The solution to a market inefficiency isn't to involve a more inefficient entity.
The Fed was established by Congress and the Chair is appointed by the President, however the Fed is still a private institution. That independence makes it a very different organization than what most people mean by government.
If you're going to point a finger, the Federal Reserve is a very good institution to point at.
The cycles only make sense because people like and want them. I.e. they love the scarcity of money. For example, in a depression the return on money is greater than the return on labor, people logically flock to money rather than labor even though real wealth is eroding as people stop working.
http://rootbug.com/how-could-it-be-solved/taxing-money-throu...
Let me put it in my own words:
If republicans think that unemployment benefits compete with private businesses on labor, then I get to think that 0% interest money competes with labor for capital.
The fundamental problem is that the 0% lower bound combined with a deposit guarantee represents not only a minimum wage for capital. It also presents a job guarantee. A minimum wage doesn't guarantee you a job.
So yes, the Federal Reserve is not responding to market conditions at all. It's artificially holding up interest rates at zero or above. This is causing massive distortions in the economy that can only be fixed by a swiss-army knife of policies. Among one of the needed responses is "free and open printing of money". The world economy is already flirting with disinflation (a reduction in inflation). If you don't have negative interest rates you will need a whole load of "money printing" to keep the system standing in place.
The assumption that a scarce money system (i.e. guaranteed non negative interest) has a fixed velocity of money is absurd. Put interest at -5% and just watch everyone withdraw cash from their bank account. The velocity of cash would be basically be zero and the velocity of money on bank accounts would be extremely high. As the government is doing deficit spending all the money just piles up somewhere and ends up doing nothing. QE is even worse because you cannot spend centralbank reserves to buy groceries.
Ok, let's do the negative interest thing. It sounds like a big hassle right? Just think about the benefits: The first step after negative interest ratess would be to adjust the inflation target to 0% meaning perfect price stability. Actually, you wouldn't target inflation at all because the negative interest rate completely replaces the need for inflation. You would target the CPI itself meaning your goal as the government would be to maintain a CPI of 100 for all eternity. Any deviation would become inexcusable. Meanwhile today inflation is a hack to make a broken money system work.
Don't blame the fed. Blame the money.
The government needs to recognize the fact that semiconductors are essential to national security and ensure we have the capability to produce our own.
I might be more time efficient by speeding everywhere, but that efficiency gain needs to be understood in terms of how much additional risk it incurs.
Extra points by diversifying from China/Taiwan
In direct opposition, Auto makers approach of minimizing inventory and producing "just-in-time" caused them to be vulnerable to supply chain or big market shifts
> New cars often include dozens of microchips but Toyota benefited from having built a larger stockpile of chips - also called semiconductors - as part of a revamp to its business continuity plan, developed in the wake of the Fukushima earthquake and tsunami a decade ago.
Take a look on the linkedin jobs in Shenzhen.
The trend IS NOT towards diversification. In the last 5 years since Trump's election, US multinationals were increasing their presence in China, not decreasing.
Google for example said to open "a small representative office" in Shenzhen 2 years ago, now it's a full giant RnD centre in the Ping An Tower where they shipped all of Pixel's development.
Apple had RnD offices in China for more than a decade, but they barely acknowledged their existence. Their people in the Kerry Plaza were prohibited by their contract to even show their employment for Apple in their LinkedIn profiles. Their Shenzhen RnD centre is where AirPods were developed, along with many other iPad, and iPhone sub-assemblies. Apple's VR goggles project had its start in Shenzhen as well.
Amazon had no presence whatsoever in China besides a failed Chinese Amazon.com launch. They left China, and then returned to move the whole of their Kindle, and Echo device development to Shenzhen. Now they are working on something rather cryptic there. Some suggest VR goggles of their own design.
Facebook... absolutely bizarrely opened their RnD centre in Shenzhen amid the COVID, just a floor below Google I heard.
Dell, Microsoft, Nvidia, Qualcomm, Intel — all conventional hardware makers were here since nineties, but I think they really doubled down on China recently as well too, to one up the dotcom upstarts in hardware.
e.g. Foxconn investing in capacity outside of China (India) and Apple being part of it (as customer)
In other words, the Silicon Valley is still going all in on China, despite 4 years of Trump, public scorn, trade war, rising costs etc.
In other words, they really gave up on any vision where they don't critically depend on China, and can run with critical assets in US only.
Claiming that the results of ag subsidies have been "nightmarish" with no further elaboration or citation does nothing to advance the conversation, it's simply a strongly worded opinion.
While I agree there are definitively some downsides to ag subsidies, I think the real question is if the interventionist downsides are worse than the non-subsidized downsides. As bad as they are, I'm not sure that incentivizing unhealthy food is actual worse than famine.
https://reason.com/2019/03/02/thanks-to-decades-of-governmen...
Maybe there’s an argument that we’ve moved passed the era of food scarcity when those policies were enacted and they should be modified. But I think a blanket claim that food subsidies are an inherent bad policy misses their point.
>The nightmarish results of agricultural subsidies in the US is an excellent reason to not involve the government
This sure sounds like you think it's a claim of subsidies being bad policy.
>The made claim was that the ineptitude and mishandling of agricultural subsidies is reason to reconsider
How do you combine the view that "ag subsidies aren't bad" with "the government shouldn't be in the business of managing subsidies" when the definition of subsidy involves the government? At first take, this comes across as back-peddling to avoid dogmatic cognitive dissonance.
But I'll be generous and assume you did not mean that ag subsidies are bad in and of themselves, but the way they are handled is poor. So what do think is a more proper way to handle them? Should the focus be on different products? If so, which ones?
The point has already been made that ag subsidies are operating as intended and the downsides you refer to are downsides of abundance. I have a feeling that most people who have actually lived with food scarcity would find them preferable to the actual "nightmarish results" of too little food.
I don’t know if we’re just talking past each other, but it’s hard to make sense of your stance. If you think subsidies are a viable solution to some problems but the US govt can’t manage subsidies, are you implying the US should not use subsidies, even on the problems they would solve? If so, can you elaborate on govts that have used subsidies to solve similar problems by better implementation? When govt is, by definition, who wields subsidies these are difficult points to reconcile.
Pointing out less than perfect implementation isn’t really helpful unless you can figure out a way to improve it. Just saying “the govt is inept” isn’t helpful when they are literally the only organization who provides subsidies.
I don’t disagree with the problems you point out but they come across as flippant “see!? See how bad the govt is!?” Dogmatic axioms might make someone feel good without actually addressing the problem.
I’ll give an example. I think subsidies need to have clear metrics to measure effectiveness and sunset clauses. This would help prevent things like alpaca subsidies meant to assist in the Korean War somehow staying in place until the mid 1990s.
The point of the subsidies was national security, not “protecting the family farmer” or “minimizing food waste.” To that end, they worked.
The U.S. government has decided that it's in our national security interest to remain a net exporter of crops.
If World War III broke out and all the borders shut down, America would still be able to feed herself. The U.K. wouldn't. There would be mass starvation in much of the first world, and people would say "the government should've done something."
All the diabetes is a pretty rough unintended consequence, I'll give you that, but shifting some chip fabs to our shores as a matter of national security doesn't sound like too bad of an idea.
Time and capital investment. It's like this generation of people have never heard of production and supply disruptions, and were oblivious to such things being possible. Frankly, this doesn't matter very much, it's not a critical situation.
The auto market malfunctioning short-term due to a pandemic doesn't present a strong argument for government intervention. Tesla can't make batteries fast enough, there isn't enough supply, its restraining their auto production, the government must step in and fix the problem! It's nonsense. The government should not step in every time there is a short-term problem in a market.
Toyota won't sell as many vehicles. So what.
I know, I know, but what if people have to make due with a three year old vehicle. What if they have to suffer and endure those vehicles being made to last for five or six years. Ten years! The horror.
Toyota won't die. Time will pass, during which necessary investments and adjustments will be made. Supply will be increased. The problem will be fixed. It's as simple as some time and capital investment. The companies that maneuver the best will come out ahead, gaining an advantage on their competitors. And the world keeps on spinning.
Toyota has generated something like $90-$100 billion in operating income the past five years. They have the resources - and then some - to fix the problem. If they choose not to or can't that's their own incompetence, their competitors will eat their lunch. Never feel bad for a corporation earning $20 billion a year. If they can't get their production corrected, someone else will figure it out and reap the benefits.
It does not matter as much as is being portrayed. This is not an important problem and does not warrant the government burning its time and resources to step in and fix (assuming they can help at all). Governments have a lot of other far more important things to be focused on.
Thousands of employees lose their livelihoods as factories shut down?
I am by no means against government intervention. Companies have short memories, and market forces will force eventually pressure a return to JIT. But now is the exact wrong time to intervene.
That's also obvious: the inefficiency in governments originates largely from coordination overhead between many competing entities with overlapping responsibilities. Self-regulating systems like markets do not eliminate that overhead, they just use other means of coordination that trade some of the complexity overhead for a time overhead - instead of having to coordinate a complex set of rules, you now have to give the system enough time to "find" its stable state. But when time is of the essence, an intelligent, singular entity without the need for coordination with anyone besides the entities to be regulated can always outcompete the self-regulating system when it comes to short-term stabilization (though not necessarily with regard to long-term stabilization, but that's not the issue here).
I'd call that quite a lot of "market management". But as everyone could see it resulted in the fastest vaccination ramp-up worldwide (excluding Israel, which was a bit faster, but is also much smaller than the US and which had its own way to get "preferred" access to vaccine produced in the EU).
I'm unfamiliar with this having happened, but if it did as you say that would definitely support your point.
> It then compelled the manufacturers into exclusively servicing the US purchase contracts
Wasn't this just a component of the purchasing contract? I would draw a distinction between cases where the gov was a purchaser and where it was not.
If other countries are implementing protectionist policies, like keeping semiconductors for themselves or supplying other nations first to curry favors or improved relationships, for example, it might be in another nations interest to increase fab capacity with its borders to avoid being vulnerable to those political and diplomatic factors.