The General Economics Thread

I don't really understand the SUPPLY IS EVERYTHING! people. There are a ton of examples of products no one wants to buy and other products that saturate the market and plateau in sales.

Supply side deals more in aggregates. Indeed, my Macro class has been going over the Solow-Swan growth model and now i at least understand the rationale behind supply-siding, as Solow-Swan pegs income as a formula of Output = Tech Factor x (Capital ^ Y) x (Labor ^ (1-Y))

Under this formula, incentives for several factors become clear: more workforce participation, more capital investment, better technology, are the determinants of societal wealth: so you want to encourage savings and investment through higher interest rates, encourage workforce participation, and encourage investment into capital (through things such lower capital gains).

Trouble is that the model is not entirely built for macro because it assumes capital and labor both being infinitely divisible and infinitely interchangeable, as well as not regarding what motivates capital investment: consumer confidence, or demand.

Why Uber loves Obamacare (Hint: It saves costs by not paying for health insurance and lets them grab employees and drivers who would otherwise be tied down to other jobs.) Meanwhile, there's an ongoing lawsuit that Uber's drivers should be considered fully fledged employees of the company (and should get health insurance coverage from them.)

Worldwide ship traffic up 300 percent since 1992: "Maritime traffic on the world's oceans has increased four-fold over the past 20 years, likely causing more water, air and noise pollution on the open seas, according to a new study quantifying global ship traffic. The research used satellite data to estimate the number of vessels on the ocean every year between 1992 and 2012. The number of ships traversing the oceans grew by 60 percent between 1992 and 2002. Shipping traffic grew even faster during the second decade of the study, peaking at rate of increase of 10 percent per year in 2011."

Question:

Suppose a nation wants to renationalise something from their land that belongs to a corporation. However, since most corporations are octopuses with various tentacles (such as tax evasions, armies or lawyers, quick firing rate of workers and so forth), the only way to make it efficient would be, say, to cooperate with countries who also have parts from said corporation in order to benefit people in terms of things like redistribution of wealth and other stuff.

Would that solve the problem of, say, the 'too big to fail' banks or corporations involved in active destruction (socially, economically, environmentally) of the respective nations and, in the long term, improve the nations' economies around the world?

If this post sounds stupid, please explain to me.

I'm afraid that I dont understand. Are you asking regarding a nation that nationalizes some corporate owned land, and then needs some parts from that corporation to operate whatever was on that land (maybe farming machinery)? I'm sure a deal could be made with the corporation itself.

I'm not certain what that scenario has to do with banks that are too big to fail. That's generally a problem for developed nations, and so far as I know isnt directly connected to agri-business in the developing world. Can you give an example of what you mean by "active destruction"?

I was kinda aiming at that, yeah (keep in mind that I'm not just talking about farming). Though I doubt the corporations could agree on the deal, considering that they don't want to compromise their profits in any way.

Considering I'm not just talking about the agro-business, I wonder if a mega bank who's present in certain countries could suffer a partition-style nationalization among countries in agreement on an economic plan involving them. This partition would involve the use of machinery/equipment/hardware, as well as the use of any funds/money located in the respective places in order to redistribute wealth or to build new companies from scratch.

(Yes, I'm worse than an Economics n00b, and quite naive.)

Governments may, at a fundamental level, seize anything they wish, through the simple principle of ad baculum: "I have an army, and you don't." In reality, most countries have legal frameworks that govern how and why such seizures may take place. Still, if the U.S. government were to decide that Citigroup (for example) needed to be nationalized, there would be little that Citigroup's owners or shareholders could do about it.

Usually a seizure like that wouldn't take place unless the business in question were struggling with solvency. In this case, the government steps in as "lender of last resort", providing operating capital in exchange for a large chunk (anywhere from a simple majority to 100 percent) of the company's stock. Alternatively, the company could issue a new batch of preferred stock which the government would purchase, making the previous stock effectively worthless. This is what happened with GM and Ford.

Although, I do wonder what would happen to a firm's foreign subsidiaries (if they had any) — would they be then owned by, say, the US Government?

It would depend on the ownership structure: an independent franchisee probably wouldn't be affected, but a wholly-owned subsidiary would be considered part of the parent corporation and thus subject to the same takeover.

I can see that creating a few problems, especially if the other Governments weren't informed and didn't give their approval first. Mind you, that hasn't stopped a lot of Governments seizing parts of multinationals...

edited 20th Nov '14 7:43:22 AM by Greenmantle

Brad DeLong on Martin Wolf's comments of Weak Global Demand.

Wolf notes three reasons for this:

• 1) An excessive amount of overhanging personal debt.
• 2) Another is that there was too much cheap private and public credit, so what was happening was unsustainable.
• 3) There's just been a general slowdown due to demographics, reaching the limits of current pproductivity and just noone willing to invest as much.

De Long adds to this, there's some other stuff going on:

• A) The rise in income-wealth inequality is being fueled by the non-rich needing to spend and not save to stay afloat and happy.
• B) There's been a rise in assests to be deemed safe at the same time emerging markets were liberalized, technology became globalized and First World Countries became hoarders.
• C) A growing skepticism of pragmatic regulation's ability to prevent systematic risk that could collapse industries
• D) The policy climate and the deregulation of 2000s led to governments insisting to only do the bare minimum to fix the problem.
• E) "the fact that tail risks had not been realized for generations meant that they were underweighted and portfolios were not properly hedged: as Minsky said, the fact of past stability destabilizes the future"
• F) The hubric obsession of 2% target inflation as the maximum allowed room, and Germany basically going aggregate demand in the face of an unstable currency union is "Someone else's problem".

Wolf argues that to solve these issues:

• A) The Eurozone either break up or create safety values to make the Euro work better.
• B) Strong regulatory mandates to diminish the use of leverage and debt.

As a medium run solution, his long term solutions are:

• A) Balance distribution of wealth
• B) A new form of economic science that doesn't obsess on rational-expectation and effecient-markets, and instead views economics as dealing with fairly irrational people and ineffecient markets.
• C) More globalization that allows for localities to craft their legislation effectively in the face of such a world.
• D) Reform finance to prevent it from creating property bubbles (This is important for Wolf most likely since he's based in London which is having hilariously gross real estate bubbles)

(De Long notes A and C basically rely on "And when Wolf call for both “more globalization and less” what I hear is a disheartened cry for better policymaking. But we will get that only when we live in Platonis πολιτείᾳ, non in Romuli faece–when we live in the republic of Plato, not in the shit of Romulus".

Most of that is Keynes 101, with some modern adaptations.

Most of Keynes 101 has fallen to the wayside, remember.

The Tufts Center for the Study of Drug Development (a shill for the pharmaceutical industry) claims that new drugs require at least 2.6 billion dollars to make.

The chilling irony of German led austerity: European austerity policies that are leading to mass unemployment now are exactly the same conditions that led to the Nazi Party being able to seize political power (It was severe deflation, not hyper inflation that fed civil unrest in the 20s and 30s.). As well conservative governments doing nothing fed worker-level revolts.

The article ends in noting this economic depression has led to the neo-fascism in Hungary, is leading such a rise in Greece, and the UK and France are both seeing their isolationist-fascists gain steam. Basically Germany may not give rise to the next fascist dictator in its own borders, but German led pigheadedness sure is enabling it everywhere else.

edited 20th Nov '14 10:07:29 AM by PotatoesRock

@Quag: Once the corporate assets are seized, profits from those assets are gone. In order to reduce their losses, any business would consider leasing or selling spare parts to the government that took those assets. Might as well make some money.

As for banks- nationalizing a commercial bank doesn't make much sense, since nearly all their deposits and investments are not owned by the bank itself, but by their depositors or investors. It's essentially personal property. You could have to nationalize those assets as well, I suppose, but that would be a legal and logistical nightmare. I cant see it being worth the trouble. It because a possibility during the 2008 financial crisis because so many of the banks involved were on the brink of bankruptcy, so the government offered to buy the bad loans from them. That wasn't outright nationalization, however, that was a purchasing program.

Thank you, Fighteer and demarquis, for clarifying me in simple terms.

"Nationalizing", for a bank, means taking control of the bank's operations. Banks still have stock in addition to depositors and other creditors. If a bank becomes insolvent: unable to honor its cash liabilities, then the government may step in by purchasing the bank's assets and guaranteeing some or all of its liabilities. In these situations, the bank's shareholders typically take a large haircut.

During the 2008 financial crisis, the government doing exactly this for some of the major banks was a real possibility, but a determination was made that there was insufficient legal basis for such a move. This was almost certainly a case of political cowardice, but what's done is done. We can't go back.

edited 20th Nov '14 11:55:36 AM by Fighteer

Several major banks were nationalised in Britain and in other countries. It could have been done.

edited 20th Nov '14 3:08:54 PM by Greenmantle

The irony would be delicious if it wasn't terrifying.

European Parliament may propose "Google break-up" resolution.

Turkeys coming home to roost for Google, basically.

Lloyds Banking Group says card problems sorted

New York-born London mayor Boris Johnson refuses to pay US tax bill

So Uber's suffering a series of public relation disasters:

• The chief executive calling the company "Boob-er" because of all the women he's picked up
• The company is hiring contractors with prepaid cellphones to hassle and troll their competitor, Lyft.
• The CEO comparing his company's woes to the troubles in Ferguson
• Blackmailing reporters
• Misusing customer data
• Promoting it in France with "hot chick" drivers
• Denial of liability when accidents happen

Meanwhile, Lyft is on a public relations roll and generally portraying Uber as bullying libertarians (something Uber's executives are frankly offering in spades.)

And the Taxi industry is still against them, due to them not being subject to the same rules as they are?

I believe so. The Taxi industry is also a very collusion-based industry between the Taxis and local governments, generally making the taxis a very hard to get-into industry (as well as creating a hyper expensive limited supply of Taxi Medallions), as few can get into the business or acquire a Medallion, if I remember reading correctly.

Depends on the country. Here, it takes some time, a medical, mandatory training, the requite Criminal Record checks and of course a vehicle check/inspection by an inspector. Taxis and minicabs are everywhere.

edited 22nd Nov '14 5:19:17 AM by Greenmantle