The General Economics Thread

@ Quag: And the level and proportion of commuters, where they live, and transport links to/from the city/cities/conurbation. After all, a person could commute from another region in the country or even another city.

edited 28th May '15 12:02:55 PM by Greenmantle

I commute to the capital for my work. It's about a 30-45 minute drive without heavy traffic, but the school districts are better in the suburbs. So I rather drive a bit and have my kid in a good school than be right by work and have to worry about him.

Possibly the shift from 1 Million plus inhabitant cities to cities with 100 to 500 thousand people. Since they are big enough to provide opportunities but not populous enough to be cramped and still have plenty of room for expansion.

Will a loss of "Yuppie type" jobs lead to a move away from cities?

No, because the elite rich will still live there, who control a disproportionate share of the wealth, and where the wealth is, that's where people will go. We might see a growth in low-income residential areas, however, at the expense of suburbs. You need an abundance of middle class jobs to maintain suburbs.

As we approach the inevitable time when the Federal Reserve will raise the funds rate, Krugman notes that nearly a third of current traders have never experienced a market where rates were above zero. This is somewhat scary.

He also notes that the motivation for many (most?) of them is not any form of social value, but sex and drugs.

edited 29th May '15 7:09:25 AM by Fighteer

They're young men, mostly, fresh out of college. What do you expect? The real problem whether anyone sticks around long enough to become a mentor figure.

Following up from that post, the financial press (Bloomberg in this case) continues to describe current rates as "artificially low", which is a nonsensical argument. First, "artificial" is a more or less meaningless term; as the Fed always sets the funds rate. The idea of it being artificial comes from the fact that it doesn't align with what is considered the desired rate of interest to prevent inflation. Of course, then you have to look at the "low" part, which is false — by all analysis, the funds rate is actually too high, constrained by the zero lower bound.

If Bloomberg were to publish a technically accurate article, it should note that the federal funds rate is "artificially high" due to the deflationary push in the economy, with the Fed unable to gain traction since it can't set the rate below zero. Of course, that would require that people in the financial press understand macroeconomics, and that their audience understand it as well.

These are the people who are running the stock market, and the people that they get their news from. Be very afraid once that rate starts to climb.

edited 29th May '15 7:11:25 AM by Fighteer

I am afraid that the livlihood of people in the financial sector depends upon them "not understanding" macro-economics. They aren't stupid.

Stupid, no. Ignorant, yes. How many of them actually study macroeconomics? How many understand the concept of the ZLB or the liquidity trap? Are their schools just teaching them monetarism and nothing else?

The system that produces the people who manage our money seems designed, intentionally or not, to be a self-reinforcing thought bubble.

edited 29th May '15 7:19:58 AM by Fighteer

You dont need a degree in economics to understand how interest rates work. I detect a strong level of "willful ignorance" here.

edited 29th May '15 7:20:39 AM by DeMarquis

Indeed. I don't necessarily blame the traders; they don't determine what they are taught. But Bloomberg has no such excuse. Someone on their staff ought to be reviewing these articles and saying, "Hey, that's wrong. That's not how interest rates work." That they are not doing so speaks towards either a circle of self-reinforcing ignorance, an ideological agenda, or both.

edited 29th May '15 7:26:11 AM by Fighteer

To be fair, I've had a bit of Economics in college, but I wasn't taught things like interest rates, monetarism or fiscal policy.

Hence why I tend to ask and listen to you guys here, for the most part.

Honestly, I don't trust Bloomberg. They've always seemed way too biased.

edited 29th May '15 7:27:32 AM by Quag15

Exactly, to both. Economics students (never mind finance students) are not taught fundamental concepts that are essential to understanding our current markets, and that failure often stems from people with ideological motivations.

What makes this even sadder is that they would stand to make more money from an accurate understanding of those topics. Krugman and many others have noted that if you bet according to what the Austrians said, you'd have lost a ton of money since 2008.

edited 29th May '15 7:30:49 AM by Fighteer

"To be fair, I've had a bit of Economics in college, but I wasn't taught things like interest rates, monetarism or fiscal policy."

That's the opposite problem, the other way around, so to speak- people with degrees who arent taught how the real world works. It's not just in economics.

Funny, in college during my Economics and Economy Engineering classes I was taught economic models, specially Keynesian, interest rates, monetary policy, inflationary and deflationary effects on currency and investments, investment return rates but mostly to calculate those to our benefit.

Since I study in an engineering heavy college, it makes sense to know if the project you're working in is economically viable to begin with.

Nick Bunker: What to make of slow 1st quarter U.S. economic growth? If GDP really did decline 0.7 percent with unemployment at 5 percent, then there is a serious flaw in the standard narrative about the economy.

Of course, we here already know this, but the mainstream press still seems befuddled about it.

Krugman has noted more than once that technical professions, like international currency trading (and, apparently, engineering), study Keynesian economics because their livelihood depends on real numbers — correct assessments of costs, risks, and forecasted behavior. In other words, if you work in a reality-based profession, you get a lot more grounding in real economics.

edited 29th May '15 7:38:21 AM by Fighteer

To be clear, my course is Communication Sciences, so, there wouldn't be enough curricular time in the course available for Economics.

That being said, I know only a couple of my colleagues/friends pursued Economics journalism. Which is also a bit concerning.

So, there are different teachings of Economics in different courses which aren't called Economics or some variation of it.

edited 29th May '15 7:37:47 AM by Quag15

Scarily, much depends on the ideology of the people running your school or the people funding it with grants and endowments.

edited 29th May '15 7:39:29 AM by Fighteer

Well, the place is called (loose translation) Superior Institute of Social and Political Sciences, and most of the big shots are members of the current governing party (PSD - centre-right, austerity supporters). My Economics professor even bragged that he personally knew the prime minister.

So, yeah... it's as scary as you say.

edited 29th May '15 7:47:51 AM by Quag15

Part of the problem is that success in financial circles often derives not so much from whether you are technically competent at making money, but from whom you know and how well you can make them believe that you are competent at making money. To that end, you are more likely to be entrusted with people's investments if you appear to share their beliefs. If your clients are all hardcore goldbugs, then you won't get their business if you tell them their ideas are nonsense.

Talk the talk long enough and you start to believe it yourself; otherwise you've built your entire career on lying to people. And hey, don't you deserve the rewards for your effort? So you become part of the circle preaching this stuff because to do otherwise would be an intolerable act of self-negation.

edited 29th May '15 8:01:30 AM by Fighteer

Whatever happened to The Barnum who could indeed lie with a clear conscience, and, most importantly, a clear head?

Marshall Steinbaum: The future of work in the second machine age.

The second chart shows the relative gains in income among quintiles between the periods of 1947-1979 and 1979-2012. It's kind of scary.

I believe the main concern is all these newbies with no experience with non ZBL markets is that it could easily run the economy into trouble.

(Mashable) Vox Media acquires Re/code

I don't see how it could create too much trouble, unless the fundamentals of this market are as poor as they were before and any migration towards T-bills causes some sort of house-of-cards ripple effect. The traders will follow the money, which should still be in stocks unless the Fed jumps too high.

There is strong concern among some people about hidden speculative bubbles in the stock market due to the immense amount of saving pressure with no investment outlets. A significant shock to the markets could pop them.