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IZZY on QE addiction - analysis good - conclusion wrong imo

9/21/2013

8 Comments

 
"Yet, if you add the paradox of over-production to that mix — and the fact that such scarcities are potentially limited — you realise that the owners of capital have no interest in spending those claims on anything other than rent-producing assets, resources and/or anything they believe can protect their relative advantage.

All QE does is forces them to reposition their advantage from one based in future claims over more bountiful goods and services into one based on  rent-collection and monopoly-related control over infrastructure, capacity and resources.

 In a world of plenty, relative advantage can only be guaranteed by tightening the rein on accessibility to abundance. Those who have access to abundance will consequently work hard to withhold it from the population so as to keep their relative standing in place.

Technological innovation that allows such monopolies to be busted — or for goods and capacity to leak out for free — will also be discouraged, since these  goods cannot be absorbed by the economy unless a relative redistribution of wealth comes with it.

 In that context, it’s arguably only right that the state should enforce a penalty, tax or “negative rate” to erode the soaring advantage capital owners develop over non-capital owners.

Indeed, without such a tax, we would only move to an ever more unequal world, or one where an ever greater portion of the economy begins to depend solely on  ongoing £200 Go payments.

 And on that basis, the only downside of more QE and the collateral crunch that comes with it, is that capital will either be encouraged to flee developed markets altogether or be directed into riskier projects and pursuits that can undermine the current status quo.

 The point really is that a collateral crunch doesn’t do anything but punish  savers — and that, in the relative scheme of things, is not necessarily a bad  thing.

 QE addiction on that basis is no bad thing."

We are not doing enough to redistribute. Therefore the advantages gained by the elites are compounding. ERGO QE is policy that benefits the elite at the expense of the poor.

8 Comments
Brent Buckner
9/22/2013 11:08:53 pm

You write:
"We are not doing enough to redistribute. Therefore the advantages gained by the elites are compounding. ERGO QE is policy that benefits the elite at the expense of the poor."

Your "ERGO" there applies to Izzy's discussion of relative advantage. As a logical syllogism, it does not address absolute cost/benefit - i.e. it does not rule out the absolute benefit to the low income/low assets group being positive, even as the absolute benefit to the high income/high assets group is more positive.

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Karl
9/23/2013 01:53:13 am

I didn't make the distinction your are correct
Inequality is increasing certainly in keeping with Izzy's analysis.
Median wages have fallen 8% in the last five years suggesting the poor are doing absolutely worse. As I linked to in a previous post some have suggested that because of the social safety net the poor are not doing absolutely worse.
With the Republican party being dominated by the Tea Party' candidates and policies who like to blame the victims (think comments on rape last election and last Friday's defunding of food stamps) the poor have a positive non trivial probability that the inadequate social safety net will be cut.

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Brent Buckner
9/23/2013 03:47:02 am

You write: "Median wages have fallen 8% in the last five years suggesting the poor are doing absolutely worse."

That's absolutely worse now than five years ago; the counterfactual is how much better or worse they'd be doing now without QE. Maybe the counterfactual is something on the order of Greece - as you wrote about the PIIGS, "This month I have been acknowledging my previous under estimation of the awesome powers of CBs to prop up their economies in the short run through QE. (this highlights even more what the European periphery (PIIGS) is missing out on) "

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Karl Pinno
9/23/2013 02:38:24 pm

We are living in an era of overcapacity. There is a huge difference between no monetary policy, conventional monetary policy and QE.
There are huge levels of structural unemployment. Corporations like Apple pay 1.9% tax on billions of dollars of profit. The elites, both corporations and individuals, hide their money in tax havens while enjoying the benefits of the economies from which they have made their fortunes. This elite take over has been politically engineered.
Jobs have been shipped to China and through no fault of their own the lower middle class has seen its opportunities and wages diminished.
QE supports financial assets which are disproportionately held by the elites.
While as you point out this cannot be proven, in the long run I think the poor would have been better off had the Fed allowed the American economy to fall into a depression. The “New Deal” and all kinds of financial reforms came about because of the great depression. But creating artificial demand of 1/15th of the economy when the gains from the economy are engineered to disproportionately fall to a few, masks the underlying systemic imbalances.
Your initial point that tapering was held off because congress is insane. Why can congress be insane? Because the Fed lets them.
I would like to see the Tea Party running on defunding Obamacare and defunding food stamps if the Fed withdrew its support.

Brent Buckner
9/23/2013 10:42:44 pm

You write: " Why can congress be insane? Because the Fed lets them."

First, I'm not sure that what the Fed is doing isn't primarily dealing with the consequences of the privileged position of money in a monetary economy - i.e. dealing with the part of mess that Congress is producing that is properly within the mandates of the Fed to address.

Second, given what various 20th and 21st century electorates have tolerated/voted for/voted against, I am not sanguine that after the onset of a depression the U.S. would reasonably reform.

Reply
Karl Pinno
9/23/2013 11:48:18 pm

"First, I'm not sure that what the Fed is doing isn't primarily dealing with the consequences of the privileged position of money in a monetary economy - i.e. dealing with the part of mess that Congress is producing that is properly within the mandates of the Fed to address."
Under Greenspan the Fed did more than their fair share to create the current situation, including blocking regulation of the OTC market and decreasing leverage restrictions on FIs. Having produced a credit bubble they now ensure the viability and returns of the very people that created the problem.

You may not be very sanguine about crisis response but TARP and a 800 billion dollar stimulus came out of the last recession. Despite both of these initiatives being flawed they are better that what has emerged from congress since. It took a crisis in Canada to rally public support under the Liberals in the 1990s for reforms.

Again we don't know what would happen in the counterfactual but history seems to suggest meaningful reform is going to only come when countries hit a crisis. Of course the elites can and have stolen and taken over in the cover of the night. I am talking about reform that goes against the immediate well being of the ruling class.

Reply
Brent Buckner
9/24/2013 12:47:37 am

I think that's all I have for this thread; thanks.

Karl Pinno
9/24/2013 06:23:35 am

"Your "ERGO" there applies to Izzy's discussion of relative advantage. As a logical syllogism, it does not address absolute cost/benefit - i.e. it does not rule out the absolute benefit to the low income/low assets group being positive, even as the absolute benefit to the high income/high assets group is more positive."

I will end by agreeing unconditionally this was a logical overreach

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