FWIW, sane macro doesn’t have the implications that interest rates can be forced to zero without cost, or any money not immediately spent is pure waste,
Remember our conversation! Sometimes negative interest rates are appropriate. If on the margin its impossible to make more investments that have a positive return, and people still want to transfer more wealth to the future, then negative rates reflect the actual social costs and benefits of holding money.
Any exogenous forcing of higher trading would imply that the extra trades have lower consumer surplus (perhaps negative relative to the no-forcing baseline).
Also, I don’t understand why you insist on talking about adding more money to the economy as ‘forcing of higher trading’. Remember that money is a product, and that it can be correct to increase or decrease the supply in responses to changes in demand.
Remember our conversation! Sometimes negative interest rates are appropriate.
Even so, the case you describe wouldn’t require central banking to bring about zero interest rates, and yet their action is needed to do exactly that.
Also, I don’t understand why you insist on talking about adding more money to the economy as ‘forcing of higher trading’.
Then why do you understand why it’s talked about in exactly that manner, i.e. used to prop up total nominal expenditures? How do you differentiate e.g. quantitative easing from from the murder policy I described, or the “ban on home cooking” that I described in past discussions with you. Both get people to spend more money.
Because one attempts to solve a shortage of money by adding more money and one tries to solve the same problem by much worse means?
But the dynamic is exactly the same! People are making all trades in which the stuff they get is better than enduring the “punishment” (arrest or loss of savings). This means the fraction of trades that only happened because of this policy are not, like other trades, Pareto-optimal. The fact that the means are better or worse among them (in gross terms) does not matter; they all are undermining the basis on which we can conclude that trades are positive sum. If your solution assumes away this loss of utility, you can get away with anything.
I’m confused why we’re having this argument again, I thought I had more or less convinced you on these issues.
What gave you that impression? I thought we reached pretty intractable points, in that our core disagreement hinges on the question of the economic role of liquidity in goods, and the extent to which the market can thereby signal “discoordination” (a term you also claimed doesn’t operationalize).
2 - Yeah, you’re right, I was misremembering. We weren’t able to come up with a concrete description of discoordination (which is a new concept that is unknown in the academic literature including austrian as far as we know) that made sense to me, and I lacked the intuition about it you have. IIRC I was able to convince you that ignoring discoordination effects, minimizing monetary disequilibrium is the thing to do, and NGDP targeting does a decent job of that. You also convinced me there was a case where it wont (when there’s a big shift in market to non-market activities or vice versa). Is that right?
1 - Given our disagreement in 2, I think you should still agree with me here since you haven’t brought up any discoordination related arguments as far as I can tell.
To get pareto optimality you have to ignore any monetary externalities (i.e when I buy buy something, I increase the quantity of money you have and my decision does not take this into account) or assume the quantity of money is optimal. And if we’re doing this then: given the quantity of money, we’re going to get pareto optimality no matter what. In other words, the trades in the no-monetary-change and monetary-change case are going to have the same pareto optimality. All trade in both scenarios is voluntary, so given the quantity of money each trade is welfare improving in the same sense in both cases. So our basis for concluding the trades are positive sum is unaffected.
The effects of a monetary change occur through an externality.
Remember our conversation! Sometimes negative interest rates are appropriate. If on the margin its impossible to make more investments that have a positive return, and people still want to transfer more wealth to the future, then negative rates reflect the actual social costs and benefits of holding money.
Also, I don’t understand why you insist on talking about adding more money to the economy as ‘forcing of higher trading’. Remember that money is a product, and that it can be correct to increase or decrease the supply in responses to changes in demand.
Even so, the case you describe wouldn’t require central banking to bring about zero interest rates, and yet their action is needed to do exactly that.
Then why do you understand why it’s talked about in exactly that manner, i.e. used to prop up total nominal expenditures? How do you differentiate e.g. quantitative easing from from the murder policy I described, or the “ban on home cooking” that I described in past discussions with you. Both get people to spend more money.
1) Fair enough, I think targeting US bond interest rates is probably a bad policy too.
2) Because one attempts to solve a shortage of money by adding more money and one tries to solve the same problem by much worse means?
(I’m confused why we’re having this argument again, I thought I had more or less convinced you on these issues).
But the dynamic is exactly the same! People are making all trades in which the stuff they get is better than enduring the “punishment” (arrest or loss of savings). This means the fraction of trades that only happened because of this policy are not, like other trades, Pareto-optimal. The fact that the means are better or worse among them (in gross terms) does not matter; they all are undermining the basis on which we can conclude that trades are positive sum. If your solution assumes away this loss of utility, you can get away with anything.
What gave you that impression? I thought we reached pretty intractable points, in that our core disagreement hinges on the question of the economic role of liquidity in goods, and the extent to which the market can thereby signal “discoordination” (a term you also claimed doesn’t operationalize).
2 - Yeah, you’re right, I was misremembering. We weren’t able to come up with a concrete description of discoordination (which is a new concept that is unknown in the academic literature including austrian as far as we know) that made sense to me, and I lacked the intuition about it you have. IIRC I was able to convince you that ignoring discoordination effects, minimizing monetary disequilibrium is the thing to do, and NGDP targeting does a decent job of that. You also convinced me there was a case where it wont (when there’s a big shift in market to non-market activities or vice versa). Is that right?
1 - Given our disagreement in 2, I think you should still agree with me here since you haven’t brought up any discoordination related arguments as far as I can tell.
To get pareto optimality you have to ignore any monetary externalities (i.e when I buy buy something, I increase the quantity of money you have and my decision does not take this into account) or assume the quantity of money is optimal. And if we’re doing this then: given the quantity of money, we’re going to get pareto optimality no matter what. In other words, the trades in the no-monetary-change and monetary-change case are going to have the same pareto optimality. All trade in both scenarios is voluntary, so given the quantity of money each trade is welfare improving in the same sense in both cases. So our basis for concluding the trades are positive sum is unaffected.
The effects of a monetary change occur through an externality.