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More “What’s Wrong With the Keynesian World?”

 

Deficit spending on infrastructure that produces returns, and is somehow quantifiable, doesn’t seem to be a problem. I don’t see a problem borrowing against the future for the purposes of production (capital increases). In fact, history is very optimistic about both research investment, infrastructure investment, export market investment, and trade route investment (including conquest). It’s just very pessimistic about funding rents, subsidies, and vote-bribes.

OTOH, Destruction of intergenerational lending, is informationally destructive. Distortion of the interest rate is informationally destructive. Flooding the economy with money is informationally destructive. And cumulatively that destruction appears to be more than even the combination of innovation and productivity can compensate for, even in a period of gold rush created by the technology booms. I mean, if it isn’t working from 1990 to the present, it’s not going to work in more common periods.

Interest is necessary for the purposes of measurement, and to make use of information by those with demonstrated ability to make judgements. I don’t understand why we pay interest on borrowing from ourselves (the treasury). I don’t understand why we care about our status as a reserve currency except as a means of financing the military empire. And I no longer see much advantage to the preservation of the empire (power projection), only our defense of territory and trade. In fact, the empire has dominated our domestic policy for a century now.

Lets take it further: I would see no problem in distributing liquidity (dilution of the money supply) if distributed annually or quarterly to consumers on debit cards – other than the moral hazard it would create. This causes industry to fight for consumer dollars, and gives consumers the option to consume or reduce debt. Right now the distortion by financialization (gambling) rather than capitalization is so …. vast … no one has any idea how to measure it. Other than we can see that ‘something isn’t right here’ and we cant find a target that will correct whatever is wrong. (productivity).

Targets are pretty simple really: how many hours to the 66% of people on either side of the median have to work to pay for all non-signal private goods?

As far as I know, all interest on consumption of non-signal private goods is money lost from the treasury and capital-producing industry. And that looks like trillions to me.

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One thought on “More “What’s Wrong With the Keynesian World?”

  1. “paying interest to ourselves”

    Not sure if your issue is with the CB or with the Treasury?

    If CB, holding treasuries backs the currency with future taxes (current taxes are insufficiently flexible). If you’re saying that CBs should hold a greater variety of assets, I agree and think this happens with trust in the CB (eg BofE historically got more leeway than Fed).

    If Treasury, current taxes may be insufficiently flexible for a rare crisis, and borrowing is prudent for future-income-producing investment (whether direct or via higher-GDP->higher-tax).

    Obviously our current sovereign financial institutions are dysfunctional, but I understood your argument as addressing the general case. So I think I’ve missed an underlying point; help me out?

    Like

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