
Wealth: redistribution and interest rates - pizza
https://ergodicityeconomics.com/2017/08/14/wealth-redistribution-and-interest-rates/
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dnautics
> If we “do nothing” (\tau =0), inequality increases indefinitely.

No. This is "if we do _nothing different_ ". Reducing interest rates are a
policy. But QE and lowering interest rates should have been _predicted_ to
have had this effect. Central bank interest rate reduction lowers the cost of
debt _for citizens who can afford low interest loans_. that's mostly financial
sector orgs and individuals, who are, for example, using debt-based
instruments for leveraged investment. Even a mortgage is accessible mostly to
people already on the upper half of the wealth scale - the poor in SF, for
example, are not benefitting from interest rate reductions.

The effect of increasing the M(2+) money supply by encouraging increasing
outstanding loans by making them cheaper ALSO has the effect of making the
cost of living more expensive for the lowest part of society, and also forces
the middle class to engage in speculative investment as a dominant part of
their retirement strategy, which is a subsidy for big business. We should
flippantly call this phenomenon "trickle up wealth redistribution".

If we increase interest rates, in the short term a lot of people in the lower
half of the economy are going to get poorer. Many of them will declare
bankruptcy (which is a good thing!), but in the long term it will break the
cycle of indebtedness to the rich, if we take efforts to make sure debt risk
is always assumed by the lender.

~~~
yeukhon
> but in the long term it will break the cycle of indebtedness to the rich, if
> we take efforts to make sure debt risk is always assumed by the lender.

I can see how that works, but in practice, lenders always sell their debts. My
mortgage via Citi is sold, even though my interest rate and my payment remain
unchanged. Then comes the government which will always provide some bailout,
so what does "assume risk" even mean when in the end risk is going to get
swallowed by another lender anyway?

~~~
dnautics
Well as long as the Government doesn't bail out, then someone assumes the
risk, and along the way there are write-downs, and the purchaser of the debt
now holds the basket and assumes the old risk. So basically I'm saying "as
long as government doesn't bail out".

~~~
csense
> as long as the Government doesn't bail out

After 2008, this is not an assumption that can be made.

~~~
dnautics
no doubt.

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soVeryTired
Models like the one described in TFA bother me.

It's easy enough to write down an equation, estimate some of its parameters,
and tell a story about it. The hard part is making a convincing case that the
model actually resembles reality: that link is the missing piece that rarely
appears in modelling exercises like this one.

Until you can make a convincing connection between reality and your model, all
you're doing is solving equations and telling stories.

~~~
uoaei
Unfortunately, without a laboratory to test such hypotheses, that is all that
economics (as we understand it today) can ever be.

Edit: also, TFA gives some good arguments for validity of the model.

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spitfire
This seems to strongly support Milton Friedman's basic income (along with sane
interest rates). BI provides the boost, while sane interest rates reduces the
drag.

So the question left is how do you communicate this to the public.

~~~
everheardofc
Offtopic:

Why is paid busywork or a job guarantee more acceptable than basic income?
Apparently the risk of basic income is that people end up only playing video
games. But aren't video games the definition of busywork?

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EGreg
_Let’s actually name the thing: we’re talking about capitalism. The genius of
capitalism is precisely its multiplicative nature._

This is an interesting article but something in particular struck me. Why does
almost every public mention of Capitalism in the USA accompanied by some paean
to it?

It sounds like A veneration that follows any mention of Mohammad among devout
Muslims.

Why does everyone feel they need to give their bona fides? I feel that there
are several senses in which it is the official state religion.

~~~
kobeya
Because criticizing capitalism is like criticizing gravity. It objectively
works as a method for optimizing allocation of resources for the progress of
society, as measured by metrics like GDP per capita.

Saying capitalism doesn't work is the economic equivalent of being a flat
earther. So if you are saying something that sounds like "capitalism doesn't
work", you'd better phrase it as "capitalism as practiced today works but is
suboptimal" if you want to not be automatically dropped in the looney bin
category.

~~~
musage
Capitalism only works in optimizing those things it measures in the first
place. Progress of society does not even _enter_ into it, at all. If 300
million people had nothing and screamed in pain all day, and one person had it
it all and multiplied it by X, the GDP would be multiplied by X. So what kind
of measure is that?

I also find it interesting that nobody even mentioned capitalism "not
working". The comment said that any mention of capitalism is often followed by
generic praises. I guess another form of that is _" capitalism brought us
great things, and is better than the alternatives we had so far, but
[criticism of some aspects or consquences of it]"_ \-- which acknowledges that
it "works", just like using coal to heat your home works, like many things
undeniably work; yet even that would raise the above question, how come it's
treated like a religion? If it's so great, why so defensive to the point of
scoring own goals?

~~~
WalterBright
> Progress of society does not even enter into it, at all.

Capitalism in America, 1800-1900, brought along with it enormous,
unprecedented, and historic improvements in longevity, height, and reductions
in infant mortality.

~~~
makotech222
State Capitalism / Socialism in the USSR did the same in less than half the
time.

~~~
WalterBright
US industrial agriculture kept the USSR afloat in the 70s as it was unable to
feed itself. Kansas was dubbed "the breadbasket of the Soviet Union". The
historical threat of famine ended in the US around 1800 and was an early
dividend of free market agriculture.

~~~
rev_bird
I'm not sure I see the connection. The United States lucked into natural
resources more plentiful than lots of other places in the world, that's true,
but is it meaningful that a country be able to "feed itself"? Obviously it's a
valuable thing to have, strategically, but I don't see how "they had lots of
imports" is necessarily an indictment of an entire economic system. Nobody
makes fun of Ireland for importing $5 billion+ in foodstuffs every year, it's
just one of the things they're short of.

~~~
WalterBright
The Ukraine fed europe until its agriculture was collectivized. Famine
resulted. Collectivization of agriculture has been tried again and again, and
famine always results.

You might want to read up on Lenin's New Economic Policy:

[https://en.wikipedia.org/wiki/New_Economic_Policy](https://en.wikipedia.org/wiki/New_Economic_Policy)

~~~
rev_bird
Will do, thanks for the recommendations.

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kiliantics
Interesting to note that the time when the wealth redistribution parameter
must become negative to match data for the US economy is around the 1980s.
This is also around the time when a lot of "neoliberal" and "free-market"
policies were introduced.

~~~
uoaei
At this point one begins to realize that "Reaganomics" is more than just a dog
whistle and actually had a huge impact on the working class.

It's a twisted joke that Reagan was just inducted into the Labor Department's
Hall of Honor.[1]

[1] [http://thehill.com/homenews/administration/347840-labor-
depa...](http://thehill.com/homenews/administration/347840-labor-department-
names-ronald-reagan-to-hall-of-honor)

