
Economics Needs a Post-Crash Revolution - pseudolus
https://www.bloomberg.com/opinion/articles/2019-10-27/economics-revolution-needed-to-fix-great-stagnation
======
novaRom
Here is why "too little spending" occurs: Smartphone Revolution. Here is why:

1) No more need to buy a dedicated device for photography and video recording

2) No more need to buy a Speech Recognition specialized software

3) No more need to buy a specialized remote control

4) No more need to buy a flashlight

5) No more need to buy a landline wired phone

6) No more need to buy a sound recorder

7) No more need to buy a physical storage (CD, DVD, etc)

8) No more need to buy a ... you can continue

All this affects a lot of companies. Just think how many of them will either
run out of business or will stay in a niche consumer mode.

There are only two smartphone operating systems controlled by basically two
companies.

There are only few hardware for smartphones companies, like silicon fabs, and
several fabless design companies.

Anyway, most of the needs of a typical consumer are satisfied with only one
device: The Smartphone

~~~
donw
In Diamond Age by Neal Stephenson, your position in society is reflected in
part by the uniqueness of the goods you own.

Poor people have lots of flashy, brand-name merchandise. Wealthy people, on
the other hand, own things that are hand-crafted out of natural materials,
often bespoke to them. News for the masses is flashy, digital, and tailored to
the individual; news for the elites, the top of the top, comes printed on real
paper, just like they did in the old days.

It's not that the elites are Luddites, eschewing technology. Rather, it's a
very subtle part of their lives, a hint of fennel as opposed to a tablespoon
of cayenne.

I suspect this is not unlike where we are going.

Smartphones, tablets, and laptops have swallowed almost every other electronic
device, and you don't really even need to upgrade that often. I pick up a new
iPhone every four years or so, and mostly just for the camera upgrades (and a
fresh battery).

I suspect the trend for desiring high-quality, locally-produced craft goods
will accelerate. Raw materials may come from everywhere, but fast fashion is
being replaced with sustainable clothing, and I don't see Generation Z being
invested in the high-bling party lifestyle that my generation desired.

Interesting times, indeed.

------
Unsimplified
So many intellectuals are thinking about the wrong ideas.

Return to the basics of trade and charity then focus on the flow of real goods
and services as abstracted by the velocity of money from agent to agent.

Fundamentally, economic crashes are caused by dead money that represents
concentrated, slow one-way trade patterns. Ideally, money flows across the
people with perfect inclusion and closed-loops.

~~~
jimbob45
Charity isn't charity if I'm benefiting from it in any way. It's a business
deal at that point, though likely asymmetrical.

~~~
donw
I strongly disagree. Economic transactions are rarely zero-sum.

If I spend $100, I expect to get something back for that. If I spend it on a
charity, then I'm supporting something I value -- helping homeless veterans,
supporting national parks, promoting gun safety education, whatever it may be
-- then I'm benefitting.

As long as I've got the rest taken care of -- food, shelter, internet, and the
power bill for my gigantic neon sign of Freddie Mercury -- then practically
speaking, that $100 was doing nothing in my pocket, and now, it's actively
doing work on my behalf towards doing good in the world.

------
anarchop
“Too much borrowing” “too little spending” versus productive investment is the
problem with Keynesian economics caused over supply / under pricing of money.
Keynes said debt doesn’t matter because it’s someone else’s asset and it self-
amortises: Yes, but it creates mal-investment and uneven inflation in favour
of those with access to credit e.g. giant financial asset bubbles of 20/21st
centuries.

~~~
pas
FYI, Keynes is still of course important and influential, but ... it's also
very outdated if you want to use models to gain policy insight:
[https://en.wikipedia.org/wiki/New_Keynesian_economics#2000s](https://en.wikipedia.org/wiki/New_Keynesian_economics#2000s)

------
gtirloni
I'm no expert in economics but it seems whenever the idea of capitalism
without growth is mentioned, most people prefer to stick their heads in the
sand. If, in my naive view, we have cyclic crises because of growth, shouldn't
it be natural to focus on an alternative? Is this alternative too hard to
implement?

~~~
scythe
People ignore the idea "let's not have growth" because it's a bad idea. Here's
a quick two-question quiz to determine whether you're in favor of economic
growth:

\- Do you believe wealth and income should be distributed equitably around the
world?

\- Do you want to live on more than USD 17.3k per annum?

If you answered "yes" to both of these questions, then congratulations! You're
in favor of economic growth. The average global income per capita is USD 17.3k
per annum. If that number goes up, we call that "growth". That is the
_definition_ of growth.

Of course you can get into population control, but if the alternative to
growth is China-style population control -- necessarily more severe than just
handing out birth control -- then bring on the economic crises, I say.

~~~
RaiseProfits
> \- Do you want to live on more than USD 17.3k per annum?

By itself this is meaningless. What does it buy where you are? Most places
that’s more than enough to live comfortably.

Anyway, money is only useful to decide who starves.

~~~
scythe
>Most places that’s more than enough to live comfortably.

“Comfortably” is certainly a matter of opinion. But that 17.3k is a
purchasing-power parity average, targeted at HN’s largely rich-country
leadership. The _nominal_ average income per person in the world is 11.4k.

[http://m.statisticstimes.com/economy/countries-by-gdp-
capita...](http://m.statisticstimes.com/economy/countries-by-gdp-capita.php)

So we have taken the usual cost of living adjustments into account, and the
question is, do you want to live on the equivalent of 17.3k per capita US
relative to the cost of living in most of the US — somewhere like, say,
Pittsburgh?

~~~
tonyedgecombe
It’s difficult to try and frame this. The price of any goods with constrained
supply (higher education, housing and land) tend to increase to meet people’s
ability to pay.

It might make more sense to think in terms of a carbon budget if we are
thinking about sustainability.

------
unknown_apostle
Imagine a doctor stating "a healthy patient's heart rate is 70 bpm" and
prescribing ever escalating medication and surgery to try and keep the heart
rate at 70 bpm, regardless of age or whether the patient is sleeping or
sprinting or recovering from previous surgery. Welcome to the world of central
banking.

~~~
pas
Central banking - especially in the US - tries to keep inflation and
unemployment low. In accordance with Real Business Cycle theory.

The theory says that the central bank should help speed up the economy when
it's too slow, and apply the brakes when it's getting too hot.

The problem is that when a recession (inevitably) hits, it'd be good if people
had savings, social security, etc. If there were structured ways to unravel
over-leveraged investments, and so on, without hurting the people.

~~~
WalterBright
> Central banking - especially in the US - tries to keep inflation and
> unemployment low.

Fiat money (central banking) is the cause of endemic inflation, not the cure.
There was no net inflation in the US money from 1800-1914, and pretty much
continual inflation since.

The whole point of central banking is to inflate the currency to provide money
for the government to spend without needing to raise taxes.

~~~
aeternum
What's the problem with inflation? It seems to me that it is a very effective
wealth tax. Almost trivial to collect, and it greatly benefits those with debt
including governments.

~~~
WalterBright
> it greatly benefits those with debt

Since the interest rate is increased to account for inflation, it doesn't
benefit debtors who can't just print more money to cover it (like the
government does).

------
netcan
What does "too much borrowing & too little spending" even mean?

Borrowing/growing debt is a negative balance after spending & earning are
added up.

~~~
pas
It might mean that aggregate demand (consumption, investment) is low, yet that
is still mostly debt fueled.

It could indicate that households wealth (capital) is too low.

~~~
abvdasker
This piece and the book it refers to talk a bit about that idea: Essentially
that the diminishing marginal utility of wealth and its growing concentration
is creating a problem of inadequate aggregate demand:

[http://bostonreview.net/class-inequality/jonathan-
kirshner-w...](http://bostonreview.net/class-inequality/jonathan-kirshner-
whistling-past-graveyard)

~~~
JMTQp8lwXL
By diminishing marginal utility of wealth, I presume you mean there is less
incentive to spend money, the more of it you have. Because wealth is
increasingly concentrated, less of it gets spent. Monetary velocity never
recovered since the financial crisis. In fact, from 2011 onwards, monetary
velocity has been at its lowest levels ever recorded.

[https://fred.stlouisfed.org/series/M2V](https://fred.stlouisfed.org/series/M2V)

------
Qasaur
The Austrian school of economics has been advocating for an alternative form
of monetary thinking since the 1920s, and despite predicting with astonishing
accuracy the mechanics of almost every recession since then nobody takes them
seriously because the teachings goes against establishment economists at the
Federal Reserve, the IMF, and other central planners (probably related to the
fact that they show with logic that recessions and the "business cycle" are to
a large extent created by interference by central banks and not a natural
consequence of the free market).

What needs to happen after the coming recession is the total abandonment of
the notion that centrally planning the price and quantity of money to induce
inflation is somehow a necessary policy to ensure that the economic machine
functions, and with that the complete abolishment of central banking and a
return to either a gold standard or, with recent developments in mind, the
adoption of a crypto-backed money supply that cannot be manipulated by
governments.

Inflationary monetary policy is the root cause of many of the issues we see
today (widespread inequalities, political tension, erosion of purchasing power
and, yes, ridiculous startup valuations) we see today, and it is about time
that we abandon it.

~~~
tomrod
Economist here!

Austrian economics hasn't been totally ignored. However, the school of
thought's aversion to econometrics makes their policy advice self-limiting
compared to mainstream/mainline economic theory. This means Austrian methods
can occasionally diagnose a potential cause to a given economic malaise, but
the methods can't quantify impact nor fully assess hypotheses regarding causal
factors.

The second issue with the Austrian school is in the quest for ideological
purity, extreme workarounds substitute for what the mainline has already
worked through in the decades or centuries prior (e.g. Rothbard vs. utility).
I recommend reading over Bryan Caplan's piece on why he is not an Austrian
despite working in the famous US Austrian-supporting school, George Mason
University.[0]

As for your specific points, that the large central financial institutions
are, according to Austrian theory, causing recessions, even Austrian RBC
doesn't completely agree.[1] Economic busts will happen with or without
central banks -- being able to bail out key financial platforms is a _good
thing_ if it prevents the unnecessary misery of millions or billions. As every
economics student should learn in the second half of economics 101, the free
market does not always perfectly allocate resources, either immediately or
over time (see discussions on externalities).

[0]
[https://econfaculty.gmu.edu/bcaplan/whyaust.htm](https://econfaculty.gmu.edu/bcaplan/whyaust.htm)

[1] [https://mises.org/wire/economic-busts-can-happen-free-
market...](https://mises.org/wire/economic-busts-can-happen-free-market-
central-banks-make-things-much-worse)

~~~
Dumblydorr
Why is econometrics important? I went to UChicago during 2007 and econometrics
was a major bane of all Econ majors. There was something so anti-pragmatic
about reducing irrational economic actors into mere equations.

Meanwhile, did all of that sophisticated math improve the economy or predict
the recession or help us out during recovery? It's nice to have hidden
mathematical knowledge but is it actually providing benefits or is it just
arcana?

~~~
duxut_staglatz
Econometrics (aka stats for economists) is how we test models on real data. It
seems to often be confused with the idea of using math in econ however
("reducing irrational economic actors into mere equations" seems to me to be
economic theory, not something specific about econometrics).

This has two purposes:

\- we would like to know which of our models are true, or at least good
enough, and which ones are not.

\- we would like to know the actual magnitude of things. For instance, if we
increase tax rate by 1%, how large will the taxable income reaction be?
Decrease by 0%? .25%? 1%? 10%? That's useful information for policy making.

