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ResponsiblyIrresponsible
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3/13/2015 9:55:45 PM
Posted: 1 year ago
I've come to an interesting conclusion from recent discussions I've had here and elsewhere: many people--not all, but a sizable amount--tend to react viscerally with respect to that which they don't understand. Whether that's the Fed, the financial crisis, the euro crisis, the value of the dollar, or the federal deficit, people are extremely receptive to charlatans, like Peter Schiff, whose sole goal is to sell you gold, or something, by swindling you into thinking utterly ludicrous things that even an Econ 101 textbook handily refutes.

So, in my effort to mollify that, and to produce an informed a voter base, I'm going to take as many questions as I can on anything regarding these topics or even loosely related. I'll try my best to keep my responses somewhat terse and accessible, and to source my answers where I can.

With that said, have at it!
~ResponsiblyIrresponsible

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Skepsikyma
Posts: 8,286
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3/13/2015 10:00:27 PM
Posted: 1 year ago
At 3/13/2015 9:55:45 PM, ResponsiblyIrresponsible wrote:
I've come to an interesting conclusion from recent discussions I've had here and elsewhere: many people--not all, but a sizable amount--tend to react viscerally with respect to that which they don't understand. Whether that's the Fed, the financial crisis, the euro crisis, the value of the dollar, or the federal deficit, people are extremely receptive to charlatans, like Peter Schiff, whose sole goal is to sell you gold, or something, by swindling you into thinking utterly ludicrous things that even an Econ 101 textbook handily refutes.

So, in my effort to mollify that, and to produce an informed a voter base, I'm going to take as many questions as I can on anything regarding these topics or even loosely related. I'll try my best to keep my responses somewhat terse and accessible, and to source my answers where I can.

With that said, have at it!

Explain the IMF, please.
"The Collectivist experiment is thoroughly suited (in appearance at least) to the Capitalist society which it proposes to replace. It works with the existing machinery of Capitalism, talks and thinks in the existing terms of Capitalism, appeals to just those appetites which Capitalism has aroused, and ridicules as fantastic and unheard-of just those things in society the memory of which Capitalism has killed among men wherever the blight of it has spread."
- Hilaire Belloc -
That1User
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3/13/2015 10:01:50 PM
Posted: 1 year ago
At 3/13/2015 9:55:45 PM, ResponsiblyIrresponsible wrote:
I've come to an interesting conclusion from recent discussions I've had here and elsewhere: many people--not all, but a sizable amount--tend to react viscerally with respect to that which they don't understand. Whether that's the Fed, the financial crisis, the euro crisis, the value of the dollar, or the federal deficit, people are extremely receptive to charlatans, like Peter Schiff, whose sole goal is to sell you gold, or something, by swindling you into thinking utterly ludicrous things that even an Econ 101 textbook handily refutes.

So, in my effort to mollify that, and to produce an informed a voter base, I'm going to take as many questions as I can on anything regarding these topics or even loosely related. I'll try my best to keep my responses somewhat terse and accessible, and to source my answers where I can.

With that said, have at it!

What do you think were the causes of the Great Recession of the late 2000s? What are the solutions to the Recession?
"Our life is what our thoughts make it."
R13; Marcus Aurelius
"When you arise in the morning, think of what a precious privilege it is to be alive - to breathe, to think, to enjoy, to love." -Marcus Aurelius
"Man is free at the moment he wishes to be." -Voltaire
"Every man is guilty of all the good he did not do. "-Voltaire
ResponsiblyIrresponsible
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3/13/2015 10:03:29 PM
Posted: 1 year ago
At 3/13/2015 10:00:27 PM, Skepsikyma wrote:
At 3/13/2015 9:55:45 PM, ResponsiblyIrresponsible wrote:
I've come to an interesting conclusion from recent discussions I've had here and elsewhere: many people--not all, but a sizable amount--tend to react viscerally with respect to that which they don't understand. Whether that's the Fed, the financial crisis, the euro crisis, the value of the dollar, or the federal deficit, people are extremely receptive to charlatans, like Peter Schiff, whose sole goal is to sell you gold, or something, by swindling you into thinking utterly ludicrous things that even an Econ 101 textbook handily refutes.

So, in my effort to mollify that, and to produce an informed a voter base, I'm going to take as many questions as I can on anything regarding these topics or even loosely related. I'll try my best to keep my responses somewhat terse and accessible, and to source my answers where I can.

With that said, have at it!

Explain the IMF, please.

Sure. The crux of the IMF is that it's composed of 188 countries pool together funds which is then loaned out to developing countries on the condition that they adopt free-market reforms--i.e., trade and financial liberalization.
~ResponsiblyIrresponsible

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bossyburrito
Posts: 14,075
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3/13/2015 10:10:38 PM
Posted: 1 year ago
At 3/13/2015 9:55:45 PM, ResponsiblyIrresponsible wrote:
I've come to an interesting conclusion from recent discussions I've had here and elsewhere: many people--not all, but a sizable amount--tend to react viscerally with respect to that which they don't understand. Whether that's the Fed, the financial crisis, the euro crisis, the value of the dollar, or the federal deficit, people are extremely receptive to charlatans, like Peter Schiff, whose sole goal is to sell you gold, or something, by swindling you into thinking utterly ludicrous things that even an Econ 101 textbook handily refutes.

So, in my effort to mollify that, and to produce an informed a voter base, I'm going to take as many questions as I can on anything regarding these topics or even loosely related. I'll try my best to keep my responses somewhat terse and accessible, and to source my answers where I can.

With that said, have at it!

Refute this:

http://mises.org...
#UnbanTheMadman

"Some will sell their dreams for small desires
Or lose the race to rats
Get caught in ticking traps
And start to dream of somewhere
To relax their restless flight
Somewhere out of a memory of lighted streets on quiet nights..."

~ Rush
Skepsikyma
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3/13/2015 10:24:16 PM
Posted: 1 year ago
At 3/13/2015 10:03:29 PM, ResponsiblyIrresponsible wrote:
At 3/13/2015 10:00:27 PM, Skepsikyma wrote:
At 3/13/2015 9:55:45 PM, ResponsiblyIrresponsible wrote:
I've come to an interesting conclusion from recent discussions I've had here and elsewhere: many people--not all, but a sizable amount--tend to react viscerally with respect to that which they don't understand. Whether that's the Fed, the financial crisis, the euro crisis, the value of the dollar, or the federal deficit, people are extremely receptive to charlatans, like Peter Schiff, whose sole goal is to sell you gold, or something, by swindling you into thinking utterly ludicrous things that even an Econ 101 textbook handily refutes.

So, in my effort to mollify that, and to produce an informed a voter base, I'm going to take as many questions as I can on anything regarding these topics or even loosely related. I'll try my best to keep my responses somewhat terse and accessible, and to source my answers where I can.

With that said, have at it!

Explain the IMF, please.

Sure. The crux of the IMF is that it's composed of 188 countries pool together funds which is then loaned out to developing countries on the condition that they adopt free-market reforms--i.e., trade and financial liberalization.

Do you think that it has been used for exploitative purposes?
"The Collectivist experiment is thoroughly suited (in appearance at least) to the Capitalist society which it proposes to replace. It works with the existing machinery of Capitalism, talks and thinks in the existing terms of Capitalism, appeals to just those appetites which Capitalism has aroused, and ridicules as fantastic and unheard-of just those things in society the memory of which Capitalism has killed among men wherever the blight of it has spread."
- Hilaire Belloc -
ResponsiblyIrresponsible
Posts: 12,398
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3/13/2015 10:28:17 PM
Posted: 1 year ago
At 3/13/2015 10:01:50 PM, That1User wrote:
What do you think were the causes of the Great Recession of the late 2000s? What are the solutions to the Recession?

This one's a bit more complex. The causes, shortly, were financial innovations run amok, and the notion that began in the 1980s but intensified during the Clinton Administration, at the counsel of Larry Summers, Robert Rubin, Alan Greenspan, and others that complex derivatives and other financial instruments could "regulate themselves." We saw widespread deregulation of the financial sector, including the repeal of the Glassed-Steagall Act, which allowed banks to take on an increasing amount of leverage such that they were gambling with depositors money.

From that point, the story gets a bit murky, and there are valid differences of money. Short-term interest rates were about 1 percent in 2003, which was, at least at the time, an effective lower bound. Some will argue that monetary policy was too loose during that time, though there weren't any signs of overheating, so I think it's a hard case to make that monetary policy in any way contributed to the housing bubble, but I digress.

Basically, whether to reach for yield or otherwise, finance had progressed to such a degree that banks were taking on excessive risks in the form of subprime mortgages--i.e., highly risky mortgages. They were lending to people without the necessary means to pay those loans back, and undoubtedly credit standards were far too loose. Anyway, the banks knew those mortgages were utter crap, but they took a bunch of those mortgages and bundled them together with less risky ones into mortgage-backed securities. Then they took a bunch of mortgage back securities and bundled those together into collateralized debt obligations. Of course, the appearance is that they weren't of much risk at all, but nevertheless the crappy mortgages still existed.

From there, the story gets more complex--they would bundle together a bunch of CDO's in CDO squares, CDO cubed, etc. to the point that no one really knew who owned what. On top of that, they would sell these highly risky credit default swaps, which is basically a form of insurance. That led the rating agencies to rate the CDO's as low risk, though in reality they were full of crap.

Eventually, what goes up has to go down--the banks tightened lending standards, people began to default en masse, and the supply of available houses soared. Home prices began to plummet, meaning that personal wealth--i.e., collateral to pay back debt--began to collapse, so more people began to default. The CDO's became hot potatoes, obviously, since no one actually wanted to bear the brunt of the losses--though the reach was global since these damn things were sold practically across the globe, so large investment banks were left with extraordinary losses at a time when they couldn't borrow against (collapsing) collateral, so the credit markets froze: no money was flowing through the system, hence a crash.

As for the solutions, I think there are a few:

(1) Re-regulate the banks to prevent these risky financial deals from taking down the global economy.

(2) Target some market-based measures of NGDP expectations so the Fed can respond quickly and aggressively. A key problem was contractionary Fed policy in late 2008. Even following the financial crisis, the dollar--and this is completely unheard of on a global scale--began to appreciate, real rates began to soar, NGDP fell appreciably, etc., but there's a substantial data lag, so the Fed was targeting past data--inflation, above 2 percent for the past year or so, though market expectations were far lower, mainly because downward nominal wage rigidity keeps inflation from falling--instead of the forecast. They could target NGDP expectations, and seek to prevent those from falling, and the policy response would necessarily be much more aggressive as inflation becomes countercyclical.
~ResponsiblyIrresponsible

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ResponsiblyIrresponsible
Posts: 12,398
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3/13/2015 10:28:56 PM
Posted: 1 year ago
At 3/13/2015 10:10:38 PM, bossyburrito wrote:
At 3/13/2015 9:55:45 PM, ResponsiblyIrresponsible wrote:
I've come to an interesting conclusion from recent discussions I've had here and elsewhere: many people--not all, but a sizable amount--tend to react viscerally with respect to that which they don't understand. Whether that's the Fed, the financial crisis, the euro crisis, the value of the dollar, or the federal deficit, people are extremely receptive to charlatans, like Peter Schiff, whose sole goal is to sell you gold, or something, by swindling you into thinking utterly ludicrous things that even an Econ 101 textbook handily refutes.

So, in my effort to mollify that, and to produce an informed a voter base, I'm going to take as many questions as I can on anything regarding these topics or even loosely related. I'll try my best to keep my responses somewhat terse and accessible, and to source my answers where I can.

With that said, have at it!

Refute this:

http://mises.org...

I'm not going to read a 900 page paper, man, lol. Find a specific argument, and I'll give you my thoughts.
~ResponsiblyIrresponsible

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ResponsiblyIrresponsible
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3/13/2015 10:31:23 PM
Posted: 1 year ago
At 3/13/2015 10:24:16 PM, Skepsikyma wrote:
At 3/13/2015 10:03:29 PM, ResponsiblyIrresponsible wrote:
At 3/13/2015 10:00:27 PM, Skepsikyma wrote:
At 3/13/2015 9:55:45 PM, ResponsiblyIrresponsible wrote:
I've come to an interesting conclusion from recent discussions I've had here and elsewhere: many people--not all, but a sizable amount--tend to react viscerally with respect to that which they don't understand. Whether that's the Fed, the financial crisis, the euro crisis, the value of the dollar, or the federal deficit, people are extremely receptive to charlatans, like Peter Schiff, whose sole goal is to sell you gold, or something, by swindling you into thinking utterly ludicrous things that even an Econ 101 textbook handily refutes.

So, in my effort to mollify that, and to produce an informed a voter base, I'm going to take as many questions as I can on anything regarding these topics or even loosely related. I'll try my best to keep my responses somewhat terse and accessible, and to source my answers where I can.

With that said, have at it!

Explain the IMF, please.

Sure. The crux of the IMF is that it's composed of 188 countries pool together funds which is then loaned out to developing countries on the condition that they adopt free-market reforms--i.e., trade and financial liberalization.

Do you think that it has been used for exploitative purposes?

I can't think of a way that it has. I'm not the biggest fans of its endorsement of austerity, though it, thankfully, repudiated that position after seeing the woes in Greece. I guess the Greece fiasco, where the IMF, European Commission, and EU (or Troika) would only lend Greece money contingent on massive, crippling austerity -- when Greece lacks an independent monetary policy -- tempers the amount of praise I'd afford the IMF, but I don't think it would necessarily rise to the level of exploitation.
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ResponsiblyIrresponsible
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3/13/2015 10:36:17 PM
Posted: 1 year ago
At 3/13/2015 10:28:17 PM, ResponsiblyIrresponsible wrote:
At 3/13/2015 10:01:50 PM, That1User wrote:
What do you think were the causes of the Great Recession of the late 2000s? What are the solutions to the Recession?

This one's a bit more complex. The causes, shortly, were financial innovations run amok, and the notion that began in the 1980s but intensified during the Clinton Administration, at the counsel of Larry Summers, Robert Rubin, Alan Greenspan, and others that complex derivatives and other financial instruments could "regulate themselves." We saw widespread deregulation of the financial sector, including the repeal of the Glassed-Steagall Act, which allowed banks to take on an increasing amount of leverage such that they were gambling with depositors money.

From that point, the story gets a bit murky, and there are valid differences of money. Short-term interest rates were about 1 percent in 2003, which was, at least at the time, an effective lower bound. Some will argue that monetary policy was too loose during that time, though there weren't any signs of overheating, so I think it's a hard case to make that monetary policy in any way contributed to the housing bubble, but I digress.

Basically, whether to reach for yield or otherwise, finance had progressed to such a degree that banks were taking on excessive risks in the form of subprime mortgages--i.e., highly risky mortgages. They were lending to people without the necessary means to pay those loans back, and undoubtedly credit standards were far too loose. Anyway, the banks knew those mortgages were utter crap, but they took a bunch of those mortgages and bundled them together with less risky ones into mortgage-backed securities. Then they took a bunch of mortgage back securities and bundled those together into collateralized debt obligations. Of course, the appearance is that they weren't of much risk at all, but nevertheless the crappy mortgages still existed.

From there, the story gets more complex--they would bundle together a bunch of CDO's in CDO squares, CDO cubed, etc. to the point that no one really knew who owned what. On top of that, they would sell these highly risky credit default swaps, which is basically a form of insurance. That led the rating agencies to rate the CDO's as low risk, though in reality they were full of crap.

Eventually, what goes up has to go down--the banks tightened lending standards, people began to default en masse, and the supply of available houses soared. Home prices began to plummet, meaning that personal wealth--i.e., collateral to pay back debt--began to collapse, so more people began to default. The CDO's became hot potatoes, obviously, since no one actually wanted to bear the brunt of the losses--though the reach was global since these damn things were sold practically across the globe, so large investment banks were left with extraordinary losses at a time when they couldn't borrow against (collapsing) collateral, so the credit markets froze: no money was flowing through the system, hence a crash.

As for the solutions, I think there are a few:

(1) Re-regulate the banks to prevent these risky financial deals from taking down the global economy.

(2) Target some market-based measures of NGDP expectations so the Fed can respond quickly and aggressively. A key problem was contractionary Fed policy in late 2008. Even following the financial crisis, the dollar--and this is completely unheard of on a global scale--began to appreciate, real rates began to soar, NGDP fell appreciably, etc., but there's a substantial data lag, so the Fed was targeting past data--inflation, above 2 percent for the past year or so, though market expectations were far lower, mainly because downward nominal wage rigidity keeps inflation from falling--instead of the forecast. They could target NGDP expectations, and seek to prevent those from falling, and the policy response would necessarily be much more aggressive as inflation becomes countercyclical.

*differences of opinion

I don't know what "differences of money" means, lol.
~ResponsiblyIrresponsible

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That1User
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3/13/2015 10:53:22 PM
Posted: 1 year ago
At 3/13/2015 10:28:17 PM, ResponsiblyIrresponsible wrote:
At 3/13/2015 10:01:50 PM, That1User wrote:
What do you think were the causes of the Great Recession of the late 2000s? What are the solutions to the Recession?

This one's a bit more complex. The causes, shortly, were financial innovations run amok, and the notion that began in the 1980s but intensified during the Clinton Administration, at the counsel of Larry Summers, Robert Rubin, Alan Greenspan, and others that complex derivatives and other financial instruments could "regulate themselves." We saw widespread deregulation of the financial sector, including the repeal of the Glassed-Steagall Act, which allowed banks to take on an increasing amount of leverage such that they were gambling with depositors money.

From that point, the story gets a bit murky, and there are valid differences of money. Short-term interest rates were about 1 percent in 2003, which was, at least at the time, an effective lower bound. Some will argue that monetary policy was too loose during that time, though there weren't any signs of overheating, so I think it's a hard case to make that monetary policy in any way contributed to the housing bubble, but I digress.

Basically, whether to reach for yield or otherwise, finance had progressed to such a degree that banks were taking on excessive risks in the form of subprime mortgages--i.e., highly risky mortgages. They were lending to people without the necessary means to pay those loans back, and undoubtedly credit standards were far too loose. Anyway, the banks knew those mortgages were utter crap, but they took a bunch of those mortgages and bundled them together with less risky ones into mortgage-backed securities. Then they took a bunch of mortgage back securities and bundled those together into collateralized debt obligations. Of course, the appearance is that they weren't of much risk at all, but nevertheless the crappy mortgages still existed.

From there, the story gets more complex--they would bundle together a bunch of CDO's in CDO squares, CDO cubed, etc. to the point that no one really knew who owned what. On top of that, they would sell these highly risky credit default swaps, which is basically a form of insurance. That led the rating agencies to rate the CDO's as low risk, though in reality they were full of crap.

Eventually, what goes up has to go down--the banks tightened lending standards, people began to default en masse, and the supply of available houses soared. Home prices began to plummet, meaning that personal wealth--i.e., collateral to pay back debt--began to collapse, so more people began to default. The CDO's became hot potatoes, obviously, since no one actually wanted to bear the brunt of the losses--though the reach was global since these damn things were sold practically across the globe, so large investment banks were left with extraordinary losses at a time when they couldn't borrow against (collapsing) collateral, so the credit markets froze: no money was flowing through the system, hence a crash.

Interesting. This reminds me of how there a great economic boom with the Bull Market of the 1920s where buisiness and banks were unreglated, but this eventually lead to the crash of 1929, and then the Great Depression.


As for the solutions, I think there are a few:

(1) Re-regulate the banks to prevent these risky financial deals from taking down the global economy.

This seems like a reasonable solution.

(2) Target some market-based measures of NGDP expectations so the Fed can respond quickly and aggressively. A key problem was contractionary Fed policy in late 2008. Even following the financial crisis, the dollar--and this is completely unheard of on a global scale--began to appreciate, real rates began to soar, NGDP fell appreciably, etc., but there's a substantial data lag, so the Fed was targeting past data--inflation, above 2 percent for the past year or so, though market expectations were far lower, mainly because downward nominal wage rigidity keeps inflation from falling--instead of the forecast. They could target NGDP expectations, and seek to prevent those from falling, and the policy response would necessarily be much more aggressive as inflation becomes countercyclical.

What do you mean by having the Fed be more agressive? Like enforcing Bank regulations?
"Our life is what our thoughts make it."
R13; Marcus Aurelius
"When you arise in the morning, think of what a precious privilege it is to be alive - to breathe, to think, to enjoy, to love." -Marcus Aurelius
"Man is free at the moment he wishes to be." -Voltaire
"Every man is guilty of all the good he did not do. "-Voltaire
ResponsiblyIrresponsible
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3/13/2015 11:06:17 PM
Posted: 1 year ago
At 3/13/2015 10:53:22 PM, That1User wrote:
Interesting. This reminds me of how there a great economic boom with the Bull Market of the 1920s where buisiness and banks were unreglated, but this eventually lead to the crash of 1929, and then the Great Depression.

Very true, they're similar in kind, though the actual Depression, as you note, occurred after the stock market crash of 1929--that was a result of a central bank in Central Europe imploding in 1931, with global spillovers to the U.S.

What do you mean by having the Fed be more agressive? Like enforcing Bank regulations?

I mean responding faster with an even more expansionary policy that isn't predicated on the notion that low interest rates equal easy money, because they don't. The Fed didn't begin to expand its balance sheet until October 2008, for instance, and even in September, two days after Lehman Brothers failed, they were worried about inflation. That's a terrible idea not only because they were focused on past data rather than on the market forecast. Further, inflation tends to be rigid because prices and wages are rigid.

At the same time, the Fed loosened policy amid the crisis at several points by allowing its various QE programs to expire. Much of that may have been due to the 2009 stimulus, but the key problem was that monetary policy is predicated on credibility and a long-term commitment. So, had the Fed committed from the start that it was going to credibly commit to returning nominal incomes--an aggregate of real growth and inflation--to their pre-recession level (i.e., adjusting for undershooting, rather than a random-walk inflation target), the effect would be magnified because the Fed would be able to impact market expectations, without running large deficits that increase expectations of future taxes.
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WillYouMarryMe
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3/13/2015 11:19:06 PM
Posted: 1 year ago
At 3/13/2015 9:55:45 PM, ResponsiblyIrresponsible wrote:

How much would the unemployment rate decrease if the minimum wage were eliminated?

How many people would be earning below the current minimum wage if it were eliminated?
ResponsiblyIrresponsible
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3/13/2015 11:24:44 PM
Posted: 1 year ago
At 3/13/2015 11:19:06 PM, WillYouMarryMe wrote:
How much would the unemployment rate decrease if the minimum wage were eliminated?

Ceteris paribus? That's hard to say. It may cause wages to become more flexible, which improves resiliency to future AD shocks, but at the zero lower bound that mechanism break down because lower wages >>> lower inflation >> higher real rates >> lower investment.

So, perhaps not at all, especially as we close in on estimates of the "natural rate," than increasing it would tend to increase the unemployment rate, per my reading of the academic literature.

How many people would be earning below the current minimum wage if it were eliminated?

That's almost impossible to calculate, lol. Reducing the MW, which contributes to wage stickiness, tends to, ceteris paribus, increase the natural rate, so we may see it fall a bit in which case people who couldn't find employment now could below the MW. I don't know precisely what that number is, though I doubt it would be too significant unless coupled with broader labor-market reforms a la Germany.
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Diqiucun_Cunmin
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3/13/2015 11:35:15 PM
Posted: 1 year ago
Does structural employment caused by globalised production refute the trickle-down theory?

(Hope that's loosely related haha)
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3/13/2015 11:37:20 PM
Posted: 1 year ago
At 3/13/2015 9:55:45 PM, ResponsiblyIrresponsible wrote:

Sorry for all the questions... and if some of them are really stupid XD

What do "lower-bound", "higher-bound", and "zero-bound" mean?

What is the difference between fiscal policy and monetary policy

What are the main factors which cause inflation?

What are the main effects of high interest rates? Low interest rates?

Does the "trickle-down effect" really exist?

Thanks :D
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3/13/2015 11:39:17 PM
Posted: 1 year ago
At 3/13/2015 11:35:15 PM, Diqiucun_Cunmin wrote:
Does structural employment caused by globalised production refute the trickle-down theory?

(Hope that's loosely related haha)

Structural unemployment in the form of technology taking the place of labor?

I don't see how that necessarily refutes trickle down. Sure, it suggests that gains are not widely distributed, ceteris paribus, but I think that's a strawman of supply-side theory, which is really that providing incentives to businesses and freeing up capital induces risk-tasking whilst holding down inflation. Whether or not it contributes to inequality is another story entirely, because it probably does, though there's ambiguous impacts of that, and a multiplicity of ways, in addition to merely raising taxes, that can combat inequality (e.g., expanding EITC).
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3/13/2015 11:52:23 PM
Posted: 1 year ago
At 3/13/2015 11:37:20 PM, WillYouMarryMe wrote:
At 3/13/2015 9:55:45 PM, ResponsiblyIrresponsible wrote:

Sorry for all the questions... and if some of them are really stupid XD

That's the purpose of this thread, lol.

What do "lower-bound", "higher-bound", and "zero-bound" mean?

"Lower bound" or "zero lower bound" mean the lowest that nominal interest rates are able to go. The logic is that nominal rates can't be negative, because investors can just hold cash. Further, there are political constraints in countries such as the U.K. which establish an "effective" lower bound at 50 basis points. There's been talk in the econ blogosphere as late about the actual lower bound being somewhere around -2 or -3 because cash is hard to store, so thinking on this concept may change in the eyars to come.

There is no "higher bound," lol. At least not unless we were to subscribe one for ourselves. Generally, the "neutral" nominal interest rate is around 4 percent, though there's reason to think that's declined to, perhaps, 2 percent.

What is the difference between fiscal policy and monetary policy

Fiscal policy involves taxing and spending, and is passed by Congress and the President. Monetary policy involves money supply and interest rates and is managed by the Fed.

What are the main factors which cause inflation?

"Inflation is always and everywhere a monetary phenomenon." -- Milton Friedman

That's probably more applicable to the long run in principle, though monetary policy can generally offset any other factors bearing on the inflation rate.

Generally, an improving economy, exogenous oil shocks, appreciating dollar, financial volatility due to unstable inflation expectations, or just bad policy. In the 1970s, for instance, we got a bit of a triple whammy: OPEC placed an embargo on oil in 1973 which drove up prices, the Fed targeted the NAIRU which was actually higher than they thought *and* trend productivity growth had actually fallen, meaning that monetary policy was far too loose, and the Fed didn't have credibility to bring down inflation, so contracts would factor in double-digit moves in inflation. Much of that has changed since the 1980s since Paul Volcker's efforts following the Great Inflation.

What are the main effects of high interest rates? Low interest rates?

Generally, high interest rates tend to reduce investment and consumption while low rates encourage them. But higher interest rates are also associated with a stronger economy, low interest rates with a weak economy, so this relationship obviously only applies when we're dealing with moving parts.

Does the "trickle-down effect" really exist?

I think the phrase is a bit of a strawman, lol. But yes, I do think there's ample evidence that the supply side of the economy matters.

Thanks :D

Np.
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3/15/2015 1:04:07 PM
Posted: 1 year ago
At 3/13/2015 11:39:17 PM, ResponsiblyIrresponsible wrote:
At 3/13/2015 11:35:15 PM, Diqiucun_Cunmin wrote:
Does structural employment caused by globalised production refute the trickle-down theory?

(Hope that's loosely related haha)

Structural unemployment in the form of technology taking the place of labor?

I don't see how that necessarily refutes trickle down. Sure, it suggests that gains are not widely distributed, ceteris paribus, but I think that's a strawman of supply-side theory, which is really that providing incentives to businesses and freeing up capital induces risk-tasking whilst holding down inflation. Whether or not it contributes to inequality is another story entirely, because it probably does, though there's ambiguous impacts of that, and a multiplicity of ways, in addition to merely raising taxes, that can combat inequality (e.g., expanding EITC).

I was actually referring to structural unemployment caused by the movement of footloose production processes to NICs to cut costs, increasing the unemployment risk of unskilled labour. I suppose your answer will be roughly the same though...

I'm interested in 'ambiguous impacts', however. Would you mind elaborating on that?
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3/15/2015 1:18:23 PM
Posted: 1 year ago
At 3/15/2015 1:04:07 PM, Diqiucun_Cunmin wrote:
At 3/13/2015 11:39:17 PM, ResponsiblyIrresponsible wrote:
At 3/13/2015 11:35:15 PM, Diqiucun_Cunmin wrote:
Does structural employment caused by globalised production refute the trickle-down theory?

(Hope that's loosely related haha)

Structural unemployment in the form of technology taking the place of labor?

I don't see how that necessarily refutes trickle down. Sure, it suggests that gains are not widely distributed, ceteris paribus, but I think that's a strawman of supply-side theory, which is really that providing incentives to businesses and freeing up capital induces risk-tasking whilst holding down inflation. Whether or not it contributes to inequality is another story entirely, because it probably does, though there's ambiguous impacts of that, and a multiplicity of ways, in addition to merely raising taxes, that can combat inequality (e.g., expanding EITC).

I was actually referring to structural unemployment caused by the movement of footloose production processes to NICs to cut costs, increasing the unemployment risk of unskilled labour. I suppose your answer will be roughly the same though...

So, from outsourcing? That makes sense, and yeah, the impacts are roughly the same.

I'm interested in 'ambiguous impacts', however. Would you mind elaborating on that?

Sure. I'm slightly split on whether inequality actually has deleterious effects. Joe Stiglitz makes a compelling case against it, and some of his harms I buy -- middle-class can't invst in educational opportunities, possibly a more volatile boom-bust cycle, etc. What I don't buy is (1) the consumption argument and (2) lower tax receipts.

The first I think is overly simplistic. It's true that middle-income households spend more as a fraction of their income, and redistribution of income from low MPC's to high MPC's may generate consumption, but we ought not be concerned solely with consumption, but with overall aggregate demand, which incorporates investment. So, by shifting income to higher MPC's, we're increasing consumption and reducing savings, the latter of which reduces investment--and investment is the most volatile component of GDP, and based on research I've seen from the St. Louis Fed (and I'd have to dig this up), much more conducive to a vibrant recovery.

The second I don't buy because, no matter how you cut it, the affluent pay the bulk of the tax bill. You can argue that they ought to pay more--and that's a fair point and you could probably find some way to reorient capital taxation in order to accomplish that--but tax revenues are a function not of strengthening consumption, but of a strengthening economy. Again, I think the "reduce inequality at all cost" argument, while well-intentioned, doesn't address the underlying causes (Scott Sumner has a great piece recently on, for instance, intellectual property laws) nor does it propose a plausible solution, sans "we need more consumption."

Further, even Paul Krugman is skeptical of the "middle class consumes more, therefore inequality restrains the recovery."
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3/15/2015 5:38:38 PM
Posted: 1 year ago
At 3/13/2015 11:24:44 PM, ResponsiblyIrresponsible wrote:
At 3/13/2015 11:19:06 PM, WillYouMarryMe wrote:
How much would the unemployment rate decrease if the minimum wage were eliminated?

Ceteris paribus? That's hard to say. It may cause wages to become more flexible, which improves resiliency to future AD shocks, but at the zero lower bound that mechanism break down because lower wages >>> lower inflation >> higher real rates >> lower investment.

So, perhaps not at all, especially as we close in on estimates of the "natural rate," than increasing it would tend to increase the unemployment rate, per my reading of the academic literature.

You're assuming getting rid of minimum wages lead to lower wages, which really isn't true. The minimum wage is about $7, but the average wage is around $24. So with a $0 minimum wage we won't have people being paid the bare minimum. They get paid what they're worth.

I like to compare the MW to a ladder. Some people will get to certain rungs because they are productive, but many are at the first or second rung because they have no experience. If we have a minimum wage, the first few rungs are blocked off. Cut off. And those people can no longer climb upwards. Due to the fact most people are paid above the minimum, it tells us wages won't fall because there is no minimum--something other than the minimum wage dictates wages. All a minimum wage does is outlaw people who are not worth the minimum wage from getting a job.


How many people would be earning below the current minimum wage if it were eliminated?

Well, all of the people who are unemployed because of the minimum wage will be earning under the minimum wage... But 2/3 of people get a wage raise after a year when they are at the minimum... So they will work their way up just like everyone else...

More than now, obviously, since no one can legally be paid under the minimum!


That's almost impossible to calculate, lol. Reducing the MW, which contributes to wage stickiness, tends to, ceteris paribus, increase the natural rate, so we may see it fall a bit in which case people who couldn't find employment now could below the MW. I don't know precisely what that number is, though I doubt it would be too significant unless coupled with broader labor-market reforms a la Germany.
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3/15/2015 5:42:12 PM
Posted: 1 year ago
At 3/15/2015 5:38:38 PM, 16kadams wrote:
You're assuming getting rid of minimum wages lead to lower wages, which really isn't true. The minimum wage is about $7, but the average wage is around $24. So with a $0 minimum wage we won't have people being paid the bare minimum. They get paid what they're worth.

I didn't say lower wages on average, but more flexible wages, as was the case in Germany. Obviously the reason demand shocks are important is that employers can't cut wages in the short run, so more flexible wages (1) provides them with that opportunity and improves resiliency to shocks and (2) could bring some people back into the job market whose skills have atrophied to such a degree that they're "worth" less than $7.25. The point is that the MW increases structural unemployment, and wage flexibility would reverse that to some degree. Some people would be paid below that minimum, while others would be unchanged.

I like to compare the MW to a ladder. Some people will get to certain rungs because they are productive, but many are at the first or second rung because they have no experience. If we have a minimum wage, the first few rungs are blocked off. Cut off. And those people can no longer climb upwards. Due to the fact most people are paid above the minimum, it tells us wages won't fall because there is no minimum--something other than the minimum wage dictates wages. All a minimum wage does is outlaw people who are not worth the minimum wage from getting a job.

I completely agree with all of this, and the last sentence is the point I was making, lol.


How many people would be earning below the current minimum wage if it were eliminated?

Well, all of the people who are unemployed because of the minimum wage will be earning under the minimum wage... But 2/3 of people get a wage raise after a year when they are at the minimum... So they will work their way up just like everyone else...


More than now, obviously, since no one can legally be paid under the minimum!

Presumably, yes.

That's almost impossible to calculate, lol. Reducing the MW, which contributes to wage stickiness, tends to, ceteris paribus, increase the natural rate, so we may see it fall a bit in which case people who couldn't find employment now could below the MW. I don't know precisely what that number is, though I doubt it would be too significant unless coupled with broader labor-market reforms a la Germany.
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3/15/2015 5:51:51 PM
Posted: 1 year ago
At 3/15/2015 5:42:12 PM, ResponsiblyIrresponsible wrote:
At 3/15/2015 5:38:38 PM, 16kadams wrote:
You're assuming getting rid of minimum wages lead to lower wages, which really isn't true. The minimum wage is about $7, but the average wage is around $24. So with a $0 minimum wage we won't have people being paid the bare minimum. They get paid what they're worth.

I didn't say lower wages on average, but more flexible wages, as was the case in Germany. Obviously the reason demand shocks are important is that employers can't cut wages in the short run, so more flexible wages (1) provides them with that opportunity and improves resiliency to shocks and (2) could bring some people back into the job market whose skills have atrophied to such a degree that they're "worth" less than $7.25. The point is that the MW increases structural unemployment, and wage flexibility would reverse that to some degree. Some people would be paid below that minimum, while others would be unchanged.


It didn't sound like that before XD

I like to compare the MW to a ladder. Some people will get to certain rungs because they are productive, but many are at the first or second rung because they have no experience. If we have a minimum wage, the first few rungs are blocked off. Cut off. And those people can no longer climb upwards. Due to the fact most people are paid above the minimum, it tells us wages won't fall because there is no minimum--something other than the minimum wage dictates wages. All a minimum wage does is outlaw people who are not worth the minimum wage from getting a job.

I completely agree with all of this, and the last sentence is the point I was making, lol.


How many people would be earning below the current minimum wage if it were eliminated?

Well, all of the people who are unemployed because of the minimum wage will be earning under the minimum wage... But 2/3 of people get a wage raise after a year when they are at the minimum... So they will work their way up just like everyone else...


More than now, obviously, since no one can legally be paid under the minimum!

Presumably, yes.

That's almost impossible to calculate, lol. Reducing the MW, which contributes to wage stickiness, tends to, ceteris paribus, increase the natural rate, so we may see it fall a bit in which case people who couldn't find employment now could below the MW. I don't know precisely what that number is, though I doubt it would be too significant unless coupled with broader labor-market reforms a la Germany.
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3/15/2015 5:56:34 PM
Posted: 1 year ago
At 3/15/2015 5:51:51 PM, 16kadams wrote:
At 3/15/2015 5:42:12 PM, ResponsiblyIrresponsible wrote:
At 3/15/2015 5:38:38 PM, 16kadams wrote:
You're assuming getting rid of minimum wages lead to lower wages, which really isn't true. The minimum wage is about $7, but the average wage is around $24. So with a $0 minimum wage we won't have people being paid the bare minimum. They get paid what they're worth.

I didn't say lower wages on average, but more flexible wages, as was the case in Germany. Obviously the reason demand shocks are important is that employers can't cut wages in the short run, so more flexible wages (1) provides them with that opportunity and improves resiliency to shocks and (2) could bring some people back into the job market whose skills have atrophied to such a degree that they're "worth" less than $7.25. The point is that the MW increases structural unemployment, and wage flexibility would reverse that to some degree. Some people would be paid below that minimum, while others would be unchanged.


It didn't sound like that before XD

Which part, though? I misspoke slightly on the natural rate, but most of my response was in reference to that and resiliency to shocks, rather than average wages--which, obviously, are determined by a multiplicity of factors. We could even see a decrease in the MW lead to hiring of lower-skilled workers which brings down the average temporarily, but that by no means suggests that eliminating it, ipso facto, reduces the average wage.

I like to compare the MW to a ladder. Some people will get to certain rungs because they are productive, but many are at the first or second rung because they have no experience. If we have a minimum wage, the first few rungs are blocked off. Cut off. And those people can no longer climb upwards. Due to the fact most people are paid above the minimum, it tells us wages won't fall because there is no minimum--something other than the minimum wage dictates wages. All a minimum wage does is outlaw people who are not worth the minimum wage from getting a job.

I completely agree with all of this, and the last sentence is the point I was making, lol.


How many people would be earning below the current minimum wage if it were eliminated?

Well, all of the people who are unemployed because of the minimum wage will be earning under the minimum wage... But 2/3 of people get a wage raise after a year when they are at the minimum... So they will work their way up just like everyone else...


More than now, obviously, since no one can legally be paid under the minimum!

Presumably, yes.

That's almost impossible to calculate, lol. Reducing the MW, which contributes to wage stickiness, tends to, ceteris paribus, increase the natural rate, so we may see it fall a bit in which case people who couldn't find employment now could below the MW. I don't know precisely what that number is, though I doubt it would be too significant unless coupled with broader labor-market reforms a la Germany.
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3/15/2015 5:56:49 PM
Posted: 1 year ago
At 3/15/2015 5:42:12 PM, ResponsiblyIrresponsible wrote:
At 3/15/2015 5:38:38 PM, 16kadams wrote:
You're assuming getting rid of minimum wages lead to lower wages, which really isn't true. The minimum wage is about $7, but the average wage is around $24. So with a $0 minimum wage we won't have people being paid the bare minimum. They get paid what they're worth.

I didn't say lower wages on average, but more flexible wages, as was the case in Germany. Obviously the reason demand shocks are important is that employers can't cut wages in the short run, so more flexible wages (1) provides them with that opportunity and improves resiliency to shocks and (2) could bring some people back into the job market whose skills have atrophied to such a degree that they're "worth" less than $7.25. The point is that the MW increases structural unemployment, and wage flexibility would reverse that to some degree. Some people would be paid below that minimum, while others would be unchanged.

What do you mean by more flexible wages?
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3/15/2015 5:58:59 PM
Posted: 1 year ago
At 3/15/2015 5:56:34 PM, ResponsiblyIrresponsible wrote:
At 3/15/2015 5:51:51 PM, 16kadams wrote:
At 3/15/2015 5:42:12 PM, ResponsiblyIrresponsible wrote:
At 3/15/2015 5:38:38 PM, 16kadams wrote:
You're assuming getting rid of minimum wages lead to lower wages, which really isn't true. The minimum wage is about $7, but the average wage is around $24. So with a $0 minimum wage we won't have people being paid the bare minimum. They get paid what they're worth.

I didn't say lower wages on average, but more flexible wages, as was the case in Germany. Obviously the reason demand shocks are important is that employers can't cut wages in the short run, so more flexible wages (1) provides them with that opportunity and improves resiliency to shocks and (2) could bring some people back into the job market whose skills have atrophied to such a degree that they're "worth" less than $7.25. The point is that the MW increases structural unemployment, and wage flexibility would reverse that to some degree. Some people would be paid below that minimum, while others would be unchanged.


It didn't sound like that before XD

Which part, though? I misspoke slightly on the natural rate, but most of my response was in reference to that and resiliency to shocks, rather than average wages--which, obviously, are determined by a multiplicity of factors. We could even see a decrease in the MW lead to hiring of lower-skilled workers which brings down the average temporarily, but that by no means suggests that eliminating it, ipso facto, reduces the average wage.

lower wages >>> lower inflation >> higher real rates >> lower investment.

I like to compare the MW to a ladder. Some people will get to certain rungs because they are productive, but many are at the first or second rung because they have no experience. If we have a minimum wage, the first few rungs are blocked off. Cut off. And those people can no longer climb upwards. Due to the fact most people are paid above the minimum, it tells us wages won't fall because there is no minimum--something other than the minimum wage dictates wages. All a minimum wage does is outlaw people who are not worth the minimum wage from getting a job.

I completely agree with all of this, and the last sentence is the point I was making, lol.


How many people would be earning below the current minimum wage if it were eliminated?

Well, all of the people who are unemployed because of the minimum wage will be earning under the minimum wage... But 2/3 of people get a wage raise after a year when they are at the minimum... So they will work their way up just like everyone else...


More than now, obviously, since no one can legally be paid under the minimum!

Presumably, yes.

That's almost impossible to calculate, lol. Reducing the MW, which contributes to wage stickiness, tends to, ceteris paribus, increase the natural rate, so we may see it fall a bit in which case people who couldn't find employment now could below the MW. I don't know precisely what that number is, though I doubt it would be too significant unless coupled with broader labor-market reforms a la Germany.
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3/15/2015 6:01:47 PM
Posted: 1 year ago
At 3/15/2015 5:56:49 PM, That1User wrote:
What do you mean by more flexible wages?

The main reason Keynes thought demand shocks were important is that wages -- and, by extension, prices -- were sticky. In other words, he rejected the classical model which stated that, in response to a drop in aggregate demand, we would expect labor demand to also shift to the left. If wages were to fall, then markets would re-equilibriate at lower inflation, but output would remain unchanged as would employment. But, because employers can't cut wages in the short run due mostly to behavioral issues (could even be unions, as well) as well as fixed contractual obligations, they instead need to respond by laying off workers, which reduces output.

Making wages more flexible, therefore, improves resiliency to demand shocks by obviating the need to lay people off as a response to a demand shortfall.
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3/15/2015 6:02:41 PM
Posted: 1 year ago
At 3/15/2015 5:56:49 PM, That1User wrote:
At 3/15/2015 5:42:12 PM, ResponsiblyIrresponsible wrote:
At 3/15/2015 5:38:38 PM, 16kadams wrote:
You're assuming getting rid of minimum wages lead to lower wages, which really isn't true. The minimum wage is about $7, but the average wage is around $24. So with a $0 minimum wage we won't have people being paid the bare minimum. They get paid what they're worth.

I didn't say lower wages on average, but more flexible wages, as was the case in Germany. Obviously the reason demand shocks are important is that employers can't cut wages in the short run, so more flexible wages (1) provides them with that opportunity and improves resiliency to shocks and (2) could bring some people back into the job market whose skills have atrophied to such a degree that they're "worth" less than $7.25. The point is that the MW increases structural unemployment, and wage flexibility would reverse that to some degree. Some people would be paid below that minimum, while others would be unchanged.

What do you mean by more flexible wages?

Since wages (in the neoclassical model) are based on supply and demand, wages can change. The wage equilibrium changes. A minimum means wages cannot decrease temporarily, so hours and jobs are cut. No minimum means they are flexible downward, so people don't go hungry, but will increase again under different economic times.

I think that is what he is saying.

Remember minimum wages ARE NOT bad under the monospy theory of the labor market--but almost no economy gives firms monospy power. So it really doesn't apply too often.
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3/15/2015 6:03:13 PM
Posted: 1 year ago
At 3/15/2015 6:01:47 PM, ResponsiblyIrresponsible wrote:
At 3/15/2015 5:56:49 PM, That1User wrote:
What do you mean by more flexible wages?

The main reason Keynes thought demand shocks were important is that wages -- and, by extension, prices -- were sticky. In other words, he rejected the classical model which stated that, in response to a drop in aggregate demand, we would expect labor demand to also shift to the left. If wages were to fall, then markets would re-equilibriate at lower inflation, but output would remain unchanged as would employment. But, because employers can't cut wages in the short run due mostly to behavioral issues (could even be unions, as well) as well as fixed contractual obligations, they instead need to respond by laying off workers, which reduces output.

Making wages more flexible, therefore, improves resiliency to demand shocks by obviating the need to lay people off as a response to a demand shortfall.

Yay I interpreted it correctly
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