The General Economics Thread

That's the big one. Trade deficits only work in the long run if you have a lot of capital wealth to finance the products coming in, so it is only sustainable in a system with high inequality.

But how does one enforce balance of trade in a free market system? Unless we entered a neo-Bretton Woods era where currency exchange rates were fixed by agreement at a level which forced more-or-less even balances of trade.

Even during the Bretton Woods era, several countries had severe Balance-of-Trade issues.

Mind you, it doesn't mean much when the major supermarkets have a stranglehold on the supply (and cost) of food and are in the middle of a Price War. It means some — probably a fair few — farmers actually earn less than the minimum wage.

edited 3rd Jun '15 10:05:19 PM by Greenmantle

Brad Delong: Paul Krugman Was Right. I, Ken Rogoff, Marty Feldstein, and Many, Many Others Were Wrong — in this case, about the economic recovery from 2009 onward.

edited 4th Jun '15 5:09:34 AM by Fighteer

DISH Network and T-mobile in possible talks to merge.

edited 4th Jun '15 8:23:55 AM by Discar

The first thing we should do is threaten to sanction China if it doesnt stop undervaluing it's currency. After that, if you're chartered as an American Corporation, then you better invest x% of your annual gross profits in domestic payroll- "x" to be determined via a careful analysis by professional economists.

(Equitable Growth Blog) "Must-Read: Cullen Roche: Does a “Liquidity Trap” Ever End?"

(Basically an argument that Krugman has been right for the wrong reasons, and that New Keynesian Economics has holes it needs to explain if it is to be taken seriously, with regards to said traps, i.e. he's missing something about the Japanese and US economic depressions, and "how long does a trap remain a trap rather than just reality")

How Capitalism is doing one thing right: It seems to be making war less desirable.

Krugman: Fracking and the Texas Non-Miracle (how Fracking, among many things, was driving the Texas economic boom, and why the state's not doing so well, now.)

edited 4th Jun '15 2:24:28 PM by PotatoesRock

How does Keynesianism avoid the Broken Window Fallacy? Specifically, busywork?

edited 4th Jun '15 2:40:14 PM by TheHandle

Not sure what "avoiding" means here. Unless you want to say that the fallacy isn't a fallacy in situations where someone is not using an opportunity, thus negating opportunity costs.

Once the destruction occurs, the question is whether or not to spend the money to replace it. Not spending the stimulus after the 2008 crisis is equivalent to not replacing the window.

Well, it's just that, ever since I was a kid, my parents' way of telling me not to be a spendthrift is to sarcastically shout at me something along the lines of "But of course you need to consume! You're driving the economy! Making the wheels turn! Well done, you!" There seems to be a perception that "increase spending to make everyone wealthier" is equivalent to "throw your money away into useless consumer goods, and make consumer goods that don't last long so that people are forced to buy new ones regularly, and ending is better than mending, and the more stitches, the less riches"

The Broken Window Fallacy is any situation where demand is stimulated by damaging or destroying something — the original example is smashing windows so that window-makers will get more business.

It's a fallacy because the resources spent to replace the windows could be used for something better. However, if there is no better use — say, the economy is mired in a demand recession — it is better than doing nothing. In fact, the classic Keynesian exit from the liquidity trap is the need for enterprises to replace worn-out capital equipment. Wars are also stimulatory due to spending on the production of military materiel, even though that materiel is used to destroy things elsewhere.

There is some validity to the idea that making more durable consumer goods causes a net decrease in demand for those specific goods, but it's a fallacy in the general sense because the money not spent on replacing broken goods is instead spent to buy other products.

Macroeconomics is not a zero-sum game. Multiplier effects mean that stimulating demand by taxing and/or borrowing can increase the total size of the pie.

edited 4th Jun '15 3:28:46 PM by Fighteer

You mean, like, amortized?

Depreciated, more like. But I'm talking about literal situations. An auto plant has machines that build cars. If those machines wear out, they have to replace them. Those capital purchases are a form of demand.

edited 4th Jun '15 3:28:05 PM by Fighteer

Ideally, spend your money on something that makes the world a better place.

Let's not wax overly philosophical. Most people allocate their money to necessities, luxuries, savings, and "good deeds", roughly in that order. We are still at the point where a disturbingly large portion of the population of all nations can't get past that first step. Solve that and we'll go a long way towards solving our other problems.

Which step?

Well, isn't part of the reason for the liquidity trap the sheer efficiency of the financial sector as an investment property? Money is being tied up in making more money without actually expanding products. Thus, we need exchange taxes (to stop flash trading) and we need them yesterday.

At the risk of using a gaming example, in Total War: Attila, the Eastern Roman Empire gets 5% interest on its treasury per season (so about 21% annually if I did my math right). They have no reason whatsoever to build income-generating buildings, and same with RL people who have money in financial instruments. (Of course, the ERE doesn't have market crashes, and the real world does, but the real world also has golden parachutes and bailouts.)

Remember the TTIP? Turns out there's something even worse being prepared. Leaked document here. Article cummarizing and contextualizing it here (in Spanish).

Cummarizing? Is that like a very abbrebviated sex act? *runs*

Essentially, this is the US trying to put pressure on the EU to stop enforcing EU privacy regs on US corporations.

edited 5th Jun '15 2:26:05 AM by Ramidel

The Malaysian Goods and Services Tax has resulted in drops of up to 30% in revenue for some businesses.

On that note, how regressive or progressive are goods and services/value added taxes?

They're generally regressive, because they tend to hit poorer consumers harder.

Consumption taxes/VAT tax are regressive because they apply to whatever portion of your income you allocate to consumption. If you spend 50% of your income on things subject to it, your effective tax rate is higher than someone who spends 10%. Needless to say, this maps almost directly to income levels: the lower your income, the more of it you spend on consumption, ergo your tax rate is higher.

edited 5th Jun '15 7:12:09 AM by Fighteer

Nick Bunker: Waiting for healthy U.S. wage growth — at current trends, we won't see the employment-to-population ratio hit the ~79 percent mark that is needed for "healthy" wage growth until sometime in 2017, and therefore there remains no reason to raise rates to ward off a hypothetical inflation demon.

Paul Krugman: The Lone-Star Stumble — Texas' vaunted economic success, supposedly vindicating "trickle-down", "reverse-Robin Hood" models, has begun to show weakness in the face of reduced petroleum prices, which accounted for about a third of its growth.

Texas is the Russia of the US.