Suppose there were a button, which if you pushed it, you died.
Would it be appropriate to tell people not to push the button?
No, because you’d be supporting button death culture. It is oppressive to shame button pushers or be buttonpushophobic.
Would it be appropriate to say that the button pusher’s fault that they died?
No, because that’s victim blaming. It doesn’t matter what someone could have done to prevent something bad from happening, it is inappropriate to imply that people have any control whatsoever over their own fates.
Would it be appropriate to build a wall around the button to prevent people from pushing the button?
No, because we should instead teach the button that killing is wrong. We should write op-eds in newspapers about how much better the world would be without the button. We should hope and hope and hope that the button goes away, but never for a second consider getting rid the death button directly.
Perhaps the best response of all would be to make up stories of people dying because of the button so we can raise button death awareness. A Facebook infographic would also do the trick.
I haven’t been writing about macro lately, and it’s partially because I don’t feel like I have much more to say that I haven’t already said and partially because of the frustration I have with macroeconomic discourse. I think the reason for this is the way macroeconomists talk about monetary policy, in particular how policy is described in terms of policy inputs (interest rates, quantity of money added) rather than desired outcomes (inflation, unemployment, NGDP).
People get confused and think that interest rates have a direct effect, or that a particular interest rate means something in and of itself. An interest rate is merely a communication device that the central bank uses to let the financial sector know how much they intend to print in the future. Low interest rates matter by the degree to which they signal more money printing in the future. A zero interest rate makes it hard for the Fed to say that they will print more in the future, but only because they are reluctant to use different language to describe their intentions.
An interest rate alone isn’t necessary or sufficient for a certain level of inflation. If I told you the interest rate was 5%, you couldn’t tell me what inflation rate that implied. 5% interest is compatible with 5% deflation, 5% inflation, or 50% inflation. Economists describe interest rate targeting like balancing a pole:
Targeting inflation by controlling an interest rate instrument is like balancing a pole upright in the palm of your hand. The position of the top of the pole represents inflation, and the position of the bottom of the pole (the palm of your hand) represents the interest rate.
First it’s an unstable equilibrium. If you keep the palm of your hand fixed, the pole will fall over. You have to keep moving your hand to keep the pole upright.
Second, if you want the top of the pole (inflation) to move north, you have to first move your hand south, so the pole starts to lean north. You then need to move your hand north, to stop the pole falling over.
If it’s a long heavy pole, so only leans slowly (inflation inertia), and if you can move quickly, and anticipate gusts of wind, or observe quickly which way the pole is leaning, you can keep it upright, and keep the top of the pole roughly where you want it to be.
But there’s a wall to your south which you can’t go beyond (the zero interest floor). And your hand is up against that wall, and yet the pole is leaning to the south. You want to move your hand south, to start the top of the pole moving north, but you can’t.
– Nick Rowe
If the Fed sets interest rates above the natural rate, inflation will accelerate downwards and vice versa. But the only way we can determine the natural rate is by watching the market’s response to the Fed’s actions. Interest rate targeting is an inherently unstable, backwards looking, and reactive policy.
Interest rate targeting is Unnecessary
Imagine a world without loans. Everyone just makes stuff and sells it, and uses that money to buy what they need. You can still have corporations, government, welfare, and all the other stuff, just no debt. There’s still money, recessions, and a price level. Instead of government borrowing by issuing debt with an interest rate and then having the monetary authority monetize that debt by buying it with newly printed currency, if the central bank wanted to inflate, they’d just print money to finance government spending directly. The increased money supply would offset taxes.
You can still have monetary policy without government debt and without interest rates. If the financial sector saw the central bank printing tons of money, asset prices would increase and the rate of inflation would increase. Even if you add loans to this world, there’s nothing special about interest rates that implies that the central bank needs to control their price. Supply and demand for credit can determine interest rates, just like they determine every other market.
Interest rates are Confusing
“All propositions about real interest rates are wrong.” – Tyler Cowen’s Third Law
r = i + π
where r = the real interest rate, i = nominal interest rate, and π = inflation
Each of these terms is problematic.
i: There are as many interest rates as there are loans. They vary by term duration, risk (there are various types of risk), and liquidity. The Fed usually limits their purchases to short term government bonds, but that’s not always the case.
π: There are as many inflations as there are people. Inflation is the change in prices of a basket of goods over time, but it is extremely subjective. New goods are added every year, goods leave the market every year, some goods are compliments to others and their prices go in opposite directions. The Bureau of Labor Statistics do their best, but inflation is literally impossible to calculate.
Furthermore, the inflation that matters is the expected inflation at the time the loan is made. Lenders are less willing to lend at a given interest rate if they expect high inflation in the future (preferring to buy durable goods or something indexed) and borrowers are more willing to borrow at a given interest if they expect high inflation, since they know they will be able to pay back the loan for a lower real cost. Not only does expected inflation mismatch actual inflation, but people have differing beliefs on what inflation will be over various time horizons.
r: Being the summation of two incalculable things doesn’t exactly lend itself to being easy to figure out. When someone makes a loan, they are estimating that the subjective value of the stuff they could buy with the money today is less (whatever that means) than the value of the stuff they expect to get with the money they expect to get in the future when the loan is paid off. Time preference is both unstable and immeasurable. You’re basically throwing a bunch of incalculable subjective stuff into one big equation and hoping a simple number is going to pop out. There’s no such thing as “the” real interest rate, and even if there were, it would not be observable by mortals.
If economists get tripped up by interest rate targeting, imagine how confused politicians are. All through 2009, if you turned on CSPAN you’d hear speeches about how low interest rates meant that hyperinflation was right around the corner, when the market was expecting deflation. Economists did not do their duty to tell journalists and politicians to calm down and not worry because they didn’t understand how it was working themselves! Economic theory is like eyeglasses that let you see the world more clearly. Not being able to tell whether there will be deflation or hyperinflation suggests that maybe your theory isn’t helping you see the world at all.
No one cares about it
If I told you interest rates changed from 5% to 6%, …so what? If inflation and unemployment are low, no one cares. People care about stuff that affects them. They get upset when they lose their job, or their wages go down, or the price of stuff they buy goes up. If the Fed Funds rate needs to be 20% or -10% to make that happen, no one will care other than maybe a few bankers. Why would you pick a target to base an entire economy around that only a tiny number of people care about? Why not just target something important and let supply and demand determine the interest rate? Which brings us to our next point.
Interest rates are not controllable by the central bank
Interest rates are determined by supply and demand, no matter what delusions of grandeur the central bankers may have to the contrary. Using basic price theory, if a supplier is small relative to the total market, they can’t have a large impact on the price unless price elasticity of supply is extremely low. The total value of the global capital market is around $100 trillion. The Fed’s balance sheet is around $5 trillion, while not insubstantial, is not enough to exert control over interest rates. This was even more true in the past, as the Fed’s balance sheet is at historic highs and normally sits much lower. Normally, the Fed only accounts for about 1% of the world capital market. Furthermore, the argument that the Fed can influence the Fed Funds rate, even if it can’t influence overall interest rates only works if the Fed Funds market were segmented. It’s not, so they can’t.
In the short run, the quantity of investment doesn’t respond much to changes in interest rates, so the Fed can affect interest rates. However, what is important for monetary policy is not the interest rate in a week, or even in a month, but how policy is conducted over the course of a year. The primary way the Fed changes interest rates in the medium to long run is by changing inflation and influencing rates through the Fisher equation.
ZLB is mischievous
Otherwise intelligent people are reduces to incoherent babbling when confronted by 0% interest rates. Under interest rate targeting, if short term bonds are at 0% and the central bank conducts policy by exchanging reserves which yield 0% for bonds, they are just replacing one highly liquid 0% asset with another and thus won’t have an impact on inflation, lending, spending, or anything else.
First, there’s nothing preventing the central bank from targeting an interest rate below 0, as several central banks currently are. Inexplicably, some economists pretend like it is impossible despite the fact that many people are actually doing it. It’s like we’re in a world where physics are debating whether heavier than air flying machines are possible when there are airplanes overhead.
Secondly, because of interest on reserves, the Fed is actually replacing a 0% yielding asset with an asset that yields more than 0%, so of course it’s contractionary.
Third, the Fed has had no trouble actually conducting policy. If the zero lower bound were really such a hinderance to conducting monetary policy, why have the policy outcomes been more stable at 0% than they were when interest rates were positive? Wouldn’t one expect policy to become more unstable?
Fourth, if the liquidity trap were a real thing, we could abolish the national debt and fund government spending by printing money, and still have 0% inflation, so it would be the best thing ever to happen to the government.
Fifth, cash is inherently limited/costly to hold in large quantities, and there are legal reasons to hold bonds above and beyond their yield. Despite the fact that they yield the same, they vary in liquidity, so converting bonds to cash can affect spending.
Sixth, and finally, what is called a liquidity trap or zero lower bound basically never is. While interest rates are low, they are not 0 at all maturity dates. There is still wiggle room, however slight. When 30 year Treasuries yield 0, then there will be some justification to talk about liquidity traps, but not before.
The whole idea of a zero lower bound is a steaming pile of nonsense. But it only could have arisen because of interest rate targeting. If the central bank simply targeted something else, no one would have ever thought of it.
Interest rate is not a target (since it can’t be controlled), and it’s not a goal (since no one cares what it is), so what is it? It’s an instrument and a communication device, and it’s bad at both those jobs. It fails as an instrument because it’s backwards looking, unstable, and doesn’t work at the zero lower bound. It fails as a signal of central banker’s intent because no one understands it.
So why not just target an outcome variable directly? If you’re below the target, print more money. If you’re above the target, print less. Done. I’ve even come up with a Fed announcement template so they can clearly state their intentions:
I’m not sure what exactly central banks did pre-fiat currency. If you can’t control the quantity of money, you can’t really control inflation or exchange rates. Maybe you can fiddle with reserve requirements, but there’s no way you’d have enough resources to change interest rates for anything more than a trivially short duration. If any economic historians reading this could comment on some sources about the 1920s monetary policy, I’d appreciate it.
Chroma is a durable elemental based warframe whose abilities change based on the energy color used.
Heat: red, magenta, brown, orange and bright yellow
Electric: blue and purple
Toxic: green, lime, teal and dark yellow
Cold: white, grey, black, and some faded colors
The Ice Elemental Ward/Vex Armor (EW/VA) build is the strongest against Grineer, Corpus, and in the Void. The other major build is the Fire/Effigy build, which is really good against Infested.
Aura: V: Rifle amp for EW/VA and Steel Charge for Effigy
Spectral Scream does a moderate amount of AOE damage over a small area, however you can’t use any weapons while using it. At low levels, it’s probably fine, but it will quickly get outclassed if you have a good weapon.
Elemental Ward creates and aura with various buffs depending on the element used:
Heat: Buffs health, deals damage
Electric: Buffs shields, Reflects damage back to enemies as lightning
Toxin: Buffs reload speed and holster rate, does AOE Toxin Damage
Cold: Buffs armor, reflects damage and reduces attacker’s movement speed and attack rate. Melee damage is not reflected.
This power is quite complicated, so I’d recommend going to the wiki and reading that if you plan on using Chroma a lot.
Vex Armor: Increases Chroma’s armor when shields are hit and damage when health is hit. Because of this power, many people don’t run Redirection.
Effigy: Creates a flying copy of Chroma that goes around Spectral Screaming everything.
Polarities: V and -. For V, use Transient Fortitude for VA/EW build or Blind Rage for the Effigy build, and Streamline on the – polarity.
Power Strength: Intensify, Transient Fortitude, Blind Rage (Effigy),
Duration: (Primed) Continuity, Narrow Minded (both only for EW/VA armor build)
Efficiency: Streamline, (Fleeting Expertise Effigy build only)
Redirection (Effigy), or Vigor (EW/VA)
You can replace Streamline with Flow, or Continuity with Constitution if you like.
Afterburn – Adds additional damage upon ability deactivation. Not particularly useful.
Vexing Retaliation – Taking shield damage will trigger a puncture proc on nearby enemies, taking health damage will trigger a blast proc. If you don’t some of the rarer mods in the build above, it might be worth playing with. I don’t think I’ll use it.
Utility Mods: Elementally appropriate parkour mod.
My Other Guides:
Ash Build Guide
Banshee Build Guide
Frost Build Guide
Update 17 added Exilus Adapters, which allow Warframes to add an additional “Exilus” or Utility mod to their Warframe. This mod still uses up mod points, but it does not use a slot, allowing formaed Warframes to gain more versatility in their builds. Exilus Adapters are quite expensive to build, but they can also be bought for 20 Platinum.
Movement mods (Lightning Dash, for example): These increases the speed of Bullet Jump, lengthens the duration of Aim Glide and Wall Latching, and adds damage of various types to Bullet Jump.
Patagium – increases the duration of Aim Glide and Wall Grab by 15% per rank.
Mobilize – increases Bullet Jump speed, and the duration of Aim Glide and Wall Latch.
Aviator – Only good for Zephyr, or maybe Valkyr
Handspring – Good for any close range Warframe without knockback resistence. I use it for Nekros due to his squishiness.
Sure Footed – Handspring is better.
Shock Absorbers – Handspring is better.
Rush – Good for any slow Warframe.
Master Thief – If you’re going to do container rushes for resources, this isn’t bad, but honestly since Nekros came out, Desecrate was the better option for grinding materials.
Heavy Impact – Useful for Excalibur, Valkyr, and Zephyr
Enemy Sense – Useful for Warframes with good AOE abilities.
Thief’s Wit – Great for Syndicate missions.
Maglev – Rush is better
I’m really not sure how good the new mods are. If you’ve played with them and like them/hate them, please let everyone know in the comments.
Basic income/guaranteed income/universal income is the idea that instead of a myriad of welfare programs, why not just give everyone a fixed amount. Theoretically, you could end poverty for an entire country permanently without any of the distorting incentives, highly inefficient bureaucracy, paternalism, and people falling through the cracks of the current system. But how big could such a system be?
At the current levels of technology, the maximum amount of taxes per person seems to be around 15k per person. If a country has a very high tax rate, their economy will be smaller because of deadweight loss. The Laffer curve has been unfortunately politicized, but the fundamental point of high taxes causing deadweight losses is indisputable, the only question is what the exact point of maximum taxation is. Let’s say it’s 50% for the sake of argument, with a note that it is a controversial and disputed number.
So, let’s assume that at a 50% tax rate, income collected will be $15k per person, at 30% tax rate income collected will be $13k per person.
$15k is the full time minimum wage of $7.25.
$31,200 is full time earnings (2080 hours per year) at $15 per hour.
Poverty line for single households is $11,770 and for families of four is $24,250 ($6,062.25 per person).
Median personal income in the U.S. is $24,062.
Mean personal income is around $40k (sources differ).
The higher the basic income is, the fewer people will work. The people who leave the labor market will tend to be those with low wages. If you make 100k, you’re not going to quit to get a 10k basic income, but if you are working your butt off at minimum wage, it’s going to be a lot more tempting. When a high productivity worker leaves the economy, GDP and taxes collected drop a lot. When a low productivity worker leaves, they don’t move much. Thus, the higher the basic income is, the more the overall economy will drop.
Having said that, it is somewhat plausible that a low basic income may in fact raise GDP. If you think of labor markets as primarily matching markets where connecting workers to firms is difficult, having a basic income may allow workers to spend more time searching and even acquiring job skills before going into the labor market. If a basic income displaces other welfare and the minimum wage, firms will be much more eager to hire at the bottom of the labor market and thus low skill jobs will be more available. Remember that currently, the limit is firms hiring, not workers willing to work, and a basic income would flip that. It’s a balancing act, and there is no exactly right answer.
America already has a huge national debt. Adding another jumbo program on top of our already huge government without serious cutbacks is not a sane option, even with substantially higher taxes. Maybe we’d be able to increase total tax revenue by 10% or so, but that’s really about all you can expect.
Welfare is already 63% of the federal budget, a large chunk of which is health care related. A basic income would almost require serious health care reform. America spends more than any other country on health care and our health care outcomes are mediocre. I am a Hansonian concerning health care policy, but I realize that this is an extremely uncommon view. But even if you accept the dominant paradigm of medicine, America has some pretty terrible regulations which basic microeconomics analysis would suggest have huge deadweight losses to society. On the other hand, the reason why health care policy is so bad is because its stuck in a Olsonian collective action trap, where entrenched firms use their market power to collect rents and then channel those rents into securing political power which they then use to get more rents. The only plausible way out is a radical disruption of the whole sector by medical AI and a Silicon Valley style creative disruption of the entire industry. I don’t think that a standard political reform is possible of the health care sector, regardless of the will of the voters. In conclusion, let’s say for now, health care policy isn’t going anywhere and there won’t be any funds to allocate away from that.
Military is pretty much the only significant, non-transfer area of government expenditure. The U.S. spends a tremendous amount on the military in comparison to other countries, and although Americans enjoy our global domination and continual micro-wars, a large new welfare program would have to displace some military spending. If the U.S. shifted to a purely defensive military stance, we could cut spending by at least half, so let’s say an additional 10% of the government budget can be harvested from military cuts.
Social security. Ahh, the elephant in the room of welfare. It’s about 25% of government spending and it dwarfs all other non-health care related welfare. If you’re giving everyone a basic income, do you really need to have another program just for old people? Already, the whole thing will probably collapse in the next 20 years. You don’t really need disability insurance with a basic income, especially if that basic income would be higher than disability would give people anyway. The maximum SSI payments are around $700 now, which is $8,400 per year.
That seems low to me, but if that really is the amounts people are getting from the SSA, as long as the basic income is comparable to that, there shouldn’t be much political opposition to rolling the SSA and basic income together. Let’s say we can get 20% of government spending by eliminating overlap with the SSA.
High End estimate:
With massive health care reform and the elimination of separate governmental health benefits (medicare, medicaid, etc), and higher taxes, you could get that up to 15k x 60% = $9,000 per person per year. If the additional $3k would be sufficient to pay for the marginal health benefits, that might be a better option for people. In the scenario of radical reform and the use of AI doctors, personally tailored medicine with DNA analysis, and other sci-fish technologies, I could see that happening, but that’s just speculation.
Some health care reform, current taxes, limited SSA cutbacks
13k x 40% (10% military cutbacks, 10% SSA cutbacks, 10% other welfare cutbacks, 10% health care reform) = $433 per month
With full SSA elimination, some tax increases, and/or more health care cutbacks, you could get it to $500 per month.
People could live on $500 a month, especially if they worked together with others to minimize your living expenses. While it would be half the level required to end poverty for individuals, it would be enough to end poverty for families of 4 or more. The $500 per month amount would only be a third of what an individual could make working 40 hours at the current minimum wage of $7.25, so labor market displacement would probably be minimal.
Low End Estimate:
Without welfare replacement, with higher taxes, without medical reform, and with only mild spending reform in other areas, you’d have $3k per person to work with (15k x 20%). $250 per month isn’t really worth getting excited about so a basic income without other welfare displacement would be pretty useless and miss the point of the program. Without health care reform, even a moderate illness would throw basic income recipients into abject poverty. Maybe it would be enough to replace food stamps and some other miscellaneous welfare programs, but that’s about it.