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Lumifer comments on Publishing my initial model for hypercapitalism - Less Wrong
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You want positive interest for an investment (aka money put to work) and you want to provide disincentives for people who hold cash (aka idle money) which just sits there doing nothing useful.
That makes sense I guess. But under fractional reserve banking, any money that is "idly" sitting in a bank account earning interest will be loaned out by the bank to someone who will put it to good use. Similarly, if I buy an interest bearing corporate bond, the corporation that is paying me interest will put the money to good use. It seems to me that interest is a good mechanism for incentivizing those who have money to make it available to those who need it for some productive purpose.
Yes, but there is also money -- cash -- that just sits in a safe-deposit box or under a mattress. Or think about gold bars.
This is true. Negative interest rates are a curious contemporary phenomenon. I would probably attribute their existence to two main factors: (1) The desperation of central banks to stimulate the economy by forcefully shoving more and more money into the system; and (2) The global capital glut with its search for safe havens.
OK, I understand the motivation now. I was thinking in traditional (pre-2008) terms. IMO of the two factors you list, #1 is the biggest reason for the ultra-low interest rates we are seeing now. The way to fix that, IMO, is for central banks to stop pumping money into the economy via quantitative easing, etc. If there really is a global capital glut (and I suspect that there is), holders of that private money will respond to the cessation of central bank easy money policies by making that money available via interest-paying loans.
If interest rates are allowed (by central banks) to raise to healthy positive levels, holding money under a mattress will become prohibitively expensive in terms of a lost opportunity cost. IMO the solution to the "idle money" problem is positive interest rates of the type we saw prior to the economic downturn of 2008.
Governments get addicted to very cheap money (aka ultra-low interest rates). Going back to "normal" interest rates will provoke withdrawal pains and some governments (e.g. Japan) are not in a shape to even survive that.
I suspect that you are right about that. Still, I think that what is needed now is higher interest rates. Perhaps the central banks of countries with stronger economies could lead the way by tightening money and the weaker economies could follow on whenever they are economically able to. I thing you'd see a short-term negative reaction from Wall Street, but I don't think that it would last, primarily because the aforementioned global capital glut will be able to supply capital (in fact, as I understand it, putting that idle money to work is one of the goals of the OP).
Well, that is happening. US is on track to start raising interest rates later this year. I am not sure in which shape Europe will emerge from the Greece clusterfuck, and Japan is basically a basket case.
I don't understand the goals of the OP, but as far I could see he wants to give buyers some long-term interest in the well-being of the sellers they buy from.
From a practical standpoint there is no shortage of money in the world, availability of capital is not a binding constraint.
Great; I think that higher US interest rates are a good thing and will help restore economic stability. Hopefully Japan and the EU will be able to follow on in the not too distant future.
Question to skilesare: what is the hypercapitalist take on rising interest rates? My impression is that hypercapitalism encourages negative interest rates. Am I understanding that correctly? Or, is hypercapitalism a reaction to negative interest rates?
I think rising interest rates should be a natural phenomenon arising for money getting more expensive. I also think that there are not many good reasons for money to get expensive. Money is a tool and a score keeper. It isn't anything real. There should always be enough money in circulation to buy all the things that can be produced. If you've ever felt that you didn't make something because money was too expensive then...money was too damn expensive.
This is an issue in an agrarian economy where most of your gdp is made up of actual limited resources. As we move toward automation, maker bots, massive computing power, etc the amount of our economy that is made up of people paying for the production of 'limited only by means and imagination' products and services will only increase.
Interest(and note that interest is not the same thing as return on investment) should be zero or negative until every person on this planet is making a heart wrenching decision on the order magnitude of spending their time curing cancer or solving world hunger.
To make money this available you have to have a means of destroying it when you approach these situations to control inflation. That is where the decay factor comes in. You can print it when you need it and burn it when the world gets stumped for progress.
Negative interest rates that we see today are a reality to deal with. Hypercapitalism manages this by flipping bankers to a form of vc where they make their profits off of the long term success of the people they lend money too instead of the interest charged. I think this is a better way.
Thanks for the response and clarification. These are interesting ideas and a radical departure from the current economic situation. If I have time, I would like to read more of Silvio Gesell's theories. And, I'm glad to hear that you've considered the potential for (hyper)inflation resulting from the increased velocity of money that will result from its increased availability and the fact that consumers will be eager to spend it quickly before it decays.
I am still unclear on what (if anything) is wrong with a modest positive interest rate along the lines of pre-2008 downturn levels. You said:
A converse argument is, if whatever project you are considering is not economically viable if capital costs ~ 8-12%/year, maybe it was not really such a great idea.
And, you said:
Well, yes and no. My understanding of capital is that it is just wealth used to generate more wealth. For example, if I am a plumber by trade and I need a backhoe to repair a sewer line, the backhoe is capital that I need to complete my project and create wealth. If I don't own a backhoe, I'll probably opt to rent one, and this would arguably be preferable to owning one as it is not every day that I need to dig up a sewer line. Obviously, if someone owns a backhoe, they will expect payment (rent) in exchange for my using the backhoe. By the same token, if I am a real estate developer and I need $100M to develop a project, I would expect to have to pay interest (rent) to use that money. I don't see the difference between paying to use someone else's backhoe and paying to use someone else's money. In both cases, I am paying for capital that I need to complete my project, and I don't really see a problem with that arrangement.
And, as Lumifer said upthread: