economics - where to begin?

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.

(our current economic mess stems from the fact that the banks WEREN'T doing that)

if they couldn't do that what is the point in...any of this

Nevertheless, yes, promises are perilous: and if we agree that we agree to agree on such-and-such now, that this activity is an acceptable exchange for this item (or note to the value thereof), what do we do when payday comes and all the world is a different shape?

^^^times the number of potential agreements made or makeable by the number of people on the planet in the relevant timespace!

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

my ultimate and sole ambition is for a life of leisure :(

lex - then build up a bunch of money in your bank and retire

lex the relevant vetting didn't happen because more loans meant more money.

and perversely, the riskier the loan the more money could be obtained by trading it! investment banks started heaping enormous pressure on their staff to find better "yields" on assets they traded - risky loans offered just that. the banks thought they could contain the risk with a lot of fancy footwork, and they had computer models that reassured them, and besides, the housing market was just steamrollering through everything and had been for years...

(our current economic mess stems from the fact that the banks WEREN'T doing that)

if they couldn't do that what is the point in...any of this

― lex pretend, Wednesday, August 17, 2011 1:12 PM (56 seconds ago) Bookmark

well, and this grossly simplifies it, you have someone (the government, rating agencies, shareholders and investors, internal compliance people) looking over the shoulders of the people who are lending out money to make sure that they aren't being reckless. the missing part of my above analysis is that the folks who were supposed to supervise this (the ratings agencies in particular) weren't doing so properly.

- 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?

ok i realize other ppl have responded but maybe my own take will help:

- 'stimulus' just refers to a policy or typically set of policies that is intended to 'stimulate' demand in an economy. this can either be through fiscal policy (govt spending and taxation) or monetary policy (interest rates/money supply). it almost never refers specifically to directly increasing the money supply by printing money because history shows that tends to make things worse.

- in the current us case both fiscal policy (cutting payroll taxes, increasing government spending, increased unemployment benefits &c) and monetary policy (quantitative easing) were used to prop up demand in the economy after the financial crisis. at a very basic level keynesians argue that this is helpful because its helping aggregate demand (and thus jobs and thus growth and thus revenue) stay close to where it 'naturally' is and that the spending is economically justifiable because it has a 'multiplier' effect i.e. for every dollar the government spends its getting M times that amount in value. you can think of this has a sort of ripple effect from the initial investment in say building a bridge, which in turn employs 100 people who then create demand for other goods and services and so on

- as o.nate points out there is quite a bit of conflict over whether this is actually true. a neoclassical economist would argue that government spending simply crowds out private demand rather than adding to aggregate demand in the economy as a whole.

- even under keynes you only use these policies when the economy is growing less than its 'natural' rate, if things are going fine than you dont get the same multiplier effect because demand is coming from elsewhere (fdi, private demand &c)

- also there are multiple real world problems w/increasing govt spending from the time lag btw approving spending and actually getting it into the economy to political maneuvering that prevents spending from going to the most efficient places but instead political valuable or salable places e.g. wind turbines over bridge construction.

- i dont want to talk to much about monetary policy (cuz lol) but decreasing the value of a nations currency during a recession is actually p good for lots of people. first it makes the real cost of the nations exports and helps improve trade balances but it also decreases the real value of debts for households. obv this is bad for ppl holding debts but considering the level of indebtedness in the us depreciation isnt de fact a bad thing!

- the 8-9% figure is based on some macroeconomic models that will have used historical data to test their ability to predict the effect of various changes in the economy. fwiw ive seen some convincing arguments that problem wasnt that 'the stimulus' was ineffective in stopping unemployment rising so much as that the severity of the decrease in growth was underestimated and that the stimulus simply wasnt large enough to combat that, not that the models or the policy itself was worthless

you also have to build in the somewhat complicating factor that -- esp. in the US -- the economy has often grown fastest when the arrangement was most lawless: in the early 19th century anyone could set up their own bank and issue their own notes, and sometimes these circulated, getting dirtier and more ragged, long after the bank (which was two hundred miles away) had gone under. The east coast was respectable and button-up, but the frontier needed a more rough-and-ready system.

This accountant-versus-pirate ecology runs pretty deep in US socio-political DNA: both always there, both kinda needed. Nor do the two categories map easily onto US political divisions.

this is why financial sector deregulation has been such a dud (and calls to further deregulate or even to maintain the status quo are so misguided). if governmental agencies charged with oversight of the financial markets (dunno what the equivalent in the UK would be, but in the USA you have the Securities and Exchange Commission, various federal and state agencies that regulate banks and insurance companies, even the IRS to some extent) hadn't been either negligent or complicit in letting the financial sector essentially do what it wanted during the 2000s (hell, you could go back to the late 1970s), was more aggressive in ferreting out fraud and if the laws and regulations had been updated to account for new financial players and instruments (e.g., if there were more oversight of hedge funds or the rating agencies) then the lion's share of the mess could've been avoided altogether.

Most of the ever-growing complexities of economics and finance are the result of endlessly painstaking efforts by armies of experts seeking to identify and quantify risks in a given set of investments, hich are then offset by endlessly painstaking efforts by armies of experts seeking to maximize returns by any means possible.

also (and lol this thread) id divide 'understanding macroeconomics' into two distinct types of arguments: there are basic foundational arguments about how variables work together w/in a model e.g. what the relationship btw interest rates and inflation is or supply and demand which can be mapped and understood p simply and have lots of data to back up assertions and 'predictive' arguments about what the effect of change of a variable in a model will be on the model as a whole which tend to be both more complex and less certain. understanding the first is to some extent a laudable and realistic goal understanding the latter is kind a '...' imo for the most part

Galbraith: "By affirming solemnly that prosperity will continue, it is believed, one can help insure that prosperity will i fact continue. Especially among businessmen the faith in the efficiency of such incantation is very great."

and perversely, the riskier the loan the more money could be obtained by trading it! investment banks started heaping enormous pressure on their staff to find better "yields" on assets they traded - risky loans offered just that. the banks thought they could contain the risk with a lot of fancy footwork, and they had computer models that reassured them, and besides, the housing market was just steamrollering through everything and had been for years...

ok i don't understand this post. what is an "asset" in this context?

really have to leave house now and haven't taken in anything after that but when i was in the shower it also occurred to me, what is this talk of quantifying and measuring risk? you can't do that. it's like confidence. it's unpredictable. measuring it seems like a fool's game.

interest rates. i don't understand those either. i remember trying to learn about them at university but my brain is just going BUHHHH?

you guys need to spend more time explaining the basic concepts - until he gets what 'money'/'gdp'/etc really means you're gonna be talking over him

what is this talk of quantifying and measuring risk? you can't do that. it's like confidence. it's unpredictable. measuring it seems like a fool's game.

haha risk is super calculable! its like the basis of financial economics! its just calculating probabilities! i dont know why im so exclamatory about this!

i'm not comfortable with how every post in this thread ends with "but it might not be true, in face someone else argues the opposite". how are we meant to work out which is right.

you guys need to spend more time explaining the basic concepts - until he gets what 'money'/'gdp'/etc really means you're gonna be talking over him

i am not gonna forget that i owe you a fist in the face

haha risk is super calculable! its like the basis of financial economics! its just calculating probabilities! i dont know why im so exclamatory about this!

quantifying risk = predicting the future????

i dunno if this is what lamp is getting at, but the different schools of thought regarding macroeconomic analysis are really just as much about competing political agendas and beliefs. Keynesianism in its various forms takes the view that strong fiscal policy ... and by extension, a more "activist" government at least in terms of taxing and spending ... is the key to recovery from economic downturns. Monetarism and the various forms of neoclassical economics largely eschews "activist" fiscal policy and instead espouses the more "passive" approach of manipulating interest rates and money supply (which appeals to the folks who either on principle don't like a more activist government or who would be negatively affected by robust fiscal policy).

Re: quantifying risk. It can be done in the same way that an actuary can set rates for your life insurance without knowing when or how you'll die. It comes down to statistics and finding meaningful correlations. Since there are endless variables to play around with, everyone is looking for a better set of correlations that nobody's considered yet, just like gamblers looking for a system to beat the house.

quantifying risk = predicting the future????

essentially yes. and this is what insurance companies are in the business of doing (and have been doing for centuries now).

of course, insurance companies can get it wrong too ... which is why you have reinsurance companies (the insurance company's insurance company, to oversimplify things).

lex that was not meant to be an insult I am pretty sure that you don't know what 'money' refers to in the sense people are using it here

(the large majority of people don't / it's not common sense)

this is true - the question before "economics?" should be "what is money?"!

Also this is why the thing about "paying back the debt" is a fiction because paying debt removes money from an economy - less money to spend, less goods, less jobs - that saving and paying down debt which is so good on an individual level is not good on a national level - this is why things like stimuli happen - people dont have the confidence to spend and save instead, so govt does some spending for them

fewer, not less. sorry everyone!

two workable definitions of the concept of "velocity of money," which may be useful in understanding fiscal and monetary policy.

which goes back to the criticism of "spending what we haven't earned" - which is a ludicrous criticism, thats the way money works! Its borrowed into existence, you have to spend it before you earn it by definition

http://ecx.images-amazon.com/images/I/51pqEtjrgtL._SL500_AA300_.jpg

the other book i recommended -- by sebastian nokes -- spends the first chapter explaining what an asset is: and also explaining why other definitions you will find used are SILLY RUBBISH spouted by MADMEN AND THIEVES (he doesn't quite put it like that) (sadly)

that's also why it is so hard for folks inclined to Keynesianism and strong fiscal policy have such a hard time convincing the lay public about the advantages of their proposed programs. on its face, it flies against "common sense" -- i.e., that in bad times one does not waste money, pays down debts and saves more. this is where all of this talk about "the government needs to balance its checkbook!" comes from and from which such rhetoric derives its strength. the GOP has made much political hay (and caused much economic damage) by using this misleading analysis (it is misleading because the government isn't a "household," and even in bad times households do take on increased debt [to pay for education or economically-productive products like computer software]).

overall we need an economy thats not based on everyone buying big screen tvs every month

if we're going to peddle cliches here, then a good one to think about is the cliche "you have to spend money to make money."

I think better to say "you have to take money to make money"

latham green weirdly otm

and if we're NOT going to peddle cliches, i recommend my claim about teleportation, which i suggest is a first here or anywhere else

w/ the tv comment only

think about it, everyone buys a hosue that is way over-valued in 2006, mortgage brokers sell the mortgages and make money - banks end up with a loss when reality comes back to the houseing market and so do many homeowners, but the mortgage brokers keep their money! They pretty much just took it from the other two

i think we'd be in better shape if we made TVs in the USA instead of relying on TVs made in China ... but that's another (though related) argument.