Comment by superhuzza | Hacker News Reader

Comment by superhuzza | Hacker News Reader

Parent Full thread

I'm just going to address the economic impacts.

Imagine a company that makes small plastic bits (like straws). Despite a crisis, they still have to pay their rent, and their loans. Because no restaurants are buying straws, revenue drops effectively to zero. The company can't stay afloat, and they have to shut down.

Why aren't loans/rent/mortgages just put on pause? Well then the lenders suffer. Why doesn't the government reimburse the lenders? Well then the taxpayers suffer. It's all interconnected, and somewhere along the way someone is going to suffer somewhat.

Back to the plastics company. Their machines are sold off at half price. Money is spent to remove equipment from the store. Employees who have been trained move on to unemployment or other jobs. All of those things represent an overall loss of capital that has been built up (it's not that black and white, but I'm hand-waving it). Once the economy gets going again, the economy is that much smaller. Those jobs don't exist anymore, and it will take a lot more capital to again build up a similar plastics company. If the owner decides to reopen that plastics company, he'll need new equipment, to train new staff etc etc.

On the other hand, an enormous amount of capital is being built up in other ways. Many people are learning how to work remotely. Many processes are being made more efficient (unnecessary meetings).

Taxpayers don't suffer. The gov can simply print the money and hand it out.

Government money does not come from taxes. It's distressing how few people understand that governments with sovereign currencies literally have a license to print the money they need. There is absolutely no need to borrow money, or even to collect it in taxes before spending it.

The ritual of borrowing is a political choice - which, incidentally, undermines democracy by giving a casting vote on policy to lenders, not voters.

It is not an economic necessity.

The proof is the way that bailouts tends to happen whenever the banking system or a critical strategic industry is on the line. For some reason this only applies to selected industries, and not others.

But inflation! No. The government can set up price controls on profiteering. But besides that, this fresh money is there to keep the economy at a steady state - specifically to avoid a black-hole depression.

Sitting by idly while most of your business base is lost on the far side of that event horizon is far more dangerous than any other risk. Especially in this case, when the lockdown is likely to be fairly short - more than three months, but certainly less than a year.

And it's not as if there are no unexplored options for other productive activity, especially in healthcare.

The real danger is the moral hazard - the political realisation that financial scarcity has always been a deliberate systemic political choice, not an inherent property of an objective financial system.

>But inflation! No. The government can set up price controls on profiteering. But besides that, this fresh money is there to keep the economy at a steady state - specifically to avoid a black-hole depression.

This is flat wrong and deeply ignorant of historical economic reality. A government that simply prints (or digitally creates) more money instead of gaining as much as it can of it from reasonable taxes or borrowing will indeed absolutely create an inflationary spiral that can only be stopeed by stopping these activities. Price controls against "profiteering" will do nothing against this except get a large number of people in legal trouble simply for the "crime" of adjusting their prices to reflect wider economic reality (prices for every single one of their won costs and inputs going up for the same inflationary reasons). Black markets would simply explode and any such price controls would simply be ignored under heavy inflation, and especially under the fantastically destructive conditions of hyper inflation. You have no idea what you're talking about with this statement in particular.

Printing money only leads to inflation if you are full employment/resource utilization. Otherwise the money just facilitates transactions that wanted to occur anyways but didn't have the financial capital to do so; you can always hoover the money back up through taxes afterwards without realizing hyperinflation. Why do you think Japan, Europe, China, US, etc. have been able to print such a significant amount in the last 10 years without the corresponding inflation? Why is the US pushing a 2T stimulus bill without worrying about "how will they pay for it" during a credit crisis today?

You can believe that hyperinflation spirals are a possibility or a forgone reality of magic modern monetary debt creation, and people like Ben Bernanke can believe they can fund debt from thin air which is impossible to default on (his words), and you'd both be right, in part. But just because historically there have been monetary policies which lead to hyperinflation, doesn't mean modern monetary policy for the largest economy in the world is poised to relegate said currency to that of anything less than a central fixture of global monetary significance.

The reason why inflation doesn't happen is the same reason why the stimulus exists in the first place.

Restaurants are suffering from lack of customers? Flooding the market with cheap cash doesn't result in people rushing to the restaurants because they are still at home and the restaurants are closed. Only when that inflated money is actually being spent on scarce goods do we get to see inflation.

If the government pays w/o raising taxes then then taxpayer doesn't suffer, the 'wealth holders' suffer (via inflation), which is exactly the correct thing to have happen. Their wealth 'value' was predicated on a smooth 5% annual growth rate. That isn't going to happen so it should just be worth less. No one really suffers in that case, the system is just corrected to match reality.

Of course this isn't what will happen, the value of the wealthy will be protected at the cost of others sufferring.

("But what about my grandma who's CDs aren't going to be able to cover her retirement expenses, aren't they suffering?" Societal safety nets should cover her living expenses. The rest she's saved should go to luxuries, and yes those luxuries will go down, like everyone else's with excess wealth.)

If you get the injection amount right there won’t be inflation because the amount injected will match the amount usually spent. Under the regime of falling demand, we would expect prices to fall (deflation, ie why the stock market has taken a hit) but if you can inject money now and take it out later, there won’t be a rise in total volume of money shuffling around, so no inflationary pressure

I am a "wealth holder" who has been working and saving up to buy a house but still can't afford it. So my money should now be worth even less.

Bingo, but that’s kinda the point.

Cash in the short term is probably a fine idea. But low interest rates are meant to encourage deploying capital into risk investments or consumption with the promise of inflation eating your buying power if you hold cash.

Yep! The only way you get around it is if you 'invested' in something that (a) either gets 'subsidized by law' (rent and other contracts falls into this category, until the law changes), or (b) still can be produced and is in demand during the economic shutdown.

Inflation doesn’t really punish all “wealth holders” just those that hold cash and cash equivalents. Real estate and the stock market should benefit from inflation when it is paired with some growth. Stagflation, however, is just bad for everyone.

This isn’t quite true, because you’re taxed on nominal, not real gains. If I own a share of a company worth $100, and the USD drops in value by 50%, but my perfect inflation hedge of a stock (which they’re generally not) shoots up to $200. I’m not richer in any real sense, and the I still have to pay ~30% tax on the increase in value in CA when I sell it.

Better than holding dollars in that scenario, though.

Absolutely, the theory being the other assets will adjust to their correct value on their own (see: stock market plunge), unless they are propped up by bailouts or whatnot.

Not sure where capital is being destroyed here.

Someone gets great machines for half price.

Someone gets paid to remove the equipment from the store.

That's pretty much exactly the broken window fallacy.

https://en.wikipedia.org/wiki/Parable_of_the_broken_window

Reply on news.ycombinator.com