Private Capital Allocation Matching Only the Great Depression for Inefficiency
- Economic policy objectives (monetary and fiscal) are meant to incentivize domestic private business investment, which drives incomes and the money multiplier effect, i.e. the engine of the economy.
- Economic policy objectives have failed because CEO’s, the private capital allocators, simply cannot accommodate business investment when the demand function is as weak as we currently find it, no matter how available and how cheap the capital.
- The demand function is weak because we misunderstood and ignored the side effects of trade policies and their reliance on new world economies that naturally have a lower money multiplier effect than old world economies.
- A materially damaged demand function leads to a misallocation of resources; for the past 15 years capital has been and continues at an accelerating rate to be allocated to cash distribution (the most economically inefficient use of capital) rather than investment, further deteriorating the demand function (economic death spiral).
- The only question that matters now then is; How do we get private sector capital allocators to allocate capital more efficiently? I’ll give you a hint, it requires indications of sustainable demand improvement and neither monetary nor fiscal policy have the capacity to generate sustainable demand improvement when the demand function is damaged to the point that CEO’s refuse to invest productively. This then requires a new economic policy framework, one that CAN generate sustainable demand improvement, which will allow capital allocators to invest productively.
We can understand the problem without villainizing any particular stakeholders by focusing on where we are today and delivering a viable solution. Mistakes were made and judging whether they were honest or malicious in nature is irrelevant to finding the solution. Our focus here is a solution.
The Proof:
What is the objective of Monetary and Fiscal policy expansion?
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