economics - where to begin?

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i guess this is another one of those "i don't have a clue, point me in the direction of some helpful literature" threads. i realise economics is a big subject and all, but any suggestions for places to begin wd be gd...

toby (tsg20), Wednesday, 15 January 2003 10:43 (nineteen years ago) link

Really begin? like from scratch? I took an A-level book home a couple of years back to get me started. you can whip through it v quick and get to the chapter at the end that says "but unfortunately, in the real world, none of this theory holds" which is the best bit.

Alan (Alan), Wednesday, 15 January 2003 10:46 (nineteen years ago) link

Macro. Micro's too.....*small*.

Lara, Wednesday, 15 January 2003 10:46 (nineteen years ago) link

Adam Smith - The Wealth of Nations. The foundation of economic theory. Get it from project gutenberg.

Ed (dali), Wednesday, 15 January 2003 10:49 (nineteen years ago) link

yeah, like from scratch! i don't know anything! like even eg why inflation exists.

toby (tsg20), Wednesday, 15 January 2003 10:49 (nineteen years ago) link

going back to primary sources is not going to get you up and running v quickly. leave the adam smith til you've got an overview i reckon

Alan (Alan), Wednesday, 15 January 2003 10:57 (nineteen years ago) link

make sure you research spider diagrams, they're very very useful.

chris (chris), Wednesday, 15 January 2003 10:57 (nineteen years ago) link

Inflation/Deflation exist because money has no intrinsic value, even gold. Money is only worth what people are able to give you for it. This is evidenced by the prices people will charge for things. The natural tendency is for people to try and increase prices but this only serves to reduce the value of money because the value to a person of, say, a loaf of bread remains pretty much the same, so as prices rise money becomes worth less and whats more there has to be more money in circulation to support these higher prices. More money in circulation without a corresponding increasing worth of a currency mean inflation as well.

Ed (dali), Wednesday, 15 January 2003 11:00 (nineteen years ago) link

inflation yeah basically too much money chasing too few goods. can be caused a number of ways , intrest rates also important-(invest or spend?), exchange rates and the "wage -price spiral"- as wages go up so to will prices of goods because demand for goods increases, as prices rise so will wages.... etc.

economics.."Scarce" or limited resources in the world force people (who have unlimited needs and wants) to make choices based on cost and satisfaction. These choices are best met in a *free market*place with *perfect competition* The market place is where buyers (or consumers) and sellers (or producers) come together to agree on a price ie where demand from buyers = supply from producers = price of a good or service.

Theres a whole heap of science based formulas that can be applied to the free market model, none of which are any good in real life cause there is never perfect competition because humans dont always act on price alone and governmentsts impose rules and regulations etc etc. Hope that helps I wouldnt trust anything Ive just said until someone else confirms Ive got those basics right cause its all off the top of my( admittedly big) head about ten years ago at school, funny the crap that stays there though.

kiwi, Wednesday, 15 January 2003 11:32 (nineteen years ago) link

kiwi you forgot to mention the three volumes of marx's das kapital!!

(marx is even worse than me at keeping it brief once he gets going, but he is good on the diff between value and price)

another flaw with the free market model is that unless everyone starts at the same point, those in first have a crushing advantage in re opportunities to distort markets in their favour (esp.once information becomes a commodity)

one solution — taking adam smith's theory seriously as an ideal — wd be to have a periodic recalibration, where everyone was stripped of all their property and placed at the same starting line every [xx] years: expect some squeaking from foax in the bigger houses though...

mark s (mark s), Wednesday, 15 January 2003 12:21 (nineteen years ago) link

(cf Brazillian and Argentinian freezing of bank accounts).

Pete (Pete), Wednesday, 15 January 2003 12:42 (nineteen years ago) link

The best text book I had was by Alian Anderton...it started from the basics, supply and demand, costs, etc, through to macro stuff (perfect competition, monolpoly, oligopoly, the multiplier and the paradox of thrift) to the money supply and inflation and the Keynesian and Supply side economists. I got a B at a-level.

jel -- (jel), Wednesday, 15 January 2003 15:25 (nineteen years ago) link

is that really his name? make him put some clothes on!!

mark s (mark s), Wednesday, 15 January 2003 15:26 (nineteen years ago) link

ha yeah! alain.

*sigh* I still love the perfect competition diagram.

jel -- (jel), Wednesday, 15 January 2003 15:28 (nineteen years ago) link

Wasn't Alien Anderton in charge of the Manchster Police in the '80's?

Pete (Pete), Wednesday, 15 January 2003 15:33 (nineteen years ago) link

No, that was Sophie Anderton.

N. (nickdastoor), Wednesday, 15 January 2003 15:40 (nineteen years ago) link

My favorite basic text on economics is Treasure of the Sierra Madre by B. Traven.

Aimless, Wednesday, 15 January 2003 20:17 (nineteen years ago) link

''kiwi you forgot to mention the three volumes of marx's das kapital!!''

now there's something I'd like to 'read'. at least try. but i doubt I'd get three month holidays again (education is over, work has started).

unless I'm sacked, of course.

Julio Desouza (jdesouza), Wednesday, 15 January 2003 22:18 (nineteen years ago) link

Oh, you should read The Worldly Philosophers by Robert Heilbroner. Basic introduction to the founders of economic theory.

Amateurist (amateurist), Wednesday, 15 January 2003 22:20 (nineteen years ago) link

I would also go for college level Macro textbook.

Spencer Chow (spencermfi), Wednesday, 15 January 2003 22:47 (nineteen years ago) link

Spencer and Amateurist beat me re: a college-level textbook (get the latest version of Nordhaus and Samuelson, it's pretty much the standard for Intro to Macroeconomics and Microeconomics in American college) or Heilbroner's book.

Also, if you can handle it seek out John Maynard Keynes' General Theory (if you can "handle" it because it's tough reading, even for econ. majors). If you want something more easily readable, Lester Thurow, Robert Reich, and Paul Kuttner are all pretty good bets.

Tad (llamasfur), Wednesday, 15 January 2003 22:53 (nineteen years ago) link

Paul Krugman, I meant. (there is another American economist Robert Kuttner, though I don't know whether or not he has written any books.)

Tad (llamasfur), Wednesday, 15 January 2003 22:56 (nineteen years ago) link

this reminds me of last week's Onion headline:

Greenspan Tattoos 'Fed Life' Across Abdomen

Spencer Chow (spencermfi), Wednesday, 15 January 2003 23:20 (nineteen years ago) link

four years pass...

I know very little about economics and the history thereof, but here's a question... has any socialist or even capitalist country ever had state-run banks? How'd that go?

I thought of this randomly while thinking about how I hate every fucking bank in Canada and how they're all the worst option ever, and then I thought "if they're going to rip me off they could at least use it to give me more healthcare, instead of filling some rich fux pockets!"

and to repeat: "I know very little about economics and the history thereof"

Will M., Thursday, 30 August 2007 19:22 (fourteen years ago) link

Why are you asking a bunch of non-experts? Clearly you should ask an economist. Just don't trust him/her to tell you everything since they've probably never experienced the economy.

Ms Misery, Thursday, 30 August 2007 19:28 (fourteen years ago) link

Uhh... I don't know how I'm supposed to respond to that. Other than that I don't know any economists.

Will M., Thursday, 30 August 2007 19:34 (fourteen years ago) link

It was a joke. The ADD thread in one post.

Ms Misery, Thursday, 30 August 2007 19:37 (fourteen years ago) link

I got the tone, I just wasn't clear on the tone (couldn't tell if it was "LOL" or "STFU WILL")

Will M., Thursday, 30 August 2007 19:38 (fourteen years ago) link

I got the reference, I just wasn't clear on the tone (couldn't tell if it was "LOL" or "STFU WILL")

Will M., Thursday, 30 August 2007 19:39 (fourteen years ago) link

Lots of countries have state-run banks, including India and China.

nabisco, Thursday, 30 August 2007 19:41 (fourteen years ago) link

LOL

I try to cut back on the smileys lest I'm mistaken for Ned.

Ms Misery, Thursday, 30 August 2007 19:54 (fourteen years ago) link

I would highly recommend Naked Economics to anyone who (like me) knows absolutely nothing about the subject. It was a very good primer. I feel like I'm at least 5% knowledgable about the subject now.

Deric W. Haircare, Thursday, 30 August 2007 20:03 (fourteen years ago) link

any secondary school (um, fifteen year olds) book on macroeconomics should be fine for an overview

darraghmac, Thursday, 30 August 2007 20:09 (fourteen years ago) link

I don't remember ever studying economics in HS. I feel robbed.

Ms Misery, Thursday, 30 August 2007 20:09 (fourteen years ago) link

okay

RJG, Thursday, 30 August 2007 20:12 (fourteen years ago) link

^^^^ Useless.

Deric W. Haircare, Thursday, 30 August 2007 20:31 (fourteen years ago) link

-- Deric W. Haircare, you are a stupid fucked-up piece of shit and ought to be banned. There's not a post of yours I've read that added anything to the conversation, you got no data, no information, I don't even know who you are or where you're from, and you're not even funny. On top of that you can't even amage to post a WDYLL photo proving that you have cleavage and a cute smile. You're worthless. The posters you criticize might have their fair share of predictable faults, but at least none of them is being a complete and utter fucking dullard.

El Tomboto, Thursday, 30 August 2007 20:38 (fourteen years ago) link

Thank god I've got two things keeping me on this board.

Abbott, Thursday, 30 August 2007 21:53 (fourteen years ago) link

o noes they're stuck to the computer?

Hurting 2, Thursday, 30 August 2007 21:56 (fourteen years ago) link

Economics and verbal beatdowns?

humansuit, Thursday, 30 August 2007 21:57 (fourteen years ago) link

cock like a stallion and an iron will

Hurting 2, Thursday, 30 August 2007 22:01 (fourteen years ago) link

OUI, I have to carry around an air compressor for the hydraulics I built to keep my cock up. Monster cock gets in the way sometimes.

Abbott, Thursday, 30 August 2007 22:04 (fourteen years ago) link

(shellac reference. Or is it? *GIANT WINK*)

Hurting 2, Thursday, 30 August 2007 22:06 (fourteen years ago) link

Do you have to pump the compressor? I imagine you sitting in a meeting with a little pump in your pocket, and it's totally quiet at one end of the table, and then everyone looks around when they hear "phew phew phew" and you look around too just to act like it's not you. Right? Right?

humansuit, Thursday, 30 August 2007 22:07 (fourteen years ago) link

Hahaha, yeah. This damn wang also means I have to pay for two seats on a plane, one for me, and one for my epic uncut moleskine curled up all like a butterfly proboscis but sitting there with the air compressor lest a change in temperature or an attractive passenger or a fond memory or any fool thing makes BONERB. THEN, fuck, I gotta support the thing, and I get all lightheaded from sudden blood flow out of my upper body (ps my heart is like the size and speed of two humping chihuahuas).

Abbott, Thursday, 30 August 2007 22:17 (fourteen years ago) link

Abbott that story really scared me. Tuck me in?

humansuit, Thursday, 30 August 2007 22:18 (fourteen years ago) link

Shit I don't know where my head is forget that last part.

humansuit, Thursday, 30 August 2007 22:18 (fourteen years ago) link

I don't have any happy stories.

Abbott, Thursday, 30 August 2007 22:20 (fourteen years ago) link

I'm sort of imagining a baby alien with titanium teeth. Very impressive.

humansuit, Thursday, 30 August 2007 22:20 (fourteen years ago) link

I took an economics class in high school and got an A, but only because I was good at memorizing the terms and basic principles and because all the quizzes were multiple-choice. Otherwise, economics is something that I just cannot wrap my head around. Like, I was a pretty good history student, too, until we got around to anything that involved tariffs and then I was like, "Durrrr, what?"

jaymc, Thursday, 30 August 2007 22:32 (fourteen years ago) link

i can give a longer answer when im not on my phone. imports appear to enter negatively into Y = C + I + G + (X - M) but this is a fallacy since imports are consumed or invested. the intuition is to think about a company instead of a nation: you have a ‘trade deficit’ with amazon, but taxing amazon goods would only make you worse off

flopson, Monday, 18 June 2018 20:50 (four years ago) link

Adam Tooze is very good at explaining this type of shit, I sometimes find. But at other times I haven't got a fucking clue what he's talking about.

calzino, Monday, 18 June 2018 20:56 (four years ago) link

i find him often impenetrable tbh

flopson, Monday, 18 June 2018 21:09 (four years ago) link

xp but I can't possibly produce the stuff I buy from amazon so I don't see how that analogy applies.

Fedora Dostoyevsky (man alive), Monday, 18 June 2018 21:27 (four years ago) link

I mean I understand the very simple concept that a tariff makes imported goods more expensive for me, that's not what I'm asking about

Fedora Dostoyevsky (man alive), Monday, 18 June 2018 21:27 (four years ago) link

can you clarify what you’re asking?

flopson, Monday, 18 June 2018 21:34 (four years ago) link

he appears to assume a trade deficit is hurtful and reducing it is a Good Thing in itself, and that "a trade war" mainly consists of attempts to reduce a trade deficit by reducing imports, and therefore may be an attractive remedy for the trade deficit. but because he also hears that a trade war is a Bad Thing, he wants to know why that would be true.

is that about right, man alive?

A is for (Aimless), Monday, 18 June 2018 21:39 (four years ago) link

but I can't possibly produce the stuff I buy from amazon so I don't see how that analogy applies.

― Fedora Dostoyevsky (man alive), Monday, June 18, 2018 5:27 PM (six minutes ago) Bookmark Flag Post Permalink

you could buy them from somewhere else. since you are not presently doing that, it’s prob cheapest from amazon. if the tariff causes you to buy from someone else more expensive that just deepens another deficit. if you instead make it yourself you’d reduce tariffs but decrease consumption.

flopson, Monday, 18 June 2018 21:40 (four years ago) link

sry reduce trade deficit

flopson, Monday, 18 June 2018 21:41 (four years ago) link

But I’m just a consumer, I’m not an economy. What if purchasing from the other merchant also increased my own wages?

Fedora Dostoyevsky (man alive), Tuesday, 19 June 2018 01:16 (four years ago) link

I mean I have a rough idea of Ricardo’s theory of comparative advantage but it doesn’t seem to play out in reality as manufacturing moving to China and agriculture moving to Mexico seems to have made us poorer.

Fedora Dostoyevsky (man alive), Tuesday, 19 June 2018 01:19 (four years ago) link

it hasnt because all those things are now cheaper relative to the CPI

21st savagery fox (m bison), Tuesday, 19 June 2018 01:51 (four years ago) link

unilateral trade deficits not balancing doesn’t rely on comparative advantage; any theory of trade (other than one in which autarky is optimal or every country is identical) would have that. maybe i should have said more about the business analogy. you have a trade deficit with every firm except the one you work for, with which you have a trade surplus. taxing the other firms may increase the amount you spend at the one you work at and decrease the amount you spend at others. this could raise your wage, but also may reduce it (for example, think about the case where former workers from other firms now compete your wage down). there are of course justifications of tariffs in some cases; keynes argued for them on stimulative grounds early in the Great Depression, and there’s the infant industry protection/learning by doing rationale (although those are usually used for developing countries)

manufacturing moving to China and agriculture moving to Mexico seems to have made us poorer

why does it seem this way? i mean, it did make some Americans poorer (well manufacturing at least, don’t know about agriculture) (there is a case to be made that bush and obama should have been more aggressive in response to China’s exchange rate devaluations and other protections, but that window’s long passed). there is some controversial research (by economists i like and trust, although imo answering big questions like this empirically is next to impossible) claiming trade with china was a net negative in terms of jobs. but the interpretation imo is to condemn the policy failure of not the helping unemployed, since trade had other considerable welfare gains (especially if you put nonzero weight on chinese workers)

What if purchasing from the other merchant also increased my own wages?

what’s the story you’re thinking of here? country C had a trade deficit from country A so trump imposes a tariff, making oranges from country B now cheaper than country A. how do wages in C increase?

flopson, Tuesday, 19 June 2018 02:19 (four years ago) link

tbc im not saying there are no justifications for tariffs ever. im just saying the trump rationale about trade deficits is wrong

flopson, Tuesday, 19 June 2018 02:27 (four years ago) link

what’s the story you’re thinking of here? country C had a trade deficit from country A so trump imposes a tariff, making oranges from country B now cheaper than country A. how do wages in C increase?

― flopson, Monday, June 18, 2018 9:19 PM (two days ago) Bookmark Flag Post Permalink

The scenario would have to be that oranges from country A and B become so expensive that home-grown oranges in country C become cheaper than either (or that suddenly the economics make sense again of producing something here that we had stopped producing here or dramatically reduced our production of here).

Fedora Dostoyevsky (man alive), Wednesday, 20 June 2018 19:03 (four years ago) link

This was good, a scheme where ppl learn about economics: https://www.theguardian.com/commentisfree/2018/jun/20/ordinary-people-learn-economics-manchester-classes

xyzzzz__, Wednesday, 20 June 2018 19:33 (four years ago) link

At the risk of sounding condescending (but no moreso than the premise itself), it reminds me a lot of the cliche that laborers easily understand the ideas of Marxism while elites are confused by them.

Fedora Dostoyevsky (man alive), Wednesday, 20 June 2018 19:36 (four years ago) link

three months pass...

the David Warsh book about newly laureated Nobelist Paul Romer, Knowledge and the Wealth of Nations, was a good read imo. Don't remember if I already pointed that out in this thread. Even Krugman thought it was a good book despite how he feels about the idea of charter cities and some of Romer's other growth ideas.

Cowen's not popular around here but this is a decent rundown of Romer's accomplishments and ideas:
https://marginalrevolution.com/marginalrevolution/2018/10/paul-romer-won-nobel-prize-economics.html

El Tomboto, Thursday, 11 October 2018 14:47 (three years ago) link

one month passes...

Interesting wide-ranging conversation between Cowen and Krugman here:

https://youtu.be/lTq_B1_nUz8

o. nate, Wednesday, 21 November 2018 03:00 (three years ago) link

one year passes...

although i've tried, with moderate success, to increase my knowledge and understanding of economics over the last few years, i'm still pretty awkward around a lot of the concepts. can someone explain to me why private equity isn't always doomed to failure? This question based on these two sentences from this article on private equity and covid bailouts:

According to Dan Rasmussen, the founder of Verdad Advisers, private-equity firms typically double the amount of debt relative to profits on a company’s balance sheet. One of the key principles behind private equity is that increased leverage—aka more debt—can make a business function more efficiently.

and while i'm totally here for 'private equity is evil, fuck capitalism' statements, i'd be interested to know at least what the argument is for it, if there is any beyond "a small number of people will make a lot of money through reducing the wealth of others."

Fizzles, Saturday, 11 April 2020 08:15 (two years ago) link

and by 'doomed to failure' i mean at some point you'd've thought it must just get found out - you either have to buy more and more, or you strip the companies beyond what their can sustain: the money runs out fundamentally (allowing for the fresh lease of life given by low interest rate restructuring of debt mentioned in the piece). Put another way, it seems difficult to imagine the amount of efficiency in any given set of companies amounts to double the amount of debt to profit, mentioned in the article.

Fizzles, Saturday, 11 April 2020 08:18 (two years ago) link

i mean i guess the reason is the usual one – it's a way of getting additional financing into your company, but it seems a devil's bargain, even to me.

Fizzles, Saturday, 11 April 2020 08:32 (two years ago) link

actually - sorry for having a conversation with myself here - that may be a reason why it happens, but it doesn't explain my 'leveraging that much debt' is surely doomed to failure (i guess there's another point there which the article is making which is by doomed to failure I also mean, a huge socialised crash, rather than anyone actually say going to prison or ending up on Carey Street.

Fizzles, Saturday, 11 April 2020 08:35 (two years ago) link

I'm not an economist, but I'd guess there's lot of other reasons as well as getting additional finance into your company:

credibility - Hey, Google's venture arm is investing in us: you'd better take notice.

access to contacts: - Hi, Peter Thiel/Mike Moritz has suggested we speak....

getting management expertise in your company so that it gets off the ground - e.g. Sean Parker and Facebook ("Sean was pivotal in helping Facebook transform from a college project into a real company"). Not just pure business advice, but expert feedback on the design and positioning of your product.

Luna Schlosser, Saturday, 11 April 2020 12:34 (two years ago) link

yep, good points. i guess they lean v much to the VC end of start-up private equity - which is more of a spread bet approach (you assume 9/10 investments are going to fail). from that vanity fair article it looked like a lot of PE comprises buying up assets of businesses outside of that space (but again i could be wrong and would appreciate any correction) and at best restructuring it.

i guess the point that fits with the points you’ve indicated there is that they can get expert advice on how to optimise, expand or turn round their business (for a fee).

Fizzles, Saturday, 11 April 2020 14:00 (two years ago) link

When they say that increasing the debt makes a company more efficient, I think they mean more capital efficient. This may be overly basic, but capital is basically the amount of money that the owners of the company have invested, and capital efficiency means the owners have less of their own money at stake, relative to the size of the company. A typical PE move would be to find a relatively boring but stable, profitable company that has low debt, buy it at a premium to its current stock price, jack up the debt so they can quickly take out a lot of the money that they just put in, and then let it continue to run. If all goes well and it doesn't collapse within a few years, they can return to the market, sell it and make a tidy profit. When rates are low, this can work, because the debt service is relatively low, and investors often don't worry too much about the size of the debt unless the company gets into trouble. Anyway that's my non-expert impression.

o. nate, Sunday, 12 April 2020 02:08 (two years ago) link

If all goes well and it doesn't collapse within a few years, they can return to the market, sell it and make a tidy profit

I don't get this part - why would the company be worth a lot more now?

Piven After Midnight (The Yellow Kid), Sunday, 12 April 2020 04:22 (two years ago) link

Oh - or it's not, but they already extracted their money as debt? So the trick is that they add debt to the company to get a profit, but then when they sell off the company the new buyers ignore the debt and ovepay?

Piven After Midnight (The Yellow Kid), Sunday, 12 April 2020 04:24 (two years ago) link

never too basic, o. nate. always worth going through these things, though i would worry if i hadn't understood it, as having a moderate understanding of capital investment is part of my current role. BUT i hadn't really got the capital efficiency point, or your description of what follows from that. (I should have understood it, having worked for companies owned by PE in the past - their problem was that they were trying to sell just as the 2008 crisis hit).

what you describe would still seem to involve driving a lot of cost out, or increasing revenue from the same cost base, at some point, which is fine if it's done responsibly but can obviously also reduce the quality of the outputs a lot of the time.

I just tried to 'answer' the yellow kid's question, but actually just ended up back asking the same question. to be willing to take on and service that debt surely, all things being equal, reduces amount buyers are willing to pay. unless it involves the process i described in the para above.

regardless, it seems to work against stable ongoing business concerns, which don't necessarily have the capacity to grow beyond their existing market (say a restaurant servicing a certain catchment area), but which generate enough cash to make it worthwhile for the operators/owners.

i feel the mid-tier jamie's/gbk/real greek restaurant business is a v good example of this, but actually i have no idea how much PE has been involved in their problems.

Fizzles, Sunday, 12 April 2020 12:10 (two years ago) link

it appears not, at least wrt Jamie Oliver's restaurants. they just struggled in a notoriously difficult industry:

In February, after closing 12 restaurants through an insolvency process known as a company voluntary arrangement, Mr Oliver appointed restructuring experts AlixPartners to find private equity backers to turn the business round.

The plan, according to a potential investor, was to change the restaurants to become more-focused on Mr Oliver himself, rebranding them “Jamie Oliver at Cambridge”, for example.

“The challenge with the business plan was that it was an unproven brand so it was a big ask, and the risk outside of the London estate was sufficiently high to make it difficult to get funding for,” the investor said.

No backers were found.

Fizzles, Sunday, 12 April 2020 12:14 (two years ago) link

hey fizzles,

i don't know a tonne about PE but this is a pretty thorough paper looking through the data:

https://bfi.uchicago.edu/wp-content/uploads/BFI_WP_2019122.pdf

Abstract: We examine thousands of U.S. private equity (PE) buyouts from 1980 to 2013, a period that saw huge swings in credit market tightness and GDP growth. Our results show striking,
systematic differences in the real-side effects of PE buyouts, depending on buyout type and external conditions. Employment at target firms shrinks 13% over two years in buyouts of publicly
listed firms but expands 13% in buyouts of privately held firms, both relative to contemporaneous outcomes at control firms. Labor productivity rises 8% at targets over two years post buyout (again, relative to controls), with large gains for both public-to-private and private-to-private buyouts. Target productivity gains are larger yet for deals executed amidst tight credit conditions. A postbuyout widening of credit spreads or slowdown in GDP growth lowers employment growth at targets and sharply curtails productivity gains in public-to-private and divisional buyouts. Average earnings per worker fall by 1.7% at target firms after buyouts, largely erasing a pre-buyout wage premium relative to controls. Wage effects are also heterogeneous. In these and other respects, the economic effects of private equity vary greatly by buyout type and with external conditions.

flopson, Sunday, 12 April 2020 17:49 (two years ago) link

one thing that makes quantifying the effect of PE on firms hard is that PE usually enters the picture once things are going badly, so you can't just subtract their numbers before PE from the numbers after or you'll overstate the negative effects from the pre-existing trend; you need to find some firms who were on a similar prior trend that didn't undergo PE and compare the differences. the research group who wrote that paper have access to a uniquely large and good database of firms, which allows them to do a good job in making those comparisons

flopson, Sunday, 12 April 2020 17:55 (two years ago) link

thanks flopson, and indeed thread, for generating exactly the conversation i was looking for. i’ll have read of the paper and then get back here.

Fizzles, Sunday, 12 April 2020 18:37 (two years ago) link

seven months pass...

This is pretty simple compared to a lot of what gets discussed here, but has anyone written about the proliferation of no interest financing of consumer products? I feel like everything I buy on the internet now has the option to pay in installments. I assume some kind of financing cost is simply baked into the price, so does that make me a sucker for not taking advantage of it? It’s a phenomenon that bothers me.

I became particularly aware of it when I got what seemed to be a dramatically inflated quote for Andersen windows and when I complained about the price their response was “were you told about our financing options?” Like as though it’s fine to overpay if you don’t have to pay it all now.

longtime caller, first time listener (man alive), Wednesday, 9 December 2020 00:03 (one year ago) link

quite often it's a separate company that does the financing and so yeah the company selling the product is paying a cut to the financing company. in australia, afterpay is one of the biggest buy now pay later financing companies and they're actually allowed to prevent retailers charging the customer more to use afterpay (https://www.abc.net.au/news/2020-12-07/buy-now-pay-later-players-wont-be-asked-to-pass-on-retailer-fees/12956250)

just sayin, Wednesday, 9 December 2020 00:47 (one year ago) link

I assume the following:

they charge more, or they charge some sort of fee for using the service
they charge for missed payments, making the whole endeavor worthwhile

Babby's Yed Revisited (jim in vancouver), Wednesday, 9 December 2020 00:52 (one year ago) link

I assume they're also have a vested interest in the buyer maybe missing a couple payments, which will make the interest-free part null & void... and also warrant a hefty late fee or something.

What about "make no payments for 48 months!!"?
And then four years later you have to start paying for a used mattress.

Andy the Grasshopper, Wednesday, 9 December 2020 00:55 (one year ago) link

jinx

Andy the Grasshopper, Wednesday, 9 December 2020 00:55 (one year ago) link

so does that make me a sucker for not taking advantage of it?

I suppose this really depends on your own utility function. Personally I am averse to "taking advantage" of 0% financing as I prefer the certainty of the up front cost. Keeping track of payments and direct debits for me would be a negative burden that would outweigh any potential benefit (at least in the era of low interest rates on deposits, and where I am lucky enough to have met my immediate needs, and have a cash surplus).

I guess the analysis of this will fall somewhere within intertemporal choice theory - and if we are inclined to accept a much higher prices of goods with 0% financing there could be a number of explanations (e.g. a significant intertemporal discount rate, imperfect information, imperfect processing power etc.?).

In so far as the financing cost being baked into the price, perhaps instead this could be viewed it as a method of price segmentation? On the assumption there is a correlation between the price elasticities of consumers and their likeliness to use financing.

Sketching it out let's say you have two groups of consumers for a given good -

(1) price elastic consumers who are less likely to invoke 0% financing options for a number of potential reasons (e.g. differing utility functions, or vanity, or perhaps just inexperience with such financing options because they have not needed to use such options in the past); and

(2) price inelastic consumers (who are potentially more experienced with 0% financing or their circumstance dictates that they must use it to get what they are after).

Let's say a profit maximising producer makes a supply to the market at price X in the case of no financing.

And in the case of financing being used the producer's price is effectively (X-B) - where B is the cost they pay to a third party (Payl8r for example) for taking the risks of the financing side. But by doing so this allows the producer to sell to type 2 consumers that they would otherwise miss out on, presumably without dramatically decreasing the full price X income from the type 1 consumers? Something to chew on.

Definitely interested in reading more on this type of stuff.

knowing for certain the first touch of the light will finish you (fionnland), Wednesday, 9 December 2020 01:37 (one year ago) link

I suppose there is a parallel in price segmentation in the fact that if you search for them you can find discount codes for many websites, but not everyone searches for them

and we definitely shouldn't discount the additional time cost to the consumer signing up to financing or searching for discounts

knowing for certain the first touch of the light will finish you (fionnland), Wednesday, 9 December 2020 01:45 (one year ago) link

I wasn't thinking of it in terms of stealth price differentiation, but it makes sense.

o. nate, Wednesday, 9 December 2020 03:24 (one year ago) link

I assume the following:

they charge more, or they charge some sort of fee for using the service
they charge for missed payments, making the whole endeavor worthwhile


the obvious benefit is that they will sell more because more people can afford it on a per month basis. even without factoring in fees it’s worth the margin hit.

i assume B2B deals of this sort charge a much lower fee than B2C credit charges (credit company gets more customers, chance of missed payments, chance of not paying it off in the time).

if, say, you’re apple, you’re going to be a really good company for a credit product to do business with.

two significant downsides for a consumer, i think. one is you’ve got to be organised enough to avoid all charges. two is that you’re effectively betting on future stability of life circumstances and are reducing your operating cash. (presumably if you had enough money to pay for it up front that’s what you would have done).

Fizzles, Wednesday, 9 December 2020 08:07 (one year ago) link

i don't think its the price discrimination thing. cause it's the same price to buy on layaway at 0 interest. its actually cheaper cause you could lend the money in the interim and make the interest. interest rates are low and no one would realistically do that for retail purchases, but still

fizzles is otm here:

the obvious benefit is that they will sell more because more people can afford it on a per month basis. even without factoring in fees it’s worth the margin hit.

the buy-now-pay-later service gets fees from the retailer directly, about 5% per sale according to this. that's where the bulk of the money comes from. the article says fees are a minority of the revenues. is it worth it for the retailer? they still get 95% from each sale. so if the price stays the same, they lose 5% on people who would've purchased anyway, and gain 95% on people who wouldn't have purchased without buy-now-pay-later. so as long as there is 1 person who was induced to buy by buy-now-pay-later for ever 20 who buy-now-pay-later'd but would've purchased anyway, it's worth it for them

retailers may be raising prices in response to this; it is a positive demand shock. i doubt by very much, but i could be wrong

flopson, Wednesday, 9 December 2020 08:39 (one year ago) link

five months pass...

1209 to 2019

The Bank of England governor says that cryptocurrency investors should be prepared to lose all their money 🤡 pic.twitter.com/OgNk143iIC

— Aleksandra Huk (@HukAleksandra) May 8, 2021

xyzzzz__, Sunday, 9 May 2021 19:24 (one year ago) link

Wow can’t believe the standard of living of your average £1/year laborer has declined so much in the last 800 years

Clara Lemlich stan account (silby), Sunday, 9 May 2021 19:34 (one year ago) link

???????

Clara Lemlich stan account (silby), Sunday, 9 May 2021 19:35 (one year ago) link

That graph is 100% accurate and completely useless as a means of understanding economics, finance or money.

sharpening the contraindications (Aimless), Sunday, 9 May 2021 19:37 (one year ago) link

Yeah, a lot of crypto supporters think low inflation is a bad thing.

wasdnuos (abanana), Sunday, 9 May 2021 19:41 (one year ago) link

one year passes...

I haven't read the book this is reviewing, so the review may be deeply unfair, but I agree with the review's argument that much of what gets criticised in 'economics' is really just 'the right'. https://t.co/C9qi7XqrIx

— Lafargue (@Lafargue) May 20, 2022

xyzzzz__, Saturday, 21 May 2022 09:26 (one month ago) link

one month passes...

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