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quote:Why the Fed’s policy on interest rates is key to fighting poverty The argument is: Low interest rates =>more consumption and business investment => higher demand for labor => lower unemployment and higher wages. The most effective contemporary policy choice to reduce poverty is low interest rates, because it works, and because the Republican congress can't do poo poo about it.
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# ? Jul 28, 2015 02:09 |
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# ? Mar 28, 2024 19:10 |
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There is a bit of academic work on this subject, although it all requires some hefty assumptions about the economy and is limited by the lack of data on the very wealthy. I tend to agree with the idea that lower interests are as a whole beneficial for low income people overall. I'm less convinced of the power of monetary policy than Dean Baker is (I feel very weird saying this,) but I see little reason to raise interest rates any time soon. One approach ye olde Structural Vector Autoregression Approach. This is basically a big regression with many variables, that allows you to show causality GIVEN you believe the assumptions you make to identify causality. "To characterize the effects of monetary policy on inequality in the U.S., we follow Romer and Romer (2004, RR henceforth) to identify innovations to monetary policy purged of anticipatory effects related to economic conditions. RR first construct a historical measure of changes in the target Federal Funds rate (FFR) at each FOMC meeting from 1969 until 1996. Using the real-time forecasts of the Fed staff presented in the Greenbooks prior to each FOMC meeting (denoted by F), RR construct a measure of monetary policy shocks defined as the component of policy changes from each meeting which is orthogonal to the Fed’s information set, as embodied by the Greenbook forecasts" Does this (and the extensions made to expand the dataset) identify an unexpected monetary shock? If you believe so, believe these regressions! In this case, loose monetary policy does help out the less wealthy quite a bit. A summery http://www.voxeu.org/article/monetary-policy-and-inequality-us The straight dope http://eml.berkeley.edu/~ygorodni/CGKS_inequality.pdf Alternatively, for those allergic to VARs, here's a nice take (with a good literature review) from the calibration perspective. I'm not gonna try to defend calibration, but I think it can be a useful exercise. However, in this paper there is no role for monetary policy to play for improving aggregate welfare in business cycles if I understand things correctly. Middle class homeowners with a lot of debt are helped a lot, the wealth are hurt, and renters, in this exercise, are pretty much unaffected: http://www.brookings.edu/~/media/research/files/papers/2015/06/01-quantitative-easing-and-inequality/doepke-et-al_inequality_final.pdf
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# ? Jul 28, 2015 05:39 |
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the politics of Baker's remarks stems from a historical jealousy for FDR being able to sell a weaker dollar as a popular public policy, whereas it is anathema as a contemporary platform. but if you observe FDR's phrasingquote:The Administration has the definite objective of raising commodity prices to such an extent that those who have borrowed money will, on the average, be able to repay that money in the same kind of dollar which they borrowed. We do not seek to let them get such a cheap dollar that they will be able to pay bock a great deal less than they borrowed. In other words, we seek to correct a wrong and not to create another wrong in the opposite direction. That is why powers are being given to the Administration to provide, if necessary, for an enlargement of credit, in order to correct the existing wrong. These powers will be used when, as, and if it may be necessary to accomplish the purpose. then you must first have a populist platform that sees itself as primarily selling commodities (as farmers) rather than consuming them. That's no longer the case, nor is it going to be the case again. short of wage-level instead of price-level targeting (which I think Scott Sumner has proposed), a weak currency is a hard political sell, even if an SVAR says it favours the bottom and middle class
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# ? Jul 28, 2015 06:30 |
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JeffersonClay posted:
I dunno, the ECB has been keeping interest rates on the floor for years now (I think it's 0.05% now) and it doesn't seem to be doing much. Then again, the ECB isn't a central bank.
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# ? Jul 28, 2015 14:13 |
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Low interest rates can easily lead to situations that gently caress the poor over even more, the best policy is to have the correct rate for economic conditions and fix poverty through more effective and direct measures like GMI or whatever. Overall the article is very naive and poorly researched.
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# ? Jul 28, 2015 15:56 |
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Current interest rate policy is also resulting in low to non-existent inflation, which (relatively) enriches net creditors at the expense of net debtors. It also makes it viable for individuals and companies to keep their holdings in cash-like instruments, whereas a moderate level of inflation would force them to seek productive investments or see their real wealth diminish. High and/or unpredictable inflation is bad for growth, but that's not necessarily true of steady, moderate inflation. I would argue there's a case to be made for interest rate policy that results in consistent 3-4% inflation as a better scenario for anyone without existing substantial wealth. AreWeDrunkYet fucked around with this message at 17:55 on Jul 28, 2015 |
# ? Jul 28, 2015 17:16 |
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Low interest rates are a way of compensating for the impossibility of getting the US Congress to approve of decent fiscal policies but as others have pointed out they are far from the perfect instrument for address inequality or poverty. Sure they increase house purchasing but they can also massively inflate housing prices and without proper regulation low interest rates can help inflate asset bubbles that eventually pop and leave the poor even worse off than before.
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# ? Jul 28, 2015 17:53 |
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Junior G-man posted:I dunno, the ECB has been keeping interest rates on the floor for years now (I think it's 0.05% now) and it doesn't seem to be doing much. ECB interest rate policy was less aggressive than the Fed during most of the downturn, particularly in the critical period immediately afterword. TROIKA CURES GREEK posted:Low interest rates can easily lead to situations that gently caress the poor over even more, the best policy is to have the correct rate for economic conditions and fix poverty through more effective and direct measures like GMI or whatever. Helsing posted:Low interest rates are a way of compensating for the impossibility of getting the US Congress to approve of decent fiscal policies but as others have pointed out they are far from the perfect instrument for address inequality or poverty. Sure they increase house purchasing but they can also massively inflate housing prices and without proper regulation low interest rates can help inflate asset bubbles that eventually pop and leave the poor even worse off than before. Dean Baker, the author of the article, predicted the housing crash remarkably accurately. He's not trying to argue that low interest rates are always good (and certainly not that a lack of regulation is good), just that they're good for the poor now. At the point they're causing significant inflation or inflating obvious asset bubbles, low rates stop being good policy.
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# ? Jul 28, 2015 18:49 |
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You want to know who benefits even more from low interest rates than the very poor? The very rich. Borrowing money from the fed for nearly free and then loaning it out 10 times over is really fun.
Rodnik fucked around with this message at 19:08 on Jul 28, 2015 |
# ? Jul 28, 2015 19:06 |
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AreWeDrunkYet posted:Current interest rate policy is also resulting in low to non-existent inflation, which (relatively) enriches net creditors at the expense of net debtors. It also makes it viable for individuals and companies to keep their holdings in cash-like instruments, whereas a moderate level of inflation would force them to seek productive investments or see their real wealth diminish. Low interest rates don't lead to low inflation though (under normal conditions). Raising them definitely won't increase inflation.
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# ? Jul 28, 2015 19:10 |
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Badger of Basra posted:Low interest rates don't lead to low inflation though (under normal conditions). Raising them definitely won't increase inflation. That's why we need negative interest rates.
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# ? Jul 28, 2015 19:12 |
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Rodnik posted:You want to know who benefits even more from low interest rates than the very poor? The very rich. Borrowing money from the fed for nearly free and then loaning it out 10 times over is really fun. The study plogo posted suggests this isn't the case. plogo posted:A summery http://www.voxeu.org/article/monetary-policy-and-inequality-us And even if it is true, opposing a policy that helps the poor because it helps the rich even more seems like cutting your nose to spite your face. If more employment and higher wages occur because buisinesses are growing, both rich and poor benefit.
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# ? Jul 28, 2015 19:23 |
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# ? Mar 28, 2024 19:10 |
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Badger of Basra posted:Low interest rates don't lead to low inflation though (under normal conditions). Raising them definitely won't increase inflation. Short of negative interest rates, there's not much the Fed can do. We need aggressive fiscal, not monetary, policy at this point. e: My original post was more of a preemptive response to the inevitable hand-wringing from Very Serious People about inflation concerns since the Fed is set to consider raising rates in the near future. AreWeDrunkYet fucked around with this message at 19:39 on Jul 28, 2015 |
# ? Jul 28, 2015 19:23 |