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There are a lot of policy proposals, mostly but not exclusively progression, that I find troubling. I agree that the thing they are aimed at is negative, and that if their policy works as proposed it will weaken the effect, but I don't trust it. I either end up criticizing the proposals on libertarian grounds or just expressing a vague sense of unease, neither of which has the slightest effect on proponents.

Affirmative action used to fall into this category, but I now have some more articulate objections. Affirmative action is premised on the idea that the solution to black poverty is for white people to give them things. Not that the jobs are charity, but they're still given at the whim of white people, and ensure that the most rewards go to minorities who are best at assimilating into white middle class protestant culture. I would much rather have funded black entrepreneurs so they could be successful on their own terms. Or maybe just extended the protection of law so that white people didn't burn down their businesses *quite* so often. Or not used eminent domain to tear down black businesses to build housing projects, nominally aimed at helping the poor, and structured bidding so only white firms had a chance.*

Now I can move "fighting inequality" out of the inarticulate-unease/libertarian-sputtering category and into the real reasons category, thanks to Ezra Klein. He suggests that while inequality is bad, unemployment is worse, and we change priorities accordingly. I agree, but that's not impressive because I don't think inequality is bad. I also think most government efforts to increase employment are counterproductive and harmful. But Klein brings up the excellent point that there's at least one thing the government does that actively raises unemployment, and all they would have to do to lower unemployment is stop doing it.

They're not doing it for no reason, of course. They do it in the name of fighting inflation, which is generally considered to be good. But why? And have we ever measured how good low inflation is, relative to the costs of high unemployment? Unemployment makes people really fucking miserable. Moreover, inflation hurts net savers (i.e. wealthy people) and helps net debtors (i.e. poor people). And the closer we run to full employment, the less employers can get away with the soul crushing shit they pull on McJob holders (i.e. poor people). So prioritizing low inflation over high employment benefits the rich at the expense of the poor in every possible way.**

My conspiracy theory? The proposed solution to inequality is usually taxes. Taxes will always be worst for the people with the least flexibility. Flexibility increases with wealth. So in general, taxes will be worse for the rich than the truly wealthy. But there is no dodging inflation. That will hit the wealthy and there is very little they can do about it.***

Inflation also incentives people to invest in high-risk/high-reward ventures (which have a higher likelihood of creating jobs, although also a higher risk of royally fucking up the economy. Tto be fair, that risk will hit the rich harder than the wealthy) as opposed to letting it sit in bonds. It fights entrenched wealth by reducing the value of it, without the nasty side effects of an estate tax. It pushes everyone to keep creating rather than rest on accumulated wealth.

Let me note that as a net saver, I'm advocating against my own interests here. But however bad inflation may be, I think the moral thing right now is to tolerate a bit more of it in exchange for higher employment.



*Source: The Pruit-Igoe Complex

**Note: I'm assuming the alternative to low inflation is higher but *steady* inflation. Hyperinflation and unexpected spikes are still really bad for the economy as a whole.

***I'm not an accountant, I think that overseas investing might be an option, and that would have consequences for the US.

Date: 2013-12-22 11:36 pm (UTC)
From: [identity profile] dukhat.livejournal.com
Is your position on inflation a common libertarian view? I have always associated hatred of inflation with libertarianism.


Also what specifically is the Federal Reserve doing to cause unemployment? Their position is that they are using all their tools to reduce unemployment, including unconventional untested monetary policy, and that it is up to congress to pursue fiscal policy options. Bernanke was brought up in silly hearings where a lot of republicans yelled at him for allegedly debasing the dollar. They are repeatedly saying that all the austerity measures and deficit cutting in the short term is a very bad idea, but ultimately they are civil servants that have to obey elected leaders.

Date: 2013-12-23 12:35 am (UTC)
From: [identity profile] pktechgirl.livejournal.com
It's common among the libertarian economists I read, not so much the laity.

The position Klein is taking (which I find plausible and matches things I've read elsewhere but don't have citations beyond his) is that we are in a range where low inflation and low unemployment are diametrically opposed. Therefor, keeping inflation low is automatically raising unemployment. This is orthogonal to austerity and anything else they might take a position on.

Date: 2013-12-23 01:29 am (UTC)
From: [identity profile] dukhat.livejournal.com
My understanding is that we are in a liquidity trap and increasing the monetary base fails to cause inflation. In other words, traditional monetary policy fails to actually work and so it isn't so much that people are caring too much about preventing inflation, but that their tools to allow more inflation don't work anymore. That said, perhaps if they were willing to take more drastic measures there would be something the central bank could do without involving congress, but there might be other political reasons they are unwilling to do this.

Edit: Upon further reflection, if they had the will they would be able to credibly promise they would allow inflation above target without raising rates for quite some time.
Edited Date: 2013-12-23 01:36 am (UTC)

Date: 2013-12-23 01:32 am (UTC)
From: [identity profile] dukhat.livejournal.com
However, I think you are probably right that they care way too much about limiting inflation. There has to be some sort of forward guidance or expectations management they could do to get inflation to happen.

Date: 2013-12-23 02:47 am (UTC)
From: [identity profile] pktechgirl.livejournal.com
You sound better informed on fiscal/monetary policy than me, so I'm prepared to take your word for it that this particular mechanism is blocked right now. But it sounds like we agree that given sufficient time and motivation, there would be opportunities to move the needle somewhat.

Date: 2013-12-24 09:41 pm (UTC)
From: [identity profile] stolen-tea.livejournal.com
Huh. I would figure inflation would be bad for people with dollar-denominated income (wages and salaries, i.e. the lower and middle classes) and neutral for people with percentage-denominated income (owners of capital, i.e. the upper classes). And that the lower and middle classes are more likely to have a significant portion of their assets in dollars (cash, bank accounts, money market funds, etc.) and less likely to own assets which's dollar-denominated value increases with inflation, and less likely to be using debt leverage to magnify their wealth. Which is not to dispute your points, just that they're not what I would consider the main part of the equation...

Date: 2013-12-25 01:03 am (UTC)
From: [identity profile] pktechgirl.livejournal.com
My understanding is that wages and salaries tend to rise with inflation. When they don't, it's because the value of the work has fallen, but employers are unable to lower wages because of the morale costs (aka "sticky wages"). So even when inflation does lead to lower wages, it also leads to higher employment, which I consider more important.

I don't have a lot of data to back this up, but my best guess is that percentage-denominated capital has more positive externalities than dollar denominated capital. It's closer to a genuine investment that leads to jobs or innovation. You're correct that the wealthy will have more access to percentage-denominated capital than the middle class, which is kind of what I was getting at with the note on risk.

Date: 2013-12-25 08:04 pm (UTC)
From: [identity profile] stolen-tea.livejournal.com
Yeah, there is a tendency for wages and salaries to rise, but there's a definite lag, and I think generally the rise requires repeated action on the part of the workers. At least, I have extraordinarily rarely heard of jobs with inflation-linked pay. (Except for, sometimes, government jobs and the minimum wage, if the appropriate government is dominated by the appropriate party).

And yeah, I think I do buy the argument that full employment is a more worthwhile goal than low inflation. (Somewhat tangentially, my impression is that predictable inflation is more important than either, but that leads more to an argument that the Fed has the wrong number, not that they're doing entirely the wrong thing.)

Although I do wonder about how the USD's position as the world reserve currency affects this. On the one hand, USD inflation is like a tax on everyone throughout the world who holds USD, and in that sense inflation is good for US citizens, and good deal for people who owe debts denominated in USD, which is also, in net, probably good for US citizens. (But I really dislike zero-sum gains like that.)

But on the other hand, the higher USD inflation gets, the more likely it is that other countries will find some other reserve currency, and I suspect nothing good for us will come of that. (Although again, it's probably a zero-sum situation, and we're currently on top, so any gain for the rest of the world will be at our expense, and I find it hard to argue against that, even if it hurts the US in the process.) And if we're not the world's reserve currency, then inflating the US dollar is going to be a lot more painful.

---

I do agree that percentage-denominated investment is generally riskier, but I'm not so sure about the positive externalities. My sense is that businesses very rarely actually borrow in percentage-denominated ways (stock sales, and stock compensation to employees are about all that comes to mind), but often in their day-to-day operations, they will need to borrow or loan large sums in dollar-denominations (the commercial paper market, basically). Which is sort of why I suspect that predictable inflation is so important - if inflation is unpredictable, the commercial paper market will become a lot less liquid, whereas if inflation is merely predictable but higher than now, then the commercial paper market will probably be able to keep functioning much as it does now.

From what I can tell, most of the percentage-denominated investment uses the stock market, either directly, or through direct investment that is intended to pay off after an IPO. And that the main reason for a stock market is just to keep a liquid market for those rare times when businesses actually do need enough money to borrow in percentage-denominated ways (and to make stock a more attractive offering), and that 99% of the current activity on the stock market is zero-sum gambling. :/

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