There was an interesting outcome of some states stopping benefits because common sense said that would make people more pressured to go back to work. This was essentially a large-scale economics experiment.
"25% of the workers who lost their benefits in June had gone back to work by August. Now, in states that left the benefits in place, 21% of unemployed people found jobs. So there was only a four percentage point difference when these benefits went away...And what this means is those states that ended benefits early, they turned down billions of dollars in federal unemployment aid, and it ended up backfiring for their local economies."[1]
The "common sense" solution to helping their economy may have actually hurt their economy.
What I think is the better question is whether that 4% dip was better for the respective economies in the context of the aid they had to give up. It seems to me it probably wasn't a good tradeoff if the goal was to improve the economy.
I also understand it may be a moral argument rather than an economic one, but that's another one that could probably be debated without resolution.
>These benefits are being paid by all the rest of us in the form of inflation eating way our income.
I agree, but that's also the price to be paid by living in a society. We could just remove all safety nets whatsoever and deal with whatever instability results, but I don't think that's in most people's best interest. The point of the discussion is finding the right balance that provides a moral yet stable economy.
I really dislike this point.
I keep seeing it as a justification for more government control, typically without real justification.
> We could just remove all safety nets whatsoever and deal with whatever instability results, but I don't think that's in most people's best interest.
Has welfare been in some way proven to increase stability? Seattle, Portland, and SF all have strong welfare programs, but they seem to me to currently be much less stable than other cities.
I don't think it should be used as a catch-all, but as a reasoned and balanced approach. It may be used as a justification for "government control", but hopefully people recognize that there is an expectation for something to be received in terms of what was given. It's up to society to determine whether that's a good trade, not to automatically disregard the option because of some "government control" boogeyman.
Take the Fed which is such a big part of this discussion. Society gives the Fed certain levers to affect the economy and monetary policy. In return, society gets more stabilized unemployment and inflation to limit boom/bust cycles. Society has determined that is a reasonable tradeoff. Likewise, we give the Congress the ability to levy taxes and in exchange we expect to be provided common defense and general welfare.
>Has welfare been in some way proven to increase stability? Seattle, Portland, and SF all have strong welfare programs, but they seem to me to currently be much less stable than other cities.
It gets harder to study because of the larger number of confounding factors as you get to larger groups (city, state, or federal levels). There's certainly evidence that social safety nets provide stability at the family level and evidence that safety nets like unemployment insurance enhance stability as well.
- Businesses going under
- People losing jobs
- Mortgages going under
... and so on. All of this DOES directly impact the productive output of the economy.
Inflation does distort the economy a little bit. It makes some of us poorer (those with cash), some of us richer (those with debt), and leaves some neutral (this with hard assets). But I think this distortion pales relative to the alternative.
I agree to this in some contexts, but I also think it's sometimes used with too broad of a brush. It seems to ignore the time lag that means sometimes things can get really bad before they get better. Sure, allowing banks and automotive manufacturers to go under could create "fresh ground for entrepreneurs to flourish." But it could also create decades of depression/recession effects before that flourishing happens. We're currently seeinng the supply chain effects that people didn't really anticipate well. As someone from the rust belt, there are an awful lot of tangentially related manufacturers who will also go away with the automotive sector, which has ripple effects in a ton of other industries. Protracted economic depressions tend to create "fresh ground" for despots to "flourish" as well.
4% of the entire workforce is massive.
4% of unemployed workers who were previously receiving unemployment benefits is irrelevant.
If you zoom out, you'll see that the biggest drops in unemployment benefits weren't in the 2021Q2, they were in 2020Q4.
https://www.statista.com/statistics/284857/total-unemploymen...
I feel that depicting the current scenario as a sudden global reluctance to work because people are getting benefits is a gross misrepresentation of the facts, and one which is rooted in the old moralist notion that poverty is tied to laziness.
The truth of the matter is that the year-long lockdown enabled workers to reconsider their life priorities and their professional choices, and those stuck in awful jobs with awful working conditions decided to reconsider their options.
To illustrate the fact that "giving people money" is not the key factor here, keep in mind that priviledges workers, such as handsomely paid software engineers working for FAANGs, started quitting in droves due to working conditions, and right now we are seeing these same FAANGs scrambling to contain this hemorrhaging. FAANG-caliber engineers don't just quit their job because the government started passing on handouts.
The service sector imposes exceptionally abusive and poorly-paid working conditions, thus no wonder they are having problems attracting workers without doing any soul-searching and addressing their problems.
The same thing happens when you give individuals handouts, whether those handouts be in the form of pandemic aid, welfare, or social security. They're less motivated to work and often just don't.
Sorry, couldnt help myself. Completely agree. The motivation to participate in most markets has been sapped by handouts on a massive scale. No business is too big to fail. If a business fails it is their own fault. Allowing businesses to fail regardless of the economic impact is a necessity for the economy to function. One business fails and a handful jump in to compete for the open space.
Sorry, couldn't help myself. Completely disagree. The free market continually makes bad decisions. And the term "free market" never meant an un-fettered market free of government influence and control.
What could it even mean then?
You could maybe make a case that people don't mean a totally free market when arguing using the term, but that's about the degree of freedom. Free market literally means people trading goods and services without coercion.
"For classical economists such as Adam Smith, the term free market does not necessarily refer to a market free from government interference, but rather free from all forms of economic privilege, monopolies and artificial scarcities.[1] This implies that economic rents, i.e. profits generated from a lack of perfect competition, must be reduced or eliminated as much as possible through free competition."
https://en.wikipedia.org/wiki/Free_market
Naturally, the term has taken on differing meanings, some useful, some not. The idea itself, of a market free from government influence and control is a pipe dream that has never, and will never exist.
To you it means trade without coercion. To others it means less taxes (a type of coercion). To yet others it means no regulations (yet another type of coercion). This just doesn't exist in any economy. Taxes, regulation, permits, all are a form of economic coercion. It's just used as a cudgel by those who stand to gain or lose the most with a particular regulation or tax policy.
No, it really doesn't. At most, this represents a one-time-only bump in disposable income, which you either spend to meet your immediate needs, save it up, or blowin up on whatever tickles your fancy.
A one-time bump in disposable income does not change anyone's drive, determination, or professionalism.
If that assertion had any bearing on reality, all companies which hand out hiring bonuses to new hires or pay any sort of bonus would be seeing determined workers turning into slackers overnight, which makes absolutely no sense at all.
This is most impactful if you think money is the sole motivation for working. The fact that the U.S. has the highest volunteer/charity rate while one of the highest average work week rates for industrial countries seems to indicate otherwise.
What are the options for minimum/lower wage workers? They still need money for food and shelter.
The ability for low wage workers to decide "this job is not worth it" was only made possible by the increased government unemployment benefit and stimulus.
I absolutely believe that if given the choice of getting over $1200/month on unemployment versus making the same but working, most people would choose not working. That seems so intuitive to me.
This seems to be a rational choice to me as well if you define work as "shit I don't want to be doing". If you were paid $1200 a week for playing with puppies, you probably wouldn't mind going back.
I think what the OP was alluding to was that it caused people to evaluate the nature of work. I'm not saying it's a purely rational decision, but probably a largely emotional one. When your norm is working a miserable job and you are given a reprieve from it, emotionally it may be that much harder to return.
FAANG workers probably made a boatload, I know my friends at Google did.
I just saw a notice on a fast-ish food place saying they will pay $3 more per hour than the last wage. So not only is poaching happening, this inflation is being baked in. For context that is ~$6,240 more annualized or $520 per month.
On the contrary, good wage increases would come from a restriction of the labor supply through things like a decrease in immigration. What is happening though is that the labor pool is now being flooded with quite literally millions of unskilled laborers on the southern border and soon enough even high skill sectors like tech will be flooded with foreign tech workers if the ruling class is able to pull it off and places like India and China, etc. don't put a stop to it in order to retain their talent rather than letting the US ruling class profit from their people.
Very broadly this is true, M2 peaked at 10% in 2008 and was 6% for most of the decade but the actual transmission of this into the real economy was impaired. So you have to actually understand how monetary policy is being transmitted.
But what has just happened is evidence that this lesson wasn't learned because the view seemed to be that inflation is impossible...not that we need to look at transmission more carefully. M2 growth YoY is running at 25%, federal spending is clearly leaking into the money supply, on top of supply issues...it is going to be tricky to resolve fast (even if you don't consider the political pressure the Fed is clearly under, the willingness to trade inflation for lower unemployment...that is what this comes down to, can your politicians take the pain? It is very clear there is no capacity for pain in the US).
Similarly, giving people cash handouts is not necessarily inflationary either (it happens all the time anyway, food stamps, unemployment benefits) because cash handouts don't necessarily increase the money supply. The issue is that transmission appears to have changed in a very subtle way (this isn't just occurring in the US either) where you have fiscal policy seeming to leak through to the money supply (something that a significant proportion of politicians think is impossible atm).
Prices seem to be sticky, so it's not that surprising that it takes some time for higher prices to work their way into all facets of economic life.
A lot of people think it is "common sense" that raising the minimum wage will decrease employment because of higher labour costs, but that link is… tenuous… at best:
> In pioneering work from the early 1990s, David Card analysed some central questions in labour economics – such as the effects of a minimum wage, immigration and education – using this approach. The results of these studies challenged conventional wisdom and led to new research, to which Card has continued to make important contributions. Overall, we now have a considerably better understanding of how the labour market operates than we did 30 years ago.
* https://www.nobelprize.org/prizes/economic-sciences/2021/pop...
Good thing we have economists whose job is to not forget about those things.
Some (many? Most?) economists think that this “modern monetary theory” stuff is suicidal. It looks to me like they’re being proven right.
The fed isn’t run by Stephanie Kelton. We are still living through one of the most disruptive periods in modern economic history, seeing moderately elevated inflation in this context doesn’t mean the sky is falling.
You have no idea what you are talking about if you think that the Fed's actions are based off of a fringe heterodox theory like MMT.
> economics isn’t a hard science where there is some rigid consensus.
Oh, guess that gives you license to make up whatever theory you want then, my bad.
Not going to continue replying.
I'm making the much more defensible claim that if we took you and the GP commentator and put you in charge of the Fed, the economy would go into a recession.
Because authority!
Aka argumentum ad verecundiam.
Money is valued according to totalStuff / totalMoney. If there is one item of food left on the entire planet, everybody is about to starve to death. If you print enough money to quadruple the supply of money, everybody will still starve to death, and the item of food is effectively costs 4x the number of dollars. You can argue the cost is already infinite in such a scenario, so 4x infinity is still infinity, nevertheless, abstractly if everybody owns a Corolla, then you 100x the money supply, the Corollas do not turn into Ferraris. Houses do not get built out of thin air. Real things have real value when given effort by real people, and money is abstractly a layer above that. Printing money does not print food, mine metals, or construct aircraft. If it DID, we could colonize the entire universe by simply leaving the printer on for long enough.
It's not common sense that printing money "causes" inflation, it's directly given by the ratio of money to real things. Printing IS inflation. Again, if printing was NOT inflation, then printing would increase REAL value and we would colonize the entire universe by printing.
Back to velocity. You temporarily tricked some people. They go and buy food instead of dying. Now there's less food in reserve. Now food is more expensive. This converges the price to the amount printed as in the above logic. So where did we get this free interim benefit where starvers can buy things? Prices weren't initially raised, so the people that would've had more food incorrectly gave it to other people for less than they should have until the adjustments kicked in. Therefore, printing money can have the effect have stealing from businesses if they're slow to react. Or, printing money can have the effect of stealing from everybody that's not that business if the printed money goes right to that business. Give an asset company 500 trillion dollars and suddenly every house in America is spoken for. There's no "inflation" depending on which idiot you ask, but everybody who doesn't own that company will die of weather or infinite rent -> starvation soon enough.
At the end of the day, printed money is only fair if given to everybody equally, which is equivalent to doing absolutely nothing in a world where business immediately adjust prices in response to the fake change in money supply. Otherwise it's trickery against the interests of people who set prices incorrectly, and especially against people incapable of setting prices because they are mere "consumers", unless all printed money goes only to consumers, but then it still solves nothing by definition of consumer.
What the above is alluding to is that being a consumer rather than a producer by definition means they have no or negative value. A farmer adds value, a waiter subtracts value. More people are alive because a farmer can feed himself and others, whereas a waiter is replaced by a dude walking 12 feet and getting his own food, or skipping the restaurant entirely and cooking himself with stuff he or the farmer grew. Every business that isn't multiplying food output, healthcare output, etc. vs. their cost is effectively a drain. Restaurants would have to bring enough "joy" (utility) to make up for the drain that simply shuffling food around inefficiently and placing it on oval plates next to candles in dark rooms and charging 70 unitless (if it's marked at all) currency thingies for a leaf of non-GMO vegan-enhanced anti-racist triple-vaccinated gluten-free organic hydroponic soy lettuce. While I typed that, 500 Africans starved to death.
The modern economy is just a ruse that tricks people into having "jobs" rather than owning all of America's farmland (Bill Gates).
The fix is four fold: 1. become a farmer 2. end Bill Gates ... legally 3. end BlackRock et al ... legally 4. end the fed ... legally
edit: Six fold: 5. end all central banks 6. end all central-central banks
It lets people stay home more to prevent the contagion from spreading... but it is not the good life. It might help buy groceries or pay a bill or two, not much more than that.
Give people money during pandemic, people feel less pressure to work. Less people who want/need to work, wages rise to attract more people. Companies have higher wage bills, they raise prices to compensate. Hey presto, inflation.
There's also a secondary feedback loop of people buying more stuff with their payouts and the increased demand translating into higher prices, but this hit various sectors of the economy really unevenly, where wage inflation seems to be very widespread.