> Funny thing is I’ve seen this exact advice destroy a company. In March 2020 they did deep layoffs and cited the need to be “default alive.” Then their main market surprisingly quickly grew in the rest of 2020
I recognize that later in your comment you say "Of course if 2020 had gotten worse maybe they would look smart" but I think it's worthwhile to compare/contrast the pure macroeconomics of early pandemic versus now. To the Fed the pandemic was an exogenous shock and they unleashed all their tools to keep the economy going. Now they are dealing with the backlash of unleashing all their tools (inflation) and are making it very clear that their priority is to bring down inflation and they are very aware that they do that by bringing down employment. So encouraging startups to go default alive is very much what the Fed wants right now. Big difference in policy direction. Exogenous shock versus endogenous course correction.
Are they just trying to reduce the amount of capital the working class has? Are there no other ways to reduce inflation right now than to curb demand? Wouldn’t a concerted effort to resolve supply issues have a similar effect?
Part of the problem is that Congress is largely broken and can't adequately address issues like this. That pushes most of the responsibility onto The Fed and they have a much smaller bag of tools than Congress.
I think the technical term is "policy levers" and secondly, your dialectic there is over-simplified, reduced to talking points. Real money supply goes somewhere through some mechanisms with some costs .. not a fan of the Fed and, this is not sufficiently detailed to be representative IMHO
Its not an inaccurate summary of the fed's actions. Bringing down employment whenever wages rise certainly stops inflation, but it does so while preserving capitol holders margins. Individuals only have bargaining power when the labor market is tight.
The fed is effectively cutting off the labor side of the business cycle.
> is effectively cutting off the labor side of the business cycle
yeah - overly simplistic conclusion.. for example, you do not recognize classes of business activity at all, yet some classes of employer are affected differently or even in the opposite direction; misleading.
Dominant first order and second order effects often have simple sounding narratives. Inflation, interest rates, and growth are complex relationships. The Fed's actions on the market are however simple instruments.
The above comment points out that since the Fed started using modern monetary theory to regulate the economy. Wages and Productivity have decoupled, while one may not cause the other - it's reasonable to hypothesize a relationship based on bargaining power.
I recognize that later in your comment you say "Of course if 2020 had gotten worse maybe they would look smart" but I think it's worthwhile to compare/contrast the pure macroeconomics of early pandemic versus now. To the Fed the pandemic was an exogenous shock and they unleashed all their tools to keep the economy going. Now they are dealing with the backlash of unleashing all their tools (inflation) and are making it very clear that their priority is to bring down inflation and they are very aware that they do that by bringing down employment. So encouraging startups to go default alive is very much what the Fed wants right now. Big difference in policy direction. Exogenous shock versus endogenous course correction.