Something I want to address:
Lots of people are calling for direct $ transfers to households. $1000/per person, $5000/house etc.
And I've seen some people say things in response, well like "If we can give people $1,000, why not just give them $100,000 and we'd all be rich." /1
Lots of people are calling for direct $ transfers to households. $1000/per person, $5000/house etc.
And I've seen some people say things in response, well like "If we can give people $1,000, why not just give them $100,000 and we'd all be rich." /1
So here's how to think about it.
As Larry Summers put it, "economic time has been stopped, but financial time has not been stopped." /2
As Larry Summers put it, "economic time has been stopped, but financial time has not been stopped." /2
We're witnessing a virtually unprecedented shock to real economic activity. Certain sectors of the economy are getting obliterated (restaurants, traval bars) while others are just getting crushed. How many people are buying sneakers right now? /3
But financial time marches on. Every day or month, people have to pay money for things. Their rent. Their mortgage. Their insurance. Medical costs. Auto bill. They have to buy basic necessities. Food. We can all hide in our homes, but the bills keep piling up regardless. /4
Financial time and economic time usually move roughy in sync with each other. Right now they're not. Hence the need for direct cash. So that people can hide in their homes, and meet their financial obligations.
Ok, so why not give people $100,000 per month instead of $1k /5
Ok, so why not give people $100,000 per month instead of $1k /5
Because at some point, you need to restore balance between financial time and economic time. Right now we still have plenty of stuff. Basic necessities. Food etc. And if we were to take a one or two month pause on building homes or cars, it wouldn't be the end of the world /6
If everyone suddenly had $100,000 extra, then we'd be in a position where the demand from new households would absolutely swamp supply, leading to shortages and inflation. Which would get people nowhere. (Especially at a time where for health reasons, people must stay in) /7
Now is absolutely the time to GO BIG. Make sure households have plenty of money to buy all their basic necessities, rent etc. But the reductio ad absurdum fails, because by going so extreme you create all kinds of shortages an inflation/inflation that aren't an issue now. /8
Bottom line: Although many people hate to hear it, you *CAN* create wealth by printing money, because if that prevents foreclosures and evictions etc. then that's a societal plus. But ultimately we need production to come back on and get even with finance /9
And hopefully that production and normal real economic activity is something we see as soon as a couple of months from now. /End
BTW, today's newsletter wrapped some of these thoughts together. It's all about cash.
Everyone's getting on board the CASH train.
