Economics for Idiots

Discussions about serious topics, for serious people
User avatar
bolo
Catbabel
Posts: 623
Joined: Mon Nov 11, 2019 1:17 pm
Location: Washington DC

Re: Economics for Idiots

Post by bolo » Fri Feb 05, 2021 6:17 pm

monkey wrote:
Fri Feb 05, 2021 2:52 pm
A little bit of inflation is a good thing, which is why the target is set at 2%. Too low and it can encourage stock market and housing bubbles. Below zero and people don't spend money, because why would you buy something today, when it would be cheaper tomorow?
A little inflation makes it easier for employers to gradually cut real wages, as employees object less vigorously to wage rises that are less than inflation than to equivalent wage cuts in the absence of inflation.

Inflation also gradually converts wealth into taxable income or capital gains. If you have $100 in the bank and get no interest on it and there is no inflation, the value of your bank account is unchanged and you owe no tax. If you have $100 in the bank and get 10% interest and there is 10% inflation, the real value of your bank account is unchanged but now you owe tax on $10.

monkey
Snowbonk
Posts: 431
Joined: Wed Nov 13, 2019 5:10 pm

Re: Economics for Idiots

Post by monkey » Fri Feb 05, 2021 6:37 pm

bolo wrote:
Fri Feb 05, 2021 6:17 pm
monkey wrote:
Fri Feb 05, 2021 2:52 pm
A little bit of inflation is a good thing, which is why the target is set at 2%. Too low and it can encourage stock market and housing bubbles. Below zero and people don't spend money, because why would you buy something today, when it would be cheaper tomorow?
A little inflation makes it easier for employers to gradually cut real wages, as employees object less vigorously to wage rises that are less than inflation than to equivalent wage cuts in the absence of inflation.

Inflation also gradually converts wealth into taxable income or capital gains. If you have $100 in the bank and get no interest on it and there is no inflation, the value of your bank account is unchanged and you owe no tax. If you have $100 in the bank and get 10% interest and there is 10% inflation, the real value of your bank account is unchanged but now you owe tax on $10.
And it also diminishes the size of your debt, or makes it cheaper if you like. But yes, a bit of inflation isn't good for everything. But are those things worse than an asset bubble going pop? (Don't ask me, I don't know, all I know is that about 2% inflation is the consensus amount to get the balance right)

You can also put your savings in something where you'd expect a better return than inflation plus tax and join a trade union :)

Herainestold
Catbabel
Posts: 723
Joined: Mon Nov 25, 2019 1:23 pm

Re: Economics for Idiots

Post by Herainestold » Fri Feb 05, 2021 6:49 pm

monkey wrote:
Fri Feb 05, 2021 6:37 pm
You can also put your savings in something where you'd expect a better return than inflation plus tax and join a trade union :)
Are there economies where everybody belongs to a union? Serious question , just trying to figure out how that would work.

User avatar
bolo
Catbabel
Posts: 623
Joined: Mon Nov 11, 2019 1:17 pm
Location: Washington DC

Re: Economics for Idiots

Post by bolo » Fri Feb 05, 2021 7:00 pm

monkey wrote:
Fri Feb 05, 2021 6:37 pm
But yes, a bit of inflation isn't good for everything.
I didn't actually claim that either of the effects I mentioned was bad. Many economists would say that making it easier to reduce real wages gradually is a good thing. Not across the board, but for certain jobs, to rebalance the pay for different types of work as relative productivity gets out of alignment with relative pay over time. And many people favor the idea of wealth taxes, even if they generally don't propose implementing them through the inflation back door.
monkey wrote:
Fri Feb 05, 2021 6:37 pm
You can also put your savings in something where you'd expect a better return than inflation plus tax and join a trade union :)
We have a union where I work. I'm not aware that it has any sort of savings scheme, nor would I expect the people who run it to have any particular expertise in managing such a thing. Am I missing your point here?

plodder
Dorkwood
Posts: 1279
Joined: Mon Nov 11, 2019 1:50 pm

Re: Economics for Idiots

Post by plodder » Fri Feb 05, 2021 7:04 pm

dyqik wrote:
Fri Feb 05, 2021 5:01 pm
lpm wrote:
Fri Feb 05, 2021 4:45 pm
There are two people in every trade, a buyer and seller.

We choose to buy cheap Chinese manufactured good. The Chinese choose to sell them.

The Chinese choose to buy ownership of our shares, bonds, govt gilts, companies etc. We choose to sell them.

It's easy to blame the people taking ownership of all the assets but it's actually us, and will continue so long as we are addicted to consumerism.
The "we" here is doing a lot amount of work, tbh.
meh. it’s economics for idiots after all. let’s say I have a sack of potatoes, and you want to lend someone some potatoes and I don’t need them right now because my potato house has a nice mashed potato roof and it’s not raining, and there are potatoes all over the allotment we all live in.

There’s nothing more natural or harmless than for you to take a position on potato futures based on a leveraged position you’ve just taken on the local chip shop based on some credit default swaps secured on the green beans that should be coming into harvest round about the time my roof needs fixing, as long as it doesn’t rain too much. With fees for every transaction.

User avatar
lpm
Stummy Beige
Posts: 2787
Joined: Mon Nov 11, 2019 1:05 pm

Re: Economics for Idiots

Post by lpm » Fri Feb 05, 2021 7:08 pm

dyqik wrote:
Fri Feb 05, 2021 5:01 pm
lpm wrote:
Fri Feb 05, 2021 4:45 pm
There are two people in every trade, a buyer and seller.

We choose to buy cheap Chinese manufactured good. The Chinese choose to sell them.

The Chinese choose to buy ownership of our shares, bonds, govt gilts, companies etc. We choose to sell them.

It's easy to blame the people taking ownership of all the assets but it's actually us, and will continue so long as we are addicted to consumerism.
The "we" here is doing a lot amount of work, tbh.
"We" = N.America, Europe excluding Germany & Netherlands
What ever happened to that Trump guy, you know, the one who was president for a bit?

User avatar
basementer
Catbabel
Posts: 715
Joined: Mon Nov 11, 2019 1:03 pm
Location: Aotearoa

Re: Economics for Idiots

Post by basementer » Fri Feb 05, 2021 7:12 pm

bolo wrote:
Fri Feb 05, 2021 7:00 pm
monkey wrote:
Fri Feb 05, 2021 6:37 pm
But yes, a bit of inflation isn't good for everything.
I didn't actually claim that either of the effects I mentioned was bad. Many economists would say that making it easier to reduce real wages gradually is a good thing. Not across the board, but for certain jobs, to rebalance the pay for different types of work as relative productivity gets out of alignment with relative pay over time. And many people favor the idea of wealth taxes, even if they generally don't propose implementing them through the inflation back door.
monkey wrote:
Fri Feb 05, 2021 6:37 pm
You can also put your savings in something where you'd expect a better return than inflation plus tax and join a trade union :)
We have a union where I work. I'm not aware that it has any sort of savings scheme, nor would I expect the people who run it to have any particular expertise in managing such a thing. Am I missing your point here?
I think monkey is implying that if you join a trade union your wages don't get cut in real terms.
Money is just a substitute for luck anyway. - Tom Siddell

User avatar
bolo
Catbabel
Posts: 623
Joined: Mon Nov 11, 2019 1:17 pm
Location: Washington DC

Re: Economics for Idiots

Post by bolo » Fri Feb 05, 2021 7:36 pm

basementer wrote:
Fri Feb 05, 2021 7:12 pm
I think monkey is implying that if you join a trade union your wages don't get cut in real terms.
Wouldn't it be nice if this were true.

monkey
Snowbonk
Posts: 431
Joined: Wed Nov 13, 2019 5:10 pm

Re: Economics for Idiots

Post by monkey » Fri Feb 05, 2021 7:45 pm

bolo wrote:
Fri Feb 05, 2021 7:00 pm
monkey wrote:
Fri Feb 05, 2021 6:37 pm
You can also put your savings in something where you'd expect a better return than inflation plus tax and join a trade union :)
We have a union where I work. I'm not aware that it has any sort of savings scheme, nor would I expect the people who run it to have any particular expertise in managing such a thing. Am I missing your point here?
That was in relation to the employers cutting wages bit. Trade union members typically get higher wages.

User avatar
dyqik
Stummy Beige
Posts: 3423
Joined: Wed Sep 25, 2019 4:19 pm
Location: Masshole
Contact:

Re: Economics for Idiots

Post by dyqik » Fri Feb 05, 2021 7:50 pm

monkey wrote:
Fri Feb 05, 2021 6:37 pm

And it also diminishes the size of your debt, or makes it cheaper if you like. But yes, a bit of inflation isn't good for everything. But are those things worse than an asset bubble going pop? (Don't ask me, I don't know, all I know is that about 2% inflation is the consensus amount to get the balance right)
Depends how exposed you are to that asset bubble going pop, and how much use you get from the asset before it regains its value or you pay off your losses.

Housing bubbles are a bit weird, in that you get a lot of use of the asset even while you pay off your losses if the bubble bursts. Most people stuck in negative equity or with endowment shortfalls probably still paid less in mortgage costs than they would have paid in rent for similar housing.

Bewildered
Clardic Fug
Posts: 155
Joined: Tue Nov 12, 2019 2:51 pm

Re: Economics for Idiots

Post by Bewildered » Sat Feb 06, 2021 2:16 am

I think monkey is the hero of this thread.

User avatar
Martin_B
Catbabel
Posts: 745
Joined: Mon Nov 11, 2019 1:20 pm
Location: Perth, WA

Re: Economics for Idiots

Post by Martin_B » Sat Feb 06, 2021 2:42 am

Herainestold wrote:
Fri Feb 05, 2021 6:49 pm
monkey wrote:
Fri Feb 05, 2021 6:37 pm
You can also put your savings in something where you'd expect a better return than inflation plus tax and join a trade union :)
Are there economies where everybody belongs to a union? Serious question , just trying to figure out how that would work.
Why not Google it? It took me ~5 seconds to find out the answer.
"My interest is in the future, because I'm going to spend the rest of my life there"

User avatar
Bird on a Fire
Light of Blast
Posts: 5241
Joined: Fri Oct 11, 2019 5:05 pm
Location: nadir of brie

Re: Economics for Idiots

Post by Bird on a Fire » Sat Feb 06, 2021 3:37 am

Under the dictatorship in Portugal, union membership was de facto compulsory with a really weird religious justification https://en.wikipedia.org/wiki/Estado_Novo_(Portugal)

And that was a capitalist dictatorship, not a communist one (which is why it was tolerated in Europe, of course). It didn't actually help much with the living conditions of labourers, although ultimately it was trade unions leading the resistance and making a huge contribution to the 1974 Carnation Revolution.


AFAICT they're not compulsory anywhere any more.
He has the grace of a swan, the wisdom of an owl, and the eye of an eagle—ladies and gentlemen, this man is for the birds!

Millennie Al
Snowbonk
Posts: 539
Joined: Mon Mar 16, 2020 4:02 am

Re: Economics for Idiots

Post by Millennie Al » Sat Feb 06, 2021 5:03 am

lpm wrote:
Fri Feb 05, 2021 9:09 am
I might have mentioned once or twice the need to look at real world resources when allocating between alternatives, rather than money, even if money is often convenient way to measure resources. The Bank of England can create money out of thin air but it cannot create nurses out of thin air. Which is why claims like "the money wasted on test & trace could have given us 200 million extra nurses" always collapse to nothingness. There are things money can't buy because money isn't real.
Money certainly is real (especially in Brazil). But being real is no guarantee of ability to create specific things. If the test and trace money has been a giant pile of gold coins, it would have been quite obviously real, yet no more capable of giving us lots of extra nurses. A pile of rocks is also undoubtedly real, but does even less than a pile of gold coins.

Even if money is abstract in that it is not a physical object, that does not prevent it being real. If you sing a song that is not recorded, it's quite obviously real even if ephemeral. And a kind word is a thing of value however transitory.
Covid-19 - Don't catch it: don't spread it.

Millennie Al
Snowbonk
Posts: 539
Joined: Mon Mar 16, 2020 4:02 am

Re: Economics for Idiots

Post by Millennie Al » Sat Feb 06, 2021 5:12 am

nezumi wrote:
Fri Feb 05, 2021 9:24 am
Here is my simplistic understanding of the problem, I'm sure someone will be along to correct any misconceptions I have:

The problem the BoE are always fiddling with is the money supply ie. how much money to create. Money is created as debt, in our case, debt to the BoE which is repayable with interest.
No. Money is a debt owed by the BoE - not owed to it. And it does not necessarily attract interest.
The problem comes in when people hoard money, as seen in offshore accounts, as the money supply is reduced but the debt still exists and has to be
repaid, with interest.
It people send money offshore, then by this logic what we lose another country gains. What do you think we are doing that leaves us on the wrong side of this deal?
This gets extracted from the little people via taxes so the money supply for the little people reduces even though the overall supply is the same. The more people hoard* in offshore accounts, the more money has to be created to supply the market or the money supply for the little people reduces. This leads to a vicious circle of money being created, causing inflation, then being hoovered up by the offshore accounts. It's done the inflation damage, then quickly disappeared, still existing on the BoE debt books, but being untouchable and therefore unpayable. It has to come back from somewere or the whole system collapses, therefore, yep! Back it comes out of the little people's empty pockets.
If you can get money out of empty pockets, where's the problem?
* In the sense that, yes, IMO hoarding money is a mental health disorder just as much as hoarding newspapers in a grotty flat is.
Why do you think hoarding is a disorder? Does that also apply to someone who collects 18th century teapots?
Covid-19 - Don't catch it: don't spread it.

Millennie Al
Snowbonk
Posts: 539
Joined: Mon Mar 16, 2020 4:02 am

Re: Economics for Idiots

Post by Millennie Al » Sat Feb 06, 2021 5:31 am

monkey wrote:
Fri Feb 05, 2021 2:22 pm
Millennie Al wrote:
Fri Feb 05, 2021 4:04 am
And to give an example of something obviously wrong, see the document Money creation in the modern economy (https://www.bankofengland.co.uk/-/media ... conomy.pdf) referred to by monkey. On page 15 arguing that it is a myth that banks use deposits to enable them to make loans it says:
Saving does not by itself increase the deposits or ‘funds available’ for banks to lend.
[/qoute]

then on page 18 it is explaining that a bank cannot just create arbitrarily more money as it is limited by its reserves and:



which is effectively saying direct opposite to the first quote.


And finally, the best sign of economists being useless is that they can explain everything yet predict very little.
Those two sentences are only contradictory if you take the first out of context and ignore what they mean by "by itself". The first is in a section telling you that banks don't only lend out money deposited savers. The "by itself" bit of "Saving does not by itself increase the deposits or ‘funds available’ for banks to lend." is important. Taken in context, it's telling you that the amount of loan a bank can make is not limited to the same amount of savers' deposits they have, but the "by itself" implies that the deposits are involved in the limits. So this does not contradict a statement like "By attracting new deposits, the bank can increase its lending..."
I think the context does not change my interpretation. I'll quote a bigger piece:
Two misconceptions about money creation

The vast majority of money held by the public takes the form
of bank deposits. But where the stock of bank deposits comes
from is often misunderstood. One common misconception is
that banks act simply as intermediaries, lending out the
deposits that savers place with them. In this view deposits
are typically ‘created’ by the saving decisions of households,
and banks then ‘lend out’ those existing deposits to borrowers,
for example to companies looking to finance investment or
individuals wanting to purchase houses.


In fact, when households choose to save more money in bank
accounts, those deposits come simply at the expense of
deposits that would have otherwise gone to companies in
payment for goods and services. Saving does not by itself
increase the deposits or ‘funds available’ for banks to lend.
Indeed, viewing banks simply as intermediaries ignores the fact
that, in reality in the modern economy, commercial banks are
the creators of deposit money. This article explains how,
rather than banks lending out deposits that are placed with
them, the act of lending creates deposits — the reverse of the
sequence typically described in textbooks.(3)
I think most people would undersatand this to be saying that deposits are irrelevant to lending. Especially the bit saying "rather than banks lending out deposits that are placed with them, the act of lending creates deposits — the reverse of the sequence typically described in textbooks.". This is not saying that only some deposits get lent out or that it is an oversimplification to say that deposits are lent out - it says "rather than", which means it is saying that that is actually false.
And if something breaks while you are applying force to it, the bits still obey the same laws they did when they were in one piece - the rules stay the same, things just got more complicated. In a way you did a good analogy, but it was about lies to children, rather than things being wrong.
The point is that you cannot accelerate things without limit - see https://what-if.xkcd.com/1/ for what happens if you try it with air - it ceases to be air.
Covid-19 - Don't catch it: don't spread it.

Millennie Al
Snowbonk
Posts: 539
Joined: Mon Mar 16, 2020 4:02 am

Re: Economics for Idiots

Post by Millennie Al » Sat Feb 06, 2021 5:35 am

bolo wrote:
Fri Feb 05, 2021 6:17 pm
A little inflation makes it easier for employers to gradually cut real wages, as employees object less vigorously to wage rises that are less than inflation than to equivalent wage cuts in the absence of inflation.
That's because of a feature of human psychology whereby the perceived (negative) value of the loss of something is more than the perceived (positive) value of gaining the same thing.

But, far more importantly for considering inflation is that inflation is a side-effect. If you feel you are getting wealthier you are going to be more inclined to pay more for things, which lets prices go up, so inflation is a side-effect of general prosperity.
Covid-19 - Don't catch it: don't spread it.

User avatar
individualmember
Snowbonk
Posts: 412
Joined: Mon Nov 11, 2019 4:26 pm

Re: Economics for Idiots

Post by individualmember » Tue Feb 09, 2021 3:10 pm

A few years ago I decided that I ought to know something about economics and started reading some books about it. The ones that I could follow and get something out of were The Undercover Economist by Tim Harford and How Markets Fail by John Cassidy. I suspect that anyone who really knows their stuff will scoff heartily at the Janet & John level of oversimplified to the point of absurdity for the benefit of children level, but although I hardly know anything about economics, it's been enough to help me spot the more obvious nonsense that appears on social media.

User avatar
Bird on a Fire
Light of Blast
Posts: 5241
Joined: Fri Oct 11, 2019 5:05 pm
Location: nadir of brie

Re: Economics for Idiots

Post by Bird on a Fire » Tue Feb 09, 2021 3:41 pm

Ha-Joon Chang has a couple of good ones. Economics: The User's Guide and 23 Things They Don't Tell You about Capitalism.
He has the grace of a swan, the wisdom of an owl, and the eye of an eagle—ladies and gentlemen, this man is for the birds!

User avatar
El Pollo Diablo
After Pie
Posts: 1680
Joined: Wed Sep 25, 2019 4:41 pm
Location: FBPE

Re: Economics for Idiots

Post by El Pollo Diablo » Wed Feb 10, 2021 9:32 am

monkey wrote:
Fri Feb 05, 2021 2:52 pm
A little bit of inflation is a good thing, which is why the target is set at 2%. Too low and it can encourage stock market and housing bubbles.
Please can you explain this?
Mike Patton wrote:"You overdo it sometimes. There I am, peeing on Axl Rose’s teleprompter." He looks rueful: "I didn’t really have to do that."

User avatar
bjn
Dorkwood
Posts: 1050
Joined: Wed Sep 25, 2019 4:58 pm

Re: Economics for Idiots

Post by bjn » Wed Feb 10, 2021 11:39 am

El Pollo Diablo wrote:
Wed Feb 10, 2021 9:32 am
monkey wrote:
Fri Feb 05, 2021 2:52 pm
A little bit of inflation is a good thing, which is why the target is set at 2%. Too low and it can encourage stock market and housing bubbles.
Please can you explain this?
A low rate of inflation is useful regardless, because it forces people to spend money and so keeps the wheels of the economy moving. Imagine the opposite, deflation, where year on year money is worth more in terms of the goods and services it could buy. That means, by doing nothing but stuffing pound coins under your mattress, rather than invest it in creating new goods or services, you can get more stuff if you wait. So rather than buy that house/car/whatever now, you don't, you wait as you'll get more for your money. Obviously you'll still have to buy some stuff just to stay alive, but it acts to slow everything down and slows the economy. Japan went through a deflationary cycle for a while and it caused them no end of grief.

Edit for clarity
Last edited by bjn on Wed Feb 10, 2021 11:42 am, edited 3 times in total.

User avatar
JQH
Dorkwood
Posts: 1260
Joined: Mon Nov 11, 2019 3:30 pm
Location: Sar Flandan

Re: Economics for Idiots

Post by JQH » Wed Feb 10, 2021 11:39 am

If inflation is low interest rates usually are too so people can afford bigger mortgages. Putting more money into the market without increasing supply pushes up prices.

I'm less clear as to why low inflation fuels stock market bubbles.
And remember that if you botch the exit, the carnival of reaction may be coming to a town near you.

Fintan O'Toole

monkey
Snowbonk
Posts: 431
Joined: Wed Nov 13, 2019 5:10 pm

Re: Economics for Idiots

Post by monkey » Wed Feb 10, 2021 2:29 pm

El Pollo Diablo wrote:
Wed Feb 10, 2021 9:32 am
monkey wrote:
Fri Feb 05, 2021 2:52 pm
A little bit of inflation is a good thing, which is why the target is set at 2%. Too low and it can encourage stock market and housing bubbles.
Please can you explain this?
House prices are correlated with inflation. So a period of low inflation also means a larger than normal increase in the future (short term). People buy houses to take advantage of that, this pushes the house price up and when that happens, people go "Hey, I like the look of that bandwagon", if too many take the jump you get a bubble.

Stock market bubbles is similar. Doesn't apply to all stocks, but some are more correlated to inflation than others. But to be honest, it seems nearly anything risks causing a bubble on the stock market.

User avatar
dyqik
Stummy Beige
Posts: 3423
Joined: Wed Sep 25, 2019 4:19 pm
Location: Masshole
Contact:

Re: Economics for Idiots

Post by dyqik » Thu Feb 11, 2021 12:25 am

monkey wrote:
Wed Feb 10, 2021 2:29 pm
Stock market bubbles is similar. Doesn't apply to all stocks, but some are more correlated to inflation than others. But to be honest, it seems nearly anything risks causing a bubble on the stock market.
The short and medium term trading stock market is pretty much composed of people trying to spot the next bubble and get in early, or spot the current bubble and short it. The main cause of stock market bubbles is the stock market.

That's separate to the long term stock market, which is people trying to spot the stocks that will pay out over the long term.

Herainestold
Catbabel
Posts: 723
Joined: Mon Nov 25, 2019 1:23 pm

Re: Economics for Idiots

Post by Herainestold » Thu Feb 11, 2021 1:02 am

dyqik wrote:
Thu Feb 11, 2021 12:25 am
monkey wrote:
Wed Feb 10, 2021 2:29 pm
Stock market bubbles is similar. Doesn't apply to all stocks, but some are more correlated to inflation than others. But to be honest, it seems nearly anything risks causing a bubble on the stock market.
The short and medium term trading stock market is pretty much composed of people trying to spot the next bubble and get in early, or spot the current bubble and short it. The main cause of stock market bubbles is the stock market.

That's separate to the long term stock market, which is people trying to spot the stocks that will pay out over the long term.
It used to be you could put money in the bank and make more on interest than you would in the market. Not true any longer, so you can spend it, have it stagnate in the bank, or lose it in the stock market.

Post Reply