[ExI] Summer weather and COVID-19

[Dan TheBookMan]

On Sunday, May 24, 2020, 06:04:09 PM UTC, John Clark via extropy-chat <extropy-chat at lists.extropy.org> wrote: 
> You're worrying about the wrong thing, there has never been a time in American
> history when interest rates were lower or inflation was less than right now.

I think a big problem with this discussion is painting the effects of inflation and of deficit spending -- two separate things even if they often go together -- as either neutral (or good?) or leading to the Earth falling into the Sun. In my view, inflation and deficit spending both have deleterious effects, but that doesn't mean either will lead to society collapsing. I think of them more like having a bad diet or binge drinking. It's like the first time you eat gas station nachos is going to kill you, but it's not really go for you and the more you do it, all else being equal, the worse off you'll be.

But usually all else isn't equal. Think of the documentary Super Size Me. The director/star goes on a McDonald's diet after basically eating healthy and having an active life style. But he doesn't just go on a McDonald's diet, he stops exercising. So, naturally, he puts on weight; I believe about 30 pounds in a month. Imagine he started the McDonald's diet but increased his workout. Probably not healthy, but he might have put on far less weight.

> Herbert Hoover thought as you do and figured that the way to deal with the
> economic difficulties of 1929 was to increase  tariffs and drastically cut
> government spending, and he succeeded in turning a garden variety recession
> into a worldwide Great Depression.

Point of fact, Hoover didn't cut spending. In fact, long before he became president, he was famous for being a Progressive and ran a quite activist Department of Commerce under both Harding and Coolidge. He was quite ready to throw money at any problem. Think of the Reconstruction Finance Corporation. Add to this, FDR ran in 1932 saying he would balance the budget.

Hoover started to run deficits after the 1920s had been basically years of budget surpluses. He also signed into law a tax to chop away at the deficit, but that was in 1932 and he was on the way out. The tax increase didn't, by the way, shrink the deficit.

Hoover had his Square Deal which was the template, in a way, for the New Deal: vast interventions and an attempt to mobilize the economy for battle (against the downturn -- not for an actual war). See:

https://www.history.com/news/great-depression-herbert-hoover-new-deal

Now, coming to what made the Great Depression great, it wasn't cuts in government spending. Surely, the tariffs didn't help things, though one might make a case that it was his heavy-handed interference, which was unprecedented in previous recessions, that prolonged the recession. He worked to keep up salaries and prices, which meant the economy had a harder time adjusting. (I'm working off the view that what needs to happen to shorten any recession is for adjustments to be made as quickly as possible rather than keep prior arrangements -- prices, salaries, investments -- going when they don't make sense.)

> And even in the worse inflation in American history it was less than 20%, I really
>   think we can make wheelbarrows fast enough to keep up with that, although if
> your suggestion is followed the uprising from millions of penyless unemployed
> may cause a shortage of guillotines.

A big problem with inflation is it robs those furthest from where the inflated money enters the system the most and these are usually the most vulnerable people: those on pensions and those with low-paying fixed income jobs. This leads to many of them being penniless or the the equivalent.

Inflation also distorts the structure of production, making for unsustainable projects. Again, this doesn't mean the Earth falls into the Sun and all life is extinguished. It means that there's more waste in an economy than there would be otherwise. It also drives the business cycle, so every now and then unsustainable projects collapse and all the monies invested are basically wasted. There's an opportunity cost here: investments that went into those projects likely would have gone into better, sustainable projects. (This is over and over the background rate of failure for projects. Think of inflation like adding fog into a harbor where no one realizes it's foggy: sometimes ships collide despite fog (the background rate), but fog (without precautions) leads to even more collisions, even more catastrophic ones.)

Your other argument on deficits is similar: yeah, deficits, even big ones, don't end in the Earth opening up and swallowing civilization, but they lead to a less effective use of resources and less curbing of government interventions (since deficits are usually much more popular than raising taxes). Think of this as adding weights onto a runner's legs. Sure, the runner can still move, but now she has to run a little less quickly, she tires faster, and needs more calories to achieve the same results.

By the way, there's basically four ways governments can be funded: taxes, deficits, inflation, and confiscation. The last is usually only used during extreme emergencies and doesn't make any friends. So, typically, most national governments bounce around between raising taxes (which is unpopular with the taxed because they can immediately feel the pain, but allows them to plan and seems to distort the economy less because of this), deficits (which pushes off raising taxes, but because of this also leads to more uncertainty: will and how ill the deficit be serviced), and inflation (which tends to cause business cycles and is overall hard to predict who will end up paying for its results, but has the immediate result of a boom).

It's funny you mention the guillotine for two reasons. One, inflation and deficits played a role in the French Revolution. On the latter, it's because of huge deficits that Louis XVI called the Estates-General. And the rest is history.

Two, in other posts, you've often used fear of the masses rising up and revolting. So I wonder if you identify more with the ruling elite than with the masses.

Regards,

Dan
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