a thread in which ilx interprets economics and finance, sometimes linen by linen*, and disagrees a lot (probably)

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*karl marx joek, plz keep up

c&p yr puzzling concepts and claims and phrases below and together we can doubtless balance the books! all yr 🚀 are belong to us!!

mark s, Sunday, 23 October 2022 20:26 (one month ago) link

how many yards is a coat going for these days

Left, Sunday, 23 October 2022 20:53 (one month ago) link

I'll start by addressing the pinefox's question from the other thread:

For instance, I don't really know in what way a mortgage is an item that can be bought or sold. In fact the very idea of a mortgage is an idea that I struggle to hold in my head.

A mortgage loan is an agreement between a lender and a borrower, in which the the borrower receives $$$$$ upfront to purchase an asset, then pays off the debt in installments of $ until either the entire debt is paid, or they fail to make the scheduled payments and the lender takes possession of the asset.

From the standpoint of a lender (e.g. a bank), holding a mortgage means having some reasonable expectation that I will continue to receive $ in mortgage payments from the borrower at regular intervals. If I, a mortgage-holder, am in need of quick cash, I can sell this mortgage to someone else (e.g. a second bank) for some agreed-upon value which is based on the number of outstanding payments which remain and the likelihood that the borrower will be able to keep up with them.

Because the continued flow of $ to a mortgage holder is dependent upon the continued income of a single household, mortgages have not generally been thought of as especially secure, in comparison to government issued bonds and the like. What happened during the lead-up to the 2007-08 crisis is that some financial innovators convinced regulatory agencies that a bunch of say 100 mortgages bundled together represented a less-risky investment, because even if one defaults, the other 99 are still making their payments, so holding a 1% share of that pool of mortgages means I will continue to receive (0.99 x $) at regular intervals.

The holders of the mortgages (in many but not all cases, the banks that originally issued them) then sold shares of these pooled mortgages (aka "mortgage-backed securities") to pension funds and other investors that are not typically interested in holding risky assets like mortgages, because the regulatory agencies had rated them AAA, the safest possible kind of investment.

My name is Mike Cyclops. I work for (bernard snowy), Sunday, 23 October 2022 20:55 (one month ago) link

Thanks, poster snowy.

I think I have a problem with the idea of someone buying debt from someone else. It sounds like buying illness.

the pinefox, Monday, 24 October 2022 08:44 (one month ago) link

think of it like this pinefox:

— you borrow £10 from me, tell me you'll pay me back in two weeks
— two days later i realise i very urgently need a box of quality street but right this minute have no cash
— i see piedie gimbel walking by and borrow £10 from him
— instead of owing him i tell him (and later you) that he'll get it back from you in two weeks
— i buy my quality street and then give piedie some for helping me out in a pinch

piedie has bought your debt (with interest: a fistful of brightly wrapped chocolates)

mark s, Monday, 24 October 2022 09:23 (one month ago) link

If Pinefox runs short of cash and demands his £10 is returned by mark s before 2 weeks, there's a potential liquidity crisis.

Derivatives (where debt is bundled up) and traded as 'futures' and options', along with mechamisms like 'hedging' and 'leverage', are where it starts to gets complicated. John Lanchester (who ilx seems to hate) wrote some good articles on this in the LRB post 2008.

Luna Schlosser, Monday, 24 October 2022 11:07 (one month ago) link

it's called a "potential liquidity crisis" bcz pinefox has found himself in a pub unable to buy a pint

mark s, Monday, 24 October 2022 11:14 (one month ago) link

also i lent him £10, let's not obfuscate that!

mark s, Monday, 24 October 2022 11:28 (one month ago) link

this is where the muddle starts

mark s, Monday, 24 October 2022 11:29 (one month ago) link

I like Mark S's story and am touched by its detail, but it lost me very quickly.

the pinefox, Monday, 24 October 2022 11:33 (one month ago) link

How would one 'go short' on Quality Street?

Ward Fowler, Monday, 24 October 2022 11:37 (one month ago) link

poster luna schlosser has i think correctly identified the point where confusion arrives (and the anxious sense of any inability to process further)

it's when quite ordinary exchanges (street exchanges if you like) are not only formalised, but at the same time supplied with generalising jargons (such as leverage, hedging, derivatives, futures, options, bundling) which render them mysterious. can all these jargons be translated back into street language?

leverage can for example: it's simply when you borrow money to fund a project that will at some point earn you more than enough to pay back what you borrowed

i don't agree with luna s abt lanchester but that's a different argument: i will allow that he largely understands what he's claiming to explain, but his skill seems much more to be convincing ppl that they get something that they haven't actually internalised at all (my copy of whoops! is slathered with review quotes excaliming how marvellously clear it all now is; i am absolutely willing to bet that nearly none of these reviewers would get acceptable marks in a snap quiz on the subject matter)

mark s, Monday, 24 October 2022 11:47 (one month ago) link

suppose at the moment i realised i needed my quality street (shop price £7) you poster ward fowler were walking past with a full new tin of same and sold it to me for £6 there and then: this is shorting

mark s, Monday, 24 October 2022 11:49 (one month ago) link

i mean more technically shorting is a mass practice = lots of traders selling something for less than its then-price appears to be, bcz they're betting this price will go down further -- eg to £5

this wd be a bad bet if it's just ward with one tin outside one shop

mark s, Monday, 24 October 2022 11:51 (one month ago) link

Mark S's statement about Lanchester seems supported by the fact that I read, closely, all those LRB articles, and still know nothing about any of it.

the pinefox, Monday, 24 October 2022 11:52 (one month ago) link

more technically still (lol): ward's short selling of the quality street is only the first stage of the short selling of quality street

even excluding the likely collective nature of the technical process, "shorting" as a practice is only really completed as a trading triumph if and when he buys the tin of chocs back from me for less then he sold them to me for

which is the point at which the chocs have stopped being something of value as chocs and begun to be a traded commodity whose *price* is trumping their deliciousness at one level (bcz PROFIT matters more to poster ward than biting into the nut cluster)

however a good deal of shorting is speculative and not always completed to the profit stage (without being stripped of the term "shorting")

mark s, Monday, 24 October 2022 12:02 (one month ago) link

John Lanchester (who ilx seems to hate) wrote some good articles on this

this is nothing: my credit default swap explainer was by matt taibbi

of the genre i remember thinking nomi prins' it takes a pillage was good?

difficult listening hour, Monday, 24 October 2022 12:10 (one month ago) link

(i seem to recall one ilxor -- possibly poster lag∞n? -- who was extremely scornful of taibbi's writing long before MT's swerve to the right)

mark s, Monday, 24 October 2022 12:18 (one month ago) link

(also some of the UK fintwit commentators have long noted that MT's basic position seemed more libertarian than not economically)

mark s, Monday, 24 October 2022 12:20 (one month ago) link

Re John Lanchester - I wouldn't like to face a snap quiz on the subject after reading his articles. But I think his strength is showing the simple principles of debt and derivatives and how it speedily builds to a bewildering complexity that almost no-one can understand, outside of a few Nobel Prize winning economists (e.g the Black - Scholes model (the infamous 'financial instrument of mass destruction').

Disclaimer: your reading capital is at risk. The value of authors can go down as well as up. Always take independent advice from a registered literary critic.

Luna Schlosser, Monday, 24 October 2022 12:20 (one month ago) link

i was v contemptuous of taibbi's style when i was in high school but had warmed a lil during the obama years. its later incentives have not been ideal

difficult listening hour, Monday, 24 October 2022 12:26 (one month ago) link

Lol Luna

My name is Mike Cyclops. I work for (bernard snowy), Monday, 24 October 2022 12:26 (one month ago) link

I think the great pop-cultural example of shorting is Segar's J Wellington Wimpy: "I'll gladly pay you Tuesday for a hamburger today" - but only if he intends to sell the hamburger on now for say $10 on the assumption that the price he'll have to pay on Tuesday will be say $8, which is admittedly not often ever the angle.

Andrew Farrell, Monday, 24 October 2022 12:52 (one month ago) link

unpredictable human behavior (e.g., pandemic spending and saving patterns)
https://press.princeton.edu/books/paperback/9780691145921/animal-spirits

youn, Monday, 24 October 2022 12:55 (one month ago) link

xp it's a better pop-cultural example of "leverage" really -- at least if we consider JWW eating the hamburger as a kind of profit

in general these tricky terms achieve their arcane finance-ness when they're recognised as being (possibly misleading) snapshots of a vast flow of interlinked decisions and exchange

we can grasp the atomised exchange well enough -- but the fact of the use of the jargon is what reflects this huge pullulating half-visible landscape all around (and the fact that to a trader, awareness of dozens if not hundreds of such exchanges is what drives their decisions and shapes their perceptions)

mark s, Monday, 24 October 2022 13:00 (one month ago) link

A pullulating half-visible landscape once a week.

the pinefox, Monday, 24 October 2022 13:07 (one month ago) link

A thesis for traders as misunderstood artists of the floating empire of (financial) signs !

Luna Schlosser, Monday, 24 October 2022 13:13 (one month ago) link

this is fredric jameson's (i think slightly different) argument

maybe worth coming back to mine and decoding it somewhat (but instead i have real paid rewrite work to finish this afternoon)

mark s, Monday, 24 October 2022 13:31 (one month ago) link

My definition of finance in one short sentence would be: finance is the business of buying and selling claims on future cash flows.

o. nate, Monday, 24 October 2022 19:28 (one month ago) link

Reading the thread and I do wonder about the block many of us have in getting any sort of idea about economics.

When I read something by Lanchester I sorta fool myself into getting it but a week later it just goes. Concepts go in but don't stay.

It's like a muscle that needs constant attention and exercise.

Lots of subjects like that, it's unfortunate that economics has such an impact in our lives. Whereas as higher mathematics and inorganic chemistry, not so much.

xyzzzz__, Tuesday, 25 October 2022 13:44 (one month ago) link

Stuff like this. Why can't we just abolish high inflation? I'm sure someone will take me through the logic. I am mostly interested in how 'economics' can work for people.

I mean unironically yes https://t.co/BssQhI7306

— suzuki ingmar burgman (@xoayquanh) October 6, 2022

xyzzzz__, Tuesday, 25 October 2022 13:48 (one month ago) link

inflation has some good sides! like devaluing debt.

Fizzles, Tuesday, 25 October 2022 18:34 (one month ago) link

this thread is good because i really struggle with financial concepts. i can get to the point where i grasp them, just, but building on them, or 'chunking' them... beyond me apparently. it isn't at all intuitive for me, and i intrinsically sympathise and agree with pinefox in his exclamations, whether of disgust or bafflement.

i have tried to learn myself a bit, but not very successfully. in mark s' 'what have you *actually* learned from reading lanchester test' my only answer would be 'lol lanchester'.

i'll take two examples, which, through sufficient repetition to myself I am able to repeat back, but not really understand in my bones, viz: a deposit of money in a bank creates money.

The process by which banks create money is so simple that the mind is repelled. Where something so important is involved, a deeper mystery seems only decent. Where something so important is involved, a deeper mystery seems only decent. The deposits of the Bank of Amsterdam just mentioned were, according to the instruction of the owner, subject to transfer to others in settlement of accounts. (This had long been a convenience provided by the Bank’s private precursors.) The coin on deposit served no less as money by being in a bank and being subject to transfer by the stroke of a primitive pen.

Inevitably it was discovered—as it was by the conservative burghers of Amsterdam as they reflected incestuously on their own needs as directors of the Dutch East India Company—that another stroke of the pen would give a borrower from the bank, as distinct from a creditor of the original depositor, a loan from the original and idle deposit. It was not a detail that the bank would have the interest on the loan so made. The original depositor could be told that his deposit was subject to such use—and perhaps be paid for it. The original deposit still stood to the credit of the original depositor. But there was now also a new deposit from the proceeds of the loan. Both deposits could be used to make payments, be used as money. Money had thus been created. The discovery that banks could so create money came very early in the development of banking. There was that interest to be earned. Where such reward is waiting, men have a natural instinct for innovation.

Galbraith, John Kenneth. Money (pp. 22-23). Princeton University Press. Kindle Edition (my secondhand paperback edition with a cariacature of JKG on its cover, is in disarray)

oh, a coda:

In the 1960s, Mr. George W. Ball, an eminently successful lawyer, politician and diplomat, left public office to become a partner of the great Wall Street house of Lehman Brothers. “Why,” he was heard to ask a little later, “didn’t someone tell me about banking before?”

I get it, but I still do not *get it*.

Second, the following principle: markets generate gains from trade.

Markets generate gains from trade; one of the most important observations in all of economics is that buying and selling creates value. The Rwandan refugees focused their labor. Some scavenged meat, others grew vegetables; some gathered firewood, others worked as tailors or cooks. Then they traded what they produced. In the prison camp, nonsmokers sold cigarettes to buy food, while vegetarian Indians exchanged canned beef for jam and margarine. The ability to trade meant the refugees and prisoners were better off than if, like Robinson Crusoe, they could consume only their own allocations.

McMillan, John. Reinventing the Bazaar: A Natural History of Markets (p. 16). W. W. Norton & Company. Kindle Edition.

Again, I get how fluid exchange, esp via money, generates value, but it doesn't sit intrinsically in my simple understanding of the world. a little bit like the way people think of national debt like household debt. i am those people.

i had more to write but it's too long already and potentially making diffuse a useful thread.

Fizzles, Tuesday, 25 October 2022 19:04 (one month ago) link

oh, just an xpost, inflation is a relatively new phenomena, and where you have low to no inflation it results in wealth staying very static and rentier capitalism - as per Piketty's v good analysis of Jane Austen iirc. (Again this is me being conceptual and totally justifying the response, 'tell me how that works in close detail please'.)

Fizzles, Tuesday, 25 October 2022 19:05 (one month ago) link

like devaluing debt

...which, because debtors tend to be less wealthy than lenders, often has the effect of improving their relative positions in favor of the less wealthy, but this only really happens if the inflation leads to higher wages/incomes.

Also inflation only tends to devalue older debts incurred before the inflation happened. Unfortunately, lenders are very quick to respond to inflation and charge higher interest rates, so debts incurred after inflation goes up aren't really helped by from the devaluation effect.

more difficult than I look (Aimless), Tuesday, 25 October 2022 19:10 (one month ago) link

At the risk of further occulting the "economic principles" some folks struggle with, I heartily endorse historian Fernand Bradley Civilization and Capitalism, 15th-18th Century, vol. 2: The wheels of commerce. Having some knowledge of how bills of exchange functioned in the early modern period may help one to understand how and why banking today came to look the way it does.

My name is Mike Cyclops. I work for (bernard snowy), Tuesday, 25 October 2022 19:19 (one month ago) link

*Fernand Braudel, damn you autocorrect

My name is Mike Cyclops. I work for (bernard snowy), Tuesday, 25 October 2022 19:20 (one month ago) link

looool, it was as if you were reading my next post, which i deleted...

fuckit, I've just poured myself another glass of wine, so i'm going to carry on. where's my list. i should probably state outright that i find capitalism an extraordinary and great invention, with rentier captalism a filthy and degrading downside, and the doubtful likelihood of a strong and benevolent government a necessary requirement.

Braudel's treatment of the invention, development and definition of capitalism in The Wheels of Commerce, the second volume of his incredible Civilization and Capitalism, 15th-18th Century is brilliant.

Fizzles, Tuesday, 25 October 2022 19:23 (one month ago) link

i didn't because i feared 'further occulting'. i was going to cite his muleteer...

In Montaldeo, a certain Bettoldo, a *huomo nuovo*, drew down upon himself the wrather of the marquis Giorgio Doria. He was one of the muleteers who had made a small fortune (this was in 1782) transporting the village's wine to Genoa; no doubt he was known for the violent behaviour often attributed to muleteers. 'The insolence of the said Bettoldo much worries me,' the marquis wrote to his factor, 'as does the facility with which he blasphemes.... He must be punished, since he is incorrigible... In any case, he must be deprived of any employment from us; perhaps hunger will improve him.

a huomo nuovo such as Bettoldo upended feudalism and introduced the new age, with his foul manners and ability to defend himself and attack at a whim.

Fizzles, Tuesday, 25 October 2022 19:29 (one month ago) link

It's a very colorful history!

My name is Mike Cyclops. I work for (bernard snowy), Tuesday, 25 October 2022 19:59 (one month ago) link

there are other 'capitalist types'

my next person or image, is a (more or less invented) Syrian merchant in Cádiz, standing on a typical Gaditana tower each morning, spying for news of the ships they'd invested in or insured.

https://www.espanaguide.com/images/cadiz/torre-tavira/torres-de-cadiz.jpg

The investment of capital is the investment of your capital in a risky enterprise. The higher the risk, the more likely you will lose your money, the higher the return should your ship come home. Insurance enabled the spreading of that risk, and provoked people to speculate and travel beyond their home. This ofc eventually led to colonialism, but I'm not clear the mechanism by which you refuse a person making a buck, other than by insulating your realm.

Break to cite a curiously oracular utterance by JM Keynes:

The premium we pay the insurance company is only one of many certain costs we incur in order to avoid the possibility of a larger, uncertain loss, and we go to great lengths to protect ourselves from the consequences of being wrong. Keynes once asked, “[Why] should anyone outside a lunatic asylum wish to hold money as a store of wealth?” His answer: “The possession of actual money lulls our disquietude; and the premium we require to make us part with money is the measure of our disquietude.”

Bernstein, Peter L.. Against the Gods (pp. 275-276). Wiley. Kindle Edition.

Maybe I'm skipping, because inherent in this is the notion of trust. A remarkable invention is the promissory note, an early version of the bank note, whereby its very existence assures the possessor that should it be required they will be paid the sum represented. The bedrock of trade and of banking is that you do not need to carry a sum in goods around with you in order to transfer wealth. The ability to carry out transactions but at a distance is, again, a remarkable invention. But at a distance doesn't just require trust in people or institutions you do not know, but also the fates - the storms on the sea, the barbary corsairs, the sunk with all hands and vanished without a trace.

However, without these structures of financial trust 'at a distance' you are left with the world represented in Diego Gambatta's The Codes of the Underworld, or also explored in Dan Davies' book on fraud, Lying for Money – if you don't have trust relationships at a distance, you are heavily reliant on familial and local relationships (such as the mafia). the extension of trust beyond personal relationships is a significant capability of that original capitalist urge. power and wealth remains tightly controlled in a circle of familiarity.

Fizzles, Tuesday, 25 October 2022 20:12 (one month ago) link

more wine.

the big problem is the management of externalities. what happens when the reward is available to one person, but the risk is carried by others? A simple example of externalities would be driving - the driver has the reward of getting from a to b at a speed and level of comfort that they enjoy. the pollution their car emits while doing so is borne by the people who they pass on their journey. They get the reward, but do not bear the risk.

in my examples of the 'exciting and speculative wonders of capitalism' the risk and the reward is borne by the same group of people.

2008 and the global financial crisis, followed by the bailout was this model on a huge scale. High risk taking bankers got the reward, society bore the risk to a massive degree.

so, if you can't stop capitalism with the muleteer, or the merchant, when does this all become so out-of-control that *someone or something* needs to draw a line? I think we're really talking about national governments here, and the birth of constitutional liberalism.

Governments, by one definition, are there to manage problems of co-ordination and externalities.

This is the capitalist, liberal, democratic mode.

But is it sufficient? I'm an instinctive social democrat - I don't like the trade-offs in freedom you get with communism - of the loss of 'spending on your balls what you earn by your pen' to quote byron, but 2008 has to tell us it's not at all clear that social democracy is capable of balancing the interests of the wealth and capital owning classes with those of the wage earning classes (which btw goes v high up the salary scale - as modern marxists like Erik Olin Wright have said, this very much includes middle classes.

none of this is helping this thread i know. and i hope a load of people come along and demolish my pub handwaving here.

Fizzles, Tuesday, 25 October 2022 20:26 (one month ago) link

reconsider communism

your original display name is still visible (Left), Tuesday, 25 October 2022 20:33 (one month ago) link

my basic mode is that all people deserve good quality of four things
housing
transport and other communications generally (ie including broadband)
healthcare
education

and work or sufficient welfare to lead civilised within whatever definition you like of civilised there.

i think countries are sufficiently wealthy to achieve that, so my preference is socialism over communism. but i think speculative capitalism has a place as long as the risk is borne by the risk takers.

Fizzles, Tuesday, 25 October 2022 20:41 (one month ago) link

n my examples of the 'exciting and speculative wonders of capitalism' the risk and the reward is borne by the same group of people.

Maybe I missed something, but what about all the sailors who died on those boats? I'm also wondering where transatlantic slavery and settler colonialism fit in to these stories.

rob, Tuesday, 25 October 2022 20:43 (one month ago) link

sorry, this is a really unhelpful tangent, and it *really* wouldnt be helpful to go down a “preferences of economic distribution” route. but i am fascinated by capitalism as a mode of human being, and don’t think it’s easy or even desirable to prohibit, though the extent to which it should be regulated or canalised is definitely an urgent question.

Fizzles, Tuesday, 25 October 2022 20:44 (one month ago) link

transatlantic slavery, colonialism and sailors drowning are ofc all part of it - essentially they are again externalities, where other people bore the risk of indivual’s reward. that sounds morally dry. i’m not defending it. but i’m not sure what process or desirable form of regulation could have prevented it prior to democratic or popular institutions. and even then, there is no sign that democratic or popular institutions on the national level desire to prevent it.

im speaking in purely economic terms. morally many of the consequences are foul. the desire to trade over borders is not inherently evil tho.

Fizzles, Tuesday, 25 October 2022 20:49 (one month ago) link

god i’m posting waaaay beyond courtesy or utility here, apologies. i dislike corporatism and financialisation, public private partnerships and other forms of “high finance knowledge at the expense of everyday living” intensely. but the history and value of the market remains interesting.

Fizzles, Tuesday, 25 October 2022 20:51 (one month ago) link

I don't understand most of this thread because it's econ but capitalism isn't an inevitable natural phenomenon or transhistorical expression of human nature it has a specific history

my biggest problem with social democracy is the nationalism which in practice seems to preclude international solidarity due to demand for border controls and reliance on colonial/neocolonial extraction to fund welfare states (which always seem to end up being broken down by capital anyway)

your original display name is still visible (Left), Tuesday, 25 October 2022 21:00 (one month ago) link

i think i agree with both of those points.

my intention, if i had a clear intention in those rambling posts, was to suggest that the foundations of some of the opaque terminologies and transactional processes that exist around us now are fascinating, absolutely not inevitable, and are effectively technical *inventions* based on trust and risk, really coming back to mark s' box of quality street. they exist for a reason, and it's hard to consider how they might not exist, without significantly constraining a natural desire for exchange - that creation of value cited upthread.

Fizzles, Tuesday, 25 October 2022 21:16 (one month ago) link

still true in scotland - the royal bank of scotland printed one pound notes long after they'd been withdrawn by the bank of england. technically scottish notes aren't 'legal tender' in the uk but they can and should be accepted, i've flummoxed a few shopkeepers with them but never had one refused.

I've had them refused and certainly scrutinized and questioned. The thing is banknotes are not legal tender in Scotland, so if Scottish banknotes are refused in the England then English banknotes can be refused in Scotland by the same (spurious ) reasoning.

Fronted by a bearded Phil Collins (Tom D.), Wednesday, 16 November 2022 23:02 (one week ago) link

Oh and four banks in Northern Ireland produce banknotes: Bank of Ireland, First Trust Bank, Danske(!) Bank and Ulster Bank.

Fronted by a bearded Phil Collins (Tom D.), Wednesday, 16 November 2022 23:08 (one week ago) link

To complicate things further. The Isle of Man, Jersey and Guernsey all produce their own banknotes (including £1 notes). Alderney produces coins but no notes.

Fronted by a bearded Phil Collins (Tom D.), Wednesday, 16 November 2022 23:16 (one week ago) link

I turned on Radio 4 today. They were talking about cuts and taxes. It was the main item, the central idiom. Probably things that will help bad people and hurt good people. 'Austerity' and how they can avoid calling it austerity. The BBC accepted it all.

the pinefox, Thursday, 17 November 2022 09:31 (one week ago) link

The decrease in the value of money is necessarily an increase in the price of things - that is what inflation / deflation refers to.

Andrew Farrell, Thursday, 17 November 2022 10:41 (one week ago) link

That makes sense.

I have an idea, for some reason, that the price of something going up is connected to scarcity. If there is less of a substance, then its price goes up. That would be 'inflation', for that particular substance?

So if there are 100 cows, a pint of milk is 80p. If 50 cows are taken away, the pint goes up to £1.60. If only 1 cow is left, a pint is £80. Is that true? I can't really see why except that the person selling the milk is mercenary and can choose to charge more so only a very rich person can buy it.

Is that what 'inflation' is about?

the pinefox, Thursday, 17 November 2022 11:48 (one week ago) link

Examples work better using quality street and lunches.

I think you might be describing price elasticity. Inflation is a rise in prices over time, for which there could be various reasons (scarcity may be one).

Luna Schlosser, Thursday, 17 November 2022 14:10 (one week ago) link

I see. I had a feeling that what I was trying to describe wasn't the same as the inflation thing that everyone is talking about.

the pinefox, Thursday, 17 November 2022 14:54 (one week ago) link

inflation is a -measure- of the purchasing power of your currency relative to previous years... it's calculated by taking a representative sample of various goods and comparing how much they cost compared to previous years. the actual price of a specific good changing can be attributed to supply and demand or any number of other relatively concrete things, while the cause of inflation (since it's an abstract measure) can be argued about. economists can make some good conjectures about the causes of inflation but they do not really KNOW. but if Taylor Swift tells everyone to buy a red iPhone and they suddenly double in price, you can be pretty sure you know why red iPhones have gone up in price.

Jaime Pressly and America (f. hazel), Thursday, 17 November 2022 17:19 (one week ago) link

One possible inflation scenario:

The amount of cows remains the same at 100, but mark s receives a bequest and decides to give everyone £50. There’s now more money chasing the same amount of milk - and prices go up.

Luna Schlosser, Thursday, 17 November 2022 17:59 (one week ago) link

An increase in the quantity of money seems to be a leading suspect in many historical cases of inflation. e.g. the Price Revolution that occurred in Western Europe between the 15th and 17th centuries, which many suspect was related to the influx of gold and silver specie from the New World via primarily Spain.

o. nate, Thursday, 17 November 2022 18:07 (one week ago) link

"but if Taylor Swift tells everyone to buy a red iPhone and they suddenly double in price, you can be pretty sure you know why red iPhones have gone up in price."

I can see that if ms Swift recommends something, many people will want it. But does that mean its price will go up? Why?

Aren't the prices of such items quite stable?

If I try to imagine another credible example ... say TS says that she likes the sequel to KNIVES OUT, and her fans go to see it. It won't cost them more than it would have done if she hadn't recommended it.

the pinefox, Friday, 18 November 2022 01:12 (one week ago) link

"The amount of cows remains the same at 100, but mark s receives a bequest and decides to give everyone £50. There’s now more money chasing the same amount of milk - and prices go up."

But why? I don't understand this either. It's not the milk-seller's business how much money the other people have. That's their private business. It doesn't seem logical to me that the price of things should go up for those people who happen to have gained more money.

the pinefox, Friday, 18 November 2022 01:15 (one week ago) link

in both the advertising (Taylor) and inflation (milk) examples, the people selling things want to get the most money they can for the sale. if people are willing to pay more than the price was yesterday, the sellers may well adjust their prices.

i feel like we're gradually whittling our way down to first principles of classical liberal economics (Adam Smith, law of supply and demand), like Daffy turning into a pencil drawing in Duck Amuck. it's fun!

Doctor Casino, Friday, 18 November 2022 01:24 (one week ago) link

In the US, prices are apparently propped up by a giant strategic cheese stockpile.

It's possible this cheese stockpile is more voluminous than all the gold ever mined in human history.

Philip Nunez, Friday, 18 November 2022 01:26 (one week ago) link

"if people are willing to pay more than the price was yesterday, the sellers may well adjust their prices."

I think I understand that idea, but does it happen?

The price of things (spaghetti, say) does go up, but not because people are richer and can afford it more easily - does it? Isn't it because it has become more expensive to produce spaghetti, for some reason, so the price has to go up to cover costs?

Maybe the idea seems counter-factual or counter-intuitive to me because people have not actually become richer, in my society (the UK), in such a long time (15-20 years maybe?), so I can't remember it happening but it did use to happen.

the pinefox, Friday, 18 November 2022 01:32 (one week ago) link

imagine it like this:

doctor casino owns 100 cows that produce 100 pints of milk a day, each pint sells for £1, there are 100 people who want to buy 1 pint each. great.

overnight, 20 cows mysteriously die from cattle mutilation (attributed to aliens). 80 cows are left producing 80 pints for that day. dr. casino still sells each pint for £1, there are still 100 people who want to buy 1 pint each, but now there are only 80 pints. the last pint of the day is sold to philip nunez. 20 people were not able to buy any milk. as philip nunez walks out of dr. casino's barn, o. nate (who was waiting in line but now realizes the milk is sold out) follows philip nunez into a corn maze and says, i've got a kid at home who desperately needs calcium, sell me that pint of milk - i'll even give you more than you paid, i'll give you £1.20. philip nunez, who likes milk but doesn't like it enough to not be a fat cat capitalist, says you got yourself a deal. dr. casino, who's closed up shop, walks by and overhears the exchange. he realizes that he is leaving £.20 on the table by still selling it at £1 a pint, why should philip nunez get that extra £.20 and not him? after all, dr. casino is the one who owns the cows, philip nunez hasn't added any value here other than being earlier in time to the barn than o. nate. dr. casino is determined to capture that value!

so, the next day, dr. casino starts selling the milk for £1.20. of the 100 people, 20 think £1.20 is too high, but 80 will begrudgingly accept the price hike because they need the milk. £1.20 is therefore the market-clearing price, equilibrium is reached once again.

tah-dah!

, Friday, 18 November 2022 01:52 (one week ago) link

^ you can also imagine a world in which the noble dr. casino never increases his price, despite losing 10 cows a day to aliens. doesn't the milk stay at £1 in that world, you might ask? well, sort of - only to those who are lucky enough to buy at the £1 price for the purpose of consumption. there will be a healthy secondary black market for milk where the milk will trade for prices higher than £1, and as the milk supply decreases every day (due to cattle mutilation) the price on the secondary market will increase, leading to more and more scalpers muscling in on the daily milk drop.

, Friday, 18 November 2022 02:01 (one week ago) link

one missing component here is how much of my milk earnings i will blow in the cow-and-alien-themed pinball machine Attack From Mars

Doctor Casino, Friday, 18 November 2022 03:07 (one week ago) link

The amount of cows remains the same at 100, but mark s receives a bequest and decides to give everyone £50. There’s now more money chasing the same amount of milk - and prices go up.

I'm almost certainly getting confused/missing something but here goes anyway. So I've heard that sellers will increase prices if there's more money floating around, as per the example above. But surely if one seller keeps their prices the same while other sellers raise theirs then people will just go to the place that's still relatively cheap?

paolo, Friday, 18 November 2022 08:50 (one week ago) link

In the US, prices are apparently propped up by a giant strategic cheese stockpile.

It's possible this cheese stockpile is more voluminous than all the gold ever mined in human history.

― Philip Nunez, Friday, 18 November 2022 01:26 (seven hours ago) bookmarkflaglink

Amazing! Also 'giant strategic cheese stockpile' sounds like the worst prog album ever

paolo, Friday, 18 November 2022 08:53 (one week ago) link

overnight, 20 cows mysteriously die from cattle mutilation (attributed to aliens). 80 cows are left producing 80 pints for that day. dr. casino still sells each pint for £1, there are still 100 people who want to buy 1 pint each, but now there are only 80 pints. the last pint of the day is sold to philip nunez. 20 people were not able to buy any milk. as philip nunez walks out of dr. casino's barn, o. nate (who was waiting in line but now realizes the milk is sold out) follows philip nunez into a corn maze and says, i've got a kid at home who desperately needs calcium, sell me that pint of milk - i'll even give you more than you paid, i'll give you £1.20. philip nunez, who likes milk but doesn't like it enough to not be a fat cat capitalist, says you got yourself a deal. dr. casino, who's closed up shop, walks by and overhears the exchange. he realizes that he is leaving £.20 on the table by still selling it at £1 a pint, why should philip nunez get that extra £.20 and not him? after all, dr. casino is the one who owns the cows, philip nunez hasn't added any value here other than being earlier in time to the barn than o. nate. dr. casino is determined to capture that value!

This is a good explanation. I can follow this. Thanks for this helpful narrative.

But this seems to relate to the theme of scarcity - a substance becoming rarer and thus its price going up.

But not to the other scenario that was posited, which was: a substance is recommended, or consumers have more money, so the price goes up.

the pinefox, Friday, 18 November 2022 09:32 (one week ago) link

"But surely if one seller keeps their prices the same while other sellers raise theirs then people will just go to the place that's still relatively cheap?"

Also seems a good argument (though I suppose doesn't apply to the fictional world where only one merchant for a substance exists, eg: Dr Casino).

the pinefox, Friday, 18 November 2022 09:34 (one week ago) link

On the non-scarcity side, if there’s more money circulating in the economy why should the milk-producer simply cover their costs and maintain their existing prices? They’ll want to see what pricing the market will bear - and people will be able to pay more.

Luna Schlosser, Friday, 18 November 2022 11:54 (one week ago) link

also: the companies who supply me with milk bottles, cow maintenance equipment, etc., have all been inching up their prices --- because they can also get away with that, because everybody has more money. so if i don't raise my prices, i will actually be making less money on my milk sales, in real terms.

Doctor Casino, Friday, 18 November 2022 12:13 (one week ago) link

More money circulating = higher prices because it increases the chance that one of those with more money but no milk will buy at an above market rate on the secondary milk market in the example above, which will tend to push up the primary market price.

The Bankruptcy of the Planet of the Apes (PBKR), Friday, 18 November 2022 13:28 (one week ago) link

Milk tends to be very highly regulated. You might not be able to set up a secondary market as easily as this is suggesting.

Luna Schlosser, Friday, 18 November 2022 14:50 (one week ago) link

But not to the other scenario that was posited, which was: a substance is recommended, or consumers have more money, so the price goes up.

― the pinefox, Friday, November 18, 2022 4:32 AM (five hours ago)

right, so the example i gave was a shock to the supply side. now, imagine this: doctor casino has reached a pact with the aliens such that they are no longer mutilating his cattle, and he's got 100 cows, there are 100 people wanting 100 pints of milk at £1 a pint. everybody's happy.

one day, the milk and taylor swift appreciators of hereford roll into town, 25 of them. taylor swift has sampled doctor casino's milk and has declared it to be the best milk ever - it's from grass-fed, free-range cows that are happy because aliens are no longer mutilating them and also doctor casino gives a great cow massage, and only 100 pints are produced a day! so, the milk and taylor swift appreciators of hereford are here for a week and they are demanding to appreciate doctor casino's milk! but, there's a problem - there are now 125 buyers of doctor casino's milk (100 + 25 taylor swift appreciators), but doctor casino can still only coax his cows to produce 100 pints a day. so what happens? well, luna schlosser, head of the milk and taylor swift appreciators of hereford, spying that PBKR was able to buy the last pint of the day, corners him in a dark alley, and says i've give you £2 here for that bottle of milk (i have some extra pounds because i was scalping taylor swift tickets off ticketmaster), and this story is starting to sound familiar...

this is what happens when you increase the demand side of the supply/demand equation.

, Friday, 18 November 2022 15:09 (one week ago) link

to really hammer this home: what the back-alley scalper examples highlight is that if demand is going up, and there are enough people willing to pay more, the price will eventually go up - UNLESS i, Farmer Casino, am oblivious to the scalpers, or profoundly committed to making sure that original customer base will always have affordable milk. that kind of philanthropic attitude is rare!

note that no actual scalpers need truly materialize - i could also simply guess that with the Tay-hive coming, i can surely get away with the price hike. (i know in the back of my head that unless i raise my prices to whatever the customers will bear, the scalpers could materialize and take the money that could be mine!) i might also notice that another ILXor's farm has raised their prices and gotten away with it, so again I'm leaving money on the table.

Doctor Casino, Friday, 18 November 2022 15:44 (one week ago) link

Good story.

But in reality, can shopkeepers see that people have more money?

What is the signal for WH Smith to put up the price of ballpoint pens? I understand "it's getting harder and more expensive to secure ballpoint pens - sadly, the price we charge for them must go up". But I don't understand "some our customers are looking more smartly dressed these days - perhaps they have more money for some reason. Let's raise the price of ballpoint pens."

the pinefox, Friday, 18 November 2022 19:24 (one week ago) link

OK --- so to the extent that you're asking about inflation: under inflationary conditions, the price of everything is going up. The price that W.H. Smith is paying for the pens is going up. The wages their workers expect to be paid is going up. The rent and the electricity bill are going up. Etc. So they raise the price of the pens. Good luck identifying the "first mover." But it's what happens.

But certainly, if a shop is located in an increasingly posh neighborhood, the suits people are wearing might well inform the owner's pricing decisions! It might also inform the decision of the landlord to raise rents on the pen shop, which is also going to affect the shop-owner's next moves. This isn't the same thing as inflation, though, where the buying power of a given unit of currency is going down across the economy.

Doctor Casino, Friday, 18 November 2022 20:29 (one week ago) link

Manufacturers and retailers put a lot of resource into pricing and also keep up with what their competitors are doing, state of the market, current financial conditions etc.

Luna Schlosser, Friday, 18 November 2022 21:00 (one week ago) link

I guess in the old days when prices were routinely haggled over between buyers and sellers, part of the skill set of a seller was determining the highest price that the buyer was willing to pay, perhaps by watching their facial expressions and body language, bluffing, etc. In the modern era of posting prices for all items, these personal and interactive ways of sussing out how much buyers are willing to pay have been most likely replaced with modern analytical practices, but the goal remains the same.

o. nate, Friday, 18 November 2022 21:14 (one week ago) link

You can still experience it in street markets the world over tho. Or when you try to cancel your internet service. Literal offer I got last week when I did that (because of course they force you to call some guy in an answering center who then reads a script designed to keep you): "What if we cut your bill by 17 percent and boost your speed from 100 mb to 500 mb?"

I should try that with my bank, as noted before.

>>> "under inflationary conditions, the price of everything is going up. The price that W.H. Smith is paying for the pens is going up. The wages their workers expect to be paid is going up."

That sounds different from our actual conditions, where the price of things is going up, but nobody's wages are going up - in fact many of us are looking at getting paid less.

"The rent and the electricity bill are going up." - I understand as a reason for price rises. But as I mentioned earlier, the fact that wages never seem to go up may be a reason I can't picture this world where people have more money and then prices rise.

the pinefox, Friday, 18 November 2022 22:57 (one week ago) link

That sounds different from our actual conditions, where the price of things is going up, but nobody's wages are going up - in fact many of us are looking at getting paid less.

nominal wage growth in the uk is over 5%, highest it's been in 15 years. so wages are going up for most people, on average. but they aren't going up as fast as inflation, so real wage growth is negative (around -2%)

flopson, Saturday, 19 November 2022 15:55 (one week ago) link

It's not that anyone claims inflation figures are anything but gross and often arbitrary estimates but it seems like there ought to be a more granular breakdown that would be more relevant to most people. Like "I have to work X more hours to feed myself now vs 10 years ago, but now I can get a big screen TV with 3 dead pixels for free on the curb that would have been a week's worth of wages 10 years ago."

Philip Nunez, Saturday, 19 November 2022 20:06 (one week ago) link

Or "the rent was too damn high 10 years ago vs now where the rent is too GOTT DAMN high"

Philip Nunez, Saturday, 19 November 2022 20:08 (one week ago) link

Who in the UK is experiencing 5% wage increases?

Maybe billionaires and multimillionaires, skewing the statistic somehow.

I don't think any normal person has seen any wage increase in many years.

the pinefox, Saturday, 19 November 2022 22:46 (one week ago) link

tesco workers had their pay increase by ~5% earlier this year

https://www.nationalworld.com/lifestyle/money/tesco-staff-pay-rise-2022-how-much-will-wages-increase-and-how-do-they-compare-to-other-supermarkets-3647234

How much will Tesco staff get paid?
Tesco staff will see their hourly wage increase by 55p an hour.

Workers are currently paid £9.55 an hour, but this will increase to £10.10 in the summer.

Tesco store workers in London will get a similar increase to bring their hourly pay up to £10.78 per hour.

The pay increase has been agreed following talks with union Usdaw.

The move will see workers paid at least 60p above the National Living Wage.

The National Living Wage, which applies to workers over the age of 23, increased in April from £8.91 per hour to £9.50 per hour from this month. For those aged 21 to 22, this amount has gone up to £9.18.

, Saturday, 19 November 2022 23:39 (one week ago) link

but yeah, wage stagnation since the 1970s is a big driver of the wealth gap and which has made the US/UK into kleptocracies pretty much

, Saturday, 19 November 2022 23:40 (one week ago) link

nominal wage growth in the uk is over 5%, highest it's been in 15 years. so wages are going up for most people, on average. but they aren't going up as fast as inflation, so real wage growth is negative (around -2%)

― flopson, Saturday, 19 November 2022 15:55 (yesterday) bookmarkflaglink

if wage growth is behind inflation, which it has been as long as I've been in full-time work, then it still doesn't make sense that wage growth is driving inflation.

plax (ico), Sunday, 20 November 2022 01:02 (six days ago) link

> seems like there ought to be a more granular breakdown that would be more relevant to most people.

the last cpi was lower than realistic because of the relative cheapness of second hand cars and fuel, neither of which I've ever bought

"The increase to the annual inflation rate in October 2022 reflected, principally, the changes to the cost of domestic energy supplies. There were also increases from rising food and non-alcoholic beverage prices, and from items for recreation and culture. There were large, partially offsetting, downward effects from the transport section, more specifically from the price of motor fuels and second-hand cars."

https://www.ons.gov.uk/economy/inflationandpriceindices/bulletins/consumerpriceinflation/latest#notable-movements-in-prices

koogs, Sunday, 20 November 2022 06:33 (six days ago) link

(A CPI that included anonymous demographics or consumer behavior would be interesting.)

youn, Sunday, 20 November 2022 08:20 (six days ago) link

Most people I know are taking wage cuts or being fired.

Meanwhile I hear that taxes are going up and services will be cut.

Apparently this is because of the last bad 'mini-budget'. This seems criminal. Whoever is responsible should be in jail for life. Instead they will presumably be sent to the House of Lords and given millions of pounds for the rest of their life.

Wage increases sounds a nice idea but does not appear in my reality.

the pinefox, Sunday, 20 November 2022 09:53 (six days ago) link

if wage growth is behind inflation, which it has been as long as I've been in full-time work, then it still doesn't make sense that wage growth is driving inflation.

― plax (ico), Saturday, November 19, 2022 8:02 PM (yesterday)

i'm not an economist/statistician nor am i a britisher but doing a little googling and the uk gov apparently keeps some pretty official looking numbers on a site. again not a statistician but if you click on the top level hits for economy -> inflation and employment/labor market -> people in work you get:

https://www.ons.gov.uk/economy/inflationandpriceindices/timeseries/l55o/mm23

https://i.ibb.co/7J401Gh/image.png

and

https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/earningsandworkinghours/timeseries/kac3/lms

https://i.ibb.co/XtNJDvb/image.png

now i have no idea how they calculate either and you can imagine the wage growth one being skewed by high earners etc. but from the uk government's perspective wage growth has outpaced inflation until covid.

my intuition is that policy makers have a target for inflation that matches or is slightly under wage growth, but would be curious as to what insights flopson has on the subject.

, Sunday, 20 November 2022 12:29 (six days ago) link

oh whoops, the same image embedded twice. here:

inflation:

https://i.ibb.co/7J401Gh/image.png

wage growth:

https://i.ibb.co/v19hN07/image.png

, Sunday, 20 November 2022 12:32 (six days ago) link

my intuition is that policy makers have a target for inflation that matches or is slightly under wage growth, but would be curious as to what insights flopson has on the subject.

― 龜, Sunday, November 20, 2022 7:29 AM (eleven hours ago) bookmarkflaglink

the inflation target doesn't have anything to do with wage growth; it's just set at 2% (usually with some caveats like "flexible" and "average" thrown in) and that's it. some central banks (like the US, new zealand and australia) have a dual mandate that includes "full employment"

if wage growth is behind inflation, which it has been as long as I've been in full-time work, then it still doesn't make sense that wage growth is driving inflation.

― plax (ico), Saturday, November 19, 2022 8:02 PM (yesterday) bookmarkflaglink

yeah i think most people agree the nominal wage growth that's happening now is "following" inflation rather than driving it. i'm not sure how strong the evidence for the wage-price spiral ever was. from a new report by the IMF:

How often have wage-price spirals occurred, and what has happened in their aftermath? We investigate this by creating a database of past wage-price spirals among a wide set of advanced economies going back to the 1960s. We define a wage-price spiral as an episode where at least three out of four consecutive quarters saw accelerating consumer prices and rising nominal wages. Perhaps surprisingly, only a small minority of such episodes were followed by sustained acceleration in wages and prices. Instead, inflation and nominal wage growth tended to stabilize, leaving real wage growth broadly unchanged. A decomposition of wage dynamics using a wage Phillips curve suggests that nominal wage growth normally stabilizes at levels that are consistent with observed inflation and labor market tightness. When focusing on episodes that mimic the recent pattern of falling real wages and tightening labor markets, declining inflation and nominal wage growth increases tended to follow – thus allowing real wages to catch up. We conclude that an acceleration of nominal wages should not necessarily be seen as a sign that a wage-price spiral is taking hold.

Who in the UK is experiencing 5% wage increases?

Maybe billionaires and multimillionaires, skewing the statistic somehow.

I don't think any normal person has seen any wage increase in many years.

― the pinefox, Saturday, November 19, 2022 5:46 PM (yesterday) bookmarkflaglink

the 5% wage increase comes from a survey that asks a random sample of about 10,000 households every month how much they earned at work that month. 5% growth means the average number this year was higher than the same number last year

if you want to remove the influence of millionaires and billionaires skewing the numbers, you can look at growth in median wages. from the office for national statistics (look at section 3). median pay growth was about 6.9% for september. industries in which wage growth was highest

people getting laid off doesn't count as a zero wage, so that wouldn't affect these numbers. that's one of the limitations of looking at wages. the unemployment rate is 3.6% which is historically low (link from ONS)

since this is an average, it's consistent with you and all the people you know having zero wage growth. it's not clear whether nominal wages going up means people getting raises or new workers being hired at higher wages. i'll see if i can find anything with details on that. data that can go into that level of detail usually takes a while to come out

flopson, Monday, 21 November 2022 00:12 (five days ago) link

Presumably if they're counting raw salary, millionaires and billionaires aren't being paid millions and billions?

Andrew Farrell, Thursday, 24 November 2022 18:18 (two days ago) link


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