It’s an interesting read and it’s good to see someone outside of the AI community taking it seriously, but I’m not sure why the Fed couldn’t just fix it with quantitative easing and helicopter money.
And once you realize this, the entire scenario falls apart, and ultimately it’s anti-capitalist pablum that has it’s bottom line already written, as shown by Alex Armlovich here:
Bad econ. “White collar workers switch to Doordash, driving down real wages there too” is partial equilibrium thinking
Robot firms only grow if they’re producing more real goods & services. If production is growing, real incomes are rising not falling. No doom loop!
If production is growing but somehow consumption stalls, that’s just a failure of monetary & fiscal policy. Cut rates to zero quickly; below zero, fiscal policy kicks in to redistribute income to consumers & restore consumption growth to trend
Either there’s no doom loop in the first place, or else New Keynesian monetary & fiscal policy kicks in to close any emergent wedge between robot output & human consumption
This piece is ultimately just anticapitalist pablum (teasing a belief that most markets are just scams and rent seeking in the intro!)--and after that, the piece simply underrates or misunderstands the stabilizing powers of liberal democratic Keynesian capitalism to keep output & consumption in balance
We don’t have to allow what @delong calls “a failure of the exchange mechanism” in the future any more than we did in the 1930s
Remember the top line, where they talked about this being a model of left tail risk (for investors).
They are predicting specifically that there is reasonable odds of a case where the stimulus is underbaked and too late, causing significant deflation, and a large number of past claims on future economic activity do not survive the restructure, and so every actor taking interest rate risk is at risk of getting blown out by deflation, or taking huge nominal losses from a default due to their counterparties getting blown out by deflation.
@Noosphere89 I notice that I am confused. Before the rise of the AIs a car factory would have to pay white-collar workers for things like engineering or management, blue-collar workers for, well, working with the machinery making cars out of metal, plastic, etc, and the companies which produce metal and other resources. After the rise of AI white-collar work flies out of the window, and resources become the main bottleneck. Does it mean that the main aim of altruists is to ensure an egalitarian distribution of property rights to resources on Earth and in space?
They could. In the scenario where they do not, you get Japan like problems of not enough inflationary firepower. To do that with confidence requires the tax base to support it, which means as labor share of income drops, taxing the capital share of income as well.
Taxing the capital share of income is not the end of the world, it is a relatively normal policy, but we would have to generate the political will to actually do so, the government must be able to credibly collect those taxes.
If we think the funds for helicopter money come from government borrowing, and the bond market breaks due to unexpected deflation, the government cannot get the money to pay for the inflation to get the market to get the money (this is what is meant by systemic risk), or default
If we think the funds come from future taxes, if the capital share of income increases and the willingness to consume from accumulated capital drops, the government must increase taxes on the income streams of capital or labor to make up consumption
If you think MMT is correct, and the government can just do helicopter, they will have to do that to keep equilibrium.
All of those cases (helicopter money and capital taxation) as specific policies are major policy shits. There is always a chance that does not happen.
There is a big difference between “The Fed Can” and “The Fed Will”, and if you are at 95% odds of the feds getting it right, that is still 5% of not fixing it. That is what is meant by left tail risk.
Is there a practical way to implement helicopter money, instead of the current way of (extremely inefficiently) trickling down the money through bond markets?
Yes, the IRS has payment info for a very large portion of Americans and we did similar programs during COVID. The hard part is the political will, not the doing.
It’s an interesting read and it’s good to see someone outside of the AI community taking it seriously, but I’m not sure why the Fed couldn’t just fix it with quantitative easing and helicopter money.
And once you realize this, the entire scenario falls apart, and ultimately it’s anti-capitalist pablum that has it’s bottom line already written, as shown by Alex Armlovich here:
Remember the top line, where they talked about this being a model of left tail risk (for investors).
They are predicting specifically that there is reasonable odds of a case where the stimulus is underbaked and too late, causing significant deflation, and a large number of past claims on future economic activity do not survive the restructure, and so every actor taking interest rate risk is at risk of getting blown out by deflation, or taking huge nominal losses from a default due to their counterparties getting blown out by deflation.
@Noosphere89 I notice that I am confused. Before the rise of the AIs a car factory would have to pay white-collar workers for things like engineering or management, blue-collar workers for, well, working with the machinery making cars out of metal, plastic, etc, and the companies which produce metal and other resources. After the rise of AI white-collar work flies out of the window, and resources become the main bottleneck. Does it mean that the main aim of altruists is to ensure an egalitarian distribution of property rights to resources on Earth and in space?
They could. In the scenario where they do not, you get Japan like problems of not enough inflationary firepower. To do that with confidence requires the tax base to support it, which means as labor share of income drops, taxing the capital share of income as well.
Taxing the capital share of income is not the end of the world, it is a relatively normal policy, but we would have to generate the political will to actually do so, the government must be able to credibly collect those taxes.
If we think the funds for helicopter money come from government borrowing, and the bond market breaks due to unexpected deflation, the government cannot get the money to pay for the inflation to get the market to get the money (this is what is meant by systemic risk), or default
If we think the funds come from future taxes, if the capital share of income increases and the willingness to consume from accumulated capital drops, the government must increase taxes on the income streams of capital or labor to make up consumption
If you think MMT is correct, and the government can just do helicopter, they will have to do that to keep equilibrium.
All of those cases (helicopter money and capital taxation) as specific policies are major policy shits. There is always a chance that does not happen.
There is a big difference between “The Fed Can” and “The Fed Will”, and if you are at 95% odds of the feds getting it right, that is still 5% of not fixing it. That is what is meant by left tail risk.
Is there a practical way to implement helicopter money, instead of the current way of (extremely inefficiently) trickling down the money through bond markets?
Yes, the IRS has payment info for a very large portion of Americans and we did similar programs during COVID. The hard part is the political will, not the doing.