economics - where to begin?

if youre only interested in economics as it pertains to policy why not just find a couple of good economic/policy blogs whose writing you like and just follow along? over time im sure youd get enough of the 'basics' to achieve something like fluency imo w/o having to try to 'get' models and most of those dudes are p good about linking stuff for further/deeper reading

fiat money is the new pimp towncar

fiat money cars look like something out of a 1950s Fellini movie ...

http://www.philseed.com/images/fiat-600-1956.jpg

Criticism noted. I still think Martenson is OTM WRT resource constraints being the most important economic change for the rest of our lifetimes. Even The Economist is hedging here.

what if Mr Ehrlich had taken up Mr Simon’s 1990 offer to go “double or quits” for any future date? All five have risen in price since the rematch was proposed. Furthermore, Jeremy Grantham of GMO, a fund-management group, points out that Mr Ehrlich would have won the original bet were it recalculated today (he is still alive; Mr Simon died in 1998). An equally weighted portfolio of the five commodities is now higher in real terms than the average of their prices back in 1980 (see chart).

The Cornucopians might argue that today’s metals prices are due to the buoyancy of demand in the developing world rather than any cataclysmic shortages in supply. But the Malthusians might retort that man’s famed ingenuity has not stopped prices from rising in real terms over an extended period. Place your bets.

i don't think you have to be a malthusian to argue that the standard "growth model" of constant 3% year-on-year increases in output is unsustainable

Thermodynamics indicates our skin will boil in about 400 years at just 2.3% growth.

Also, FWIW, I'm amused that Morgan Stanley's economics dept under Stephen Roach requires new hires to have spent at least 3 years in the real world to help overcome academic "brainwashing".

economics - where to end?

if youre only interested in economics as it pertains to policy why not just find a couple of good economic/policy blogs whose writing you like and just follow along?

because i don't understand them! the "basics" have eluded me over a decade of trying, including a year spent studying them at oxford. i think part of the reason is that i'm not very trusting of what i read, and i can't take ANY economics specialist at face value because they all argue opposite things. how the fuck do i know which ones are right?

i'm appreciative of all the book suggestions but i think at this point some actual hand-holding is required. let's just take the opening para of the galbraith article

In early January 2009 two White House-bound economists — Christina Romer and Jared Bernstein — predicted that if the stimulus bill were passed, unemployment would peak at 8% by midyear and then start coming down. If there were no stimulus, they said, joblessness might hit 9% and not peak until 2010.

- what actually is a stimulus? is it printing more money? if it's so helpful why don't we do it all the time? if it's so helpful why wait til now to do it? surely printing more money devalues the currency? I DON'T UNDERSTAND

- why is it helpful? why would it stop unemployment? why didn't it? are the 8% and 9% figures plucked out of thin air? given that those figures are apparently wrong, might they as well have been plucked out of thin air? why did anyone believe them in the first place?

"fiscal stimulus" means the government spending money in an effort to get people working and to get money flowing around the economy (because those newly hired people are now making wages and will spend that money in stores. there is a knock-on effect also: when those newly employed people spend money they will also be paying taxes on it, which allows the govt to make some of its money back.)

if it's so helpful why don't we do it all the time?

good question. short answer is that governments are already overloaded in debt.

the 8% and 9% figures were guesses based on past recoveries. people believed them because past recoveries made those number seem sensible. the main point galbraith is making in this article is that this recession is not like past recessions, so those predictions didn't pan out.

A stimulus is anything that might stimulate economic growth, so yeah it might be printing more money or it might be tax cuts or it might be an increase in public spending.

surely printing more money devalues the currency?

You don't literally print money, central banks will put more money into the financial system that can be borrowed by other banks and used to free up the amount of money they can use for other things. This may or may not lead to inflation and devaluation of currency, but economists are divided on whether or not that's actually the case.

Any stimulus that leads to economic growth should, theoretically, lead to increased business confidence and increased consumer confidence, "we're coming out of a recession" etc. So businesses are more likely to invest and employ people. Doesn't always work out that way.

are the 8% and 9% figures plucked out of thin air? given that those figures are apparently wrong, might they as well have been plucked out of thin air? why did anyone believe them in the first place?

Part of the problem is that economics isn't an exact science but people act like it is.

Too much of this stuff is wrapped up in mystification and insider jargon, and it doesn't have to be, unless you are trying to set up shop as an economist. Some day I will have to write a simple 30 page pamphlet, or the website equivalent, that breaks down the fundamental concepts of economics in terms so simple that it will allow ordinary people to read the financial news and figure out what parts are worth paying attention to and what's just pure shite.

so it's creating jobs out of nowhere rather than creating money out of nowhere? those don't sound like very...real jobs. like surely a job corresponds to whether there's work to be done, not anything else.

so this sounds like a vicious cycle - a stimulus is only needed when the economy's gone shit, but isn't govt debt the reason it's shit, and govt debt is the reason a stimulus isn't usually possible?

xps to tracer

You don't literally print money, central banks will put more money into the financial system that can be borrowed by other banks and used to free up the amount of money they can use for other things.

the entire concept of an economy based on everyone apparently borrowing money off each other terrifies me. isn't this, like, the opposite of good personal finance.

Any stimulus that leads to economic growth should, theoretically, lead to increased business confidence and increased consumer confidence

i've noticed economists throw around the word "confidence" like it's a quantifiable, meaningful thing that can be measured, like the amount of water i have in my glass here. but that's bollocks! surely spending confidence goes up and down from day to day and also totally randomly? or is that just mine?

i don't think you have to be a malthusian to argue that the standard "growth model" of constant 3% year-on-year increases in output is unsustainable

also tracer what on earth does this mean

(i know about malthus, the rest of it)

I don't know, most jobs are only "real" for as long as an employer decides they're necessary. A lot of jobs aren't really very concrete unless you're something that's absolutely necessary to the country like a doctor or a street cleaner, and even then they might need different numbers of them at different times.

Government debt isn't usually the reason an economy's shit though - economic problems tend to start in the private sector, as it the case in what we're going through now. If governments save money during the boom, then they're in a better position to a) cope with declining tax revenues without cutting spending and b) actually raise public spending to offset declining business or consumer spending. Obviously our governments spent a lot of money during the boom, some on worthwhile things, others less so (like killing loads of people in foreign countrie, which is kinda expensive). And of course we ended up borrowing and spending a fuckton of money to bail out failing banks.

not out of nowhere, out of public investment. projects that congresspeople have been trying to push through for years, desperately needed infrastructure improvements, regulatory agency staff, military bases, dams, whatever. as galbraith notes in an earlier article about the US fiscal stimulus, 'The bill tilted toward "shovel-ready" projects like refurbishing schools and fixing roads, and away from projects requiring planning and long construction lead times, like urban mass transit.'

yes, this increased the budget deficit. but no, govt debt wasn't the reason the economy went to shit in the United States, predatory lending practices and sheer duplicity by banks is why it went to shit.

xpost

xxp the basic idea is that, whatever the starting point, 3% growth every year quickly adds up to growth so rapid that you use up all the resources available.

the entire concept of an economy based on everyone apparently borrowing money off each other terrifies me. isn't this, like, the opposite of good personal finance.

There's nothing wrong with borrowing money as long as you can pay it off. Problems arise when you lend to people or countries that can't, and the western world built a ridiculous edifice allowing them to offload the risk of lending to those people. Except it didn't work, and the edifice collapsed.

But actually if people stopped lending money altogether then no more money would be created through interest, so there'd be the same amount of money among a growing population (ie less to go round).

money isn't just created through interest, it's created every time somebody asks the bank for a loan! if you want a £2000 loan, that's £2000 that just magically appears from nothing, right into your bank account. then the £2000 (plus interest) appears in the bank's balance sheet as an "asset" (though really just a promise) that can be traded, sold, etc. i agree with lex that there is somethign fundamentally frightening and wrong-feeling about this.

i just don't see the logic behind a stimulus being needed most when the government is least able to afford it? why weren't these "desperately needed" projects done when the govt had money? also how does the debt get paid off?

There's nothing wrong with borrowing money as long as you can pay it off

but you don't know who'll be able to pay it off. if they don't have the money now why would they have it in the future.

is macro-economics actually the OPPOSITE of personal finance????

ssshh! Don't tell any of the GOP candidates running on the concept that taming the economy is like balancing a checkbook.

so it's creating jobs out of nowhere rather than creating money out of nowhere?

lex, you must clear your mind of cant, as Dr. Johnson was fond of saying. A job is just a person engaging in some kind of presumably productive activity. If you have a person with a few skills and something useful that needs to be done, then you have everything needful for creating a job "out of nowhere".

Both of those two elements for jobs exist out there in massive quantitites. They are almost as common as air. What's missing in most instances is the money to compensate the workers for doing that work. Because money, rightly considered, is just a marker for productive activity, then the very fact of one's being productive in some sense calls money into being, "out of nowhere", if you like.

The real trick is figuring out what anything is worth in terms of money. That's where the real smoke and mirrors come into play.

okay so it IS creating money out of nowhere

this is a conceptual hurdle for me

Actually I really do recommend reading Galbraith's "Money", because the history of banking as a technical craft is pretty relevant: including the extent to which it's always the most recent problem but one that everyone is overcompensating for.

but you don't know who'll be able to pay it off. if they don't have the money now why would they have it in the future.

not in absolute sense. but that's why banks have loan examiners and such ... if they're doing their job correctly, they check to see what the borrower is going to use the money for, if it (and other economic activities the borrower is engaged in) are sufficient to pay off the principal, the borrower's past history (any defaults or bankruptcies or delinquencies), etc. and if they determine that the borrower is creditworthy, they add an interest rate commiserate to the level of risk involved in lending the money. even then, of course, some creditworthy borrowers can go bust.

hee, lex sounds like a republican

I think a lot of the confusion about macroeconomics is due to the fact that there is not a lot of consensus overall. You have a massive divide between the Keynesians and the Neoclassical school, and they seem to agree on very little. For example, Keynesians will tell you stimulus is a good idea in certain situations, whereas from the Neoclassical view, stimulus is useless or even detrimental.

xps re: "frightening"

That's probably because you think of money as somehow being concrete. So, try this exercise: take a piece of currency out of your pocket and look at it. That is a concrete object called money. What is it you are holding? A piece of paper. That should help clue you in. It's all unreal, just a marker, a chit, a promise. It works because we think it works, so it does work.

if i realise how unreal it is THAT IS WHEN I STOP THINKING IT WORKS

jesus christ this is why my libertarian friend always goes on about silver isn't it

i just don't see the logic behind a stimulus being needed most when the government is least able to afford it? why weren't these "desperately needed" projects done when the govt had money? also how does the debt get paid off?

the theory is that during boom years the government runs a surplus which is used for fiscal stimulus in moments when private demand slumps. in the United States, amazingly, this actually happened: there was a surplus at the end of the Clinton administration. and then Bush pissed it away in massive tax cuts and two wars. it's difficult not to wonder how things might be different now had the US not squandered this surplus.

the usual story is that the government fails to store up its seedcorn in the good years. but even then, stimulus (resulting in bigger govt debt) is sometimes the only way to knock an economy out of its slump. this certainly looks to be the case now. wages have stagnated even as the price of food and oil has risen, so people can't afford to buy much stuff. the cost of borrowing money is already at a historic low and can't go any further, so nothing can be done in that respect to further encourage people or businesses to take out loans. there is simply not enough demand. companies are sitting on vast piles of cash because why should they open more factories and provide more jobs if demand is already weak? the proponents of fiscal stimulus would say it's now the government's role to step in and provide the missing demand in the form of big projects that get people working and spending.

so how does that new, further debt get paid off? well, governments are huge entities and usually survive to the next round. they can find a way. in fact, some would argue that without government spending to stimulate demand, future growth prospects will be very bleak - leading to much lower tax revenues and actually making it more difficult for governments to pay off their debts!

in the meantime, while governments dither, an entire generation is looking at extremely limited employment prospects.

xp

Yes, but silver is just as much a mind fuck as paper is. It ain't nothin' but a hunk of useless metal.

it's not ENTIRELY true that money is totally unreal. in the USA, currency is backed by the "full faith and credit" of the US government. as long as the government can levy taxes and there are sufficient assets subject to American tax jurisdiction that can pay those taxes, then the value of American currency is "real." this is one of the reasons why the Congress's recent fucking around with the debt ceiling was such a big deal and was so reckless ... one political party took increased taxes off of the table completely.

you can base currency on ANY commodity ... gold is the usual hobby horse, but it could be silver or anything else. you could peg a country's currency on coffee beans. there's nothing more magical about gold or silver than coffee beans. precious metals are just as subject to supply and demand as any other commodity.

haha lex if you want to really combine your two academic bugbears you could try reading the economics section of "the order of things" by foucault where he goes into the semiotics of money o_O

A promise is a promise: it's not unreal, even if it's not a physical and unavoidable force. It's a matter of negotiation and practicality; the economy is the aggregate effect of a huge number of promises (some negotiated in very bad faith; others rather impractically). The total value of money reflects the total agreed value of these promises -- the good promises, not the bad ones. If the notes in circulation -- for a variety of reasons -- deviate a great deal from this total value of money, upwards OR downwards, then bad effects can happen: a liquidity crisis (not enough money circulating) or a devaluation (too much). A valid government stimulus provides money that has, for whatever reason, gone missing from the economy: it's not inventing it so much as teleporting it.

This total value is VERY HARD INDEED to calculate: not least because routine economic calcalution omits all kinds of productive activities which are hard to monetise. And also because many of the people making the calculations are somewhat fudging them to help their firm; or their party; or their kids, or their class, or whatever.

i think this thread has caused me an actual internal crisis, my mind is broken. what with the revelation that apparently i am instinctively right-wing economically and then all this "it's not real!!!" stuff on top of that, the way i see it i have two options

i) move to a hut in the wilderness and learn to grow vegetables and become ENTIRELY SELF-SUFFICIENT and just opt out of this terrifying and unsustainable edifice
ii) NEVER THINK ABOUT ANY OF THIS EVER AGAIN

The greatest harm done by high deficits, however, cannot be put into an economist's computer. This is the psychological impact on the battle against inflation. The average American consumer may not be well versed in the fine points of economic theory, but he is worried about anyone, whether it be an individual family or the Government, who spends more than he earns.

"The Great Deficit Dilemma", Time Magazine, Feb 15, 1982

http://www.time.com/time/printout/0,8816,925278,00.html

mark if i couldn't tell whether a promise being made to me was good or bad i'd have to assume it was bad. why would you ever take the risk otherwise?

$$

learn to cook vegetables? most of them taste nasty raw

i actually like most raw vegetables

how do you grow houmous to go with them?

you'd need access to the vast hummus shoals in the north sea

all it comes down to is work - currency is made by work. Unemployment = less work, less real economic power in a society

Lex yr position is not "instinctively right wing" because the US right has done a complete 180 on many of these issues of late and a lot of the UK right has positively encouraged households and countries to get into.huge amounts of debt in the past. The Right is divided here.

mark if i couldn't tell whether a promise being made to me was good or bad i'd have to assume it was bad. why would you ever take the risk otherwise?

well, you try to winnow out the bad risks from the start. (our current economic mess stems from the fact that the banks WEREN'T doing that). when that fails, you resort to bankruptcy court and debtor/creditor laws.

Much of the centralisation of banking and so on has been done -- at least on the pretext -- that promises from now on get to be kept: a bank note is in fact a promisory note (english ones actually state "I promise to pay the bearer etc etc"). The buzzword in modern banking has been "securitisation": same idea, that risk is structured away. But the outsourcing of judgment -- which is what has also largely meant -- comes at a massive price, whether you blame this on incompetence, or greed, or rashness, or dishonesty, or all of these. And sometimes things intervene, and promises become hard to keep.

I wonder what would happen if there was one world currency - the eartho

you'd have what's going on in Europe right now ... only on a global scale.