Haldane the Omniscient

I read this article by Andy Haldane.



I value certain things now more than I do in the future. I am prepared to pay a premium for certain things now in than in the future. This represents my heightened time preference for some things over others. This spread between paying more for something now than later, to satiate my wants is intrinsic to me being a human being. The law of the downward sloping demand curve sits behind this and is a curve we face at all times when we choose to some some action over another action. The first action is always prioritised over the last action and so on and so forth. It is what we understand as the phenomena of interest. Its is a universal phenomena. When applied to the loanable funds market, there are people who are prepared to delay consumption of something now, for something later, in return for more money later, these people are called savers. Borrowers operate in the inverse way. When Haldane is suggesting we may go to negative interest rates, he is suggesting that these savers then must not prefer things in the future and that borrowers are not faced with a downward sloping demand curve but in fact unlimited demand for things. Consumption of everything now becomes a fact. So this is of course a logical impossibility. So, if he wants to distort markets even further than they are today, this is one sure way of doing so.


What I get a feeling he is struggling with is “why are prices not moving up with so much loose money?.” Well of course they are in houses and other select asset classes that don’t make the CPI. However the only general answer can be that the demand to hold money (i.e., to not spend it) is such that what has been created ex nihilo is not being spent. Why is it not being spent? People must view prices to be too high or for the goods and services that are currently offered, not correctly priced. This mis match is something no amount of financial trickery will solve. We entrepreneurs who have made mistakes and we citizens who have paid too much for things, must accept our losses and move on. Prices must adjust, painfully, and over time to restore a healthy economy.


A central planner, however well motivated, deciding on what is money, bearing in mind, it historically arose out of voluntary exchange and is still allows us to get over the double coincidence of wants (not to barter), is a magnificent invention of mankind, like language. No one man can claim the title of inventor of this, no one tribe or nation. I would suggest to Andy Haldane to leave it that way.