Since the Great Recession, the Fed has transformed itself into an entity more and more responsible for asset prices. This was the stated goal since 2009 as the Fed adopted a new philosophy called the "Wealth Effect." The thinking behind it was simple: growth in asset prices would translate to an increase in consumer spending and hence demand itself. It was a 'trickle down' economic philosophy an increasingly financialized economy.
This backdrop has defined our post-2009 era which stirred certain pathologies that were reflected in the greater culture and politics. It was the time when 'finance became a culture' and actual-productivity plummeted across most developed economies, especially the United States. But somehow in spite of the accumulating dysfunction across most key areas, everything kept trudging along, partly thanks to investors being satiated with record returns.
While the near-zero interest rate regime may now be ending, it is worth considering how much of the water we were all swimming in excused poor state capacity, distorted economic fundamentals, and how it even kept a lid on the dysfunction potentially blowing up in our faces. Now that we have to reckon with these realities, it may be wise to ask how many worldviews were simply products of the the cheap money regime - which is now, in a shock to many, coming to a close. Whether or not it will easily be let go, however, is another matter.
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All across economics there's way too much interest in the demand side, not nearly enough in supply-side economics.
In Australia, there's a proposal to put a price cap on domestically sold natural gas, which we are a major producer and exporter of. Because the Europeans don't want to buy Russian gas (and someone influential is blowing up pipelines in pursuit of this agenda), they've been sucking out the gas from the rest of the world. The Australian gas industry is unhappy with the pipe caps and threatens to withdraw investment. 'Greedy companies making super-profits' on one side and 'Soviet style planned economy, Venezuela' on the other.
But nobody, gas companies excepted, is thinking about how to produce more gas! No matter how we or anyone manipulates the prices or export control orders, we cannot legislate gas out of the ground. We should've been producing more gas from the get-go, approving projects for export and domestic consumption. That directly alleviates the core problem, which is a shortage of supply. We could have a simple, quick regulatory system for gas production. Instead we have a very slow, expensive system where various interest groups get to wage lawfare against development. And so we get less gas. House prices are similar, that's the NIMBY issue in a nutshell. Power prices are another issue, nobody wants to build any new coal plants due to climate targets and so the price of power rises continually. There are costs to producing gas, issues with basins getting contaminated and so on. But there are also costs to having a giant legal mess of regulation constraining development for 6 years on a single project. It doesn't take that long to drill gas wells. There's plenty of gas in the ground.
A good way to reduce inflation is to lower energy prices. Energy prices are included in just about everything else. Yet instead everyone is just focusing on reducing demand by raising mortgage repayments. It wasn't macro-economic reform that produced the industrial revolution, it wasn't central banks making steam engines and industry. It was actual technical development and the efficient allocation of capital that made people richer, something governments don't seem to appreciate. If they want to make the economy better, they need to do micro-economic reform to make it easier to generate wealth.
I think one cause of excessive amounts of capital rushing into financial schemes, apps and crypto is that the real world is chock full of regulations that make it too complicated to build anything. Want to build apartments, factories, railways, gas wells? You need permission, you need to consult stakeholders, you need to get environmental assessments, consult indigenous peoples, protect 'vulnerable' species, pass endless legal checks. If you want to make something in crypto, you can just get going, release your white paper, airdrop your tokens, get the software working. Now the cost of this is that there are a bunch of scams and shitcoins. But there is certainly no shortage of innovation, things happen quickly.
Near zero interest rates could have encouraged broad development across the whole of society. The US at least managed a fracking boom that is paying off nicely now. I think regulations channeled too much of this money into 'tech' and housing. Finance is a culture because much of industry has been crippled.
I’d say a big part of this is due to increasing separation between ‘people who make tangible things’ and ‘people who make economic decisions’. This isn’t a point about one side of the aisle deprioritizing actual production, exactly. It’s pointing out that big money is now not in actual production, it’s in investments and speculation. Black rock and vanguard just think differently than Exxon. I mean there’s a political valence to it but I don’t think that’s the relevant part- a society where large scale economic decisions are made by regulators who are tight with black rock, vanguard, Goldman-sachs, and fidelity is going to approach problems in a very different way than a society where those regulators are tight with Exxon, Boeing, and archer-Daniels midland, or one in which the latter three have bought off lawmakers who closely oversee economic regulators.
It probably doesn’t help that the most influential companies which actually produce anything produce software, which- correct me if I’m wrong here- can be copied an infinite number of times once it’s been designed, at a per unit cost that’s essentially trivial, and to a much lesser extent big pharma or defense, whose profit margins depend on regulatory permissions and price setting moreso than on cost and scale of production.
I mean that would explain why so much of the focus of energy policy is on big ticket breakthrough projects, when that’s not how culture and civilization works- culture and civilization are about replicating things we already know how to do, over and over again, every time we need the end product. Drilling an oil well is a highly skilled technical task, but it is fundamentally something that our civilization knows how to do, and knows how to do well. The bottleneck is getting physical pieces, not knowledge pieces, in place. You have to get equipment with people who know how to use it, and you have to get that stuff access to land that has oil. And these are solved problems; drilling equipment and oilmen and mineral rights are the bottleneck, not figuring out how to make an oil well to begin with. And there are lots of layers between people who understand that and people who make regulatory decisions.
Precisely, there are too many lawyers and arts students in government. I think they conceptualize their role much more abstractly than engineers or STEM people. They aren't so interested in making something happen as making people happy and interpreting procedures. ChatGPT aside, the real world cannot be persuaded or tricked, you have to force it to yield to your will.
In Australia, there was only a single engineer, one of 4 STEM graduates in the Australian parliament (83 Ministers and Shadow Ministers): https://www.torrens.edu.au/blog/what-degrees-ministers-australia-have-and-why-it-matters
In contrast, China has a heavy representation of engineers in its Politburo, about 4/7 have an engineering background including Xi. I think that proportion is higher in the lower echelons of the elite. Accordingly, whatever their other faults, China does very well in large-scale infrastructure and quick construction.
https://theprint.in/opinion/eye-on-china/chinas-top-two-leaders-have-doctoral-degrees-in-ccp-education-also-decides-political-power/682617/
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I think that contradicts your 4/7 having engineering background figure.
And, that's ignoring that fact that if you went to school in the 70s (like Xi) and studied engineering, you spent 20% of your time studying ideology and making sure you think and say the right things.
Also, the idea that all 7 members of the 1997 standing committee had science and engineering degrees is wrong as Li Lanqing graduated from Fudan University's business management major (resume from CCTV (Chinese): http://2008.cctv.com/special/989/-1/81682.html)
To be honest, I dont think China's ability to do large scale infra is because of bureaucrats majoring in engineer and science, but because of the experience they've built up over the last ~50 years of non-stop building. Shanghai isn't able to create new subway lines in 3 years because its mayor has a STEM degree (he doesn't, though the Shanghai party secretary does), but because of all the subway building experience they've garnered since building the first Shanghai metro line in 1990.
I doubt there were more STEM grads in Aus Parliament when Australia was good at building infrastructure. And I'm pretty confident it's the same story in the US government when they were building new highways and dams and whatever.
I only checked their wikipedia pages, probably just miscounted. 3/7 including Xi is still a lot compared to Western countries, especially Anglo ones.
But why do they have all this experience building? Why did they build so much? India didn't build like China did despite being similarly populous. Now you could say that they decided to make engineering a national priority but why did they decide to do that? It's a chicken and egg problem.
My belief is that if politics is dominated by lawyers, it will tend to overproduce laws, treaties and so on to the detriment of everything else. If there's a problem it will be met with a law. Australia has always been dominated by lawyers and has never been a major industrial power (though that's mostly down to geography and low population IMO). China on the other hand has a rather engineering-based slant to its strategies, neglecting other aspects. They built a whole lot of housing stock as their stimulus measure (we pumped money into tech/finance), they built 2/3 of the world's high speed rail, they built artificial islands to use as strategic bases. The Three Body Problem is basically a eulogy to Chinese engineers who save the world from pinko environmentalist alien sympathizers, about heroic shape rotators struggling against evil-incompetent wordcels. You wouldn't see that in the West.
Now you don't have to have a lot of engineers in government to become a major industrial power. But it does help if you do, in my view. At the very least the government will tend to see things in a more engineering-focused way, they'll tend to incline in that direction.
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