Steve Randy Waldman
@interfluidity.com
yup.
Steve Randy Waldman
@interfluidity.com
VAT is regressive. It's the meanest tax, most effective for financing expenditure, because it crowds out income that would otherwise be spent on goods and services. We'll disagree I'm sure, but Elon level wealth is intolerable and we should use wealth taxes to tax it quickly away. 1/
Steve Randy Waldman
@interfluidity.com
Income taxes are about progressivity and shaping the income and wealth distribution, not financing in the sense of making room for noninflationary expenditure. The standard deduction should be like 150K, and yes, there should be much higher tax brackets with very steep rates. /fin
Steve Randy Waldman
@interfluidity.com
i'd like to see more spending, not less. but different! you render that noninflationary with a VAT. you use the income tax (and wealth taxes) to remedy the lopsided wealth and income distributions. perhaps a bit radical for your tastes.
Steve Randy Waldman
@interfluidity.com
i'd say it's not desirable, the interest flows are undesirable, counterproductive, flows, rather than unsustainable. they are not very inflationary, because they go predominantly with populations with low marginal propensity to consume. so they turn out to be surprisingly sustainable. still bad.
Steve Randy Waldman
@interfluidity.com
Fed as bond vigilante. (I guess given how Clinton interacted with Greenspan, always it was thus.)
Steve Randy Waldman
@interfluidity.com
yet we have to live in it.
Steve Randy Waldman
@interfluidity.com
an irony of the mad-white-guy H1B debate is that the fix most in their interest is to make the visas more generous — eliminate the tight attachment to continued employment which means visa-holders accept worse conditions than native-born would to ensure continued status.
Steve Randy Waldman
@interfluidity.com
one can always overfit a model on hindsight, sure, but the point of the exercise is to try to develop some foresight…
Steve Randy Waldman
@interfluidity.com
so basically, people now fear adverse selection more than they used to, are therefore less willing to provide liquidity, a less liquid market is riskier and more volatile so the term premium rises?
Steve Randy Waldman
@interfluidity.com
i think the theory is when GDP growth is high, investment returns are high across the risk spectrum, so including risk-free rates. it's kind of a thin theory i think — it seems to me GDP growth could be high despite ample cash availabilty, and high RFR suggests people hungry just for cash.
Steve Randy Waldman
@interfluidity.com
another way to argue it is if you think a high GDP growth economy is a "hot" economy, so inflation risks are higher, so Fed is more likely to raise.
Steve Randy Waldman
@interfluidity.com
oh, i've noticed both ways. the fall had a straightforward story: the Fed finally declared inflation subdued and was going to begin a cutting cycle. prior too they acted as though inflation was now maybe chronic, so something of a shift from an expectation of persistent elevation to sharp cut cycle.
Steve Randy Waldman
@interfluidity.com
expectation of falling rates was a conventional, pretty easy story for much of 2024. the sharp U-turn not so much.
Steve Randy Waldman
@interfluidity.com
So I don't fully understand those words. What does "cushion" mean in this context? Markets more liquid shld reduce a term premium, but I'm not sure that's what "aggressive market making" means? You find the other side + get out maybe suggests less market-making, you need 2 find opportunistic trades?
Steve Randy Waldman
@interfluidity.com
yields move. but it feels a bit like Greenspan's "conundrum", ones simple model of geometric average of short-term rates plus reasonably stable term premium doesn't account for it, there's something snuck in i feel i don't understand.
Steve Randy Waldman
@interfluidity.com
has there been a change in these institutional factors since september? or a change in the volume of expected issuance? if capital regs have shifted to make long Ts less attractive, is that one and done? (what regs?)
Steve Randy Waldman
@interfluidity.com
one way to understand things is we are high in our range. another way is that our old range is blown. i have so little sense of why rates have moved i find i have no basis to guess between.
Steve Randy Waldman
@interfluidity.com
why?
Steve Randy Waldman
@interfluidity.com
does higher deficit mean investors requiring higher term premium, or is the Fed going to keep rates higher longer because of it? (ironically since it exacerbates it, but you can make a case that bc the deficit is inflationary it has to, i guess.)
Steve Randy Waldman
@interfluidity.com
(do you think Federal deficit expectations have risen dramatically since September? Since the election?)
Steve Randy Waldman
@interfluidity.com
who are these masked men? what crime are they punishing?
Steve Randy Waldman
@interfluidity.com
so what's our favorite explanation for the rise in long-term rates since September with the Fed still cutting? market expects a slower pace of cuts, terminating and stabilizing higher? something shifting the term premium? what's the story here?
Steve Randy Waldman
@interfluidity.com
you know the Democratic Party is the party of fairness, because whenever they have to decide who their leaders should be the question they ask is “whose turn is it?”
Steve Randy Waldman
@interfluidity.com
i don’t think your characterization is accurate. taxing the rich more usually polls very well. my motivation here has nothing to do with the debt. i think democracy and billionaires are mutually incompatible and we should use the tax system to vouchsafe the former by rendering the latter impossible