economics - where to begin?

Its getting bigger in absolute terms also because unless you cut back on clothes etc you have had to borrow another £1

Bigger relative to your disposable income, i mean.

Things change in value relative to each other constantly - think about what clothes or toys cost now compared to the early 90s, as against what wages have done in the same period. That's largely down to China making much more of that stuff at low cost now. The shift might be only a few % each year in either direction, but over years the total effect is huge.

I could be wrong, but my impression is that an increase in the money supply should theoretically have an equal effect on everything, including wages. That doesn't mean wages go up at the same rate as everything else, however, because there are other forces applying downward pressure to wages, e.g. the outsourcing of labor.

ceterus paribus ftw

An amusing post - works up a good head of steam decrying the ignorance of economists:

http://scottlocklin.wordpress.com/2011/07/31/in-which-i-have-a-laugh-at-economists/

I like the idea of debt decreasing over time due to inflation but salaries dont seem to be keeping up

I think the other benefit of inflation is that it's supposed to encourage companies to invest. Right now companies are just sitting on great gobs of cash, since there's a lot of uncertainty about the economy. If inflation were to pick up, suddenly companies would have to put that money to work or it would lose value.

I dont like this economy!

from wiki

Joseph Tainter
In his 1988 book The Collapse of Complex Societies, American anthropologist Tainter presents the view that for given technological levels there are implicit declining returns to complexity, in which systems deplete their resource base beyond levels that are ultimately sustainable. Tainter argues that societies become more complex as they try to solve problems. Social complexity can include differentiated social and economic roles, reliance on symbolic and abstract communication, and the existence of a class of information producers and analysts who are not involved in primary resource production. Such complexity requires a substantial "energy" subsidy (meaning resources, or other forms of wealth). When a society confronts a "problem", such as a shortage of or difficulty in gaining access to energy, it tends to create new layers of bureaucracy, infrastructure, or social class to address the challenge.
For example, as Roman agricultural output slowly declined and population increased, per-capita energy availability dropped. The Romans solved this problem in the short term by conquering their neighbours to appropriate their energy surpluses (metals, grain, slaves, etc.). However, this solution merely exacerbated the issue over the long term; as the Empire grew, the cost of maintaining communications, garrisons, civil government, etc., increased. Eventually, this cost grew so great that any new challenges such as invasions and crop failures could not be solved by the acquisition of more territory. At that point, the Empire fragmented into smaller units.
We often assume that the collapse of the Roman Empire was a catastrophe for everyone involved. Tainter points out that it can be seen as a very rational preference of individuals at the time, many of whom were better off (all but the elite, presumably.)[citation needed] Archeological evidence from human bones indicates that average nutrition improved after the collapse in many parts of the former Roman Empire[citation needed]. Average individuals may have benefited because they no longer had to invest in the burdensome complexity of empire.
In Tainter's view, while invasions, crop failures, disease or environmental degradation may be the apparent causes of societal collapse, the ultimate cause is diminishing returns on investments in social complexity.[10]

Free book from Dean Baker, and it's on my own personal hobby-horse:

"Liberals ... have accepted a framing where conservatives want market outcomes whereas liberals want the government to intervene to bring about outcomes that they consider fair. This is not true. Conservatives rely on the government all the time, most importantly in structuring the market in ways that ensure that income flows upwards."

http://www.cepr.net/index.php/publications/books/the-end-of-loser-liberalism

Is taht book any good? I mean its free...

I can feel the economics

thats just my rising indicator on yoru leg

lukas i'm reading that (free!) book. it is housing me

WHY is it a bad thing if greece exits the euro? i don't understand any of the headlines today

But they beat Russia last night, they aren't out :-)

Not really about a bad thing - things are v bad now. Some people will lose a lot of money outside Greece, others have already lost their lives inside the country.

Reports I have read say that Greece are already out of the Euro...whatever the outcome it seems patience has run out.

the problem aiui is that greece is so obviously a basket case and a barrier to any kind of eurobonds/debt mutualization or w/e and because its fiscal management was so disgraceful it allows a lot of fat lutherans to moan about RESPONSIBILITY and AUSTERITY (even though many other troubled govts like spain were running a surplus prior to 2008)

so why is a greek exit from the euro quite so feared? it must represent like 3% of the eurozone economy....and unlike a default, the debts held by northern banks will presumably be renominated in nu-drachmas.....it would create turbulence but the current pattern of indecision and torpor is doing exactly the same

Because if Greece exits Spain, Portugal and Ireland may be tempted to do the same and the whole Euro "project" loses credibility, banks become overexposed (again), and it's back to 2008..

spain is big enough to extract bargains from the ecb/germany

ireland is fucked thanks to the ahern guarantee, and there is no political will to renege on that afaik

portugal maybe? but again it is a tiny economy

Not so much about Ire and Por as about Spain and then speculation about Italy. Those are too big to fail type thing.

the last six months or so has been about exceptionalizing greece and firewalling it wherever possible

a greek exit will probably look nasty enough on the streets of athens to thoroughly dissuade spain and italy from following

tbf it`s the lenihan guarantee

the Greeks are fucked no matter what they do ... if they leave the euro, they'll be less fucked (b/c they can then control their own currency) but shit will still be bad for at least a while. obviously the devil will be in the details, but theoretically if the Greeks have their own, non-Euro currency then the new Greek currency can be devalued and make Greek products and services more competitive which would (theoretically at some point) aid their economic recovery.

the band-aid analogy is apt here ... they can rip it off fast and be in excruciating pain for a concentrated period of time; or peel it off slowly and be in lesser (though still agonizing) pain for a longer period of time.

hard truths from dr eisbaer :(

if Greece exits Spain, Portugal and Ireland may be tempted to do the same

A revival of the infamous 'domino theory'?

The most interesting thing to me is that, if Greece stays in the euro, their path out of penury is wholly dependent on bailouts and guarantees to prop up their euro-denominated debt, and therefore their future is placed in the hands of governments whose interests do not lie in Greece, except in the most tangential and attenuated sense. The Germans really don't give a rip if Greece sinks, so long as the euro floats.

Given this fact, I think the Greek people correctly suss that fleeing the euro at least gives them the power to seek their own interests, and perhaps a shorter way through the blinding pain of retrenchment and back into relative health. As a tourism-heavy economy, a retreat to cheaper drachmas makes a hell of a lot of sense to me, since you can sell 'cheap holidays' over and over and still have more tourism left to sell tomorrow.

http://www.thedailybeast.com/articles/2012/08/15/thanks-for-the-feedback.html

for a year or two now Frum's been preaching that low interest rates coupled with mild inflation could be the tonic to pull us out of our situation. the idea (as i understand it, and i'm very dumb on these matters) being that mild inflation would accelerate debt reduction and help households regain confidence to spend.

is he on to something? and is anyone listening? and if they are, would it even matter? because it seems that the one of the few places where mainstream GOP and Paul freaks see eye-to-eye is on tight money. and, let's face it, these guys are winning the messaging war when it comes to monetary policy.

he's not the only person talking about this, paul krugman's latest book is all about this, and the academic consensus is that the fed are not being aggressive enough

in theory monetary policy should not be influenced by GOP rhetoric or ron paul, the fed are an independent ("monetary policy decisions do not have to be approved by the President or anyone else in the executive or legislative branches of government" - wikipedia) although the extent to which this is perfectly true is debated ("we would treat [Bernanke] pretty ugly down in Texas" - rick perry). it's always a guessing game as to what the fed's real intentions are; their control over "expectations" is equally if not more powerful as their control of interest rates. central bankers might be playing it safe in case of a republican win, but that's only one of many possible explanations

relevant utube:

https://www.youtube.com/watch?v=a62dNGqQfNM

yeah, i think plenty of people agree, but stuff like that will get zero traction from republicans anytime soon. paul ryan getting the vp nomination sort of underscores how hard moneyism has become totally dominant for the gop. ben bernanke has basically become a pariah despite being extremely cautious.

and increasing inflation is hard in a depressed economy. you can't really have inflation if nominal wages are stuck. i haven't read frum lately to know what exactly he wants monetary policy to be doing.

apparently the fed has 2 mandates - control inflation & reduce unemployment; most economists that i read seem to think they're worrying too much abt the former & not enough abt the latter. rich ppl care more abt inflation because they have a lot of fixed income investments

The Federal Reserve tripled their balance sheet and it hasn't stirred inflation.

http://upload.wikimedia.org/wikipedia/commons/0/08/US_Federal_Reserve_balance_sheet_total.png

Asian competition continues to be disinflationary on the goods and tradable services side, and newfound prudence from banks has prevented the funds from escaping into the real economy through loans. Quantitative Easing II (the last major money printing round) largely just enriched commodity traders.

My take is that we've had a hollowing out of the economy from the early 90s that was obscured by internet and housing bubbles. Take the bubbles away, and you get the economy of the early 1990s, only with a lot more workforce and a lot more debt. You can toss tons and tons of dollars in, but that doesn't change the fundamental bias towards deleveraging (paying off debt). Banks are beginning to offload their inventory of foreclosed property in earnest, so there's no tailwind from housing.

Also, as its not a normal inventory rebalancing based recession, but a financial/asset bubble collapse, different timescales apply. Normal recessions reduce inventory and resume growth in a couple of years. Credit bubbles take a lot longer to work themselves off. In Kondratieff's cycle, the "winter" generally lasts 17 to 20 years, until the generation that was scarred by the crisis is replaced.

http://www.zerohedge.com/sites/default/files/images/user5/imageroot/draghi/NWO%2014.jpg

the generation that was scarred by the crisis is replaced

ie the generation that was scarred by inflation in the 70s?

Also, most of my fellow bear forum travellers that have watched Ron Paul in every Humphrey-Hawkins congression testimony have known he's a nutter for ages. Some of the ideas are sound, in historical terms, but he's such a broken record there's no evidence of a mind behind the vitriol.

Um, the best recent book on Kondratieff may be the one by Michael Alexander, who ties it into Strauss and Howe generational analysis (the guys that gave us "Greatest Generation" and "Generation X").

My own grandfather, age 22 in 1929, abjured debt his entire life (I've inherited that). Its wasn't uncommon for those of his generation. It took about a generation, until 1948, until people started seeking credit for suburban homes and all the trimmings.

From 1992 to 2007, rare was the week in which I wasn't offered another credit card in the mail. A lot of peeps are paying for them, and student loans, and mortgages on credit bubble inflated property. Funds going to pay down debt are not spent, and don't contribute to GDP.

It isn't clear whether the Kondratieff peak should be 1999 (for financial assets) or 2006-7 (for household assets - mostly housing, and credit). The latter seems more compelling to me. Macroeconomics largely ignores mass psychology, and perhaps rightly so, as there aren't too many levers economists exert over it.

i have no debt

i also have no assets or money to speak of

if only i'd bought and sold before all this went down

My take is that we've had a hollowing out of the economy from the early 90s that was obscured by internet and housing bubbles. Take the bubbles away, and you get the economy of the early 1990s, only with a lot more workforce and a lot more debt.

This seems to me to be entirely correct.

The deflationary forces are very strong now, and attempts to pump money into the economy since 2009 have mostly fueled a variety of commodity bubbles, like gold. The Fed's asset acqusitions have been little more than shoveling free money into banks, without the slightest quid pro quo.

This kind of economy is when a more sensible government would be trying to finance a lot of public works and infrastructure modernization, just to get people working. Republican policies seem to be aimed at reestablishing a vast peasantry under the thumb of a tiny aristocracy. Their apres moi l'deluge sentiments are pretty frightening.

Don't know where to put this so:

Libertarians love neoclassical economics when it suits them. "People are rational utility-maximizers and we should trust them to make the right decisions." Then they turn around and blame poor people for their plight - lazy, stupid, uneducated, trapped in a "culture of poverty". They can't reconcile their assumption that people will make the right decisions for themselves with their assumption that the results of capitalism are not just Pareto-optimal but just.

I'm not just making an abstract point, you can find tons of example of microeconomic thinking (as much as I hate the Freakonomics guys, they have some good examples here) where the key to properly understanding a bizarre-looking situation is imagining "what if people are actually making the optimal decisions in this situation, based on the resources available to them?" But libertarians won't apply that thinking to the poor.

To play devil's advocate, some libertarians would probably argue that the poor are optimizing in response to a bad set of government policies (such as welfare) that reward laziness.

when you consider that libertarians tend to be privileged racists and replace "the poor" with "the non-white," their bullshit makes more 'sense'

Yeah both of you otm, although o. nate what triggered this for me was someone ridiculing an article about poor food options in rural areas with "what about the fact that these people are uneducated and have too many kids, eh? that's why they make poor food choices"

Yeah, I'm not saying that many libertarians aren't inconsistent in applying their assumptions. Personally I think the idea that welfare causes poverty is ludicrous.

anyone else reading/planning on reading thomas piketty's capital?

placed an order for my copy a little while ago

The reviews have been illuminating but it sounds like a bear of a book to actually read.

if i remember i'll report back

Sounds like it'd be worth a thread (I've been meaning to read it, but haven't got a copy yet).

i feel like it'd get very few posts

This Piketty book is kinda blowin up, huh --- got a scoff from Ross Douthat in the NYT last Sunday, plus a profile in the biz sec.

pik shit poppin, little shit scoffin