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Comment by toomuchtodo | Hacker News Reader

Maybe we agree? I think for all intents and purposes, "infinite" does not mean "need additional pylons for remaining segments of Dyson sphere in order to power interplanetary colonial fleet Mark I via laser tether". Maybe we call it "per capita demand maximum"?

But labor isn't alone in not being necessary to satiate additional demand; note the trillions of dollars in capital struggling to find "acceptable" returns. Investors are even willing to invest in negative return bonds in parts of the first world to protect cash holdings of portfolios.

http://money.cnn.com/2016/04/14/news/tax-us-companies-offsho...

"Top 50 U.S. companies hold $1.4 trillion in cash offshore"

Assume these companies brought that cash back to the US. What would they do with it? Where is there to grow?

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Yes, there's a massive savings glut. But a big part of that is due to central banks. If they tightened up monetary policy, interest rates go up, and investors would start getting better returns. But central banks are afraid to raise interest rates because they worry about the possibility of deflation.

If companies repatriated their cash, the main thing they would do with it is pay a hefty tax bill to Uncle Sam. This would be a good thing to do when the central banks do increase interest rates.

Interesting comment. I had not considered central bank monetary policy was holding back corporate profit repatriation, which would realize significant revenues for the federal government, which could be spent on infrastructure.

>and investors would start getting better returns.

One-sided accounting fallacy. For every lender receiving an interest rate, there is someone borrowing at the same rate. Why do you assume that the person lending is more deserving, when it is the risk-takers with need of capital (ie borrowers) who are the inventors and entrepreneurs? This place goes nuts for Elon Musk's projects; well it would be a different world if capital was more expensive for him to access.

>Yes, there's a massive savings glut. But a big part of that is due to central banks.

It's more a feature of wealth and income inequality than central bank policy.

Central bank policy accelerated this trend but the "savings glut" (1% wealth) has only been going up since the 70s.

The distribution of savings has little to do with it. The savings glut is caused by secular stagnation [1]. There is not much investment happening in our economy (savings and investment are two sides of the same coin). Since the 70s, there has been a net "value extraction" rather than "value creation" in the capital markets [2]. That is, rather than "retaining and reinvesting" profits, companies simply "downsize and distribute". This certainly reinforces wealth inequality. It doesn't help that monetary policy of the last 8 years created a liquidity trop that reinforced all this.

[1] http://larrysummers.com/category/secular-stagnation/ [2] https://hbr.org/2014/09/profits-without-prosperity

>The savings glut is caused by ... There is not much investment happening in our economy

There is not much investment in the economy because there is not much demand. There is not much demand because of income and wealth inequality.

After all, what's the point of producing goods and services for people who can't afford them?

>http://larrysummers.com/category/secular-stagnation/

Any economics projections made by Larry Summers ought to be taken with a metric ton of salt. After all, his track record at gambling with Harvard's money is just abysmal:

http://www.alternet.org/economy/larry-summers-federal-reserv...

Isn't the simple solution to force capital tied up by individuals and corporations back into the public sector and markets via policy increasing taxes for those at the top as well as forcing some minimum percent to be spent on either lower end job creation or a basic income program? Capitalism is fine, but it's just gotten really stagnant with the money flow it seems.

There is not much investment because profits are quite high. Companies don't have an incentive to reinvest when they can instead just reward shareholders. Perhaps what we need is more competition to drive profits down.

Decreasing wealth inequality is an end, not a means to an end. If you want a stable economy, focus on prices: inflation and deflation. If you want a functioning society, focus on income and employment. If you want both, then you get the Federal Reserve. Sometimes the two goals stand in each other's way. (Stagflation). When that happens, it's now obvious that central banks prioritize the economy over society.

>There is not much investment because profits are quite high.

There's no direct causal relationship between profits and investment. There aren't any companies that think "you know what? we've got enough profits for now, why do we need more?".

There are plenty of companies who see tapped out markets that aren't growing and decide not to invest.

Indirectly I guess the accumulation of wealth at the top via profits is party responsible for no money at the bottom to buy products and services.

>Decreasing wealth inequality is an end, not a means to an end. If you want a stable economy, focus on prices: inflation and deflation.

That's exactly what the fed has had its laser-like focus on for the last ~20 years. Stable the economy was not. Prioritizing inflation while inflation is under 15% is simply prioritizing the needs of those who don't work for a living over those who do.

>If you want a functioning society, focus on income and employment. If you want both, then you get the Federal Reserve.

The fed only really cared about inflation in the last 20 years in spite of its mandate.

There is totally a causal relationship between profits and investment: either you reinvest the profits or you don't. And if a huge pile of profits rolls your way... you might not be able to reinvest all of it. Yes, you are right, it can be thought of as a lack of demand. But if the cost of production is plummeting, due to automation, and profits soar... then you would need equally soaring demand to meet it. In this vein, Larry Summers is right with his call for fiscal policy. He is just repeating what Keynes said many years ago -- the government should be the spender of last resort.

But this is a race to the bottom (or the top?). How do we stimulate so much demand to keep up with this? Then there is Piketty -- the return on capital outpaces economic growth, and therefore wealth inequality gets worse with time. He proposes we should instate a global wealth tax. This is more along the lines of what you are saying. But his solution doesn't necessarily solve the demand problem. It just solves the wealth problem directly. We don't know, with a global wealth tax, what the impact on demand really will be. Maybe it would lead to a massive deleveraging of consumer and student debt. Demand isn't ultimately the problem... the economy is functioning pretty well. We can make the things that need to be made in the quantities they need at reasonable prices. The problem is the wealth distribution in itself.

As for the Fed only caring about inflation in the last 20 years: https://en.wikipedia.org/wiki/Paul_Volcker

> If they tightened up monetary policy, interest rates go up

That causation is backwards. Raising interest rates makes money tighter. But tight money causes low interest rates.

There are many levels of cause and effect.

Central banks use open market operations. When they want interest rates to go down, they print money and buy debt on the open market until the rates reach their target. This new money is the cause... the new interest rates are the effect. The new money (aka "monetary base" or M0) is then multiplied 10x by private banks, due to fractional reserve banking. That M1 money is another effect. The controlled interest rate helps the private banks loan that money out.

Open market operations only change the "portfolio" makeup of the private sector on the margin. New new assets(new money) are added to the private sector. There is no money multiplier due to open market operations itself. Banks will lend as long as they can make a profit and since banks can create deposits out of thin air, what you are saying is inapplicable to modern monetary/banking systems. Banks can always create deposits to meet loan demand.

Except for reserve requirements https://en.wikipedia.org/wiki/Reserve_requirement#United_Sta...

And once the reserve requirement is maxed out, the only thing that can permit more private money creation is central bank money creation

Right. Banks can borrow reserves to meet requirements. It doesn't prevent them from meeting loan demand. Money creation is congruent to loan demand. Also, reserve requirements are accounted for in the next accounting period not in real time.

Can you explain the fear of deflation? I don't understand the reticence of central banks.

Why not have a shot of deflation?

Everyone with debt now has more debt (even though the number is the same). We are at the highest debt levels ever.

>We are at the highest debt levels ever

We also have the highest population levels ever, the most assets ever, and the most wealth ever.

Debt to GDP has fallen, drastically:

https://fred.stlouisfed.org/series/HDTGPDUSQ163N

I understand that people with debt don't want to pay more.

But they took a risk taking on that debt and perhaps they should go bankrupt.

Seems like I've triggered a nerve!

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