The General Economics Thread

There is reason to believe that Bitcoin was introduced as a Ponzi scheme from the get-go, since it's inherently designed to enrich early adopters at the expense of later adopters.

I understand that Trump's protectionism is a bad idea, because it will drive up prices of imports, but just how bad would it be?

Unsurprisingly, we have data to analyze the effects of protectionist policies on trade.

To summarize, stimulus plus protectionism will cause inflation, which will cause manufacturing to shrink, not grow. If interest rates rise to combat inflation, then that will act as a brake on the economy by making borrowing more expensive. It's sort of a lose/lose.

Ironically, our trade deficit could increase under a protectionist regime.

edited 26th Jan '17 2:07:54 PM by Fighteer

That would be so bitterly ironic. Policies that counterintuitively screw over the very people that they're supposedly supposed to help.

It is 1929 all over again.

As I said, the far-right, the anti-globalists and Trump staff don't understand how much the US benefits from buying cheap goods abroad.

Indeed. Let's look at this analytically:

• Increasing the prices of imported goods would be a significant cut in the purchasing power of domestic consumers, since much of what they buy would become more expensive.
• Domestic manufacturing would take up some of the supply slack, but the goods would still be more expensive.
• Due to automation, fewer workers would be needed to produce the products, meaning that a big chunk of the profits would go to capital.
• While some jobs might be added, the increase in consumer income would not be enough to make up for the loss of purchasing power.
• With the removal of welfare and other supports, consumers would have less income anyway even counting the manufacturing jobs gained.
• If manufacturers can't sell their more-expensive products because consumers can't afford to buy them, they won't bother making them, and there might not even be any net job gains.
• If there's enough stimulus to make up for the loss of income, the U.S. dollar will go up compared with the weakening currencies of the countries that used to manufacture for us, making imported goods less expensive and counteracting the tariffs.

edited 26th Jan '17 2:33:44 PM by Fighteer

So the options if tariffs go into effect are either "watch things crash" or "provide stimulus that essentially negates the effects of the tariffs"? Have I understood correctly?

Yes, pretty much. To prevent crashing your own economy, you have to give people more money to buy the more expensive products. More money = inflation, eroding the trade position you gained from the tariffs.

edited 26th Jan '17 3:39:18 PM by Fighteer

Which wouldn't be a problem if the guys in charge weren't toxic towards anything that involves wealth distribution.

Import tariffs, defunding social services and wealth distribution, increase in the interest rates to contain the inflation and reckless spending with an increase in the deficit due to the reduced taxes on the US production can and certainly will make the US economy enter a recession deep enough to make the one in 2008 look like a flop.

Everything coming out of Trump's plan sound like economic suicide.

I feel like Trump's people think that they can literally command the economy to perform the way they believe it must.

A command economy? Perish the thought!

What do people think of:

• LETSystems and
• Keynes' Bancor/International Clearing Union Proposal?
  
  Got it: (As for jargon, I'm an economic lightweight. I'm hoping to be explained to).

edited 26th Jan '17 5:36:32 PM by CenturyEye

Don't drop links and expect us to read stuff for you. Give a summary of the topics you want to discuss in your post. If the content is very jargony or wonky, distill it down in layman's language.

edited 26th Jan '17 5:09:11 PM by Fighteer

So on the tariffs and them hitting mainly American companies, won't such companies just pass the cost onto the consumers all the way down the line? So prepare for all Mexican foodstuffs to be 23% more expensive at the shops (the extra 3% is what I expect cooperation to add to the price rise so that they can sue it as a way to jack up profits). Followed by everything that it made using products imported from Mexico.

I'm curious as to what the delay would be on such tariffs, I expect price rises would be immediate from it coming into effect even if it would take months for the price rise to actually get all the way down the supply chain, after all that's a bit of extra profit to be made right there.

I don't actually know what the economic effects of this would be, but it would definitely not be good. The only way to avoid the problem that I know of would be to ban converting currency to or from anything but bancor (so if you have dollars and want euros, you have to buy bancor with your dollars and then buy euros with that bancor), but that would just force the market underground rather than preventing it from happening (even if you could get people to agree to it in the first place, which is unlikely).

edited 27th Jan '17 6:31:54 AM by NativeJovian

@Century Eye: LET systems are a nice way to develop a neighborhood economy, but they dont scale up well. Absent an central broker with enforcement authority, people have to rely on trust to keep the system going, so they tend to limit themselves to people they know.

As for the Bancor thing, this is the first I've ever heard of it. According to the Wikipedia article, you cant exchange bancors for currency, so it couldn't be used for currency speculation. In fact, the system is explicity designed to restrict the flow of currency between countries, so that investors cannot shop for higher interest rates. This was apparently meant to give more teeth to Keynesian anti-depression policies (which are centered on government stimulus spending).

I presume the issue is that as Kenesian stimulus relies on the introjection of more money into an economy in order to stimulate it, a net currency flow out of a country that is attempting to stimulate itself will undermine the effect of the stimulus. Trade surpluses (and deficits) do the same thing, so Keynes included a provision to charge countries that fail to maintain a trade balance.

This failed to pass at the Bretton Woods conferences, basically because the US benefits from being the world's reserve currency, and from maintaining a large trade surplus (at the time, anyway). Apparently, China would like to implement this.

It seems like a reasonable idea (hey, it's Keynes, so of course it is). I dont know what chance it has of ever coming to pass, however.

@Native Jovian @De Marquis Thank you

Austin, Texas based digital marketing agency T3 made a bot which buys and sells stock in companies mentioned by Trump on Twitter and donates the money earned to the American Society for the Prevention of Cruelty to Animals.

Wonder what the expected ROI on that is.

Happier animals.

Nothing particularly novel, but Krugman notes again, for the record, that any tariff on Mexican goods would, in fact, be a tax on U.S. consumers. He also notes that slapping punitive tariffs on imports would be a violation of trade agreements, and that doing so would open the door for nations around the world to abrogate their own agreements, with a consequent catastrophic effect on global trade.

Among other things, this would hurt many U.S. businesses who depend on the global supply chain to reduce the cost of manufacturing.

Brad DeLong finds an interesting economic voice in Karl Polanyi. Apparently the problem with Polanyi's work is that it's extraordinarily difficult to read. But when distilled down, Brad gives us:

Shortened even more (in my own words), Polanyi observed that the commoditization of individual rights in a market society leads to severe inequities in terms of distribution of power. Whether one has the right to a job, for example, is not under the control of the consumer in any meaningful sense, but rather a powerful elite that has no connection to the daily lives of the people.

A market economy is fine, but when the entire society is for sale: its social capital, its property and individual rights, its healthcare and education, etc., things get all screwed up.

edited 30th Jan '17 7:03:23 AM by Fighteer

If I knew that, I wouldn't be talking about it on a forum thread; I'd be leading the charge.

Fundamentally, we almost had it in the 1940s, but the revanchist forces managed to hold on by tooth and nail, and we have now seen their apotheosis in the election of Donald Trump — more broadly, in the resurgence of neoconservatism around the globe.

edited 30th Jan '17 3:24:51 PM by Fighteer

You convince voters to support laws that regulate finance, public land use, and outsourcing work in the interest of individual human rights. If your argument is persuasive enough, policy changes.

Equiblog: Must Read: Martin Wolf: Donald Trump will not bring US jobs back

Takeaways: U.S. manufacturing employment went from 13m in 1950 to 12m in 2016. In that time, non-manufacturing employment rose from 30m to 133m. Manufacturing output rose 640 percent while manufacturing employment fell 7 percent.

Trade agreements, even interpreted at their most generous, contributed at most 10 percent of the decline in employment (or 0.7 percent of the 13m jobs we had in 1950).

Ergo, abrogating those agreements would not "restore" the lost jobs — or rather, any restoration would at most bring us back a fraction of the way to the manufacturing employment figures of 1950. There is no way we're going to increase manufacturing jobs from 13m to 44m while cutting 32m non-manufacturing jobs, which is what would bring the actual employment ratio back to that same level.

Also noting that the biggest recent hits to U.S. manufacturing came under Reagan and Bush 43, with their destructive financial policies.

edited 1st Feb '17 7:03:56 AM by Fighteer