The General Economics Thread

Ooh, scary. I'm scared. Let me look up the reserves that Russia holds. [1]

Okay, as of December, 2013, they are fifth (or sixth if you count the Eurozone as a unit) with about $510 billion. And that's total reserves, not just dollars, so it could be euros or pounds as well.

If Russia were to attempt to divest its dollars, that might cause a small drop in the world price, but since the U.S. would also stop all trading in rubles and seize all Russian dollar accounts, they'd probably come out well behind in that exchange.

Never mind that the dollar dropping in value would be good for our trade balance and help to stimulate our economy. As simple self-preservation, the other world nations who have large dollar holdings would have no choice but to jump in to hold the price up.

Come to think of it, as I said previously, China would be the biggest victim of a drop in the dollar, which pits them very firmly against any move Russia might make in this regard. It would be hilariously ironic if China ended up denouncing Russia over the matter.

More thoughts: Given that Russia's current actions are deeply hostile to the European Union, I can only imagine the response in Brussels if they try to change their dollar holdings for euros. Since there are no other viable candidates for a global reserve currency that I can think of at the moment, that leaves them without a place to go.

Surely they can't be stupid enough to imagine that the nations of the world will join them in a revolt against U.S. imperialism and adopt the ruble. Could they?

edited 4th Mar '14 3:35:39 PM by Fighteer

Not so delusional to think that they will adopt the Ruble, but a key theme in Putin's foreign policy has been a push for "multipolarity," so it would be fitting in United Russia's rhetoric to believe that a general downsizing of the dollar with a multipolar order taking its place would be well within his views.

Well Germany reports Putin has lost it, so who knows?

Fighteer linked us to Krugmans article on the Ryan Report earlier, "The Real Poverty Trap."

The problem with the conservative belief that entitlements trap people in poverty is the assumption that the kind of jobs the poor can get will elevate them above poverty. What that graph of Krugman's is really telling us is that that isnt true. Working more and harder is doing the US poor no good at all, and in fact they are falling further behind.

I find it rather amusing that for all the negatives of globalization, the fact Russia might be forcibly reigned in from its leadership's dreams of 19th-20th century conquest by the same-said globalized markets is somewhat comforting.

@Ogodei: The thing is that the world economy benefits in a general sense from having a primary reserve currency. It reduces complexity when nearly all transactions use the dollar as an intermediary. Having different blocs using different reserve currencies only helps to divide the world and make conflict more likely.

If Russia has dreams of hegemony in this era, then it knows it's vulnerable to economic sanctions. Its reflexive defense against this will be to withdraw inside its own trade borders and shut out external commerce, while trying to "convert" as many nations as possible to its currency of choice. The more it can do this, it imagines, the more influence it gains on the world stage.

It's a pipe dream, of course, because Russia's economy is nowhere near strong enough to supplant the U.S. even on a regional level. But you won't hear them acknowledge it publicly; they have too much face to lose.

Mises.org, an Austrian economics site, publishes articles saying that Europe and the Euro are screwed.

Now, I know Keynesians were/are also against the idea of the Euro.

But, for those of you who can understand what these articles are saying, what do you think?

How Inflation Destroys the Wealth of Nations and Europe May Be in the Calm Before the Storm. I try to read this, and the complication just makes my head hurt.

Since when are Keynesians against the Euro?

Those are some rather lengthy articles whose writing style is not necessarily simple to parse. Why dont you summarize what you think are the main points and perhaps someone can respond to them?

I'm not reading them and I don't need to, because Austrian economics is not based on anything. There is no evidential or empirical input, it's built on Ludwig von Mises' "praxeology", which is basically a bunch of bullshit axioms derived from pop-psychology. Mises himself said: "Its statements and propositions are not derived from experience... They are not subject to verification or falsification on the ground of experience and facts."^note Lest I be accused of quote mining, here is the orignal. It's supposed to be a priori, but defines it's premises so badly that they are so broad as to be meaningless (it's a lot akin to creationism in this way). Even Milton Friedman, the arch-monetarist, knew that the Austrian business cycle theory was a load of cobblers.

It's basically yet-another example of the "alternative reality" the American right has been building for itself ever since Nixon, and, worst of all, unlike creationism, the harm of which is very hard to measure, bullshit like Austrian economics causes misery and poverty wherever it goes. It's the rationalization of selfishness and greed.

edited 6th Mar '14 6:06:42 AM by Achaemenid

I think the Euro itself is probably okay, it's just that having both strong and weak economies attached to it isn't a very good idea.

Those articles though...I'm not a fan of "academic writing" because it tends to be dry and very dense. Like my aunt's fruitcake. They are very hard to process if you aren't well versed in the subject which makes knee-jerk reactions more likely.

edited 6th Mar '14 6:17:34 AM by Zendervai

Wow. The inventor of Austrian economics said that he was basing his ideas not on experience but on stuff he just thought about. I wonder if Keynes was similar? I mean, were Keynes's ideas tested at the time?

I was leaning towards libertarianism, in big part due to the disgusting amount of corruption in government, but I'm starting to get more and more the opinion that libertarianism is worse (at least, as a complete package. When it comes to individual libertarian ideas on specific subjects, I'm far more open depending on the subject. For example, I think the US government should stay out of all these damn wars and invasions, and marriage isn't the federal government's business).

Mises.org actually had an article promoting the idea that "Greed is good" ala Gordon Gekko in the movie Wall Street. Well, it basically said that cutting out people who slow things down is good for the company, which in turn is good for the public. Austrians seem to be big believers in trickle-down economics.

And trickle-down might work if there was a mechanism that forced the money to trickle down. Like, say, a higher tax rate and a basic annual income.

That's a really direct example, but it straight out doesn't exist if the people at the top hoard.

I've seen that phrase. A desire for money is okay. Greed is not. Greed is defined as wanting more than you need. Greed can be extremely destructive. And if you're greedy for money, you kind of destroy the value of money in your own mind, because you don't want to spend it, so it just sits gathering dust, warping the economic landscape in the process.

edited 6th Mar '14 6:21:17 AM by Zendervai

@Bonsai (and other interested in learning more about Keynesianism): Try this place- it will help you understand some of the differences between the Austrian School and Neo-Keynesianism better.

You could try libertarian socialism? Read more on the Socialism page!

As for Keynes, then no; Keynesianism and it's descendants have always been evidence-based.

Libertarian socialism sounds unworkable from what I read on there, at least from the description given.

I want to see more transparency in government, though. The people have a right to know what's going on and why. Lobbying from enormous companies has resulted in crap like North Carolina's law making it illegal for a municipality to offer their own internet service (and therefore compete with poor Time Warner Cable and its crappy service).

@The Mises.org articles:

The first one is just standard Austrian approaches regarding the interplay between interest rates, malinvestment, and economic instability, as I explained above. As such, it can be safely disregarded.

The second one is a little more complex. The gist of it is that the large European banks of a whole lot of "off-the-record" (read: legally questionable) loans out, and the European Central Bank (ECB) is attempting to put new limits on those banks' loans (via minimum capital holding requirements). According to the article, the amount of off-the-record loans are so great, 1) those banks have no way of getting them off their books or fixed up before the deadline of the proposed regulations, and 2) the resulting combo platter of losing those loans and paying fines and such would crash those banks, which would not be good for the EU's economy.

While it's clearly painted in an "anti-regulation" view (and that aspect of the article can be disregarded), it is true that suddenly switching from unregulated to tightly regulated, like all sudden market changes, is going to cause some shocks. This sort of policy change would have been better saved for a more healthy economy that could handle such a shock. Right idea, wrong time.

@Social Democracy site: Fighteer probably will hate that site, as it's quite critical of Krugman and specifically says it rejects the idea of a liquidity trap.

If banks are hiding loans away from regulators, there needs to be a comeuppance. If that means crashing them, then they weren't solvent to begin with. Nationalization is always an option.

I'll browse a few of those links when I get the time. But the liquidity trap is very real.

When you say "can be safely disregarded", you really gotta explain how. Not everyone knows how all these things work. While I'm very suspicious of Austrian economics (and Keynesian as well, for different reasons), I also don't know as much as you guys know.

What if it is nationalised banks that are doing that?

Then again, the second article does sounds rather like what happened to The Co-operative Bank last year.

edited 6th Mar '14 7:13:55 AM by Greenmantle

Flashback to where I explained Austrian economics. They have a very narrow view of how interest rates work.

@Bonsai: Again, without going into an incredibly lengthy explanation, Austrian "theory" is almost entirely faith-based, relying on rationalizations used to retroactively justify a fixed belief system. It's much like how someone who believes in Young-Earth Creationism will invent ideas that are found nowhere in the scientific literature.

Keynesianism, by contrast, is almost wholly empirical. Like the natural sciences, it looks at how the world is and attempts to derive causes and mechanisms that explain and predict. It isn't always exactly right, any more than physics is always exactly right, but when it's wrong, it looks at its models and adapts them.

Think of Austrian economics (and, more broadly, neoclassical economics) as the Freudian psychology of the economics world. It's held on largely because it captured the popular imagination at a certain point in time and because there are powerful interests who have a reason to want it retained — having it finally and forever debunked would break their claim to possess wisdom "beyond ordinary men".

@Greenmantle: Again, you need to provide specifics. I won't argue with windmills. If nationalized banks are making loans not covered by regulators, then someone needs to friggin' go to jail.

edited 6th Mar '14 7:54:06 AM by Fighteer

If I may repost this from many pages back?

Sums up the two differing economic schools in a memorable way.

edited 6th Mar '14 7:43:51 AM by latenight

Damn. You Tube blocked at work. I wish I could see whatever that video is.

Safeway is currently in talks to sell the company with Ceberus Capital Management (the company who owns Albertsons) as the lead bidder.

Kroger is also not far behind, but is looking to buy stores Ceberus doesn't want, specifically Dallas area chain, Tom Thumb.

Staples closing 225 stores in North America.

Radio Shack is closing a thousand or so stores as well, although that may have been mentioned earlier.

What gets on my nerves is how the current state of stagnating demand, excessive long-term unemployment, and consumers being cash-strapped has somehow become the new normal. It's barely even being talked about in the news as something that needs fixing.