The General Economics Thread

The U.S. Labor Market's Chicken-Egg Dilemma: U.S. labor force participation remains depressed, but current wage growth won't increase. It seems that Economists and some Policy Makers would prefer to wait and see if wages jump soon or not.

Is there any way to explain to my mom the detrimental effects of Reagonomics , like you guys have to me?

Tough question. You can't force people to learn new information, you can only lead them to it and hope they'll get intrigued enough to drop their preconceptions.

It would depend on how well educated she is in the mathematical concepts to begin with. If you have to explain what GDP is, for example, or supply and demand theory (Econ 101), you're in for a slog. At best you'd be replacing ignorant belief with a different sort of ignorant belief.

If she knows enough that you can start with these ideas as a baseline, though, then you can get somewhere. The best way to crush faith in Reaganomics is with empirical data. Show her charts of wage vs. productivity growth compared to tax rates, focusing on the shift around 1970. Ask her why, if money printing leads to inflation, we haven't seen any inflation. Discuss wealth distribution patterns; if "trickle down" is a viable concept, why have we yet to see any benefit from it.

In other words, attack the facts. Empirical evidence is the best weapon against neoliberal nonsense.

"Neoliberal" nonsense? Um...

http://en.wikipedia.org/wiki/Neoliberalism

Yes, the term "Neoliberal" is derived from "Liberalism", and not the way "Liberal" is used in the US.

Actually, looking at the situation in Eastern Europe at the moment, what could be effects be on the Eurozone if strong sanctions are placed on Russia?

edited 23rd Jul '14 7:17:51 AM by Greenmantle

I hereby declare that sticking "neo" on the front of any term makes the term more stupid.

In other news, millennials love cash.

edited 23rd Jul '14 7:19:13 AM by TotemicHero

"Neoprogressivism"?

Things with 'neo-' in front of them are frequently not improvements on the original. See: neo-Keynesianism.

My mom is aware if the growing divide between the upper and middle classes , and doesn't seem to believe in the trickle down effect. I'm not quite sure what she likes about Reagonomics - like I said she mentioned IRA's , which are those programs where you have a fund saved up for retirement which gets money deducted from your income, and there's no income tax on it

IRAs are fine, I guess, if you have extra money you don't need now, but in the current economic environment, consumer spending is what's lacking, so encouraging saving is not a great idea.

By the way, I've been wondering , how is the stock market affected by time?

I'm not sure what you mean. In the long term, the stock market rises. Its value supposedly reflects the total value of all capital in existence, but in reality it's more a reflection of the amount of money that is available for investment.

More generally, the stock market is a reflection of Piketty's formula, r>g, where the rate of return on investment compared to the rate of overall economic growth determines wealth distribution.

edited 23rd Jul '14 1:18:11 PM by Fighteer

Or rather, what the stock market people imagine is the amount of investable money available.

I meant day to day, season to season, day and night . Like how do prices fluctuate according to what time it is , on average at least? When would be the best time to buy and sell respectively ?

edited 23rd Jul '14 2:28:04 PM by Xopher001

That's the kind of question that would require one or two books to answer it properly.

But wouldn't it be easy to presume that prices are highest in the afternoon, EST?

Are you trying to build a stock portfolio or something? Nobody in this forum is an investment adviser (that I know of) who can instruct you in these matters. You'd do better to consult someone who actually knows what they're doing, but I can give you one piece of rock-solid advice, here and now.

Unless you're fabulously wealthy, the stock market is a loser's game.

The system is rigged in favor of the already-wealthy. You may make some money, you may not, but it's not a get rick quick scheme. At best you'll keep up with the general performance of the indexes, yet your earnings will be eroded by trading and/or management fees.

If you have extra cash to invest, put it into a fund that is managed by someone whose job it is to make money with your money, and leave it there for the long haul. Micromanaging your tiny little portfolio is a waste of your time.

Disclosure: I have a 401(k) investment plan through my employer. The reason I contribute to it rather than spending the money immediately is because my employer matches my contribution, giving me "free money", in effect. (It's money that I would not otherwise be getting were I not to participate in the plan.)

edited 23rd Jul '14 2:40:09 PM by Fighteer

@Fighteer: The IRA is a limited program for helping people supplement Social Security (which is not enough to maintain a reasonable lifestyle) and give people some control over their own retirement future.

It's a conservative program and a rather good one.

I have a BA in finance.

Don't listen to people trying to sell you individual stocks. Your best bet is to buy into indexed mutual funds. Basically, portfolios virtually never beat the market on a whole in the long term because of the transaction costs involved and, well, because it's mathematically impossible (because the market is blah blah blah don't worry about the particulars0.

So the ideal situation is to, say, buy a mutual fund indexed to the S&P 500. Sure, you might lose money if the economy crashes, but then so will everyone. If you REALLY want to diversify, you look at investing in similar mutual funds overseas as well. So you put some funds in an S&P indexed fund, some in a japanese fund, and so on; that way, if America tanks and somewhere else in the world that you invested in doesn't, you're less affected than if you have invested in only America.

HOWEVER, due to the additional transaction costs involved (and the fact that America tends to drive the world economy), I wouldn't bother investing internationally. Invest 60/40 between indexed mutual funds and treasury bonds. If you're older, and can't afford to take a loss if the market crashes in the near future, increased the percentage you're putting into treasury bonds.

You can buy bonds indexed to inflation, but since we've had practically zero inflation lately, that's really just a ripoff.

The main advantages of an IRA are that it's tax deferred. But you can only contribute so much money into it per year. If you withdraw from it early, there's a penalty tax, so don't use it as a general savings account.

edited 23rd Jul '14 5:02:28 PM by TheyCallMeTomu

Although Warren Motherfucking Buffet seems to have consistently beaten the stock market in aggregate, but you're probably no Warren Motherfucking Buffet, so index funds are still the way to go.

You could theoretically try and just invest in exactly what Warren Buffet is investing in, but he routinely takes huge losses in the pursuit of making huge gains, and you probably can't sustain losses like that, so I wouldn't recommend it.

Also, again: transaction costs issues.

Brad DeLong finds himself baffled why the Stock Market basically hasn't reacted to growth for this year going from a 3.3% real GDP growth to a 1.7% reak GDP growth in terms of expectations.

China’s Corporate Bond Market: Dying Young?: A looming second default raises many questions about the nascent market. I really hope those aren't the sniffles of a economic bubble bursting.

Eric Chemi and Ariana Giorgi: For CEOs, Correlation Between Pay and Stock Performance Is Pretty Random (No seriously, the chart's whack.)

The changing face of the World Oil Markets: The emerging economies are driving demand, but those fuels are of inferior quality to the hydrocarbons of the past, but the stagnating production is pushing up prices, and any growth in production is being hindered by geopolitical instability. But even regional drilling is only curbing price growth, not knocking it down.

The Dodd-Frank Reforms are finally becoming to show their stuff (The Volcker Rule has been upheld, Banks are now required to hold higher levels of capital, an exchange for trading derivatives was established, and the FDIC is working on how to create a 'death panel' for a failed major financial firm.

Additional dimensions of inequality, in the US, we're seeing how inequality and Right Wing Traditional Family Values clash against one another, because those values, which lead to earlier pregnancy and lower paying jobs are making a sustainable life style harder, especially since these families aren't getting the education society and business is increasingly demanding.

• Watchdog launches full energy probe

• Ofgem orders SSE and UKPN to pay extra £3.3m in power cut compensation
• Jobs lost as car parts firm Unipart Automotive goes into administration

You know, I made a $16,000 profit playing the stock market, only to later see most of that disappear (I now have a $4,000 profit). I suggest you do a LOT of research and try to figure out how the stock market works. For example, a product that sells really well may not necessarily make the most money.

Also, companies that consistently make profits may have their stock prices go down, as happened to Nintendo during their massively profitable Wii period. Stock prices are not rational; they're often based on what people think will happen in the future, not what's happening now. A company that posts great earnings may see their stock shoot up because people are excited, but price and profits are not directly related.

It's complicated. Also, let's not forget that many companies (see Comcast and Time Warner for perfect examples) will do anything to raise their shareholder value, screwing consumers left right and center. Now look at their stock prices over the psat 5 years. You'd make a killing off of their stock, but feel like a terrible person doing it. Investment sites have even said "Despite facing stiff competition, Comcast..." which is such colossal crap (and the few people who posted in the comments section made no effort to contradict that), that it really shows just how many of these people think. Many of them do not have morals. I refuse to invest in Comcast and Time Warner precisely because I think doing so is dead wrong, even though they would have consistently made me money if I had.

edited 24th Jul '14 8:36:47 AM by BonsaiForest