Price Effects of Quantitative Easing

I’m not an economist, but I do know a few things about economics, I think. Anyone that specializes in business principles knows something about economics, particularly micro-economics. I was on a family picnic yesterday, and while being lazy in the park, I was thinking about the negative interest rates now seen in some places. For example, you can get a long-term mortgage in Europe that has you paying back less money than you borrowed. How is that possible? Probably because the supply of lendable cash exceeds the demand for it. With year after year of almost runaway quantitative easing, econo-speak for creating money, there is a surplus of money around.

Initially, the new money wasn’t going anywhere. It was parked and not lent, but more and more of it has found its way into consumer and business loans, with the result that interest rates have declined.

There is potentially another result too. Lending that money puts the money into hands that will spend it. The effect should be an increase in the velocity of money, with resulting increases in prices, unless production of desired goods and services grows more quickly, something that is unlikely to happen.

There are economists and politicians that regard humans mainly as consumers --- mouths to feed. They miss the fact that humans create wealth. Adding to a population of people should increase the wealth available to that population, unless the additions are uneducated, dull of thinking and lazy, not the norm with most people. Nonetheless, the increase in wealth that can be occasioned by a growing population cannot keep up with the rate of increase in money available to that population when money is multiplying geometrically and is being circulated.

We could easily see a major divergence between price inflation and interest rates, contrary to the old wisdom that interest rates parallel inflation rates.

Gilder on A.I.

George Gilder presents an argument about A.I. that corresponds with what I posted at https://gordonfeil.blogspot.com/2019/06/ai-human.html. His point is that “replication is not consciousness.” He goes on to address the Elon Musk’s contention that A.I. will render a lot of people unemployable. Gilder states that Musk “is a fool in many ways” and then says that increasing our productive capacity, which is what A.I. does, is only good and frees up people for higher functioning work. In general, I agree, and have often said so. The problem is that many people are not capable of higher functionality. When the American army has determined that nobody with an IQ of less than 83 is to be inducted because there isn’t any way such a person could add value to the army, what does that tell you? I mean, if one in eight people are of such low potential that there is not even one task in the army that they could be trained to do effectively, what does Gilder think they will do when A.I. takes over whatever they are now doing? He refers back to the Luddites, which I have also done on occasion, to show the folly of the Musk’s contention, but I think Musk has a point.

I suppose that people who are displaced by A.I. and who do not have the capacity to learn advanced skills, could do domestic work for those who do. Having an abundance of personal masseurs and in-home cooks might make their employers more productive.

There is a huge social problem over the horizon….

Tit for Tat

It appears that Jamal Khashoggi (see https://gordonfeil.blogspot.com/2018/10/saudi-crown-prince-on-skids.html) is dead. The Saudis have said something about an “interrogation gone wrong.” How is it possible that you walk into your country’s consulate in a foreign country to renew your passport and you die from the interrogation? What a cruel system which has no respect for human life. I cannot believe that ever happening at a consulate of a modern nominally Christian democracy. But, of course, Saudi Arabia is none of that description.

So now President Trump is threatening reprisals, and from the Saudis is the retort that the world will be pushed to economic disaster if that happens, no doubt an implied threat of oil production cutbacks. The Saudis can try that, but this is not 1973. The industry is very different now. There are the Canadian tar sands, the American fracking industry, and Russian production --- lots of oil to be sold at the high prices that might initially result from a Saudi cutback. I suspect that in the end, the Saudis would only be reducing their own income without accomplishing anything.

Let’s hope so. There is nothing about Saudi conduct that deserves a rich reward methinks.