There was talk about renaming the Krugman thread for this purpose, but that seems to be going nowhere. Besides which, I feel the Krugman thread should be left to discuss Krugman while this thread can be used for more general economic discussion.
Discuss:
- The merits of competing theories.
- The role of the government in managing the economy.
- The causes of and solutions to our current economic woes.
- Comparisons between the economic systems of different countries.
- Theoretical and existing alternatives to our current market system.
edited 17th Dec '12 10:58:52 AM by Topazan
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Grave goods. Potlatch
. If you're going to throw "well, that's just conspicuous consumption" in my face, I'll answer "that's my whole point".
There are many motivations to produce something in amounts that either 1) cannot be used or 2) aren't intended to be used in an economic fashion, yet which can still support economic activity.
The craftspeople who produced grave goods for the Pharaohs got paid. As did the metal workers who did everything for Sutton Hoo
.
edited 22nd Dec '12 1:10:28 PM by Euodiachloris
So how can those behaviors cause an excess of supply relative to demand in the economy? Again, you're asking us to include things that aren't relevant to the question that we're trying to answer.
You can't even write racist abuse in excrement on somebody's car without the politically correct brigade jumping down your throat!Like I said, it's a useful ideal limit. Even if you never reach it. The model is supposed to show what happens at that ideal limit, and then show what happens when you diverge from that limit.
It's like absolute zero temperature. You never reach it, but it's nonetheless useful.
edited 22nd Dec '12 1:20:11 PM by Trivialis
Heh. Nah, they explicitly reject that there can possibly be any evidence when it comes to economics. It doesn't matter what happens, nothing can ever invalidate their "theories". They believe their a priori "logic" is flawless and what happens in the real world is irrelevant.
edited 22nd Dec '12 1:22:16 PM by TenTailsBeast
I vowed, and so did you: Beyond this wall- we would make it through.![]()
But the problem is people apply rational actor, and seem to suggest that that is actual human behaviour, and apply real world changes to suit it.
Psychology has had to face up to the damage such assumption was doing in its own field (and, still is... <.< "gay cures" not to mention psychological warfare manuals
).
edited 22nd Dec '12 1:26:05 PM by Euodiachloris
I know that. But, I'm also trying to argue that there are better models to be found these days. Ones that do mirror human behaviour better than rational actor ever did, even if you still trot it out for comparison purposes.
Retooling old theories like Say's Law to use them would be wonderful (I don't totally discount the Law, by the way: my problem with it is it's lacking a rounded human behaviour pattern to bounce off.) Hence, I've not been actually trying to discount it or disprove it: just show why something other than rational actor needs trotting through it.
I have no problem with rational actor when its kept as a thought experiment for "what ifs" that aren't supposed to be taken for anything else. The problem is: theories get applied.
There are several artificial AI units being used in cognitive modelling experiments across the globe, all of which are a form of evolved rational actor, but not from the point of view of taking "rational" as a massive part of the behaviour they're programmed to follow.
All of which are constantly being adapted as more information is fed into them. <shrugs> I know Durham University has one (well, several): and the nicknames are subject to change without notice (usually based on epic glitches... or what some wit found funny).
At one point, they were being called Orcs, thanks to Lord of the Rings.
edited 22nd Dec '12 1:42:06 PM by Euodiachloris
I think that the place for a study of irrational behavior is in how people react to the situation presented by the market.
If, as we are supposing, over-supply can be presented as a money shortage, and if, as I am supposing, such a thing is impossible in reality, since the value of money is relative, then the question is why people behave as if there is?*
If the problem is sticky prices, what can we do to make them less sticky? As I said, I think that currency competition would go a long way.
By the way, does anyone know of any historical examples of delationary spirals other than possibly the Great Depression?
If deflation is sometimes good for the economy, then there should be times in which there was deflation and a prosperous economy somewhere. Providing us with an example would be evidence in your favor, and exactly the sort of evidence I've been looking for from you this whole time.
edited 22nd Dec '12 2:46:12 PM by deathpigeon
As you can see, gdp rose consistently despite some deflationary years.
EDIT: other example withdrawn pending further research
edited 22nd Dec '12 2:59:12 PM by Topazan
Also, Moore's law and related laws.
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...From looking at those two charts, rather than seeing a correlation between deflation and GDP growth, or, indeed, inflation and GDP growth. Instead, I see no correlation between deflation or inflation and GDP growth.
That is telling me that deflation was caused by the same thing that caused the economic growth, rather than deflation causing economic growth.
Also, what does Moore's Law have to do with this?
edited 22nd Dec '12 3:00:56 PM by deathpigeon
What did I say that suggests there should be a correlation? You said:
Now you're shifting the goalposts by saying "Prove that deflation is always good for the economy, and inflation never is." I never claimed that.
Ok, back to the example I deleted earlier. Now here's a chart of America's CPI since 1800
. Compare it with this
. Note, for example, the long deflationary period from 1865, and notice that the country came out of more than one recession in that time without needing to inflate the currency.
edited 22nd Dec '12 3:09:43 PM by Topazan
Also, what does Moore's Law have to do with this?
About Moore's law, check out this example graph that was easily visible in my link.
◊ And regarding them being "just a coincidence", no, sorry. Without the radical reduction in prices the industrial revolution brought about about, there would have been no economic boom, no revolution at all. It's not just related, you couldn't have had one without the other.
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I'm sorry, I phrased that badly. I was looking for an example of correlation between economic prosperity because, without correlation, there cannot be causation, and you were arguing that deflation causes economic prosperity. Thus, unless you can show, at the very least, a correlation between the two, there cannot be causation.
Again, what does that have to do with deflation?
And I didn't say it was just a coincidence. Allow me to quote what you quoted, and add some emphasis:
So the economic growth and the deflation were caused by the same thing. It was not a coincidence. It was linked causation. You cannot say that heat causes light by using fire. Both heat and light are caused by the same thing. As such, despite the correlation, there is no causation.
So, here's a tentative explanation of why an excess demand for money is different than other goods.

The key thing is that many economic concepts are "ideal world" concepts, such as the rational actor, market equilibrium, and so on. Mainly because time preference and emotional values cannot be accurately measured (except crudely on an individual by individual basis).
In reality, those ideal values can never be achieved more than a few minutes at a time, because that's how fast the economy shifts. For example, regarding market equilibrium, all it takes is the five minute difference between the person who walks in, sees 20 bags of apples in the grocery store bin, buys one bag, and leaves, and the next person who walks in and sees 19 bags in the store.
On a side note, this is why Austrian school economists reject most modern statistical methods, because they primarily believe that any model that doesn't take time preference into account is worthless.
Expergiscēre cras, medior quam hodie. (Awaken tomorrow, better than today.)