Idk, it seems like one of those things that is hard to predict. Would gdp actually fall off a cliff? There would be a lot of steps that would have to happen along the way. Plus the premise isn’t really rooted in any kind of reality, so it may be a flawed argument to begin with. Just my $0.02
> The really scary thing? The 'adults in the room', 'real experts', etc have no theoretical model that explains this. They're people with 40 years experience in saying this is impossible.
Paul Krugman has actually written about that for many years now. First for Japan in the 80s, then applying the model to the more recent events. His blog is a good source for short snippets explaining it. The keyword of interest here is "liquidity trap", see e.g. https://krugman.blogs.nytimes.com/2013/04/11/monetary-policy...
Asserting that an economy is in a liquidity trap is equivalent to asserting that increasing the money supply will not drive up inflation or interest rates in the short term, but will drive employment and GDP growth.
I don't think it makes sense to argue that this situation is not theoretically possible since it appears to describe reality quite well. That said, the policy commitment that comes out of accepting even the possibility that we may be in a liquidity trap should be uncontroversial regardless of whether you believe the model is a close approximation of reality or not: push aggregate demand until there is some evidence it is driving up inflation and interest rates, at which point the theory says to stop because more of the same won't do any better.
The depressing part of his theory is that in his view, stability causes instability. If something is growing predictably, people start increasing their use of leverage until even a decline in the rate of growth will cause a crash.
Just my opinion, but macroeconomics seems to be good for understanding what's happened, but not so great for predicting what's going to happen. Take the Federal Reserve's policy on interest rates. Lower rates are supposed to get the economy going and increase inflation.
But after the 2008 financial crisis, the Fed cut rates almost to zero, and the big inflation everyone expected just didn't happen. This makes me think about the idea of a "liquidity trap," where people would rather keep their money than invest it, even when interest rates are super low.
This wasn't just a U.S. thing either. The same happened in Japan in the 90s and in Europe after 2008. Even with rock-bottom rates, inflation stayed low.
I know it's not popular wisdom, but maybe we don't know what the fuck is actually going on. And we should just accept that.
Your thesis doesn't really make sense to me. You're assuming someone that is making outsized profit this year, somehow is gambling all of that profit and their existing money in some risky bet that depends on the continuation of greedflation, and if that stopped and their price gouging were forced to come back down to normal level, they'd lose their bet, and somehow that would be so catastrophic that the biggest most depended on juggernauts would collapse into bankruptcy causing a country wide recession?
can you back up your statement that his proposed solution would send the entire world into a recession? I always find it interesting that people say this and yet don't give any reasons why. I'm not financial genius myself but surely just collateralizing the dollar with something automatically cause a recession. What exactly is the mechanism you think would cause this? Asking cause i genuinely don't understand myself.
Short-term - maybe, though past history isn't exactly positive about that.
Long-term : no, as this would reduce economic input to an arbitrary small fraction of the overall wealth, which anyone would be able to corner. So it's either self-limiting or unstable.
What about inept political infighting leading to downgraded ratings or a debt bubble whose interest is going to outstrip GDP? Not those huh? Large language models?
This is a great point -- how are cycles different as capital costs plummet, the velocity of information approaches infinity, saleable goods de-materialize, labor pools globalize, and addressable markets approach all the people on earth?
From my non-expert view, most of macro econ is practically religion anyways, and their predictions are basically non-falsifiable. Even so, I'm sure some informed folks have been thinking about these very issues, I just have no idea who. Would love any pointers.
If the economy picked up there wouldn't be a problem. It's apparently better than a total crash, because the economy has to go on either way. The problem is what products and services can we make to make the economy grow again and to employ people. Also you may get malinvestments, but that is what risk is all about. No risk, no gain, you know. You just need a few homeruns to cushion the bad ones and the big homeruns are the ones that create whole new markets and longer employment. How to function and survive in the economy is difficult for everyone and it's a big clusterfuck of complexity and short term thinking, so it's all related in many ways. I think QE and 0% interest rate is the smallest of our problems as far as long term goes
"The underlying problem is structurally deficient demand caused by thirty years of neoliberal economic policies that have undermined the income and demand generation process (Palley, 2009). However, rather than fixing this problem, policymakers are again turning to ultra-easy monetary policy in the form of QE. Viewed from this perspective, QE can be interpreted as a form of asset market trickledown whereby supporting asset prices is supposed to jumpstart the macro economy…From a political standpoint, this is an enormous change from the world of forty years ago. The New Deal policy paradigm of wage floors and household income supports has been replaced by one of asset price floors and asset market subsidies. Viewed through a political lens QE therefore represents the triumph of plutonomics, and that makes it an obstruction to the extent it obscures the challenge of repairing the income and demand generation process."
I question the assertion that allowing things to fail like big banks or China would be bad in the long term. And this is economics, which like religion, isn't an exact science so neither of us know for sure.
And yes, I agree, we're going to need a countervailing market mechanism to stop it from proceeding to its logical conclusion: a persistent, severe recession. Whatever the mechanism, it's going to need to be dynamic and adaptable, or it's "dead on arrival" as a solution.
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