The General Economics Thread

That's the other legitimate argument for protectionism. One can, of course, make loss-leading illegal.

"We learn from history that we do not learn from history."

But muh freedoms.

And the court case over this loss-leading could take years to pursue and would at most result in fines and an order to desist; meanwhile John Deere has already driven the local manufacturers out of business, making the farmers dependent on it such that a cease-and-desist would be more harmful than helpful.

"It's Occam's Shuriken! If the answer is elusive, never rule out ninjas!"

Krugman via The Guardian: "The Austerity Delusion"

This is a comprehensive (and lengthy) article on the rise and fall of the austerity cult in Western politics.

"It's Occam's Shuriken! If the answer is elusive, never rule out ninjas!"

Could someone explain to me the economic situation of Detroit? Like how it wound up this way ? I'm pretty sure it started in the 70s, but it's the details like the falling property prices and how it's falling apart that bug me

Also, the sheer hatred of foreign cars.

Darkness cannot drive out darkness; only light can do that. Hate cannot drive out hate; only love can do that.

Detroit is a fairly straightforward example of a city built around a particular industry that suffered an economic collapse when that source of jobs dried up.

"It's Occam's Shuriken! If the answer is elusive, never rule out ninjas!"

Double Post: DeLong's analysis of the extraordinarily weak U.S. growth report for 2015 Q1.

The continued lack of recovery towards pre-2008 trends indicates that we should be abandoning any pretense of fiscal or monetary tightening and should instead be conducting massive stimulus measures until we see the whites of inflation's eyes.

edited 29th Apr '15 9:01:34 AM by Fighteer

"It's Occam's Shuriken! If the answer is elusive, never rule out ninjas!"

I haven't noticed any articles talking about imminent rate hikes, i'll note.

Don't we already have difficulty paying our debts? Serious question, how much more debt can the US afford to take on?

I Bring Doom,and a bit of gloom, but mostly gloom.

As much as it wants, since it can write it off any time it likes!

Keep Rolling On

Debt is really meaningless. The entire supposed crisis is just made up so conservatives have an excuse to cut food stamps

Oh really when?

If so many countries have large debts, what exactly does that mean?

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That anyone calling in those debts would be foolhardy, because it's a giant network of interdependence: your assets are their debt, their debts are your assets.

The crucial point is that this is true within a lot of countries. A fat lot of U.S. debt is money that one part of the government owes to another part of the government, or, in terms of bonds, money that we owe our citizens. Japan especially has this in a big way, where a lot of the so-feared government debt is held by Japanese citizens. Are they *really* going to force their own country to default, now?

People within a country will be pissed off if their government doesn't pay them back (e.g. Social Security, pensions). There's nothing they can do about it, of course, but they won't like it.

I'm up for joining Discord servers! PM me if you know any good ones!

There is no reasonable circumstance under which those debts would not be paid back, since the governments in question can issue money at any time, for any reason. (Extraordinary circumstances, such as a nuclear war or a meteorite falling on the capital, would disrupt a nation's economy regardless of its public debt.)

Now, maybe some hardcore monetarists could get elected and decide to default because reasons, but no liberal government would ever consider such a thing, and the monetarists would most definitely not survive the next election if they deliberately erased a huge chunk of a nation's private wealth.

Even a crisis like the one in 2008 was a textbook demand shortfall that should have been answered with more debt, not less.

It is important to remember that public debt = private assets. If the government holds its own debt, that is essentially meaningless because it's like writing yourself a future-dated check. Since it's your own money, the net balance is always zero.

The U.S. foreign exchange balance (how much debt we owe to other nations versus how much debt other nations owe to us) is pretty even; the larger principal is offset by higher interest rates on debt that we're holding.

The only thing that matters is how much government debt is in private hands, and those debts are assets on the books of their holders. Paying them off (exchanging bonds for cash) would result in a loss of interest-bearing assets in private hands and a huge, possibly inflationary, expansion of the monetary base. If we taxed to pay them back, it would be in effect a large wealth transfer from taxpayers to bond holders, with a huge deflationary impact.

No, we don't. In fact, in the current period of stagnation, the interest rate on long-term U.S debt is very close to zero, and the real rate (inflation-adjusted) is negative. Borrowed money is free for all intents and purposes.

The only effective limit on debt issuance is how much tax revenue the service on that debt consumes, and as long as revenue increases at least as fast as debt service, it's completely fine. Put another way, as long as [GDP growth] > [deficit as a % of GDP], the real value of the debt goes down, not up.

Of course, that's for an economy experiencing stable growth. For an economy that's overheating (characterized by rapid price increases in key sectors), you need to contract the money supply to reduce demand and thereby put the brakes on growth. For an economy that's underperforming (negative or flat price changes), you need to expand the money supply (take on debt) to increase demand.

The government's job is to spend in a bust, save in a boom. The years leading up to the 2006 housing crash and consequent 2008 recession were marked by easy money in a rising market — the opposite of correct policy. This made the bubble larger and the crash more severe.

edited 29th Apr '15 12:15:46 PM by Fighteer

"It's Occam's Shuriken! If the answer is elusive, never rule out ninjas!"

An Economist supervillain.

edited 30th Apr '15 3:50:05 AM by TheHandle

Darkness cannot drive out darkness; only light can do that. Hate cannot drive out hate; only love can do that.

@Jack: We can borrow at a functionally negative interest rate right now. Why would we not do that?

I despise hypocrisy, unless of course it is my own.

In case you haven't noticed I don't understand much about economics. I guess the problem with borrowing so much is that one day our economy may shrink so much that we can't repay it? Anyway is their ever a circumstance where having debt can be a bad thing,i.e your country can never repay it.

I Bring Doom,and a bit of gloom, but mostly gloom.

Greece has too much debt to repay; this was caused by horrific misuse of government debt in ways that impoverished rather than enriched the country.

Greece really is bankrupt, and Germany is trying to force them to not default on their debt because Europe will take the losses if Greece stops paying their bills. This is not a good thing for Greece, who can't pay, and can't maintain their country under the conditions of austerity Germany has mandated.

I despise hypocrisy, unless of course it is my own.

There are only two circumstances under which a nation with a sovereign currency could fail to pay back its debts: if it suffers a devastating societal collapse, like a Colony Drop, a Zombie Apocalypse, a supervolcano, a takeover by anarchists, etc.; or if it is forced to borrow in currencies that it does not control.

As the U.S. borrows in dollars, a currency that it issues, there is no circumstance other than the above under which it could be forced to default.

In one of these apocalyptic scenarios proposed by debt hawks, where everyone in the world is so scared of a default that they stop buying U.S. bonds entirely, the Federal Reserve would issue money to buy its own bonds and thus hold the rate down. Considering that such a scenario would involve the total collapse of the world economy, a U.S. default would be the least of anyone's concerns.

Yes, Greece screwed up its own economy, but it wouldn't have mattered if the nation still had its own currency and borrowed in that currency. The main reason why Greece can't inflate its debts away is that it uses the euro, a currency that it can't issue.

To reiterate for clarity: Greece's problem is not its debt per se, but decades (or more) of mismanagement combined with joining a currency union and thus losing control of its fiscal policy.

edited 30th Apr '15 5:42:41 AM by Fighteer

"It's Occam's Shuriken! If the answer is elusive, never rule out ninjas!"

Yes, but it's worth noting that a country that financing a deficit by printing money can lead to hyperinflation, as eventually creditors will stop accepting a currency that is backed by nothing but an untrustworthy government.

I despise hypocrisy, unless of course it is my own.

What makes it untrustworthy? At what point can we call hyperinflation?

Darkness cannot drive out darkness; only light can do that. Hate cannot drive out hate; only love can do that.

Ramidel is presumably saying that if a government has been so incompetent that it has to print money to get out of it's debt (and that would only happen because their economy is not growing) then people would eventually stop lending to it. But that would take a long time, since government's change their economic policies to suit investors, it would probably never happen.

Public debt is actually an tool that the government uses to control the amount of currency in circulation, and therefore over the level of demand in the economy, much like raising or lowering the Federal interest rate. By raising the rate they make it expensive for banks to borrow money from the government, so they borrow less and therefore lend less to private parties, and less money ends up in circulation. Less money in the system to buy the same amount of goods and services will result in money being worth more, one dollar will buy more stuff, and prices will go down. Lowering the rate has the opposite effect: by making it cheaper for banks to borrow money the borrow more of it, lend more of it, and more of it ends up in circulation, which raises prices but also causes more people to buy stuff (it raises demand).

When the government borrows money (mostly by selling bonds) it's doing the same thing as raising rates- it's taking money out of circulation. This method doesnt have exactly the same effect because a government bond is treated as an asset by the parties who purchase it. Since it's treated as a form of wealth, banks can sell or borrow against it as collatoral, so the economy is still stimulated in a certain way.

Regardless, the TL/DR here is that debt is less a problem than a tool the governments uses to control the economy. I would disagree somewhat with Fighteers claim that domestic public debt (debt in the national currency) can never be a problem- taken to extremely high levels (that is, greatly in excess of GDP growth over a sustained period) it could cause problems, but the US is no where near the level.

I dont know that the term hyperinflation has a specific definition, but it generally refers to a situation in which the prices of goods and services are skyrocketing within a very short period of time.

edited 30th Apr '15 6:11:04 AM by DeMarquis

"We learn from history that we do not learn from history."

Dass vague.

Darkness cannot drive out darkness; only light can do that. Hate cannot drive out hate; only love can do that.