There is a fascinating article in the FT this morning: Joe Biden’s huge bet: the economic consequences of “acting big”. Much the same debate is being hammered across learned journals, the economic departments of central banks, and investment firms: what are the risks of massive reflationary stimulus measures, and what are the economic opportunity costs of not enacting them?
There is no simple answer – except to try it.
Economists still can’t even agree how money works – although there are plenty of theories. Some involve complex equations, but its largely art rather than science. Trying to predict how the economy will react to money, more money and yet more money is largely about behaviour – which isn’t always rational nor lends itself to difficult maths. The global economy is incredibly complex, effectively the sum of inter-reactions between 7.8 billion individuals. Everything from prices, taxes, rates, fashion and taste influences the way the economy and crowds function.
Here is the key thing: Markets are about the ways in which traders perceive the global economy, and the sentiment of crowds, to be working. Read More