economics - where to begin?

xps jim- i think secstag is kind of over now that Larry Summers has given up on it since Trump got elected? imo there is a fun demand-side version of secstag, for me the most useful for thinking about that whole line of argument was to read about Japan (i recommend Richard Koo 'The Holy Grail of Macroeconomics - Lessons from Japan’s Great Recession' with the caveat that some people strongly disagree with Koo so after reading it seek out some critiques) then there's the boring supply-side version where technology is stagnant (or maybe we're not measuring it properly blahblahblah) and for that i would read the second half of Robert Gordon's long-ass book from a couple of years ago

so Growth as a standalone topic in mainstream macroeconomics is, as far as i can tell, kind of over? with Paul Romer endogenous growth theory being the last great hope that failed. afaict the current interesting growth stuff is split across macro-development, resurgence in economic history (read/follow @pseudoerasmus if interested in these 2), and micro innovation policy (which connects to macro growth through 'neo-Schumpeterian' models, most famous of which is Aghion-Howitt. i'm actually not entirely sure how active this area is, could still be a thing). i actually kind of think the retreat of growth is a good thing tbh, a lot of the classic growth papers are really dumb like throwing a bunch of countries into a data-set and regressing growth rate on covariates. a good recent example of the development-historical approach is an incredible paper on South Korea's big push (summary by the author here https://voxdev.org/topic/firms-trade/manufacturing-revolutions-role-industrial-policy-south-korea-s-industrialisation)

i'm not sure what post-growth means, but i do think it's extremely important to argue against degrowth nutsos. there's a fun recent series of blog posts by Branko Milanovic trolling degrowth ppl with some growth arithmetic beginning with this one: http://glineq.blogspot.ca/2017/11/the-illusion-of-degrowth-in-poor-and.html and one of my favourite more speculative essays is 'Economics in the Age of Abundance' by brad delong https://www.project-syndicate.org/commentary/economic-problems-age-of-abundance-by-j--bradford-delong-2016-01?barrier=accessreg . i strongly dislike and avoid Paul Mason and that whole lot

Aghion

by the way this guy is extremely French and insanely funny manic gesticulating public speaker, some v worthwhile videos of his talks on youtube. he'll win nobel prize in ~10-15 years

FP for bakan

Double thumbs up for neo-schumpeterianism

i actually didn't know Bakan by name (obv recognize the cover of The Corporation tho i've never read it) but i can see the building his office is in from mine!

you'd love Philippe Aghion, darragh

What's it gonna take for you to trip him on the street from me I can paypal

xp I noted him as of five mins ago ta

you some kinda friend of the corporation buddy

huh Agaion sounds interesting. the son of a communist too!

I think I've noted my history with bakan/the corporation elsewhere I'll see if I can find it

is there a cool think to read that treats flows of human capital as functions of time

saskia sassen?

Help me understand: why is a trade war bad when you have a trade deficit? Why wouldn't tariffs help us more than they hurt us?

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

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.

i find him often impenetrable tbh

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

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

can you clarify what you’re asking?

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?

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.

sry reduce trade deficit

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

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.

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

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?

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

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).

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

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.

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

Interesting wide-ranging conversation between Cowen and Krugman here:

https://youtu.be/lTq_B1_nUz8

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."

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.

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.

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.

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.

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).

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.

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?

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?

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.

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.

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.

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

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.

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.

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)

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

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.