't producers in the market be penalized for their poor performance?

You're not just demanding that they be kept alive. You're demanding that they be paid some minimum income, by some "employer" who has to be subsidized by taxpayers and consumers in order to babysit these uncompetitive workers. They have to be paid what -- $30,000 per year, $40,000, $50,000 -- you're demanding this subsidy for them that all the rest of us have to pay, forcing us all to pay higher prices and higher future taxes because of the increasing debt, and depriving us of any chance to save.

You're assaulting millions of Americans with these demands that they provide subsidies to this group of maybe a million or maybe 2 or 3 million workers who would otherwise have to struggle harder to compete in the market, and because this would be uncomfortable for them, 300 million other Americans must make this sacrifice for them, including many poor Americans who will not be lucky enough to get one of these charity jobs you are creating (or saving) but will still have to pay the price for the privileged ones that you give these pity jobs to.

Supply-and-demand is a rule that contains logic. As the supply increases, the price goes down, all else being equal. Or if the demand increases, then the price goes up if the supply remains the same. And so on. This is "logic" explaining how humans typically behave. There are many examples of applying logic to human behavior, to predict how humans will behave and explaining why they do what they do. It's not necessarily based on empirical "data."

But people do not always behave "typically" which makes the application of "logic" as proof rather dicey.

You mean supply-and-demand is not correct? You mean as demand goes up the price does not go up but even goes down even if the supply remains the same? You mean the more people want something the less they're willing to pay for it?

You really believe all decisions in society can be made from empirical "data" only and that we have no other ways to predict with reason how people will behave?

We do have some "proof" just like we have "proof" that minimum wage is doing net harm. Because we know generally that the increased CO2 emissions are likely to reach a point of causing the kind of damage that we're seeing with some of the extreme weather conditions. We can't prove empirically the cause-effect connection, but we can reasonably assume a connection based on logic. Since those emissions can be expected to cause some results like this, and we see some such results, we can reasonably assume that the CO2 emission are a likely cause of it . . .

And yet, "we" do not act on that "knowledge" because a significant portion of the population does not accept that as "proof".

We do act on that kind of knowledge generally, but in this case, renewable energy, there are special conditions preventing us, or making it more difficult. It's not because of the form of the logic or the evidence that people don't accept the needed change, but because of the special conditions with energy consumption today.

Most decision-making relies on evidence or logic other than empirical "data" to prove cause-and-effect.

"probability" is usually based or derived from empirical data.

No it's not. Or rather, not on empirical "data" from special researchers or scientists. It is mostly the "empirical data" we already know, from "common sense" or from past experiences in general. And to this is added some deductive logic also, so that empirical "data" alone is not what the decision-making is based on.

You can prove the need for greater money supply if the inflation rate goes below zero.

The only empirical "data" needed in order to make those decisions is simply a reliable measure of the general price level change. If it's clearly below zero, then you have a case to increase the money circulation by some means. However, no one has shown that suppressing interest rates is the best way to do it.

There are many who disagree that you have a case to increase the money supply when there is deflation.

If there is agreement that a stable price level is good, or that wide fluctuation in the prices is harmful, then managing the money supply up or down as needed is the logical thing to do, to keep the prices relatively stable. If someone disagrees with that, they are wrong. Proving something logically does not mean that everyone in the world will agree.

A society could decide that price fluctuation is OK, in which case it would be logical to leave the money supply alone and let it fluctuate. But most reasonable people see the benefit of having some stability in prices so that long-term business decisions are easier to make.

The error is the belief that we need inflation to pump up the economy and create "jobs! jobs! jobs! jobs! jobs!"

And you keep thinking there are ways to increase the supply of money without "suppressing interest rates" which shows a deep ignorance of monetary economics and policy: the two (increases in the money supply and "suppressing" interest rates) go hand in hand, all other things equal.

You're confusing what should or could be done with what is the accepted practice. Just because manipulating interest rates is the accepted system does not mean that it is the only way to manage the money supply.

One simple way to increase the money supply is for the Congress to pay some of its bills with paper or money issuance that is not derived from debt or from taxes. There's no reason why this could not be done, if and when there really is a deflationary threat. It is not true that the only way to increase money in circulation is through more debt.

My "claim" is that it is always a net harm to pay off blackmailers/extortionists for the purpose of preventing them from carrying out their threat, but that if this is done for some other purpose, like tricking them and catching them, and the probability of this trick working is very high, that's something different and is not included in the type of blackmail/extortion scenario I'm referring to (the most common kind) where the payoff is done to appease the blackmailer/extortionist . . .

Your claim ignores that paying off kidnappers can have two aims/outcomes: return of the hostage and tracking of the kidnappers.

No, I'm acknowledging both, but saying that when it's done to gain release of the hostages then it does more harm than good. And often it is done only for this purpose. It is not true that the payoffs typically result in capture of the kidnappers.

So, your kidnapping example does not show what you claim.

Yes it does. It shows that people in this dilemma are often tempted to choose the short-term benefit, and immediate benefit to them, of having the hostages released and ignore the longer-term harm of giving incentive to future hostage-takers. This is a problem where a difficult choice needs to be made, but you are pretending that such tough choices do not exist and that we can always choose the easy short-term solution and not worry about it. Which is wrong -- we often need to see the longer-term result instead of looking at only the short-term quick-fix solution.

 

[laughing dog]

I think everyone posting in this thread agrees with that. Or, they think it would have been too risky to do it and agree it was better not to risk it, because there's a likelihood it would have done more harm than good.

If I'm wrong, let them post their statement that the Fed should have increased QE to 2 or 3 trillion over a one-year period.

You are making the fallacy of the excluded middle. One could be agnostic between the two choices.

So you think the Fed does not agree with its own policy, or that it thought QE should have been more than the 1 trillion but chose a figure which was not the best for the economy, and so chooses an action which it believes is not the best one for the economy. So, what do you think is their secret hidden agenda if not to do what's best for the economy?

You are not making very nuanced choices. The Fed may or may not believe that a $2 to $3 trillion boost would (i.e. necessarily) harmed the economy but that it might have and they did not wish to take that risk at that time.

You mean they claimed the 1 trillion was not appropriate? it should have been more?

I don't know what the Fed is claiming. Apparently, neither do you, or you'd have some link with some evidence.

How do we know "that limit" was not zero? How do we know that any QE, however small, would be a net benefit? Why isn't zero the proper balancing point?

I suppose you mean zero increase in the supply of money. We can make an educated guess that it was not zero, because the financial system needed liquidity to avoid a systemic failure.

But didn't it cause inflation to be higher than it would have been otherwise?....

Maybe, maybe not.

Why was that good? If that little extra inflation, maybe something like 1.6% instead of only 1.4% is no big deal and was worth it for all the wonderful "jobs" it "created" or "saved," then why wouldn't an additional 1 or 2 trillion QE have also been good? Why should they worry about a tiny percent increase of inflation from that if they didn't worry about the tiny inflation increase from 1 trillion QE?

You keep repeating the same question, regardless of the answer you get. Perhaps the Fed believed that given the situation and their desire to avoid deflation, that the risk of $1 trillion QE boost to inflation or inflationary expectation was low while a much higher QE had a much higher risk. And, a higher QE would mean more work in the future to reduce reserves in the system once the economy moved out of the recession.

So you don't know of the Fed ever giving any reason to believe that the 1 trillion QE was good for the economy. That's my point. They should have to give a reason before they tinker with the economy by dumping money in and causing extra inflation, or even propping up the current inflation rate. Someone should give a reason why it's so important to prop up the inflation rate above zero....

No, I don't know if the Fed ever addressed your question in a manner you might be able to recognize or find convincing.

For something like QE or "economic stimulus" I confess it is difficult to state what the standard of evidence has to be. Although in an ideal "guinea pig" scenario where all the variables are controlled I have given the standard.

But for ordinary government actions I have given examples of the standard, such as for infrastructure or for military needs, etc. I think it is up to the proponents of "economic stimulus" to explain what the standard is for the evidence. They are the ones who have to prove that their scheme will make the economy perform better rather than worse. The ideal condition is given, where all the variables are controlled. Let them show that they are really trying to control all the variables and are trying to find a model close to the ideal one of totally controlled variables. The burden of proof is on them to develop the standard of evidence and show that we have a reliable scientific procedure for measuring the outcomes and proving that we're getting a net beneficial result rather than a net harmful result

When you figure out what evidence would be convincing, let us know. Until that time, it appears you are simply engaging in ideological posturing.

If we do not have the methodology in place for measuring the empirical results, then we can only rely on logic or "common sense" to judge QE and "economic stimulus," and by this kind of reasoning, I think the conclusion is that it probably produces more harm than good.....

That is based solely on your ignorance of monetary policy, monetary economics and reality.

The basic QE or "economic stimulus" reasoning is that if we dump this extra money into circulation it creates new jobs. And it follows that if a sudden influx of money is present the employers will hire some new workers....

No, that is not untrue. The basic QE for this situation is that dumping extra money into circulation by buying assets will stabilize the financial system by replacing less than liquid assets with liquid assets (bank reserves). Hence the rest of your argument is based on a false premise.

I think it should be the same standard of evidence that is followed by promoters of infrastructure and other ordinary government programs. Show the costs and the benefits. If QE and "economic stimulus" are incapable of being held to this standard, then we must assume they cannot produce the benefits the proponents claim. It's not the fault of the standards for evidence that "economic stimulus" cannot meet the test of reason.

But according to you, it is all but impossible to show the costs and the benefits without a similar country going through a similar situation doing something different (presumably nothing in order to get the proper baseline comparison).

You mean your demand for jobs refers to jobs that are not beneficial? like makework jobs?

That is a strawman. In your original argument, there was no qualifier that the jobs be beneficial. And as I have pointed out, there is no way for you to know a priori which jobs are beneficial and which are not.

For the private sector, the identification is easy, because a profit-making company has an incentive to eliminate unnecessary jobs. So we can trust the companies to make those decisions....

Since QE works through the private sector, we must trust that any job saved or created must have beneficial. So your persistence in talking about jobs that are not worthwhile is truly irrelevant.

You mean the questionable assumption that companies like to increase their profits and reduce their costs? This is questionable? Don't you think this urge to increase profits and reduce costs will lead to eliminating unnecessary jobs? Why would it lead them to limit necessary jobs that increase the company's profits?

No, that markets are free of externalities, public goods and asymmetric information.

Translation: Let's not worry about whether those "jobs" are "necessary" or a net benefit to the employer or to the consumers or taxpayers. Or whether they are producing some value in proportion to their cost. All that matters is that in these tough economic times, when the boat is sinking, we have to get those riff-raff off the streets no matter what it takes, and get them into those babysitting slots, which is all that really matters....

Wrong again. QE works through the private sector and you have stated we must trust that sector to know which jobs are beneficial and which are not. So, according to you, there is no need to worry about those jobs.

"stabilization" for whom? Isn't it destabilizing to artificially drive down interest rates so that people can no longer save for the future? How is that not destabilizing? Why isn't the market left to itself to set the interest rates so people can earn maybe 2% or so also a form of stabilization of the financial system?

Because doing nothing meant more banks would go under which would cause more disruption in production, consumption and savings.

And keeping interest rates low during a recession helps those firms and consumers borrow funds which can be spent to help bring the economy out of the recession faster.

Oh, so we haven't had enough borrowing? We need more debt? That's the solution to bad times? Drive up debt higher and higher and cause more defaults and bankruptcies. Sure, that makes a lot of sense! Poke the consumers, like prodding cattle, to get them to spend and spend and spend and borrow and borrow and borrow more and more in order to create more "jobs! jobs! jobs! jobs! jobs! jobs!" and keep it going like an addiction.

So it's this obsession with "jobs! jobs! jobs!" that makes it necessary to cause all these distortions in the economy. Maybe there's something wrong with your "jobs! jobs! jobs!" religion. It's an addiction that has to be pumped up again and again on into the future with further injections to keep the "jobs" going that were artificially caused back with the first "stimulus" fix. That was only the beginning of the addiction.

Yes, this ongoing addiction is well-known. What's missing is any evidence or proof that this addiction has made our economy better off than it would have been if we had never become addicted in the first place. Had we not, we would not have our current 17 trillion debt and the interest payments we have to keep paying on it far into the future.

Monetary policy did not create the Federal Debt: Congress did. So your argument is false.

So those who persist in questioning your "jobs!" religion and don't convert to it must have a character flaw to doubt the truth of your "jobs!" and "economic stimulus" dogmas.....

That is literally non-responsive to my observations.

So again, a "job" is really a babysitting slot to get or keep uncompetitive workers off the streets? It's not to get needed work done, but to provide the income to those job-seekers, as a form of charity, done out of pity for them.....

Again, QE works through the private sector which means, according to your own words, that those jobs are beneficial.

So then you oppose the market "punishing" those who are less competitive? So we should not let any business fail, we should bail out everyone, because if they fail to do well in the market, then they are being "punished"? Who should not be bailed out based on your premise that anyone struggling to survive in the market is being unfairly "punished" and must be rescued?...

Again, QE works through the private sector which means, according to your own words, that those jobs are beneficial and the workers are competitive.

Their "sin" is that they are less competitive, like an uncompetitive business, and the market rewards and penalizes all the producers according to their performance, and these "sinners" you're talking about are ones whose performance level and value in the market is very low. And why shouldn't producers in the market be penalized for their poor performance? ....

Again, QE works through the private sector which means, according to your own words, that those jobs are beneficial and the workers are competitive. Which means they are not "sinners", yet you wish to punish them. Why?

You mean supply-and-demand is not correct? You mean as demand goes up the price does not go up but even goes down even if the supply remains the same? You mean the more people want something the less they're willing to pay for it?....

Sometimes it is not correct.

You really believe all decisions in society can be made from empirical "data" only and that we have no other ways to predict with reason how people will behave?

I think logic, by itself, is insufficient to predict how people will always behave.

We do act on that kind of knowledge generally, but in this case, renewable energy, there are special conditions preventing us, or making it more difficult. It's not because of the form of the logic or the evidence that people don't accept the needed change, but because of the special conditions with energy consumption today....

That is rather incomplete reasoning. Clearly if it were proven, there could be no debate that something should be done and something would be done. However, that is not the case.

No it's not. Or rather, not on empirical "data" from special researchers or scientists. It is mostly the "empirical data" we already know, from "common sense" or from past experiences in general. And to this is added some deductive logic also, so that empirical "data" alone is not what the decision-making is based on.

Probabilities that are frequencies are based on actual data not reasoning.

If there is agreement that a stable price level is good, or that wide fluctuation in the prices is harmful, then managing the money supply up or down as needed is the logical thing to do, to keep the prices relatively stable. If someone disagrees with that, they are wrong. Proving something logically does not mean that everyone in the world will agree.

Since you have not proven that a stable price level is good, your argument is based on flimsy premises.

You're confusing what should or could be done with what is the accepted practice. Just because manipulating interest rates is the accepted system does not mean that it is the only way to manage the money supply...

No, I am not. Increasing the supply of money causes interest rates to fall, all other things equal. That is a basic result of supply and demand. That is true whether money is printed or created via the fractional reserve system.

 

[Lumpenproletariat]

#90


laughing dog

I think everyone posting in this thread agrees with that [that $2 or $3 trillion QE in one year would have been too much]. Or, they think it would have been too risky to do it and agree it was better not to risk it, because there's a likelihood it would have done more harm than good.

If I'm wrong, let them post their statement that the Fed should have increased QE to 2 or 3 trillion over a one-year period.

You are making the fallacy of the excluded middle. One could be agnostic between the two choices.

"agnostic" = they agree with me that the Fed has made no case to show that QE was a net benefit. If they believed the Fed had proved their case, they would not be "agnostic" but would agree with the Fed and give the Fed's evidence that QE was a net benefit.

So you think the Fed does not agree with its own policy, or that it thought QE should have been more than the 1 trillion but chose a figure which was not the best for the economy, and so chooses an action which it believes is not the best one for the economy. So, what do you think is their secret hidden agenda if not to do what's best for the economy?

You are not making very nuanced choices. The Fed may or may not believe that a $2 to $3 trillion boost would (i.e. necessarily) harmed the economy but that it might have and they did not wish to take that risk at that time.

"may or may not believe"?

If the Fed doesn't know what it believes, then what is it doing making decisions and taking actions that impact on 300 million, and indirectly on 7 billion people on Earth?

You don't need to hum and haw for the Fed.

Get serious. The Fed is claiming that the economy needed about 1 trillion dollars injected during that one year. They thought less than this was too little but that more than this would have been too risky. And yet they gave no evidence at all that this 1 trillion was better than zero QE, or that if it must have been a net benefit, as they obviously purported, then why 2 or 3 trillion would not have been even better. They gave no evidence for this.

They should give a solid argument, with evidence or with logic or common sense or reasoning for their action, and they gave none.

And as much as you want to bail them out and make excuses for them, you can't give any argument to support what they did.

You mean they claimed the 1 trillion was not appropriate? it should have been more?

I don't know what the Fed is claiming.

Let me help you out. They did what they did because they were purporting that this 1 trillion was the right amount. They pretended that they had cranked lots of numbers and calculated that 1 trillion was the magic figure, the "not too cold and not too hot" Goldilocks best choice for goosing the economy.

That's what they were claiming and purporting and pretending. But they gave no evidence that this amount of input into the economy was the right amount, and in particular they did not prove that ANY QE was necessary to improve the economy, and they have given no evidence that the economy is better because they did this.

Apparently, neither do you, or you'd have some link with some evidence.

So you think the Fed does these actions not claiming or purporting that the action is the right action to take. The Fed is performing an act, and I'm supposed to produce evidence that the Fed thinks or is claiming that this action is the best one to take? We're supposed to assume that the Fed does not believe its own action is best, and we have to dig up evidence to prove what the Fed thinks is best? We have to assume it believes its own action is not the best one for the economy?

How do we know "that limit" was not zero? How do we know that any QE, however small, would be a net benefit? Why isn't zero the proper balancing point?

I suppose you mean zero increase in the supply of money. We can make an educated guess that it was not zero, because the financial system needed liquidity to avoid a systemic failure.

Where is the evidence that there would have been "systemic failure" without that extra 1 trillion?

Couldn't one just as easily argue that there would be "systemic failure" unless we had 2 or 3 trillion more dollars? Couldn't one argue that we're having "systemic failure" now? How do you know we're not having "systemic failure" now but would have had it without that additional 1 trillion dollars?

Couldn't you always claim that the "financial system" needs more "liquidity to avoid systemic failure"? Isn't the economy always rotten in many ways, no matter what? Why couldn't you claim that it ALWAYS needs more "liquidity"? There's always someone in the economy who thinks there's not enough "liquidity" for them. Couldn't they rightly claim there's not enough "liquidity" until their situation is made happy and prosperous?

Isn't more "liquidity" always a good thing for the special interests who gain the benefit of it? Until I have everything going just right for me, isn't this "financial system" experiencing "systemic failure" as far as I'm concerned? and in need of more "liquidity"? (in a form that directs the additional dollars in my direction, of course). How am I wrong to think that?

But didn't it cause inflation to be higher than it would have been otherwise?

Maybe, maybe not.

So if more money is injected into circulation, we don't know if that causes any increase in inflation on an incremental scale?

So if 10 trillion dollars is injected into circulation, you don't know if that would cause any increase in the inflation rate? maybe, maybe not? Maybe it would cause a decrease in inflation? We just don't know? We can't make an educated guess? Dump in another 20 trillion dollars, and we don't know if that would affect the inflation rate? Maybe, maybe not? So all economic decisions are just hit-and-miss, just a guessing game, just random. We can't ever say with assurance what any decision would lead to?

Why was that good? If that little extra inflation, maybe something like 1.6% instead of only 1.4% is no big deal and was worth it for all the wonderful "jobs" it "created" or "saved," then why wouldn't an additional 1 or 2 trillion QE have also been good? Why should they worry about a tiny percent increase of inflation from that if they didn't worry about the tiny inflation increase from 1 trillion QE?

Perhaps the Fed believed that given the situation and their desire to avoid deflation . . .

There was no "deflation" risk to avoid, unless you mean that anything less than 2% inflation is "deflation." Why is it so necessary to keep the inflation rate up to 2%? Why are we making a religion out of an inflation rate that high? especially when the interest on savings is virtually 0? Why is it necessary to punish everyone who wants to save?

. . . that the risk of $1 trillion QE boost to inflation or inflationary expectation was low . . .

Why should we believe that this $1 trillion more dollars did not boost inflation an increment higher? How was the risk of this "low"? If 10 trillion more dollars is certain to boost inflation by some amount, isn't it also very likely that 1 trillion more would boost it by a smaller amount? Why is it OK to punish everyone who saves by that extra increase in inflation? Where is the evidence that this extra punishment is OK, though if it were 2 or 3 or 5 or 10 trillion more it would clearly NOT be OK? (Or do you claim even 10 trillion might be OK? maybe, maybe not?)

. . . while a much higher QE had a much higher risk.

But we don't really know? maybe, maybe not? We don't know what the Fed thought? Maybe they just flipped a coin? You don't know, and you have no evidence or argument to show that their choice of 1 trillion was the best choice.

For all you know, their best choice might have been ZERO QE.

And, a higher QE would mean more work in the future to reduce reserves in the system once the economy moved out of the recession.

But isn't that also true for a QE of $1 trillion rather than ZERO?

So you don't know of the Fed ever giving any reason to believe that the 1 trillion QE was good for the economy. That's my point. They should have to give a reason before they tinker with the economy by dumping money in and causing extra inflation, or even propping up the current inflation rate. Someone should give a reason why it's so important to prop up the inflation rate above zero.

No, I don't know if the Fed ever addressed your question in a manner you might be able to recognize or find convincing.

I confess I'm not able if it's based on some mystical hocus-pocus that requires special Pwaxl Pores to receive the cosmically-charged vibrations that only enlightened Fed devotees have acquired after years of chanting its "liquidity" and "jobs! jobs! jobs!" and "stimulus" oracles and other indoctrination. At some point the indoctrinees need to subject their jargon and slogans to critical judgment and "common sense" inspection instead of just regurgitating them by rote.

The religious devotee also is offended that the questioner cannot recognize or be convinced by his incantations and in resignation laments: you can never understand with your mind closed to the cosmic vibrations -- no explanation could ever satisfy you.

For something like QE or "economic stimulus" I confess it is difficult to state what the standard of evidence has to be. Although in an ideal "guinea pig" scenario where all the variables are controlled I have given the standard.

But for ordinary government actions I have given examples of the standard, such as for infrastructure or for military needs, etc. I think it is up to the proponents of "economic stimulus" to explain what the standard is for the evidence. They are the ones who have to prove that their scheme will make the economy perform better rather than worse. The ideal condition is given, where all the variables are controlled. Let them show that they are really trying to control all the variables and are trying to find a model close to the ideal one of totally controlled variables. The burden of proof is on them to develop the standard of evidence and show that we have a reliable scientific procedure for measuring the outcomes and proving that we're getting a net beneficial result rather than a net harmful result.

When you figure out what evidence would be convincing, let us know.

The same evidence that the pothole-filling crusader uses is the kind we need. Show us how much the damage is, show us the cost, show us that those costs would be less than the benefits, etc. Why shouldn't the Fed be able to give us this kind of evidence?

Until that time, it appears you are simply engaging in ideological posturing.

The religious dogmatist fanatic also acuses the questioner of being insincere, as an excuse not to give reasonable answers.

If we do not have the methodology in place for measuring the empirical results, then we can only rely on logic or "common sense" to judge QE and "economic stimulus," and by this kind of reasoning, I think the conclusion is that it probably produces more harm than good.

That is based solely on your ignorance of monetary policy, monetary economics and reality.

So the answer is that the doubting one who asks the question is ignorant.

The basic QE or "economic stimulus" reasoning is that if we dump this extra money into circulation it creates new jobs. And it follows that if a sudden influx of money is present the employers will hire some new workers.

No, that is not true. The basic QE for this situation is that dumping extra money into circulation by buying assets will stabilize the financial system by replacing less than liquid assets with liquid assets (bank reserves). Hence the rest of your argument is based on a false premise.

But your fancy phrase "replacing less than liquid assets with liquid assets" really translates into the plain talk of "job creation," because it's supposed to produce "economic growth" which means more "jobs! jobs! jobs!" And you know perfectly well that everytime the Fed Chairman explained QE s/he always made reference to "economic growth" or "job creation" or softening the recession or bringing down unemployment and so on. You know that they always made reference to the unemployment rate and the incentives to business to do more hiring or not do more layoffs. And you have said that the purpose was to SAVE jobs, which is the same thing.

So my premise (that it's about jobs! jobs! jobs!) is not false. After telling us earlier that it was all about SAVING jobs, why are you now l(beep)ing and saying it's not about that? [I have to be wary of the Freeratio censor who got after me earlier about using non-politically-correct language.]

I think it should be the same standard of evidence that is followed by promoters of infrastructure and other ordinary government programs. Show the costs and the benefits. If QE and "economic stimulus" are incapable of being held to this standard, then we must assume they cannot produce the benefits the proponents claim. It's not the fault of the standards for evidence that "economic stimulus" cannot meet the test of reason.

But according to you, it is all but impossible to show the costs and the benefits without a similar country going through a similar situation doing something different (presumably nothing in order to get the proper baseline comparison).

There are many ways to make comparisons. If you are claiming to have empirical evidence, then you MUST try to control the variables and find the comparisons.

It can be proved that many countries improved their economies by building railroads and shipping products by rail instead of by boats or caravans. The countries had similarities but also many differences. A common pattern was recognizable throughout all of them, so that many of the variables could be controlled.

There are many such comparisons that are made, and "economic stimulus" or other policies to goose the economy should be able to conform to the rules of empirical evidence in a similar manner. By such comparisons and inductive logic it is possible to make some assertions about inflation and the need to prevent extreme shocks to the price level or the money supply. Not to prove that inflation has to be ABOVE ZERO, but that it should not be allowed to fluctuate widely or go far above or below zero. It can be proved that harmful consequences follow by not keeping the price level stable.

The case of Germany in the 1920s, as an extreme case, gives empirical evidence for not allowing the money supply to grow so rapidly. And there are other less obvious examples from history that constitute empirical evidence for some regulating of money circulation. It can be shown how harmful results follow from not having such reasonable regulation.

If "economic stimulus" and QE are truly beneficial, the proponents should be able to present such evidence, instead of just repeating that someone somewhere presented the evidence and so anyone who questions this must be ignorant and unenlightened and unworthy to be given an answer.

You mean your demand for jobs refers to jobs that are not beneficial? like makework jobs?

That is a strawman. In your original argument, there was no qualifier that the jobs be beneficial.

OK, my original argument falsely assumed, without saying so, that the "jobs" we want to create should be beneficial jobs, or jobs that will make the economy better, i.e., will produce more benefit than they will cost.

And now you're saying this is not the case, and it's fine to produce "jobs" that are worth less than what they cost? We just need to create these "jobs" regardless whether they are worth the cost, and even makework "jobs," including ones where we subsidize employers, or make taxpayers pay for the "jobs" and raise prices to consumers in order to pay for them.

Not to mention more bridges to nowhere, or anything else that wastes money as long as it gets someone hired and into a "job" that pays them a charity paycheck to help them raise their family out of pity for them, because this is what "jobs" are really for -- i.e., to give pity to someone needing an income, and employers are the best source of this pity, to provide for someone who cannot earn their own way and so must receive some form of pity charity income, preferably in the form of a paycheck which is subsidized by everyone else, i.e., by taxpayers and consumers.

And as I have pointed out, there is no way for you to know a priori which jobs are beneficial and which are not.

Jobs that have to be subsidized by taxpayers or consumers out of pity toward the particular workers, in order to provide them with incomes, because we feel sorry for them, are NOT beneficial, but are a net cost to society.

But jobs which we pay for because we need the work done, and we pay the workers because otherwise the needed work will not get done and thus we will be worse off for not getting that work done, are jobs which are beneficial.

An example of a NON-beneficial job is one where the worker could easily be replaced by cheap foreign labor but instead is kept in that job out of a guilt feeling by the employer, and so the cost is made higher than necessary, and consumers would be better off if that worker were replaced by the cheap foreign labor that could do the same job at a fraction of the cost, thus saving on labor cost and allowing the company to gain more profit by passing some of that cost-savings onto consumers with lower prices.

So it is possible not only to define what is a "beneficial" job and what is not, but it is also possible to identify some particular jobs or place some into the "beneficial" and non-"beneficial" categories. Of course in practice it is impossible to identify EVERY particular job into one or the other category, though in theory it might be possible.

To get very specific, in cases where a town or state government subsidized a company to build a factory and "create" so many jobs, we can say with good probability that those jobs are a net cost to society and not a net benefit. So it is possible to single out certain specific jobs and specific workers who are a net cost, or ANTI-benefit, to society, because the cost of maintaining them in that job is greater than the benefit, and we could have gotten the same production done at lower total cost to taxpayers or consumers.

For the private sector, the identification is easy, because a profit-making company has an incentive to eliminate unnecessary jobs. So we can trust the companies to make those decisions.

Since QE works through the private sector, we must trust that any job saved or created must have been beneficial.

No, those jobs saved only because of QE are likely non-beneficial jobs (or at least LESS beneficial because they were possible only through QE), and the cost of QE is likely greater than the benefit of the new artificial "jobs" created. If you're sure this is not so, then why did the Fed stop at $1 trillion? If QE did not add any cost to society in order to get the extra jobs, then what's wrong with higher and higher QE in order to get more and more of those wonderful "jobs! jobs! jobs!" the Fed and everyone is clamoring for, as long as they aren't costing anything? You cannot explain the reason to draw the line at $1 trillion (or 1/2 trillion or 2 trillion) unless you assume those extra "jobs" are coming at a cost being paid (by taxpayers and/or consumers or someone).

The only reason to halt the QE and say "that's enough! no more!" as the Fed did must be that ever-higher QE causes ever-higher cost of some kind to the economy. And so you cannot deny that the jobs caused by QE come only at a cost. And so you must explain how we know that the "jobs" created at $1 trillion QE were a net benefit while those created at $2 or $3 trillion would have been a net cost. This is what is not being explained. We have every reason to believe that even those created by the $1 trillion were not worth the cost. No reason has been given for believing otherwise.

So your persistence in talking about jobs that are not worthwhile is truly irrelevant.

On the contrary, the resistance of the Fed to go higher than $1 trillion QE, and everyone's tacit agreement that they shouldn't go beyond this figure (or some similar figure), can be explained only by an assumption that the extra jobs that would have been created would have been more costly than the benefit they would have produced. That is the DEFINITION of "not worthwhile" jobs. I.e., they are NOT WORTH THE COST that would have to be paid for them.

Can you deny that QE of 5 trillion or 10 trillion would have been a cost too high in return for the extra jobs that surely would have created by such a high QE? Those then are by definition "not worthwhile" jobs. Those are jobs everyone agrees are not worthwhile and should not be created, because the cost for them is greater than the benefit which would be produced by them. If someone says "No, they'd be worthwhile jobs!" then let them affirm that QE should have been $5 trillion or $10 trillion instead of only $1 trillion, because that extra QE money pumped into the economy would have been the cost of paying for all those extra jobs, and surely there would have been such jobs created if QE had been that high.

You have to acknowledge that those would have been "not worthwhile" jobs, if you acknowledge that the QE needed to create them would have been too high a cost to pay.

(to be continued)

 

[Lumpenproletariat]

#90


laughing dog


(continued)

You mean the questionable assumption that companies like to increase their profits and reduce their costs? This is questionable? Don't you think this urge to increase profits and reduce costs will lead to eliminating unnecessary jobs? Why would it lead them to limit necessary jobs that increase the company's profits?

No, that markets are free of externalities, public goods and asymmetric information.

No one is making any such assumption. We weren't even talking about externalities, public goods, and asym-- asymmet-- smetric-- whatever. We weren't talking about that.

We were talking about the fact that private companies have a natural built-in incentive to reduce their costs by not hiring unnecessary workers or having unnecessary jobs or makework jobs. And where they don't have this incentive, or it's perverted, it's usually because government interferes with their decision-making and distorts it, such as with subsidies to companies to build factories or otherwise hire people for the sake of the "jobs! jobs! jobs!" instead of just getting the needed work done to serve consumers.

Translation: Let's not worry about whether those "jobs" are "necessary" or a net benefit to the employer or to the consumers or taxpayers. Or whether they are producing some value in proportion to their cost. All that matters is that in these tough economic times, when the boat is sinking, we have to get those riff-raff off the streets no matter what it takes, and get them into those babysitting slots, which is all that really matters.

Wrong again. QE works through the private sector and you have stated we must trust that sector to know which jobs are beneficial and which are not. So, according to you, there is no need to worry about those jobs.

Then why wasn't QE increased to the point of reducing unemployment to ZERO, or at least near-zero? Which you cannot deny would have happened if QE had been raised high enough. Obviously you do NOT believe all those private-sector jobs would have been worth it, even though the private sector has good incentives not to hire unnecessary workers.

But if we subsidize them to hire more workers than are necessary, then they will do it, up to the point where the extra cost to them is offset by the government subsidy. But that is still a cost to society, which is not worth it.

Just because private companies have a natural incentive to not hire more than necessary doesn't change the fact that they will if the government offers them rewards to artificially hire more than necessary and thus offsets that normal incentive to limit their hiring to only the number necessary. It goes without saying that corporate welfare and pork programs give companies an artificial incentive to hire more workers, and this obviously counteracts their normal incentive to not hire unnecessary workers.

"stabilization" for whom? Isn't it destabilizing to artificially drive down interest rates so that people can no longer save for the future? How is that not destabilizing? Why isn't the market left to itself to set the interest rates so people can earn maybe 2% or so also a form of stabilization of the financial system?

Because doing nothing meant more banks would go under which would cause more disruption in production, consumption and savings.

First of all, take "savings" off that list! Driving down interest rates disrupts savings, so it makes no sense to say that suppressing interest rates would cause more savings -- it causes LESS.

As to banks going under, any banks which require that interest rates be suppressed in order to prevent them from going under are banks which SHOULD go under. We can do without banks that require such artificial measures.

There may be ways to save some banks with legitimate measures, but not suppressing interest rates.

There would be nothing wrong with low interest rates if this is caused by market conditions, i.e., low demand for credit and an oversupply of lenders wanting to earn interest from their savings. But no one is giving a reason why interest rates should be suppressed just to prop up some companies or banks or jobs. No one is explaining why whoever it is who needs these artificially-low interest rates is entitled to this subsidy which everyone else has to pay for.

If the beneficiary is a bank or other entity that would otherwise go under, then this is just another example of a producer who is failing because of incompetence or poor performance or uncompetitiveness and who is just getting the proper penalty from the market for this poor performance. Why should there be artificial measures to prop up this poor performer at the expense of everyone else who is struggling to survive? How is this beneficiary of the artificial measures any more worthy of being propped up than the many taxpayers or consumers or savers who have to be stomped down in order to pay the cost for it?

Yes, this ongoing addiction is well-known. What's missing is any evidence or proof that this addiction has made our economy better off than it would have been if we had never become addicted in the first place. Had we not, we would not have our current 17 trillion debt and the interest payments we have to keep paying on it far into the future.

Monetary policy did not create the Federal Debt: Congress did. So your argument is false.

But both are based on the same addiction to "jobs! jobs! jobs!" as a short-term quick-fix which we have to pay for at the cost of more inflation or higher debt, and which requires repeated fixes in order to keep whatever "jobs! jobs! jobs!" are produced initially, so that there is no added benefit into the future with the continuing fixes, unless the amount of the fixes is increased so that the future inflation and debt also increases without end.

The basic flaw of both is the same. Both impose a cost onto society which cannot be shown to be less than the "jobs! jobs! jobs!" benefit that is supposed to be produced.

So again, a "job" is really a babysitting slot to get or keep uncompetitive workers off the streets? It's not to get needed work done, but to provide the income to those job-seekers, as a form of charity, done out of pity for them.

Again, QE works through the private sector which means, according to your own words, that those jobs are beneficial.

No, they lose their value and become a net cost rather than benefit as long as they are produced by artificially goosing the economy to produce "jobs! jobs! jobs!" just for the sake of jobs. If QE went up to $5 or $10 trillion it would produce more "jobs," but those "jobs" would not be beneficial, because the cost we would pay for them would be more than they're worth. When the cost surpasses the benefit, the result is a net cost, not a net benefit.

So then you oppose the market "punishing" those who are less competitive? So we should not let any business fail, we should bail out everyone, because if they fail to do well in the market, then they are being "punished"? Who should not be bailed out based on your premise that anyone struggling to survive in the market is being unfairly "punished" and must be rescued?

Again, QE works through the private sector which means, according to your own words, that those jobs are beneficial and the workers are competitive.

But by this argument even if QE had been 20 trillion per year, every extra job created by this high influx of new money would be competitive and beneficial. And yet such new jobs would NOT be beneficial at such high cost. And if my "own words" said such a thing, it was a lie and I should be taken out and shot.

Their "sin" is that they are less competitive, like an uncompetitive business, and the market rewards and penalizes all the producers according to their performance, and these "sinners" you're talking about are ones whose performance level and value in the market is very low. And why shouldn't producers in the market be penalized for their poor performance?

Again, QE works through the private sector which means, according to your own words, that those jobs are beneficial and the workers are competitive.

Again, if such jobs were beneficial and the workers competitive, then even if QE had been $30 or $40 trillion, all the extra jobs created by it would be competitive and beneficial, which is nonsense. And if my "own words" said such a thing, then I should be waterboarded until I recant.

Which means they are not "sinners", yet you wish to punish them. Why?

Why do you wish to "punish" a mugger by not giving him your wallet?

But further, you also wish to "punish" these workers. Because you are opposed to increasing QE to $5 or $10 or $15 trillion per year, and yet that would create some additional jobs and help those workers who would be hired. Why do you wish to "punish" them by opposing $5 trillion or $10 trillion or $15 trillion QE that would create "jobs" for them?

You mean supply-and-demand is not correct? You mean as demand goes up the price does not go up but even goes down even if the supply remains the same? You mean the more people want something the less they're willing to pay for it?

Sometimes it is not correct.

So all your arguments on this topic, like the need for QE or to suppress interest rates, is based on the premise that supply-and-demand is not a reliable rule for predicting human behavior.

So it's because supply-and-demand is wrong, or often wrong, that we need QE or other "economic stimulus" measures by the Fed? And without this premise, there is no good case for QE?

You really believe all decisions in society can be made from empirical "data" only and that we have no other ways to predict with reason how people will behave?

I think logic, by itself, is insufficient to predict how people will always behave.

OK fine, we agree on this point. Logic by itself is sufficient to predict how people usually will behave. But not always, not 100% of the time.

We do act on that kind of knowledge generally [probability based on reason other than "empirical data"], but in this case, renewable energy, there are special conditions preventing us, or making it more difficult. It's not because of the form of the logic or the evidence that people don't accept the needed change, but because of the special conditions with energy consumption today.

Clearly if it were proven, there could be no debate that something should be done and something would be done.

There is proof (not absolute certainty) of the need to deal with excess carbon emissions (and pollution generally, plus also infrastructure neglect), but that doesn't mean there could be no debate or that something would necessarily be done, i.e., good measures would be taken to address these. There are times when a good case can be made, based on probability, but still the appropriate decisions or actions do not take place. There are sometimes conditions or circumstances which obstruct the right decisions or actions, even though a good case can be made for taking those actions.

We don't need empirical "data" for every decision, or to make the case. We can have good reasons for acting based on reasoning even without "empirical data" as part of the reasoning.

Relating this to the topic, the Fed has neither empirical data or any other kind of reasoning to make the case for QE or for suppressing interest rates. But most policy decisions do rely on reasoning, and the proponents of a policy are expected to present the case for a policy or give reasons why it should be enacted. But "economic stimulus" measures by Congress and the Fed do not meet this standard.

. . . if it were proven, there could be no debate that something should be done and something would be done. However, that is not the case.

Some things are not done that should be, but not because we lack "empirical data" to tell us what has to be done. And if it is "proven" what should be done, or that some action is needed, it does not mean "there could be no debate" -- there is still a "debate" (or should be) even if an issue is resolved, because "proving" it or resolving it does not mean there is 100% certainty or that no doubt remains.

E.g., with some environmental issues there is no need to prove 80% or 90% probability, as even a probable danger of only 30% or 40% may be reason enough to take preventive action. So we need to act on probability based on reasoning, with or without empirical "data" -- and we generally do act on such reasoning.

Some actions, like "economic stimulus" and QE, are done not out of reasoning, but from impulse, to get a short-term quick-fix feel-good benefit, and this overrides reason.

Probabilities that are frequencies are based on actual data not reasoning.

It is probable that if water rates are doubled, there will be a decrease in demand for water. I have no "actual data" to prove this, and yet this is based on reason and is a very reliable prediction of human behavior and should be a basis for important decisions on whether water rates should be increased in areas where there is a water shortage.

And many other non-"data"-based reasoning is and should be used to make decisions. The demand for "data" should not prevent us from making needed decisions, when there is plenty of non-"data" logic available to apply to an issue to resolve it.

If there is agreement that a stable price level is good, or that wide fluctuation in the prices is harmful, then managing the money supply up or down as needed is the logical thing to do, to keep the prices relatively stable. If someone disagrees with that, they are wrong. Proving something logically does not mean that everyone in the world will agree.

Since you have not proven that a stable price level is good, your argument is based on flimsy premises.

"If there is agreement that a stable price level is good," then there is no need to prove it. Why must something be proved that everyone agrees with? If the issue is not whether a stable price level is good, because everyone agrees that it is, and the issue is how to produce a stable price level, what is served by arguing that a stable price level is good?

Just because manipulating interest rates is the accepted system does not mean that it is the only way to manage the money supply.

Increasing the supply of money causes interest rates to fall, all other things equal.

Who cares? so what? I want to know why interest rates should be manipulated as a means to changing the money supply. If you don't know, OK.

I suggested how money supply could be affected without using interest rates to do it (if there's a need for more money because inflation goes below zero). If increasing the money supply then impacts on interest rates, it doesn't matter. I'm just saying the money supply could be increased (in the rare case where it's necessary) without manipulating interest rates to accomplish it. I'm not saying interest rates would not in turn change as a result, but the purpose of increasing the money supply would not be to cause this change in interest rates, but rather, to stabilize the money suppy or the price level or the inflation rate, to keep it steady and near zero.

It is irrelevant whether changing the money supply has an effect on interest rates. I'm asking why interest rates should be manipulated to change the money supply, not whether money supply affects interest rates.

No one is answering the question why interest rates need to be suppressed. Except Wiploc said it's to "smooth out" the business cycle fluctuations, or the boom and bust. But then the question is why it's necessary to counteract the boom and bust fluctuations, and no one answered. So it all boils down to the quick-fix "jobs! jobs! jobs!" and "economic stimulus" religion. And that's all QE and "economic stimulus" and suppression of interest rates is about.

That is a basic result of supply and demand. That is true whether money is printed or created via the fractional reserve system.

My suggestion would be a form of "printing money," and let's say it then causes interest rates to change. It would not be the same thing as what the Fed is doing now, to suppress interest rates. Because, first of all, it would be done only if inflation really goes below zero. No one has shown why the inflation rate has to be maintained at 2% or anywhere above zero.

Also, if it's true that infusing some money causes interest rates to drop (probably a negligible amount), it's only an automatic reaction and not done for the purpose of goosing the economy ("jobs! jobs! jobs! jobs! jobs!"), but just to keep prices stable, which is good for virtually all buyers and sellers and workers and employers and consumers and, and -- Who is it not good for?

 

[laughing dog]

Wrong again. QE works through the private sector and you have stated we must trust that sector to know which jobs are beneficial and which are not. So, according to you, there is no need to worry about those jobs.

Then why wasn't QE increased to the point of reducing unemployment to ZERO, or at least near-zero? Which you cannot deny would have happened if QE had been raised high enough. Obviously you do NOT believe all those private-sector jobs would have been worth it, even though the private sector has good incentives not to hire unnecessary workers.

No, it is because few people (if any) believe that a dynamic labor market will ever achieve a zero unemployment rate or even "near zero". Furthermore, as has been stated many times, monetary policy also needs to worry about accelerating inflation or inflationary expectations.

But if we subsidize them to hire more workers than are necessary, then they will do it, up to the point where the extra cost to them is offset by the government subsidy. But that is still a cost to society, which is not worth it.

Just because private companies have a natural incentive to not hire more than necessary doesn't change the fact that they will if the government offers them rewards to artificially hire more than necessary and thus offsets that normal incentive to limit their hiring to only the number necessary. It goes without saying that corporate welfare and pork programs give companies an artificial incentive to hire more workers, and this obviously counteracts their normal incentive to not hire unnecessary workers.

This is non-responsive. QE channels do not subsidize the hiring of anyone in the private sector.

First of all, take "savings" off that list! Driving down interest rates disrupts savings, so it makes no sense to say that suppressing interest rates would cause more savings -- it causes LESS.

Unfortunately for your position, the US experience is that savings seems fairly unresponsive to after-tax interest rates but more sensitive to income.

As to banks going under, any banks which require that interest rates be suppressed in order to prevent them from going under are banks which SHOULD go under. We can do without banks that require such artificial measures.

There may be ways to save some banks with legitimate measures, but not suppressing interest rates....

Once again, you continue to ignore the dual nature of monetary policy. Increasing bank reserves helps banks that are in temporary trouble by increasing their liquidity. Increasing bank reserves also puts downward pressure on interest rates, but you are confusing the cause (increased bank reserves) with the effect ("suppressed" interest rates).

But both are based on the same addiction to "jobs! jobs! jobs!" as a short-term quick-fix which we have to pay for at the cost of more inflation or higher debt, and which requires repeated fixes in order to keep whatever "jobs! jobs! jobs!" are produced initially,.......

That assertion is false: QE was not based on any addiction to saving jobs. So, your entire analysis is based on a false premise. And continuing to imply that the level of US federal debt is caused by monetary policy is mind-numbingly false.

No, they lose their value and become a net cost rather than benefit as long as they are produced by artificially goosing the economy to produce "jobs! jobs! jobs!" just for the sake of jobs. If QE went up to $5 or $10 trillion it would produce more "jobs," but those "jobs" would not be beneficial, because the cost we would pay for them would be more than they're worth. When the cost surpasses the benefit, the result is a net cost, not a net benefit.

Since the point of QE was not "jobs jobs jobs" and because it worked through the private sector, you are contradicting yourself. Either the private sector is competent to judge whether a job is a benefit to it or it is not.

But by this argument even if QE had been 20 trillion per year, every extra job created by this high influx of new money would be competitive and beneficial. And yet such new jobs would NOT be beneficial at such high cost. And if my "own words" said such a thing, it was a lie and I should be taken out and shot.

You wrote what you wrote.

Again, if such jobs were beneficial and the workers competitive, then even if QE had been $30 or $40 trillion, all the extra jobs created by it would be competitive and beneficial, which is nonsense. And if my "own words" said such a thing, then I should be waterboarded until I recant.

Seems to me that you are recanting now.

Why do you wish to "punish" a mugger by not giving him your wallet?

I fail to see how this is at all relevant.

But further, you also wish to "punish" these workers. Because you are opposed to increasing QE to $5 or $10 or $15 trillion per year, and yet that would create some additional jobs and help those workers who would be hired. Why do you wish to "punish" them by opposing $5 trillion or $10 trillion or $15 trillion QE that would create "jobs" for them?

I don't know if a QE of that magnitude would end up creating more jobs or destroying them, and neither do you. So, I find your question irrelevant.

Relating this to the topic, the Fed has neither empirical data or any other kind of reasoning to make the case for QE or for suppressing interest rates.....

Each Federal Reserve Bank regularly publishes empirically-based research on monetary policy and issues - all of which has been available for free either in print for decades or online for a fair number of years, so your claim is absurd.

Some things are not done that should be, but not because we lack "empirical data" to tell us what has to be done. And if it is "proven" what should be done, or that some action is needed, it does not mean "there could be no debate" -- there is still a "debate" (or should be) even if an issue is resolved, because "proving" it or resolving it does not mean there is 100% certainty or that no doubt remains....

You are wrong. Proving that X is true means there can be no debate that X is true. That is what proof means.

Some actions, like "economic stimulus" and QE, are done not out of reasoning, but from impulse, to get a short-term quick-fix feel-good benefit, and this overrides reason.

This only reflects your unwavering ideology but not reality.

"If there is agreement that a stable price level is good," then there is no need to prove it. Why must something be proved that everyone agrees with? If the issue is not whether a stable price level is good, because everyone agrees that it is, and the issue is how to produce a stable price level, what is served by arguing that a stable price level is good?

You are assuming your answer. That is circular reasoning. I said "Not everyone agrees that the a stable price is good". Nor is it clear that a stable price level is good.

Who cares? so what? I want to know why interest rates should be manipulated as a means to changing the money supply. If you don't know, OK....

Obviously you care. But since you are appear either incapable or unwilling to separate the cause (increasing bank reserves for liquidity reasons) with the effect ("suppression of interest rates"), your arguments are a mixture of confusion, ignorance and error. Printing dollars is increasing the supply of money. Whether you like it or not, that "suppresses" interest rates. You can try to shift the goal posts, after the fact, with extra conditions, but none of that affects the underlying reality: all other things equal (something you love to posit), means that changes in the supply of money cause changes in interest rates.

 

[Loren Pechtel]

No, it is because few people (if any) believe that a dynamic labor market will ever achieve a zero unemployment rate or even "near zero". Furthermore, as has been stated many times, monetary policy also needs to worry about accelerating inflation or inflationary expectations.

Nor should we seek 0% unemployment. A free society requires some slack in the employment system--either unemployment or unfilled positions. In a free society the latter leads to inflation until we get the former.

Unfortunately for your position, the US experience is that savings seems fairly unresponsive to after-tax interest rates but more sensitive to income.

Agreed. Interest isn't enough to make people save.

 

[SimpleDon]

Lumpenproletariat

You have repeatedly asked why is the Fed intentionally suppressing the interest rate right now. Why doesn't this Fed let the interest rates float and to let the supply and demand set the interest rate?

Why do you believe that the Fed is suppressing the interest rate?

Most people here who want the interest rate to be set by supply and demand do so on the assumption that the interest rate is the price of capital. If this includes you then you must realize that the supply of capital is currently huge, there is much more capital in the hands of investors and corporations than the economy needs for productive investment. This why we have repeated asset bubbles in stocks, real estate, commodities, etc..

Our fiscal policies are set up currently to shift income from wages to profits, from the labor share of GDP to the capital share of GDP, from demand to supply. Over the thirty year plus years that these policies have been in effect it means that something on the order of tens of trillions of dollars that would have been wages under the old fiscal policies have been diverted to profits and to capital, savings, most of it by corporations.

This means that there is more capital available and it means that a supply and demand set interest rate would be nearly zero all of the time.

In fact, it can be argued that the Fed usually forces the interest rate up rather than suppresses it. This is understandable, the massive amount of capital available in the financial markets that doesn't stand a chance of being needed to being invested in production facilities. Left to the market the so-called natural rate of interest set by supply and demand would be zero.

The idea that the interest rate is the price of capital and that it is best arrived at based on balancing savings and investment, the supply of funds, savings, verses the demand for funds for investment establishing a natural interest rate. That savers put money in the bank that is then loaned out to build factories that produce the products that we need while providing the jobs that we also need.

This is probably something along the lines of what you believe, right?

Then if you were consistent in your beliefs you would be asking why is the Fed always boosting the interest rates?

 

[Duke Leto]

You know laughing dog and SimpleDon, I admire your commitment not to let nonsense be spouted unchallenged, but might it not be better to just put the guy on ignore list and let him rage at the wind?

If he can't figure out how quote tags work, the likelihood that he will ever learn anything can't be good.

 

[Lumpenproletariat]

Why is no one answering why interest rates per se should be suppressed?

#93


laughing dog

. . why wasn't QE increased to the point of reducing unemployment to ZERO, or at least near-zero? Which you cannot deny would have happened if QE had been raised high enough. Obviously you do NOT believe all those private-sector jobs would have been worth it, even though the private sector has good incentives not to hire unnecessary workers.

No, it is because few people (if any) believe that a dynamic labor market will ever achieve a zero unemployment rate or even "near zero".

"dynamic"? What's more important? Having a "dynamic" labor market that lets some job-seekers and their families go hungry, or a labor market that expands enough to provide all of them with jobs so their children don't go hungry?

Nevermind your meaningless "dynamic" jargon -- just tell us why QE should not have been raised high enough so that EVERY sincere job-seeker would be able to get into the economy and have the dignity of employment? Why do you want to deny these sincere job-seekers this dignity with your artificial dogmas about what's "dynamic" enough? You have no evidence that a higher QE like 2 or 3 trillion wouldn't simply expand the good that came from the lower limited 1 trillion figure.

Why shouldn't QE be raised high enough so that no one who is seeking a job is left out? Why should anyone be shut out from the job market? Don't you care about these people being able to "put food on the table" and support their families? Why couldn't we reach a high-enough employment level so that no one is excluded from a job who wants one? Why do you want to exclude these people? Are they inferior because they're at the end of the list of those who get hired? Their families should go hungry?

Why shouldn't the same sentiment that says we must use QE to reduce unemployment from 6% to 5% also require us to use it to reduce it still further so that no one's family goes hungry because they can't find a job?

Just because it's a smaller number, how does that make them fit for going hungry? Just because they're in the bottom 4% or 3% that means they shouldn't eat? Or that means we must deny them a job and put them on welfare instead? Why couldn't you say that about the 6% or 7% we have without ANY QE?

Give us a reason why QE should stop at 1 trillion when it is obvious that still more jobs would be created by increasing QE to 2 or 3 trillion?

Furthermore, as has been stated many times, monetary policy also needs to worry about accelerating inflation or inflationary expectations.

They why did it accelerate inflation or inflationary expectations by doing even the 1 trillion QE? That additional 1 trillion injection increased inflationary pressure when the inflation rate was above zero. That accelerated inflation and inflationary expectations. Why is inflation and inflationary expectations caused by that 1 trillion OK, because it created some jobs, but some additional QE would NOT be OK even though it would create still further jobs?

You're still not answering what was magical about the 1 trillion figure, and why ZERO QE would not have been just as good for the economy or even better.

But if we subsidize them to hire more workers than are necessary, then they will do it, up to the point where the extra cost to them is offset by the government subsidy. But that is still a cost to society, which is not worth it.

Just because private companies have a natural incentive to not hire more than necessary doesn't change the fact that they will if the government offers them rewards to artificially hire more than necessary and thus offsets that normal incentive to limit their hiring to only the number necessary. It goes without saying that corporate welfare and pork programs give companies an artificial incentive to hire more workers, and this obviously counteracts their normal incentive to not hire unnecessary workers.

This is non-responsive. QE channels do not subsidize the hiring of anyone in the private sector.

So now you're saying that QE does absolutely nothing to encourage more employment in the private sector?

QE comes with a price. That price is inflation. You cannot inject a trillion dollars into circulation without causing higher inflation than there would have been otherwise. Those higher prices are a cost we all pay, i.e., everyone who spends money. That is the cost, or the "subsidy" we all pay. If any jobs are created as a result of this QE, then they are being paid for out of the cost we all pay with the higher inflation rate.

So if you say that QE doesn't subsidize new jobs, then you're saying there are no jobs created as a result of QE, and QE served no purpose in reducing unemployment or saving any jobs. Which contradicts what the Fed chairman repeatedly told us.

First of all, take "savings" off that list! Driving down interest rates disrupts savings, so it makes no sense to say that suppressing interest rates would cause more savings -- it causes LESS.

Unfortunately for your position, the US experience is that savings seems fairly unresponsive to after-tax interest rates but more sensitive to income.

"fairly unresponsive" means nothing. Lower interest rate means less saving, not more. To say otherwise is asinine. Of course people save less when they are deprived of the benefit of receiving any interest, or if the interest rate is suppressed from 1 or 2 or 3% to near-zero. You have no evidence to show otherwise. Just because savings is also responsive to other factors does not change the fact that it is responsive to the interest rate.

The low inflation rate (compared to the 1970's) can partly explain why the current low interest rate hasn't depressed savings entirely. But it is false (and silly) to suggest that low interest rates do not discourage savings.

As to banks going under, any banks which require that interest rates be suppressed in order to prevent them from going under are banks which SHOULD go under. We can do without banks that require such artificial measures.

There may be ways to save some banks with legitimate measures, but not suppressing interest rates.

Once again, you continue to ignore the dual nature of monetary policy. Increasing bank reserves helps banks that are in temporary trouble by increasing their liquidity. Increasing bank reserves also puts downward pressure on interest rates, but you are confusing the cause (increased bank reserves) with the effect ("suppressed" interest rates).

This might make sense if you mean that the Fed really has done nothing at all to suppress interest rates, but rather has found it necessary to force bank reserves upward, and that only this leads to lower interest rates, which is a RESULT, even an UNINTENDED result of forcing the higher bank reserves.

And so you're saying that the Wall Street Report and Nightly Business Report and NPR Marketplace etc. are all wrong when they say that the Fed suppresses interest rates, because what it is really doing is forcing bank reserves upward, and it's only this that causes some downward pressure on interest rates.

I can only assume that the news is telling us correctly that the Fed suppresses interest rates directly, not as an UNINTENDED result, as you're suggesting. But if you're right, then all the news programs are falsely telling us that the Fed is directly suppressing interest rates because it wants the lower interest rates per se, not that this is happening as an unintended byproduct of something else. I.e., the Fed INTENDS to produce lower interest rates for the sake of lower interest rates.

If you're right that no one, including the Fed, really wants lower interest rates and it is not deliberately suppressing interest rates, then there is still a disconnect here somewhere, because they also say that lower interest rates are good because it encourages some investment or borrowing that is desirable. That sounds like they are trying to produce lower interest rates per se, not that this is only a result of forcing up bank reserves.

So I think you're wrong to imply that there is no policy to intentionally suppress interest rates per se.

There is such a policy and no one is giving a good reason why there should be such a policy. No one is giving a legitimate reason to drive down interest rates in order to motivate someone to do more borrowing, or to make credit easier. What is the reason to make credit easier or to incentivize someone to increase their borrowing?

But both are based on the same addiction to "jobs! jobs! jobs!" as a short-term quick-fix which we have to pay for at the cost of more inflation or higher debt, and which requires repeated fixes in order to keep whatever "jobs! jobs! jobs!" are produced initially . . .

That assertion is false: QE was not based on any addiction to saving jobs. So, your entire analysis is based on a false premise.

So QE was not intended to save or create any jobs, according to you. So your whole premise is that QE had nothing to with reducing unemployment or combating recession. It had nothing to do with promoting "economic growth" or preventing the economy from "slowing down" or with "stimulating the economy" and so on. And anything you said earlier that QE was intended to "save" jobs was false. Or you never said such a stupid thing. OK, I stand corrected. It had nothing to do with unemployment or the recession. And whenever the Fed chairman said something about the recession, I only imagined it, or s/he was lying.

And continuing to imply that the level of US federal debt is caused by monetary policy is mind-numbingly false.

It's caused by the obsession to save or create "jobs! job! jobs! jobs! jobs!" Just as the Fed's actions are based on this obsession. But according to you neither the Congress or the Fed has any concern with jobs or recession or "economic growth" or unemployment. Probably even the President cares nothing about unemployment or jobs, according to you. And no economists care about it either.

No, they lose their value and become a net cost rather than benefit as long as they are produced by artificially goosing the economy to produce "jobs! jobs! jobs!" just for the sake of jobs. If QE went up to $5 or $10 trillion it would produce more "jobs," but those "jobs" would not be beneficial, because the cost we would pay for them would be more than they're worth. When the cost surpasses the benefit, the result is a net cost, not a net benefit.

Since the point of QE was not "jobs jobs jobs" . . .

So again you're saying the Fed chairman never spoke about unemployment or recession? This was never mentioned by him/her as having anything to do with QE? And everytime I hear the Fed chairman speak of unemployment or recession, what is the explanation? I'm imagining it? S/he is lying? What is the explanation that every time I hear the Fed chairman explain QE and the artificially low interest rates, I keep hearing him/her speak of the need to reduce unemployment and counteract the recession? Why do I keep hearing this?

And the analysts who explain the Fed policy also speak of unemployment and recession. Or am I imagining they're saying those things? What do you hear when you listen to them? You're not hearing them talk about the unemployment rate? that it's still too high? not low enough yet to end QE or let interest rates rise? You don't hear them say this?

. . . and because it worked through the private sector . . .

How did it work through the private sector if it had nothing to do with employment or recession? How did it work at all? What does "it worked" mean? You said above that it's not about "jobs! jobs! jobs!" -- so what is QE about?

. . . you are contradicting yourself.

And your grandmother smokes cigars!

Tell us what QE is supposed to do if it has nothing to do with "jobs! jobs! jobs! jobs! jobs!" If you answer just that, I'll sign a confession that I contradicted myself somewhere.

Either the private sector is competent to judge whether a job is a benefit to it or it is not.

Were the jobs that built the "bridge to nowhere" (probably done by a private contractor) a net benefit to the economy?

If I said that every pork barrel or corporate welfare job was a net benefit to the economy, then I should be impaled on a stake.

I'll repeat it again: Not every "job" is a net benefit to the economy, even if it's a private sector job, if that job is a state-subsidized job.

This does not contradict anything I said about the private sector having a natural incentive to reduce or eliminate unnecessary jobs. The profit motive gives companies this incentive, but if the state pays them to do something counterproductive or unnecessary, then of course this distorts that incentive and drives the company to hire unnecessary workers, such as a "jobs" program or other corporate welfare program. In this sense there have no doubt been tens of millions of non-beneficial jobs in the private sector, because the state subsidized those jobs.

But by this argument even if QE had been 20 trillion per year, every extra job created by this high influx of new money would be competitive and beneficial. And yet such new jobs would NOT be beneficial at such high cost. And if my "own words" said such a thing, it was a lie and I should be taken out and shot.

You wrote what you wrote.

But you are agreeing that if QE had been above some figure, like 10 or 20 trillion, those extra jobs created would not have been a net benefit? because the harm of injecting so much QE into the economy would have been a too-high price to pay for those extra jobs and they would not have been worth that high price? Right?

So not all possible "jobs" that could be created with ever-higher "economic stimulus" (e.g. QE) are necessarily a net benefit to the economy. Beyond some level of "stimulus" they necessarily become a net harm rather than benefit. Right?

Again, if such jobs were beneficial and the workers competitive, then even if QE had been $30 or $40 trillion, all the extra jobs created by it would be competitive and beneficial, which is nonsense. And if my "own words" said such a thing, then I should be waterboarded until I recant.

Seems to me that you are recanting now.

But, getting back to the substance, you're agreeing that all these extra "jobs" due to QE beyond some point are non-competitive and non-beneficial and are a net loss or net cost to our economy rather than net benefit. Right? Huh? Will you answer? Nevermind what I or you said back there that is no longer relevant! Just answer this: Is it not true that any jobs that are created as a result of QE beyond some limited level, such as $3 or $5 or $10 or $15 trillion are necessarily non-competitive and net harmful jobs rather than a net benefit?

But further, you also wish to "punish" these workers. Because you are opposed to increasing QE to $5 or $10 or $15 trillion per year, and yet that would create some additional jobs and help those workers who would be hired. Why do you wish to "punish" them by opposing $5 trillion or $10 trillion or $15 trillion QE that would create "jobs" for them?

I don't know if a QE of that magnitude would end up creating more jobs or destroying them . . .

So in other words, you are in favor of pushing QE up to the highest point at which it would create new jobs? Only at that point where it would destroy jobs or cause net FEWER jobs would be the stopping point?

So you favor pushing QE up to 1 1/2 trillion, or 2 trillion, or 3 trillion, or to that optimum point where there would still be net new jobs as a result?

So then you should favor pushing QE up and up until we reach some point where it seems to stop producing new jobs?

And yet, how can you claim we reached that point at 1 trillion? There's absolutely no basis for this presumption. Even if we agree that $5 trillion might have been past the optimum new-jobs level, surely 1 trillion was not that point.

And so if you oppose going above 1 trillion, are you not "punishing" all those job-seekers who would have been hired? You said that opposing "economic stimulus" is to "punish" all those who would have got hired as a result. Just as I said the Fed is "punishing" those who want to save by suppressing interest rates or by driving up the inflation rate.

Isn't it "punishing" those who save to force up the inflation rate or suppress interest rates? If you take money out of someone's pocket, are you not "punishing" them?

But are we "punishing" someone by not enacting more "economic stimulus" that would get them a job as a result, as you maintained?

The answer is NO! That is not "punishment" because this "economic stimulus" would be giving them something they have not earned or is not theirs, and withholding something from someone that they are not entitled to is not to "punish" them.

However, consumers and those who save are entitled to have market prices, including the market-set interest rates, and to deprive them of this is to "punish" them or deprive them of something they are entitled to. To drive up the inflation rate or depress interest rates is to "punish" consumers and those who save. It is an assault on them, like robbery or theft, and an infliction of harm for which there is no justification.

No one here has given any reason why consumers should have to pay higher prices or savers should be deprived of market-based interest on their savings. I.e., no reason why the government, the Congress, the Fed, etc. should impose any policy that inflicts this punishment onto them.

However, to not enact a "stimulus" program that would create "jobs" is not to deprive job-seekers of jobs that they are entitled to, because these "jobs" are artificial "jobs" that would be a net harm to society rather than a benefit, because they cost us a price that is too high.

When jobs are created at a cost inflicted onto taxpayers or consumers, these "jobs" are a form of charity or pity toward those workers, who are getting their paycheck at the expense of taxpayers and/or consumers who have to pay a price for those jobs. But legitimate jobs are the ones which pay for themselves in the economy, by the benefit they produce, and don't come at a price or cost inflicted onto the rest of society.

To not grant this subsidy or charity or pity to job-seekers is not to "punish" them, because nothing is being taken away from them that they are entitled to. But inflationary policies that drive up prices to consumers are a form of "punishment" of consumers by taking away from them something they are entitled to, which is market-based competitive prices.

. . . the Fed has neither empirical data or any other kind of reasoning to make the case for QE or for suppressing interest rates.

Each Federal Reserve Bank regularly publishes empirically-based research on monetary policy and issues - all of which has been available for free either in print for decades or online for a fair number of years, so your claim is absurd.

By this logic, the Catholic religion has been proved to be the one true religion, and Communism is proved true because Marx and Engels published lots of research.

You have no basis for claiming that any of the Fed's publications make the case for QE or for suppressing interest rates. If such evidence really existed, you could cite it. You could just as easily claim that the case for QE is in the Bible somewhere. Or in the Talmud.

Or better, you could just say "It's in the Library of Congress somewhere."

Everything anyone ever claimed must be the truth, as long as they published their "research" on their issues and policies.

Some things are not done that should be, but not because we lack "empirical data" to tell us what has to be done. And if it is "proven" what should be done, or that some action is needed, it does not mean "there could be no debate" -- there is still a "debate" (or should be) even if an issue is resolved, because "proving" it or resolving it does not mean there is 100% certainty or that no doubt remains.

You are wrong. Proving that X is true means there can be no debate that X is true. That is what proof means.

Only in theory. In practice, everything that has been "proven" is still subject to debate and questioning. It's just that some truths have been demonstrated so well that there is no point in disputing them further. But most issues that have been resolved or "proven" one way or the other are still open to debate and doubt.

In the practical sense, climate change, evolution, the Big Bang, supply-and-demand, and cause-and-effect have been "proven" but are still open to debate and doubt, whereas QE and "economic stimulus" and "Ancient Astronauts" and time-travel have not been proven. And perhaps UFOs and ESP are in between, i.e., "proved" partly. And virtually nothing is "proved" 100%, beyond the point of any questioning or doubting. Even a criminal case with a 100% jury verdict is still open to doubt and debate.

Some actions, like "economic stimulus" and QE, are done not out of reasoning, but from impulse, to get a short-term quick-fix feel-good benefit, and this overrides reason.

This only reflects your unwavering ideology but not reality.

You have made no argument for QE or economic stimulus. You've never shown why a certain amount of "economic stimulus" or QE, such as 1 trillion in one year, was the right amount rather than some other amount. Without any case made by anyone, the only conclusion to draw is that these are based on something other than reason.

"If there is agreement that a stable price level is good," then there is no need to prove it. Why must something be proved that everyone agrees with? If the issue is not whether a stable price level is good, because everyone agrees that it is, and the issue is how to produce a stable price level, what is served by arguing that a stable price level is good?

You are assuming your answer. That is circular reasoning. I said "Not everyone agrees that a stable price is good".

As long as everyone who speaks on it says a stable price level is good, and as long as no one speaks up and claims otherwise, it's reasonable to assume that everyone agrees that a stable price level is good. There is nothing to argue about or to prove if everyone who has anything to say agrees with this. No one is arguing that the price level should be unstable, and so there is no need to argue it or try to prove the need for a stable price level.

Nor is it clear that a stable price level is good.

So in the 1920s when Germans had to take a wheelbarrow-full of Marks to the store to buy a loaf of bread, there was nothing wrong with that? It isn't "good" to have a price system that avoids that extreme inflationary condition?

I want to know why interest rates should be manipulated as a means to changing the money supply.

. . . since you appear either incapable or unwilling to separate the cause (increasing bank reserves for liquidity reasons) with the effect ("suppression of interest rates"), your arguments are a mixture of confusion, ignorance and error.

Once again, you are implying that there is NO need to suppress interest rates, or that there is no desire to reduce interest rates per se, but only to increase bank reserves, and that this increasing bank reserves then causes lower interest rates as a result, or as an UNINTENDED consequence of increasing the bank reserves, and except for this unintended consequence, there is no need or desire to suppress interest rates.

I find that hard to believe. Everything I hear on the news is claiming that the Fed wants to suppress interest rates as though these lower interest rates per se are the goal, and are not just an unintended consequence following from something else (higher bank reserves) which is the real goal.

I hear remarks that lower interest rates make it easier to borrow and that this is a good thing during the recession. So we need these lower rates for the sake of the lower rates per se, regardless of the higher bank reserves.

So I don't believe you that there is no desire to reduce interest rates per se. I don't believe you that it is only the higher bank reserves that the Fed wants and that it cares nothing about lower interest rates per se.

Can you cite a quote somewhere in which an economist or Fed expert said explicity: There is no need and no wish by the Fed for lower interest rates per se, but rather, the only desire is to increase bank reserves, and then this causes lower interest rates as an unintended consequence, and so it is only an illusion, or a misconception, that there is any need or desire for lower interest rates per se.

If you can cite such a quote, then I will believe this. But why should I believe this if it's only you who says it?

And this is not to deny that there is some causal connection between higher bank reserves and lower interest rates. That's not the point!

I can easily explain why you're trying to downplay the obvious obsession of the Fed with lower interest rates, or why you're pretending that this is not what they want, and are purporting that all they care about is higher bank reserves and nothing else. It's because you cannot give a good explanation why we should have lower interest rates. Or rather, if you try to give an explanation, it will simply be the same old "jobs! jobs! jobs! jobs! jobs!" babble that we keep getting all the time, and you are ashamed to admit that this is all that it's about, and so you're groping around for some other explanation.

But if you're right that the Fed doesn't really care about lower interest rates per se and is not really suppressing interest rates at all but is only pushing up bank reserves, and that the lower interest rates are nothing but an unintended consequence of this higher bank reserves, then I am dumbfounded at all the constant claim on the news that the Fed is precisely suppressing interest rates per se. And so I can't explain all the false statements they keep saying on the news, and even the false statements by economists and the Fed which say that it is trying to suppress interest rates per se.

Can you explain why they keep talking this way (the Fed intentionally suppresses interest rates per se) when it's not true and this is really just an unintended consequence of something else (higher bank reserves) which they hardly ever mention?

Printing dollars is increasing the supply of money. Whether you like it or not, that "suppresses" interest rates.

In general they should not "print" money, regardless of what it does to interest rates. However, in an extreme case, like perhaps the 1930s, maybe they needed to "print" some money, because of the negative inflation. And in that case it's irrelevant that it might impact on interest rates.

That's all totally irrelevant to my question, which is: What is the need to suppress interest rates? or: Why should interest rates be suppressed?

Your answer now is that there is NOT any need to suppress interest rates, but only to increase bank reserves, which then has the unintended consequence of suppressing interest rates. But I don't believe this, for the reasons above.

You can try to shift the goal posts, after the fact, with extra conditions, but none of that affects the underlying reality: all other things equal (something you love to posit), means that changes in the supply of money cause changes in interest rates.

Which you know is irrelevant to anything I'm asking. My question is why interest rates should be suppressed.

It doesn't matter if money supply affects interest rates. The need to increase money supply is extremely rare. If once every 50 years the Fed or someone has to increase money a little in order to stabilize the price level, I don't care at all if that depresses interest rates. That would be a legitimate result, because it happens in response to something that was necessary.

But none of this answers the question why interest rates per se should be suppressed.

Except now you're saying they don't need to be suppressed and that no one including the Fed even wants to suppress interest rates.

It is possible to want something (A) without wanting something else (B) which would result from (A). Just because they want higher bank reserves (A) does not mean they want the lower interest rates (B) which come as a result.

There is no reason for everyone (talking heads, pundits, etc.) to keep saying the Fed wants lower interest rates (B) if all they really want is higher bank reserves (A). So there is a disconnect between your bank reserves theory and what the pundits and economists are saying. If your theory were correct, we would not keep hearing about the Fed suppressing interest rates as though this were a goal in itself. But instead they would be talking about the need for higher bank reserves, which is seldom mentioned by them.

 

[SimpleDon]

You know laughing dog and SimpleDon, I admire your commitment not to let nonsense be spouted unchallenged, but might it not be better to just put the guy on ignore list and let him rage at the wind?

If he can't figure out how quote tags work, the likelihood that he will ever learn anything can't be good.

I understand that I won't be able to change his mind. I am just trying to find out if he even understands what he is saying that his position is.

Economics seems to be something that people learn only as much of as they need for confirmation of their firmly held beliefs and to stop there for fear that they will learn something that contradicts those beliefs. In this case it seems like he hasn't had to learn much at all. He doesn't even seem to fully grasp the simple concept of supply and demand.

He wants interest rates to be the price of capital, of money, and for the interest rates to be set by supply and demand. By any measure we have an unprecedented amount of capital available for investment right now. If he believes that the interest rate is the price of capital then that price should be nearly zero because the supply is so much greater than the demand.

His question, by his logic, should be, why is the Fed having to boost interest rates?

I think that this is a simple question, one that doesn't even require the use of quote tags.

 

[Duke Leto]

I think that this is a simple question, one that doesn't even require the use of quote tags.

It's the utterly bizarre and technologically unnecessary, in fact bass-ackwards headers that puzzle the hell out of me. Why reference post numbers and interlocutors explicitly when the automatically generated quote tags perform both functions? It's just stupid.

 

[SimpleDon]

#93


.......<snip a lot>

Which you know is irrelevant to anything I'm asking. My question is why interest rates should be suppressed.

I pointed out above that if you truly believe that interest rates are the price of capital and that the interest rate is set by the supply of capital and the demand for that capital then you should be asking the question why is the Fed trying to boost the interest rate off of what the rate would be if they did nothing, which would be zero right now.

There is a conclusion to be drawn from the fact that the Fed is trying to suppress the interest rate at a time when the interest rates would be zero if they were set by the supply and demand for capital. Can you tell us what that conclusion should be? I bet that you can.

It doesn't matter if money supply affects interest rates. The need to increase money supply is extremely rare. If once every 50 years the Fed or someone has to increase money a little in order to stabilize the price level, I don't care at all if that depresses interest rates. That would be a legitimate result, because it happens in response to something that was necessary.

Money is constantly being created and destroyed. We have a bank credit money system where money is created by banks making loans and money is destroyed when the loans are paid back. In addition the portion of interest that is paid to the bank that is not used for wages or other overheads but is retained as profits or increased bank capital is also money that is destroyed.

The US runs a large trade deficit. This is money that effectively leaves the US's economy.

This is all money that has to be replaced in the economy. In addition any growth in the economy has to be accounted for by increasing the money supply.

If we don't replace the money that is destroyed and we don't increase the money supply to allow for growth we will face decreased savings, increased private debt and eventually deflation, the increase in the value of the money. These are all really bad for the economy.

The normal way to create this money to avoid increased private debt and eventually deflation is for the government to run a budget deficit. They spend the money into existence by the amount of the deficit.

But none of this answers the question why interest rates per se should be suppressed.

Because in a normal recession, what is termed a cyclical recession, lowering the interest rates encourages home construction and the purchase of big ticket items like automobiles and white goods, appliances. More loans are made and more money is created.

But what we had in 2008 was not a normal recession, it was one caused by the financial crisis brought on by the banks and the financial markets bad behavior because they lacked adequate adult supervision. In such a recession banks aren't loaning money because they don't know how far the rot in their business goes. No loans are written. Obviously no homes were being built.

It doesn't matter how low the interest rates are or how much money that they have in their reserve accounts. Credit dried up overnight. Outstanding lines of credit were canceled, loans that could be called in were called in. Outstanding loans weren't renewed. But it was even worse than that because consumers stopped spending and concentrated on paying down their personal debt. Businesses canceled investments in plant construction and did the same, they paid down their debt.

The Fed has a limited number of tools. One is to lower interest rates. Two is to create money and to deposit it in the accounts of the member banks. Both of these depend on the banks increasing the number and amounts of the loans that they write. But the banks were reluctant to write loans and consumers were reluctant to borrow money to buy things. The net result was that neither of these tools got money into the economy. It doesn't do any good just sitting in the bank. To do any good it has to circulate through the economy.

The only other tool that the Fed has is what are called open market operations, the buying, in this case, of government bonds. In a more normal economy the Fed buys and sells bonds to control the interest rate, the federal funds rate. Buying bonds with money that they create out of thin air creates money. Selling bonds soaks up money and destroys it.

The problem with open money operations is that the bondholder usually is an investor so that the money that the Fed pays for the bond usually goes back into another investment. In other words the various QEs were good for the stock market but very little of it got into the economy where it would increase spending and consumption. f

Except now you're saying they don't need to be suppressed and that no one including the Fed even wants to suppress interest rates.

It is possible to want something (A) without wanting something else (B) which would result from (A). Just because they want higher bank reserves (A) does not mean they want the lower interest rates (B) which come as a result.

There is no reason for everyone (talking heads, pundits, etc.) to keep saying the Fed wants lower interest rates (B) if all they really want is higher bank reserves (A). So there is a disconnect between your bank reserves theory and what the pundits and economists are saying. If your theory were correct, we would not keep hearing about the Fed suppressing interest rates as though this were a goal in itself. But instead they would be talking about the need for higher bank reserves, which is seldom mentioned by them.

What the Fed wants is for more people to buy more things, to borrow more money. Lowering interest rates and increasing bank reserves are two of the ways that they tried to do this. But they failed. Even the QEs had only a limited degree of success. The bottom line is that in a recession triggered by a crisis in the financial markets monetary policy, what the Fed does, is not very useful. This was a surprise to the economists who run the Fed, they are all monetarists, they believed that they could pull us out of a recession with only monetary policy. They were wrong. A few even realize it.