Redistribution, from Victor Niederhoffer
I have not seen a model yet that shows how all this redistribution causes weakness in economic activity. Certainly the incentives are hurt. But I think a model similar to what Friedman uses to show how money should grow with 2 or 3 people on a desert island would show how hurtful this is.
Tyler Cowen writes:
Moral hazard escalates.
Keep in mind that since bank failure is deflationary, the Fed can address bank failure by printing up a lot of money without a net inflationary effect. On the inflation front we are simply holding even, more or less.
But we are substituting interest-bearing reserves for M2, or public sector assets for private sector dealings, a very bad long-term trend.
Plus higher moral hazard and now European banks are Too Big To Save and don't have a real central bank behind them.
Did you see that JP Morgan is now forecasting 9.5 unemployment for 2012?