Most of the US population is out of buying power. The savings rate is near zero. More than half the population couldn't come up with $400 in an emergency. The US economy is demand-limited, not production-limited
They've been doing that since 2009 (and arguably before).
The problem is that the money is distributed through the broken financial system which isn't distributing the money through the entire economy efficiently. This is why we currently have local inflation in San Fransisco and New York, and local deflation in Mississippi and Nebraska.
To use a hydraulic analogy, the central bankers have two things: control of a spigot, and an average water pressure gauge. The gauge shows decent water pressure throughout the pipes. But some parts of the system have very high water pressure, and in other parts the pipes are almost dry. Someone needs to solve the real problem, which is that the pipes are blocked.
Personally, I think the issue has been caused at least in part by the confluence of two factors: consolidation in the retail banking industry, and the growth of venture capital (which tends to predominantly fund ventures in geographically limited areas). This is why people with just an app idea could get plenty of funding in certain regions, but getting a small business loan in fly-over country requires showing 5 years of profitability. The risk profile of funding is very geographically distorted, with most of the country dealing with risk-averse funding and too many risk-takers concentrated in certain cities.
Your analogy of the pipes seems spot on. I’m currently selling an underwater condo in Norfolk, VA for 40% less than I bought it ten yours ago while I was in the military. Now, I’m working in Silicon Valley where no one can afford a house, where friends and family’s houses have doubled in price over the same period. It is two different worlds. One has Trump bumper stickers, the other Hillary. One never recovered from 2008, the other is doing great.
More than broken pipes though, I feel this is the natural tendency of easy money. As the central banks hand out money, they hand it to the well connected. This money is then misallocated since it wasn’t distributed by the market but by fiat and this is the underlying cause of the decline in productivity. Raising rates, paying off debt, and less government micromanaging, while painful in the short term, is required in the long term for stable, efficient markets.
A land value tax would help to start fixing the high house prices in Silicon Valley.
(Directly, it would decrease the capitalized price of land that the house sits on. More indirectly, it would decrease incentives for NIMBYs, thus helping with more supply of housing in the longer run.)
As long as CPI (or similar measure of inflation that consumers see) doesn't shoot up too much, they can crank up aggregate demand by printing more money without annoying consumers.
What do you mean by `the problem'? If the problem is not enough aggregate demand (like the original comment suggested), printing money is exactly what they should be doing.
I suppose this discussion would depend upon our economic ideology differences. Yes, there are differences in ideology and we can each prove our ideology is right mathematically, which is why economics is the dismal science.
The central bank is printing tons of money and continuously pumping it into the economy. Americans don't feel the effects of that as everyone uses American dollars. So it's almost as if the central bank is creating gold, which is suppose to be a finite quantity. It does nothing.
At the end of the day corporations must borrow that money and corporations are sitting on tons of their own money, they don't want more money to hire employees. They don't know what to do with the money they have. They can make goods, but no one will buy them at the levels of profit they need. So they just sit on the money.
When the fact is the economy is efficient and they should be making goods even if they are not profitable, i.e. at cost... just to create employment, give people money, with which they can buy things. But that's not how the profit motive works. The management consultants and management theory have pushed this idea in their heads, and they are sticking to it, that they need to create profit always. Shareholders demand it! But profit is hard to come buy these days. So they sit around and do nothing instead. Jobs don't get created, people are starved for money and that vicious cycle ensues and consumption goes down.
The Central Banks are simply not creating enough inflation, if demand is a problem.
In the most extreme case, the central bank can either just buy any assets under the sun, or start dropping cash from helicopters (slightly more realistically: give every citizen a bunch of money).
In any case, have you heard of nominal income level targeting?
Ie the central bank instead of targeting inflation, targets what's more important: the aggregate income of all workers. (Targeting Gross Domestic Income instead of just the wage share is also possible.)
They set a target of eg 5% nominal growth a year, and announce it. Then do everything necessary to make it happen.
If the post-2008 world isn't proof enough that printing money does not automatically increase aggregate demand, I don't know what would count as proof in Econ.
By the way, I'm not saying it can increase AD, just that it does not automatically does so, for some reason that is widespread now.
The central bank can always inflate. If printing lots of money isn't enough, they just need to print some more money.
And, if they manage to buy all of government debt without creating any inflation, that's awesome on some level as well: they just managed to monetize all the public debt without any adverse side effects. (And for sovereign debt, monetization is about as good as eliminating it.)
Well the point of that is to affect NPV of money right and force investment. And corporations go meh, too much risk. I think that's what's happening. I think even the negative interest rate isn't going to make them budge because the profit margins are razor thin, and even if you make something doesn't mean it will all not be wasted. The economy is saturated and the corps don't know how to make profit in it so they rather sit around and do nothing, and let China and other countries produce everything and then try to be the middle man or something as such with minimal risk and investment.
> When the fact is the economy is efficient and they should be making goods even if they are not profitable, i.e. at cost... just to create employment, give people money, with which they can buy things.
People already have jobs, they have low-paying jobs. When someone is already spending every dollar they get, there is no way to make them spend more. All this talk of investment, inflation, job creation, it's missing the basic point that to get businesses to make more goods you first need someone able to buy them, and that in turn means getting them out of low-paying jobs and into high-paying jobs.
The way I see it, the problem is a skills gap. To get someone in a higher-paying job, they need skills that are more in demand. If you want to understand why people are stuck in low-paying jobs, look no further than a failed education system.
And yet in the market for skills provision, we see high prices, nondischargeable debt ... and low return for those supposedly enskilled.
I'm talking of higher education, of course.
My thought for some time has been that we cannot educate ourselves out of this mess. Robert Gordon's The Rise and Fall of American Growth both discounts education as a positive factor and sees debt and access as negatives.
The central bank is printing tons of money and continuously pumping it into the economy.
The Federal Reserve stopped its quantitative easing back in late 2014. It's true the additional money supply is still out there, but it hasn't added any more in the last 1.5+ years.
Most of the US population is out of buying power. The savings rate is near zero. More than half the population couldn't come up with $400 in an emergency. The US economy is demand-limited, not production-limited