The General Economics Thread

It's hilarious that China, where we offshored so much industry, is now trying to offshore its own industry.

It's not that they're trying to offshore it per se, their idea is probably a "Why Not Both?" thing, getting that the really high living standards come around when you've transitioned to a service economy, while also liking the strong export position that their industrial base affords them.

And even if they were, hey, that means that China's economy has made progress!

Regarding offshoring in general: I personally think the solution to the problems of offshoring is redistributive taxation. I'm sure deathpigeon would find the following idea of mine abhorrent, but here goes: If the people of America, 1% and 99% alike, have a permanent ownership or financial stake in the industry and wealth of the Third World, then why does it matter if all of our jobs are offshored? At worst, America develops into a permanent leisure class like the global one-percenters that we are.

Double Post: I just had an idea. What does everyone think of the Federal Reserve as an independent organization like it is now? Would it be better to convert it into a central bank that acts under government control and oversight to achieve the objectives of the government?

I'm not sure that it matters how it's controlled as long as it follows good policy. I might appreciate the ability for, say, a Democratic administration to force Keynesian reforms, but what happens when a Republican gets into office and goes nuts?

Right. We make certain institutions, like power utilities or the post office, semi-independent of the government that administers them as a buffer against partisan politics. That way experts can run the show without micro-management by politicians with their eyes on the latest polling results.

Adam Kotsko: The Good Inequality (Basically an argument that people want or don't mind inequality. As long as it feels reasonable/justified by stuff like merit and skill. Basically you earn your wealth.)

Zeynep Tufekci: The Machines Are Coming (Op-Ed, NYT) The robots and machines are coming but they aren't the problem, the issue is how humans value one another.

(Robert Reich) How the New Flexible Economy is Making Workers’ Lives Hell

There's nothing wrong with that as long as the profits from the capitalization are taxed and remanded to the people in the form of income supports. Otherwise, the logical extreme is for robots to be making products that nobody has any income to buy.

edited 24th Apr '15 12:24:16 PM by Fighteer

EU to Greece, sort things out or you won't see a penny of our money

I don't think Greece has any bargaining power over the deal, they kinda need the money.

edited 24th Apr '15 12:35:42 PM by AngelusNox

Greece to EU: Okay, you won't see a penny of ours. Bye.

Seems to be what happened in The Matrix's backstory.

This Greece thing is interesting, how the creditors remain in lockstep. They realize the danger to their position, that if they let Greece go then the entire austerity regime will come tumbling down. It's telling that the finance ministers don't seem to care about the fact that Greece is running a primary surplus, they demand pension cuts and union-busting (labor-market-reforms) or the whole country can burn, apparently.

The Greece scenario is a deliberate effort by the big money types to crush a nation that dares defy their rules in order to set an example for others. They know that their ability to command the wealth of the Eurozone is at stake.

edited 24th Apr '15 1:39:15 PM by Fighteer

That's a pretty, ahem, epic way of phrasing it. What, so we've finally got an actual clear-cut Good vs. Evil, David vs. Goliath, the little guy against The Man, the forces of Humanity vs. the heartless and arthritic Invisible Hand that is cold as a corpse and keeps touching you in uncomfortable places?

Considering how much the David has been kicked by austerity, he wants the opportunity to have little stones on more reasonable terms.

I think I've stumbled along an analogy, and not an obvious one to boot. How to make it clearer?

A quick question, what are the advantages of lending to a country that practices Keysian economics? And why would anyone loan money to Greece. From my understanding Greece has no intention of paying it's current loans, so what is to stop them from doing something similar in the future?

You lend to Greece because you get to large high levels of interest, you don't care that the money will never be paid back, you don't lend money to governments expecting it to be paid back, you lend it because it produces a steady income in interest money.

Those are some broad questions, Jack. The short version: lending to a country that operates on a Keynesian paradigm is probably safer in the long run because the currency will remain more stable and you don't have to worry about reactionary anti-government types deciding to default for ideological reasons. Of course, your returns will probably be modest unless the country is growing like crazy. As the U.S. is in a state of secular stagnation, real returns on U.S. bonds are as close to zero as it's possible to get; you invest there for security, not to get rich.

As for Greece, lending to it in the current circumstances would be stupid. It's not that it doesn't want to pay back its debts, but rather that it's being forced to do so under terms that effectively keep it in a permanent depression. Your chances of a positive return are virtually nil, because the likely outcomes are all bad for you:

• Greece exits the euro and effectively repudiates all its euro-denominated debt. You'd probably get restitution from the ECB but there would be all sorts of red tape involved.
• Greece staggers along in the throes of punishing deflation, taking decades to pay off its debts if it ever manages to do so.
• The Eurozone leaders cut Greece some slack and write off some of its debt. You take a haircut.
• Greece has an internal revolution and it's a die roll whether the new leaders are willing to remain faithful to their treaty obligations.

edited 24th Apr '15 2:53:12 PM by Fighteer

I doubt it will get quite that bad. Though the question of who will prevail in Greece if Tsipiras and Syriza fail utterly is an open one. They're not going to go back to the New Democrats after all that. United Greeks, maybe?

There are two sides to the argument, after all. Greece defaulted in the first place largely due to widespread mismanagement and tax evasion. Greece tried to borrow in order to subsidize a middle class lifestyle for it's citizens, without doing much to increase productivity. To that extent, the creditors (and more to the point, really, the German voters who are lending their political support to the creditors) have a case. The problem now is that the solution being imposed on Greece is not the economically ideal one, and may in some ways be making the situation worse.

The question is if they wouldn't have been able to get away with that if they were on their own currency. Everybody was complicit in the bubble economy, nobody cared about applying the brakes until the whole thing popped in '08, but their ability to react to it was hamstrung by the fact that they were separate but intertwined.

Greece did need austerity from a governmental perspective, but it could have been greatly abated if they had been able to currency-devalue their way out of it. As it is, they're stuck with a currency that's too strong for an economy that frankly isn't up to speed.

It's a mess indeed, but preying on pensioners and the working class has to be the meanest way to go about resolving it.

Its been mentioned before, but the whole idea of a common currency yet separate fiscal policies for each nation is inherently flawed.

I don't think that anyone in the process is arguing that Greece has covered itself with glory or is blameless in the matter. Their economy was a train wreck long before they joined the Eurozone, but that's just the thing: they should never have joined. Once they did, the monetary union should have demanded fiscal reforms before any extended bond issuance would be permitted.

However, Greece instead benefited from the irrational exuberance that overcame euro investors, which served to mask its internal problems in an illusion of prosperity until the music stopped.

None of this was the fault of the Greek people, per se, and telling a recent college graduate that he has to live on welfare for ten years rather than use his education productively because his country is a deadbeat is not going to improve the situation in any way.

edited 25th Apr '15 6:54:27 AM by Fighteer

Greece is one of those countries where it's not too much of an exaggeration to say that their economy has always been a train wreck; and I wonder if Greece was given much of a choice (behind-the-scenes) when it came to joining the Euro?