The General Economics Thread

@ Izeinsummer: As mentioned in the article, does that cover countries like China, Russia or Japan?

edited 28th Jun '16 5:04:08 AM by Greenmantle

Keep Rolling On

Economic rules know no national borders (except in as much as they concern international finance vs. domestic finance, of course). Japan's been mired in a liquidity trap for decades, with all the symptoms of a ZPG-driven stagnation, but the way out of it has been known since the days of Keynes. China is still a developing nation for all its technocracy, with tremendous inequality and industries focused on exports rather than satisfying domestic demand. Russia is still at its heart an oligarchy run by crime lords.

In all cases, solutions are available but not taken because they would be inconvenient to the people in power and the institutions that back them.

If our systems are ultimately doomed, it's not because we don't know how to fix them.

edited 28th Jun '16 5:09:58 AM by Fighteer

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

Yes. China may officially be communist, but they are keeping their wages far, far below what their productivity would permit - hence the exports. I think the problem is quite simply an upperclass version of the swabian household fallacy where people are generalizing from their own experience to the nation as a whole even though that makes no sense at all.

An individual company that manages to increase productivity but hold wages flat will prosper. A country that does the same thing is just heading for mass unemployment. The difference is that for a solitary company, the wage roll does not impact sales - you are not selling any significant percentage of your production to your own workers, after all. But for the country as a whole, payroll and customer base are very nearly the exact same thing.

So the titans of industry think they know that low wages are a good thing, and lobby for it, even as it destroys their sales.

That's actually a legitimate concern — it's entirely possible for the economy to "overheat" and run into a labor shortage where the unemployment rate being too low means that employers can't find people to fill positions they need to expand their business or replace lost workers. That's not a problem we've faced for the last few decades, but it is a real thing that actually happens, and raising interest rates (to make investment more expensive and thus hit the brakes on the economy, which is basically growing faster than is good for it at that point) is the correct response.

Really from Jupiter, but not an alien.

This is correct, and it falls under the age-old principle of applying the right tool to the right job. Central banks these days appear to be living in abject terror of inflation driven by a saturated employment market, a fear that is completely destroyed when the evidence is examined.

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

I just got told by a BREXIT voter that we can't print money to pay for things (and instead have to leave the EU to pay for things) because it would devalue the pound...

As I responded, they are in no position to talk about devaluing the pound.

“And the Bunny nails it!” ~ Gabrael “If the UN can get through a day without everyone strangling everyone else so can we.” ~ Cyran

Well, at least that's consistent with the notion that Leave voters are abjectly ignorant of reality. /sigh

Sadomonetarism has become part of "what everybody knows" even though it's completely wrong.

edited 28th Jun '16 6:44:21 AM by Fighteer

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

Devaluing the pound is not necessarily a bad thing, and the extra money could jump start the economy.

I think there’s a global conspiracy to see who can get the most clicks on the worst lies

If the government was willing to spend money.

But Osborne's more or less said the Tories, for as long as they remain in office, will remain with the guiding principle of "Beatings will continue until morale improves" (Austerity will continue until the economy recovers.)

....or until people with torches and pitchforks (or the SAS with rifles) turn up outside 10 Downing Street.

Which, considering how increasingly angry and unstable this country is becoming at the moment, is becoming slowly more likely.

edited 28th Jun '16 6:56:01 AM by Greenmantle

Keep Rolling On

But to go by the ratio of Leave voters, it's not at all certain that the Torches and Pitchforks would be on the side of correct macroeconomic policy. Such are the reapings of political ignorance sown by privileged elites who want to manipulate the populace to serve their self-aggrandizement.

edited 28th Jun '16 6:56:42 AM by Fighteer

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

Quite. If mishandled ^note  which considering the calibre of our so-called politicians, is likely, they could end up Dead.

edited 28th Jun '16 6:59:59 AM by Greenmantle

Keep Rolling On

You know, one of the big problems with knowledge is that it can make you very depressed when you look at the UK's devolution and realize that it's entirely self-inflicted out of willful ignorance.

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

Well, it's likely that very little will actually change anytime soon. I wouldn't be at all surprised if they just delay until a second referendum could be called.

I think there’s a global conspiracy to see who can get the most clicks on the worst lies

Even if the Leave vote is annulled by inaction or explicit decision, it won't fix the EU's basic economic governance problems, which contributed heavily to the motivation for said vote in the first place.

edited 28th Jun '16 7:14:31 AM by Fighteer

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

I half wonder if part of the problem is Macro is like Quantum Physics / the really weird shit regarding Relativity. Things make sense on the Micro (Newtonian Mechanics/General Relativity) end of things. But then you start bringing in the how light lens at near Speed of Light motion, wave functions, electrons not having a truly observable position and the like.

And people start calling horseshit, because it sounds too ridiculous and has no logical grounding that makes sense to them with the frames of reference,

Keynesian macro is not that hard to grasp; it's accessible using high school math, but you have to be able to break out of the mental paradigm that a government is just a really big household or business — you have to recognize that it has no inherent balance sheet constraints as long as it controls its own currency.

That paradigm, supported and propagated by elites for their selfish interests, is really resilient, though, mainly because it appeals to the moralistic point of view. "I have to balance my books, why shouldn't the government?" It's packed together with all sorts of other issues, such as basic trust in one's political leaders.

edited 28th Jun '16 7:22:45 AM by Fighteer

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

But I guess the way Keynesianism works does not mean that unlimited amounts of stimulus can be spent, to no adverse affect? It is possible to over-stimulate an economy?

Keep Rolling On

Well, sure — the limit is when the labor market is saturated and further stimulus simply raises wages without increasing employment. Put another way, when the economy is robust enough to sustain investment on its own, government borrowing competes for private investment and drives up interest rates.

If you view economies as supply and demand machines, then Keynes viewed the proper role of government as controlling the money supply so as to make supply match with demand. Students of classical economics will see this as pertaining to Say's Law: Keynes* had the profound insight that Say's Law could only work if you treat the money supply as a separate variable that has to be adjusted to satisfy the remainder of the equation.

Edit: * Actually, I think it was John Stuart Mill who demystified Say's Law.

edited 28th Jun '16 9:08:18 AM by Fighteer

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

And that's where it sounds like horseshit wizard magic to most people, like Quantum Mechanics does.

I wasn't saying the math is the issue.

I'm saying it sounds like horseshit and nonsense to most human beings.

Also, my sense is that Keynesianism in general calls for anti-cyclic monetary and spending policies, which can include austerity during economic boom/bubble times.

"For a successful technology, reality must take precedence over public relations, for Nature cannot be fooled." - Richard Feynman

@ Fighteer: Hmm...I can see populist Governments doing exactly as I described (unlimited, damn-the-consequences, all-out stimulus) — it would be genuinely popular move after years of Austerity.

Of course, elected Governments aren't going to do that as it would cost them votes.

edited 28th Jun '16 7:30:12 AM by Greenmantle

Keep Rolling On

That is correct — specifically, the government should withdraw its own borrowing and spending when the economy reaches full employment and/or full investment, since any more would risk creating unsustainable bubbles. 2008 was the result of exactly such a bubble.

edited 28th Jun '16 7:29:26 AM by Fighteer

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

To counter the "austerity-in-boom-scuttled-by-elections" thing, would it be plausible for a stimulus bill to contain within it a measure that would bring about those bad-for-campaigning-measures automatically when, say, a certain inflation/unemployment rate level has been met for, say, 3 quarters?

Well, in a "properly run" system, you would only need extraordinary spending measures if the system fell apart completely (as happened in 2008); otherwise, the levers of interest rates and borrowing, plus automatic stabilizers like unemployment insurance and welfare, would be enough to properly control things.

The failures that we've seen recently are ones of governance, where complacency in good times lets people get into power who have no idea how to properly run the system. They proceed to mess it up, then groups with an ideological agenda use it as an example of how "the system" is broken and how they should run things because they were right all along.

In short, humanity may be collectively too short-sighted to make Keynesian doctrine work. It's frustrating because we have the mid-20th century to hold out as a shining example of how it worked, at least well enough that it's considered a golden age of Western economies. But it's also the case that the forces of sadomonetarism were quietly working to suborn the era of Keynesianism from its very inception.

edited 28th Jun '16 7:53:01 AM by Fighteer

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