economics - where to begin?

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

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

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

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

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

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

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

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

latham green weirdly otm

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

w/ the tv comment only

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

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

physically, for sure

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

well, there is such a thing as a "class action lawsuit" ... and if we had a Supreme Court and state attorneys general that haven't done as much as it can to limit the effectiveness of class action suits then litigants could more easily claw back this money.

This is a blog that I like to read to get some idea of how macro-economists think:

http://www.themoneyillusion.com/

Caveat emptor: I think the author is kind of a libertarian - but at least not a boring, doctrinaire one.

how are we meant to work out which is right.

― lex pretend, Wednesday, August 17, 2011 5:34 PM (20 minutes ago) Bookmark

competing ideologically motivated interpretations of the same periods of history don't help either

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

haha i think my first undergrad econ course actually had like a chapter 1 segment on 'what is money' that also probably featured the term 'fiat money' lol

also is galbraith really widely read in england weird to see him rec'd here so much

thats not gonna set lex in the right path

galbraith got penguined i think

NO! JKG is not widely enough read he us VERY FUNNY unlike every other economist ever (except marx obv) (and veblen, who's a sociologist really).

Also this arose bcz Lex was o_O at a piece by jamie g.

"fiat money" is a real term and a real thing (and a pretty good thing IMHO). it's the people who rant about the "evils" of fiat money (almost always goldbugs or other fringe wackos) that gives discussions about it its particular repute.

Yeah i don't quite understand this antipathy to the usage of the term - just because some people rant about it. Doesn't mean the term is incorrect

one of the weird things about the current political landscape is watching conservative politicians rail against the fed + monetary policy since a) monetary policy solutions are in my mind the purview of neoclassical economics/the right and b) it seems based on a tremendous misunderstanding of the economics of money (although not, weirdly, the semiotics of money!)

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

wellllll

(apart from certain branches of cultural theory but at some point i realised those were total bollocks anyway and stopped beating myself up over it.)

same is true of much economics, no?

basically came here to say this

IIRC, the term "fiat money" is a reference to the latin Vulgate Bible, where God, in Genesis says, "Fiat lux" (meaning fairly literally "I command light" or as the KJV has it, "Let there be light"). At which point in the creaton of the universe, light came into existance, where before there was no light. Pretty clever allusion, if you ask me.

its weird to think as someone pointed out to me the other day all money really is today is numbers in a database

But modern US "conservatism" has inherited lot of Andrew Jackson's anti-centralism, hasn't it? The issue of greenbacks and the Fed, are both actually Republican creations: but they're not at all conservative in the strict sense -- they were innovations -- and in the anti-centralist Jacksonian sense.

God knows US politics is a baffling switchback ride: pirates vs accountants is the underlying dynamic, but both exist on all wings of politics.

Yes, but they are very heavily scrutinized and controlled numbers.

fiat money is currency that is backed by the full faith and credit of a government, and not (explicitly) by the government's reserves of a commodity (such as gold or silver). this is overall a good thing b/c it doesn't artificially retard economic growth and planning by pegging currency values on the value or availability of a given commodity. its drawback is that, yes, a government in a bind can turn on its printing press and spew out money like there's no tomorrow (like Weimar Germany). i think that the pluses outweigh the minuses, but some folks don't agree. such folks have lots bats in the belfry IMHO, one of them an overriding fear of "big government." by constricting the supply of money, they constrict the growth of government.

human history is pretty well littered with examples of why tying money to a commodity is a bad idea

certainly it's very hard to exchange a commodity for money if the money is tied to the commodity

That's one reason why gold was such a good choice in the dim ages past. Not only is it a stable element that can't oxidize, but it's pretty damn useless for anything but looking pretty, so making it awkward as a useful commodity was no sacrifice.

you all forget BITCOINS!!!!!

gold-pressed latinum FTW

But modern US "conservatism" has inherited lot of Andrew Jackson's anti-centralism, hasn't it? The issue of greenbacks and the Fed, are both actually Republican creations: but they're not at all conservative in the strict sense -- they were innovations -- and in the anti-centralist Jacksonian sense.

no, totally! its just that dynamic eisbaer describes upthread is like my basic lens through which i think about the politics of economic policy its totally jarring to me to see tea party types trying to reintroduce the gold standard and carping about the fed all the time, but yeah that stuff has a long tradition on the right

It's tempting to equate monetarism with conservatism and Keynesianism with liberalism, since that's how the economists in those camps tend to line up. However, the reality is actually a lot messier, since politicians aren't very consistent in their economic reasoning. For example, take Cheney's famous line: "Reagan proved that deficits don't matter". In economics circles, the notion that deficits don't matter is associated with Modern Monetary Theory and lefty types like James K. Galbraith.

how are we meant to work out which is right

Obviously politics comes into it as well - right-wing economists have different priorities to left-wing or left-leaning ones. They have different ideas of what a positive outcome would be and you have to take that into account.

But it's also impossible to know who's right until it happens because events dear boy can knock any forecast off course. Predictions don't necessarily take into account a Middle Eastern dictator doing something mental that pushes up oil prices for example.

Thanks to this thread, I started reading The Great Crash again.

Great Crash is very entertaining. Like Mark S alluded to, Galbraith has a keen mordant wit.

this

"fiat money" is a real term and a real thing (and a pretty good thing IMHO). it's the people who rant about the "evils" of fiat money (almost always goldbugs or other fringe wackos) that gives discussions about it its particular repute.

― Friedrich das Wunderhahn hat den traurigen Clownporn sehr gern (Eisbaer), Wednesday, 17 August 2011 13:08 (3 hours ago) Bookmark Suggest Ban Permalink

and this

fiat money is currency that is backed by the full faith and credit of a government, and not (explicitly) by the government's reserves of a commodity (such as gold or silver). this is overall a good thing b/c it doesn't artificially retard economic growth and planning by pegging currency values on the value or availability of a given commodity. its drawback is that, yes, a government in a bind can turn on its printing press and spew out money like there's no tomorrow (like Weimar Germany). i think that the pluses outweigh the minuses, but some folks don't agree. such folks have lots bats in the belfry IMHO, one of them an overriding fear of "big government." by constricting the supply of money, they constrict the growth of government.

― Friedrich das Wunderhahn hat den traurigen Clownporn sehr gern (Eisbaer), Wednesday, 17 August 2011 13:23 (3 hours ago) Bookmark Suggest Ban Permalink

are ridiculous

as I said it takes the consent of the population for money to have value, or you end up like wiemar germany or in the south sea bubble. Governments can decree all they like and the people in one, loud concerted voice can shout "FUCK OFF". It is the market that sets the value of money, gold, fish, or anything else for that matter.

Governments can print money the market establishes value. "Fiat" is an assenine concept when it comes to economics.

This is why goldbugs piss me off so much. Gold only buys a certain amount of work or grain or whatever. it doesn't buy the same tomorrow as yesterday. It's all barter, if ten billionaires in mumbai have a wedding this weekend then it will cost less gold to buy more grain because there will be shortage of gold. If the US prints bunch of money I will be able to buy more dollars with my euro or my gramme of gold; it's all relative. No one get's to declare anything has value because we can all turn round and say BOLLOCKS I'll only give you less.

Ed, I hope you realize that by far the largest amount of "fiat" money in circulation today was not created by the federal government, but by banks. iow, it was created by markets. But it is still "fiat" money, by all accepted definitions of that term.

In fact, the federal government has no ability to "print money" in the sense you are using the phrase; it ceded that function to the Federal Reserve Board a very long time ago. All money spent by the US federal government must come from either tax revenues or the sale of bonds or bills, which must be repaid.

The Fed, otoh, has the option of buying whatever assets it wishes to buy, using money that it creates by fiat. Whenever it buys US Treasury bonds using fiat money, this is known as monetizing the federal debt, or in layman's terms "printing money".

The Fed has been out of the habit of monetizing US debt since Volcker was chairman (crica 1980, under Carter). But the Fed has done a huge amount of it since 2008, under Bernanke, along with, I should add, monetizing hundreds of billions of dollars worth of those crappy, worthless CDOs issued by the fucking stupid market you seem to honor so much.

Runs on banks are the clearest demonstration that there is no fiat that runs where money is concerned. This may be pure semantics but the only thing of importance when money is used in a transaction is that the parties to that transaction agree that the money exchanged has a certain amount of value. No government can ascribe any kind of value to currency, be it gold or paper, value is only assigned at the moment of exchange.

It doesn't matter who or what creates the money, value is bound in agreement. Banks are only able to "create" money because a loan transaction occurs where both parties agree a value, (in line with the collective valuation of the market)

No government can ascribe any kind of value to currency, be it gold or paper, value is only assigned at the moment of exchange.

the currency has an agreed value, the value being decided at any given transaction is that of the good being exchanged

exactly

i was disagreeing with you!

When customers make a run on a bank, the one and only thing they are seeking is that same currency that you seem to think they are showing no confidence in. On the contrary a bank run is evidence that the customers have no confidence in the bank, but boundless confidence in the value of the currency they deposited there.

Imagine the contrary situation where the value of the currency has been destroyed through inflation. In such a case, the customer knows that there will be plenty of money in the bank to cover their deposit. Bank runs don't happen in those circumstances. However, whatever money a person lays their hands on is almost certain to be spent quickly, rather than put in a bank.

It appears you have a somewhat confused knowledge on this subject.

It appears you have a somewhat confused knowledge on this subject.

this is such a disgusting sentence, how can you even live with yourself after typing it?

i really don't know why you think anything i said is "ridiculous," ed. i gave the definition of what fiat money is, i didn't say that the markets don't determine the value of currency at any given point of time. if anything, untethering the value of a currency from gold (or other commodity) actually aids markets in determining the true worth of currency.

this is such a disgusting sentence, how can you even live with yourself after typing it?

bit strong imo