A slightly off-center perspective on monetary problems.
Matt Yglesias seems to think the answer is yes:
When nominal interest rates on the safest forms of debt hit zero, extra savings can't push rates any lower to spur new borrowing. They can't, at least, unless the Federal Reserve is willing to take some risks rather than stick with its current policy of guaranteed mass unemployment as preferable to the risk of embarrassing itself by trying something new. That means that when extra cash ends up in an already stocked corporate treasury, it does just pile up pointlessly. The same thing happens when oil exporting countries recycle their earnings from higher gas prices into American sovereign debt. During this anomalous period of zero interest rates, corporate cash stockpiling really does hurt the broader economy. And Apple is far and away the king of the cash stockpile, representing fully 36 percent of the $179 billion increase in U.S. corporate cash that we've seen since 2009. In fact, in 2011 the non-Apple part of corporate America stopped stockpiling and reduced its cash holdings by $6 billion. This was, however, more than offset by Apple's addition of $46 billion to its own stockpile.
In other words, every decision to buy an iPad rather than a sofa has been hurting the American economy. The $10 billion in share buybacks and $10 billion per year in dividends announced today is good news for the American economy.
This seems mostly wrong to me. I certainly approve of the cash dispersion, as the principle-agent problem suggests that highly successful corporations will be tempted to waste their cash hoards on boondoggle investments. So it may be good for the economy. But I don’t see how it does much for the zero bound problem. At least I don’t see any first order effects. If Apple saves less I’d expect the recipients of this money to increase their saving my an equal amount. After all, if an Apple-owner wanted to get their money back they always could sell 2% of their stock each year, and increase consumption. Perhaps dividends are slightly more liquid, but many people own mutual funds that automatically re-invest the dividends. Those rich enough to own individual shares often have brokerage accounts where the dividends automatically spill into a money market mutual fund. If at the end of the month you have a tiny bit more in the MMMF, and a tiny bit less in Apple stock, but the total of the all assets remains exactly at say, $857,000, are you really going to spend more on consumption? I don’t see it.
That’s not to say Yglesias is completely wrong, anything that makes our economy more efficient will tend to slightly speed up the time when we exit the zero rate bound on interest rates. I just don’t think the Keynesian “savings” framework is a useful way to think about the issue.
PS. I just returned home and will get to the old comments by tomorrow.
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46 Responses to “Did Apple ease monetary policy?”
I think the argument would be that the transfer in apple stockholders’ savings from stock price to cash, money markets, other equities, corp debt etc will create investment by other companies or individuals which, unlike apple, are currently cash constrained.
Off Topic – on my Bloomberg feed this morning, in bold red: “OSBORNE INTRODUCES STAMP DUTY ON HOMES OVER £2M”
Well that sounds like a difficult to avoid luxury tax.
Right now, I just want Ezra to stop saying that the poor pay for things:
http://www.washingtonpost.com/blogs/ezra-klein/post/wonkbook-why-the-republican-budgets-make-the-poor-pay/2012/03/21/gIQA9qLURS_blog.html
Morgan, As long as the poor only have the same basket of goods as the rich how is it possibly going to be any different??
its an interesting idea.
Apple shares have always been a “retail” product – meaning the shareholders are not confined to the “rich” people (and the causation might be backwards there too, if you bought shares a lot time ago). Still, i agree that at the margin the consumption impact might be small.
I think at the end of the day, its more about growth expectations than anything else, so its a signal of boom times ahead for Apple (and by extension, a lot of people have disposable income to spend $700 on an ipad). Apple’s *outlook* bleeds into IT departments worldwide (and economics blogs!), even if the shares are not directly owned.
higher expectations for consumer spending i guess are a form of easing.
I dont agree that the purchase of iPads hinders the economy because they are not buying sofas. Its all in AD.
But what about the money that Apple is printing….iTunes Cards.
That means that when extra cash ends up in an already stocked corporate treasury, it does just pile up pointlessly.
Leave it to a Keynesian to attack and hate cash balances of all things, as if money is somehow not a commodity that people naturally value in large part because of its store of value capability. If holding cash for a year is “pointless”, then logically so would holding cash for half a year, and also one month, and one week, and one day, even one second. If holding cash is pointless, then the only way to avoid that “pointlessness” would be if nobody ever held any cash for any period of time. By reductio ad absurdum we can easily see that money would cease being money because nobody could accept it lest they engage in a “pointless” action. We can therefore easily rule out this “pointlessness” charge as flawed. There is in fact an INCREDIBLY IMPORTANT POINT in cash being held as a store of value.
Do Keynesians attack and hate companies who hold inventory for a period of time? Do they say “It’s pointless for Apple to hold iPhones and other commodities in their warehouses, in trucks, and on retail shelves”? They don’t right? Well, money is just the most marketable commodity, so what in the world is the problem with money owners holding cash on their “shelves” for a period of time? It’s not like this cash is never going to be sold. It’s just going to be sold at a later time. The problem with the Keynesian view is that they completely abstract away from time, and consider time a burden rather than a necessary component of individual action that must be embraced. Instead of the destructive “In the long run we’re all dead” view on time, they should instead have the “Humans plan not only in the short run, but in the long run as well.” It’s not surprising that Keynesianism became so popular with democratic states around the world, since elected politicians are very myopic and short term oriented. Their incentive is to maximally loot the country while they’re in office. Short term thinking WELCOMES short term economics.
During this anomalous period of zero interest rates, corporate cash stockpiling really does hurt the broader economy.
Notice the unsolicited “really does” plea, almost as if he is trying to convince himself more than others.
This blogger is just presupposing the theory “cash holding is evil”. If “corporate cash stockpiling”, i.e. cash holdings, really did “harm the broader economy”, then the optimal solution to “help the economy” (as if it’s an individual’s responsibility to sacrifice himself for the sake of others), would be for all corporations to hold exactly zero cash balances. That would be optimal, because there would be zero cash holdings. But then of course we can immediately see that to be a bunch of nonsense, because the monetary system would break down, as nobody would accept money at all, lest they become evil destructive cash stockpilers.
What’s that? It’s OK to hold cash for one second? OK, then because there is no logic against 2 seconds, there is no logic against 2 years, or 2 decades, or ANY length of time. What’s that? There is a “limit” to “permitted” cash holding? And what time would that be, EXACTLY? 3.141592654 months? Or how about Pi/0.05 weeks? Of course Keynesians don’t bother with this necessity, because their true practical purpose, intentional or not, is just to get the state involved in the economy on the most shaky of grounds. It’s whenever the Keynesian or state feels like people are holding cash for “too long”. Keynesianism is an emotional tribal pitchfork carrying mob mentality. It’s not economics. They just rabble rouse and more and more attack cash holding, until there is “consensus” that cash holding is a “problem”. Then they say the state has to print and spend money.
It’s sad and pathetic. No rigorous explanations or logic. There’s “cash holding in the short term is OK” and “cash holding in the long term is not OK”, and that’s it. “One second is OK, but one decade is not OK”. The middle of course is fuzzy and undefined, because they need to reserve for themselves the power of choice of when to get the state to print and spend money. No definitions for what constitutes short and long term. No times given. Just rabble rouse the state when enough Keynesians are carrying pitchforks. Each Keynesian falling over themselves and others to get to the front of the line in praising the almighty counterfeiters and spenders.
So absurd, that it is not surprising it finally leads to this outrageous and vicious attack on consumers:
In other words, every decision to buy an iPad rather than a sofa has been hurting the American economy.
See that? De Long is attacking the SOVEREIGN CONSUMER. And for what? For buying the products they want from the producers they want. This is solely due to the FALSE Keynesian notion that cash holding is evil and destructive.
Oh how often we see ignorance eventually leading into hate. Just like ignorance of race leads people to hating people on the basis of race, so does ignorance of money lead to hating people on the basis of their money preferences.
Ignorance and hatred of this magnitude just reiterates how utterly deranged Keynesianism really is.
You won’t see monetarists calling out Keynesians like this because they unfortunately have an AFFINITY with them regarding cash balances. Monetarists are also subjected to having to be antagonistic towards cash holdings, because cash holdings counter-act inflation and “NGDP targeting”. So rather than slamming the door in the moron Keynesian’s face, they keep the door open and accept their fundamental premise.
It’s rather ironic that monetarists are called monetarists, since they too don’t understand money. Actually, maybe it’s apt, like “astrologers” and “alchemists.”
Sorry, not De Long, Yglesias. They’re like the same to me.
This is wrong because Apple is not stockpiling currency. What is called cash on their balance sheet is actually very safe investments, such as (perhaps) Treasury bonds. If Tim Cook were swimming in a vault of cash, Scrooge McDuck-style, and decided to remove it from the vault and give it to shareholders, this would have some real effect. But bear in mind, this is $20 billion. To what extent would we even notice this? That is a rounding error in a $13.5 trillion economy.
I agree with Josh. This is a non-issue.
The Fed should print more money if it wants to stimulate growth. It is a great time to print more money, as inflation is nearly dead. I suggest QE at $50 billion a month, as part of a clear NGDP targeting plan. Sustained QE until results are obtained.
Monetizing the debt through QE offers many, many benefits.
Scott, you seem to be assuming that a dividend disbursement of $x reduces the market cap of Apple by $x compared to what it would have been if they didn’t do the dividend. But I don’t think that’s true. I actually think that Apple’s dividend announcement increased their market cap (sure it will go down on the days dividends are distributed, but not by as much as the increase since the announcement).
So I believe Apple’s announcement on net boosted asset prices in the economy, which is stimulative via wealth effects.
Josh:
If Tim Cook were swimming in a vault of cash, Scrooge McDuck-style, and decided to remove it from the vault and give it to shareholders, this would have some real effect.
It also has a “real effect” by staying in the vault. Prices and costs throughout the economy would be lower, and to the extent that the money would have otherwise been declared a dividend and consumed, it has had the real effect of keeping the economy more capital intensive, rather than less which would have been brought about by an increase in consumption all else equal.
Benjamin Cole:
The Fed should print more money if it wants to stimulate growth. It is a great time to print more money, as inflation is nearly dead. I suggest QE at $50 billion a month, as part of a clear NGDP targeting plan. Sustained QE until results are obtained.
Results? You mean another unsustainable inflation induced boom and yet another inevitable crash?
Do you know how Einstein defined insanity?
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