Dougald this another great article and has provoked me to become a paid subscriber.
Direct payments to individuals make a lot of sense to me, and I would argue in favour of a universal basic income. There are a few of reasons why.
The first is that the last 50 years has seen a systematic government-abetted transfer of wealth to corporations from wage earners as wages have lagged productivity growth while profits have soared.
The second major reason to support UBI is because of the inequality generated by the inflation in asset values documented in your post. A broad segment of society has been disadvantaged by that, and it needs to be addressed.
The other major reason is the transition that is happening in the labour market, which is the displacement of human labour by AI. We are just at the beginning stages of it, where call centres are being eliminated but in a short period of time there is going to be a huge impact on the amount of work available.
Thanks. AI is a bit of a boondoggle in many ways, but the whole idea that we can't do anything about is all grounded in a false model of the economy.
The thing about UBI is that, as Michael Hudson has argued, if we bring in Basic Income or UBI without addressing the issue of excess debt, all we are doing is flowing government money right into the hands of rentiers and lenders. Yes it provides a "floor" for the economy, but it's a floor that more and more people weill find themselves falling to.
We can create jobs, and they don't have to be "make-work," nor do they have to be for government. A "job guarantee" program could provide funding to organizations that do work in the public interest, and access to capital can provide entrepreneurs and companies with capital to create and scale up.
There is a newsletter for HR folks that I get weekly, based in the US. A survey of managers reported that over a third were using AI to eliminate jobs. The AI hype around things like self driving cars is not where the edge is—it is plant identification and disease identification via real time monitoring that eliminates lab jobs in agriculture, x-ray/MRI scan analysis that eliminates technicians, legal document analysis that eliminates clerks… the accumulation of applications across the economy will be non-trivial.
They are not injecting equity dude. Get it right. It is an asset swap (as you correctly pointed out before this error). No new money is created with QE. Change in equity = 0. (Until interest is paid.) The bank reserves are account entries held at the central bank. They do not "provide liquidity" in a hard sense (esp. when the floor rate is zero, which it could be by a CB committee vote), and since the central bank could just change policy at any time and allow member banks to run an overdraft, which is functionally the same as a loan. Then payments clearing is unimpeded and this whole fake mirage of "reserves" being actual stores of anything useful is vamoosed. (They are a store of information. So useful for accounting fraud detection.)
What is true is that with rate floor hikes the FED were doling out basic income to people who already had money. That interest-income was a stimulus. All to the exact wrong end of town.
Central banks do create new money with QE. It is not just an asset swap, when the value of the bank's assets are dropping going down. It is an asset purchase and as as Paul Beaudry said, they bid up the price. They are paying more than the asset is worth, because some of those assets in bank reserves may be mortgage-backed securities, but also to send the message, to financial markets not to panic, they won't fail because they'll be bailed out.
One of the reasons the contagion of the global financial crisis occurred was because European banks had bad investments in their reserves, including U.S. mortgage bonds, and for real estate debt in Portugal, Italy, Ireland, Greece and Spain. When the GFC hit, those mortgage bonds shrank the banks' reserves, while at the same time their mortgage holders were defaulting, so the banks liabilities exceeded its assets, and when a bank does that it goes broke. The branding of assets as "toxic" made them sound like something it was important for banks to get rid of. Many of those assets were worthless. They were investments that hadn't panned out, and all the years of the bets paying off, all of a sudden, every single hand the market is losing more and more money. So central banks may be swapping money for something that is worthless. That is absolutely 100% money printing, and the reason it brings the interest rate down is because money is a price on risk and uncertainty. The central bank is intervening to keep the price of assets from dropping, and indicating it likely will in the future, so that the bank can keep paying each other, and that they can expand lending, because the central bank is supporting their reserves.
The entire financial system is informational. Laws are informational. Rules are informational. Money is informational. It is backed by its ability to get other people to do stuff, or get you something you don't have, and the link between all that information and the real world only goes through human beings.
Dougald this another great article and has provoked me to become a paid subscriber.
Direct payments to individuals make a lot of sense to me, and I would argue in favour of a universal basic income. There are a few of reasons why.
The first is that the last 50 years has seen a systematic government-abetted transfer of wealth to corporations from wage earners as wages have lagged productivity growth while profits have soared.
The second major reason to support UBI is because of the inequality generated by the inflation in asset values documented in your post. A broad segment of society has been disadvantaged by that, and it needs to be addressed.
The other major reason is the transition that is happening in the labour market, which is the displacement of human labour by AI. We are just at the beginning stages of it, where call centres are being eliminated but in a short period of time there is going to be a huge impact on the amount of work available.
Thanks. AI is a bit of a boondoggle in many ways, but the whole idea that we can't do anything about is all grounded in a false model of the economy.
The thing about UBI is that, as Michael Hudson has argued, if we bring in Basic Income or UBI without addressing the issue of excess debt, all we are doing is flowing government money right into the hands of rentiers and lenders. Yes it provides a "floor" for the economy, but it's a floor that more and more people weill find themselves falling to.
We can create jobs, and they don't have to be "make-work," nor do they have to be for government. A "job guarantee" program could provide funding to organizations that do work in the public interest, and access to capital can provide entrepreneurs and companies with capital to create and scale up.
There is a newsletter for HR folks that I get weekly, based in the US. A survey of managers reported that over a third were using AI to eliminate jobs. The AI hype around things like self driving cars is not where the edge is—it is plant identification and disease identification via real time monitoring that eliminates lab jobs in agriculture, x-ray/MRI scan analysis that eliminates technicians, legal document analysis that eliminates clerks… the accumulation of applications across the economy will be non-trivial.
They are not injecting equity dude. Get it right. It is an asset swap (as you correctly pointed out before this error). No new money is created with QE. Change in equity = 0. (Until interest is paid.) The bank reserves are account entries held at the central bank. They do not "provide liquidity" in a hard sense (esp. when the floor rate is zero, which it could be by a CB committee vote), and since the central bank could just change policy at any time and allow member banks to run an overdraft, which is functionally the same as a loan. Then payments clearing is unimpeded and this whole fake mirage of "reserves" being actual stores of anything useful is vamoosed. (They are a store of information. So useful for accounting fraud detection.)
What is true is that with rate floor hikes the FED were doling out basic income to people who already had money. That interest-income was a stimulus. All to the exact wrong end of town.
Central banks do create new money with QE. It is not just an asset swap, when the value of the bank's assets are dropping going down. It is an asset purchase and as as Paul Beaudry said, they bid up the price. They are paying more than the asset is worth, because some of those assets in bank reserves may be mortgage-backed securities, but also to send the message, to financial markets not to panic, they won't fail because they'll be bailed out.
One of the reasons the contagion of the global financial crisis occurred was because European banks had bad investments in their reserves, including U.S. mortgage bonds, and for real estate debt in Portugal, Italy, Ireland, Greece and Spain. When the GFC hit, those mortgage bonds shrank the banks' reserves, while at the same time their mortgage holders were defaulting, so the banks liabilities exceeded its assets, and when a bank does that it goes broke. The branding of assets as "toxic" made them sound like something it was important for banks to get rid of. Many of those assets were worthless. They were investments that hadn't panned out, and all the years of the bets paying off, all of a sudden, every single hand the market is losing more and more money. So central banks may be swapping money for something that is worthless. That is absolutely 100% money printing, and the reason it brings the interest rate down is because money is a price on risk and uncertainty. The central bank is intervening to keep the price of assets from dropping, and indicating it likely will in the future, so that the bank can keep paying each other, and that they can expand lending, because the central bank is supporting their reserves.
The entire financial system is informational. Laws are informational. Rules are informational. Money is informational. It is backed by its ability to get other people to do stuff, or get you something you don't have, and the link between all that information and the real world only goes through human beings.