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Random economics question

dylancatlow
Posts: 12,255
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10/23/2015 1:22:16 AM
Posted: 1 year ago
So I've been reading quite a lot of economics lately. A common theme is the idea of self-perpetuating processes, and in particular how they can lead to economic disaster. For example, how a collapse in demand feeds upon itself. However, what's never discussed is the flip side of this equation: shouldn't a collapse in demand, and thus profits, and thus the prices of companies, encourage investment, thus offsetting the effects of collapsed demand? Is the argument that people, as a whole, just aren't rational enough for that to work i.e., are reluctant to lend out money even when it's in their best interest, or is there more to it?
FaustianJustice
Posts: 6,239
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10/23/2015 12:36:17 PM
Posted: 1 year ago
At 10/23/2015 1:22:16 AM, dylancatlow wrote:
So I've been reading quite a lot of economics lately. A common theme is the idea of self-perpetuating processes, and in particular how they can lead to economic disaster. For example, how a collapse in demand feeds upon itself. However, what's never discussed is the flip side of this equation: shouldn't a collapse in demand, and thus profits, and thus the prices of companies, encourage investment, thus offsetting the effects of collapsed demand? Is the argument that people, as a whole, just aren't rational enough for that to work i.e., are reluctant to lend out money even when it's in their best interest, or is there more to it?

How interested in investing in a company that appears to be dying (on paper) are you?
Here we have an advocate for Islamic arranged marriages demonstrating that children can consent to sex.
http://www.debate.org...
Benshapiro
Posts: 3,966
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10/23/2015 2:24:36 PM
Posted: 1 year ago
At 10/23/2015 1:22:16 AM, dylancatlow wrote:
So I've been reading quite a lot of economics lately. A common theme is the idea of self-perpetuating processes, and in particular how they can lead to economic disaster. For example, how a collapse in demand feeds upon itself. However, what's never discussed is the flip side of this equation: shouldn't a collapse in demand, and thus profits, and thus the prices of companies, encourage investment, thus offsetting the effects of collapsed demand? Is the argument that people, as a whole, just aren't rational enough for that to work i.e., are reluctant to lend out money even when it's in their best interest, or is there more to it?

Yes, once prices fall it encourages investment again just like it does in the stock market. It's the boom and bust of the business cycle.

Put yourself in the situation of CEO of a multi-billion dollar company. There's strong speculation that in 3 months prices are gonna tank, badly. Would you hold off on any major investment decisions until the end of those 3 months?
Chang29
Posts: 732
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10/23/2015 3:31:18 PM
Posted: 1 year ago
At 10/23/2015 1:22:16 AM, dylancatlow wrote:
So I've been reading quite a lot of economics lately. A common theme is the idea of self-perpetuating processes, and in particular how they can lead to economic disaster. For example, how a collapse in demand feeds upon itself. However, what's never discussed is the flip side of this equation: shouldn't a collapse in demand, and thus profits, and thus the prices of companies, encourage investment, thus offsetting the effects of collapsed demand? Is the argument that people, as a whole, just aren't rational enough for that to work i.e., are reluctant to lend out money even when it's in their best interest, or is there more to it?

Careful questioning demand side economics, it is not done in polite company. Macro-economists are tools of politicians, especially those that tell us about the evils of failing prices.

Failing prices are natural in a healthy free market economy. As producers become more efficient, costs are reduced and competition forces prices lower. Higher prices are a function of central planners inflating the money supply, to decrease the burden on debtors, mainly government.
A free market anti-capitalist

If it can be de-centralized, it will be de-centralized.
ax123man
Posts: 317
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10/24/2015 8:06:38 AM
Posted: 1 year ago
At 10/23/2015 1:22:16 AM, dylancatlow wrote:
So I've been reading quite a lot of economics lately.....

The Langan quote in your sig speaks of a search for the truth. Well, the rabbit hole you stepped into is deep. Economics is still voodoo science. Economists can't agree on the basic premises of a policy debate:
http://consultingbyrpm.com...

In order to support the minimum wage, economists will tell you demand curves don't slope downward, despite it being common sense. But you can eliminate common sense by hiding in macro equations and tweaking parameters of a MW study.

So, if you want to understand voodoo, then look at the human incentives that are in place. For example, you might look at the Federal Reserve's influence on economics:
http://econjwatch.org...
http://www.huffingtonpost.com...

Add to that the influence of the Federal government has on public education. It's not that easy to find a college focused on free market economics. Grove City College had to go to the Supreme Court to maintain it's independence from Federal influence.
http://www.gcc.edu...

Look at the relative obscurity of the life of Ludwig Von Mises and think about how hard it is to choose a career path as an economist that goes against the main stream.

Look at the history of governments, who have ALWAYS wanted to control the money supply and devaluate the currency. The modern central banking system only gives the illusion of separation between government and money. Without world-wide central banking, our government would not be in a position to sit comfortably on 100% + debt to GDP:
https://research.stlouisfed.org...

Think about the incentives in place for a targeted 2% inflation rate. Who benefits?

Is demand-side economics correct? Was J.B. Say wrong in 1803 when he stated that demand is created via production? Well, I don't know about you, but I personally find it hard to buy anything unless I first produce something. Of course, if you have a printing press, or the ability to take from some and give to others, that no longer holds true.
dylancatlow
Posts: 12,255
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10/24/2015 5:15:37 PM
Posted: 1 year ago
At 10/23/2015 12:36:17 PM, FaustianJustice wrote:
At 10/23/2015 1:22:16 AM, dylancatlow wrote:
So I've been reading quite a lot of economics lately. A common theme is the idea of self-perpetuating processes, and in particular how they can lead to economic disaster. For example, how a collapse in demand feeds upon itself. However, what's never discussed is the flip side of this equation: shouldn't a collapse in demand, and thus profits, and thus the prices of companies, encourage investment, thus offsetting the effects of collapsed demand? Is the argument that people, as a whole, just aren't rational enough for that to work i.e., are reluctant to lend out money even when it's in their best interest, or is there more to it?

How interested in investing in a company that appears to be dying (on paper) are you?

Well, part of the reason it would be dying is that people aren't investing in it, which brings us back to my original question.
ConcludedFever9
Posts: 2
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10/25/2015 8:43:41 AM
Posted: 1 year ago
Look at the relative obscurity of the life of Ludwig Von Mises and think about how hard it is to choose a career path as an economist that goes against the main stream.

Absolutely. A better example would be the relationship between FA Hayek and John Maynard Keynes.

Hayek talked about free markets. He said that a king sitting on a hill telling people what they can and cannot sell and how much they owe him in taxes for his benevolence is not a free market. This is the usual republican economic plan, deregulate the corporations. Most famously, Ronald Reagan and Margaret Thatcher (both conservative) supported this. Margaret Thatcher was elected on Hayeks birthday and he even sent her a letter saying this is a great present in which Margaret responded by saying you have inspired me and we owe it to you.

Keynes (keynesianism economics) realizes that corporations rights and peoples rights are different AND OPPOSITE. The more freedom you give to a corporation, the more it will screw over it employees to make more money. We see this with Walmart today which doesn't even pay a living wage. It supports huge government intervention (which is why republicans hate this). We saw this during the great depression where MANY alphabet soup names came out of it. The CCC, TVA, WPA and so on. Keynes supported huge deficit spending to get an economy going again and picking up the tab later. We can see an example of this with Greece. Austerity has not worked and made the situation worse. If Germany gave them a stimulus that worked as a LOAN or a GRANT, Greece could use that money to get things back together and net more revenue in taxes with the jobs it creates from it. It takes money to make money.

Hayeks ideas were not popular in the 20s-70s. He could barely find a job after he wrote his most famous book "The Road to Serfdom" after WW1. Which he fought in on Austria's side. In that book he criticized Keynes and his ideas. Keynes ideas were holy scripture at that point. However, in the mid 1970s, way after he wrote his book and after reading a life of exclusion and disrespect, he was awarded the 1974 nobel peace prize for economics.

Its still debated today on who is right and who is wrong. I personally think Keynes is correct but it is definitely debatable especially when you talk about inflation.

A test of a model/theory it its ability to predict. Keynesianism economics has a better track record with prediction.
ax123man
Posts: 317
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10/25/2015 8:56:45 PM
Posted: 1 year ago
At 10/25/2015 8:43:41 AM, ConcludedFever9 wrote:
Look at the relative obscurity of the life of Ludwig Von Mises and think about how hard it is to choose a career path as an economist that goes against the main stream.

Absolutely. A better example would be the relationship between FA Hayek and John Maynard Keynes.

Hayek talked about free markets. He said that a king sitting on a hill telling people what they can and cannot sell and how much they owe him in taxes for his benevolence is not a free market. This is the usual republican economic plan, deregulate the corporations. Most famously, Ronald Reagan and Margaret Thatcher (both conservative) supported this. Margaret Thatcher was elected on Hayeks birthday and he even sent her a letter saying this is a great present in which Margaret responded by saying you have inspired me and we owe it to you.

Reagan? Small government? Your joking, right:
https://research.stlouisfed.org...

I'm not sure how that story-line has held together:
https://mises.org...

Thatcher, I'm not as familiar with.


Keynes (keynesianism economics) realizes that corporations rights and peoples rights are different AND OPPOSITE.

A corporation isn't a thinking, living thing. You haven't arrived at anything close to the truth until you've found the core human incentives that are the same for a factory worker and a CEO. I mean really, do you think they are different species?

The more freedom you give to a corporation, the more it will screw over it employees to make more money. We see this with Walmart today which doesn't even pay a living wage.

Huh? You say this like it's a decision they can just choose to make without any other consequences. They get to pick a wage, you know, just pick a number. It doesn't matter.

It supports huge government intervention (which is why republicans hate this). We saw this during the great depression where MANY alphabet soup names came out of it. The CCC, TVA, WPA and so on. Keynes supported huge deficit spending to get an economy going again and picking up the tab later.

I'm not sure what your saying here, sorry. Yea, that is what Keynes supported. I just happen to believe it doesn't work. The confusion is that the free market - the natural will of people and voluntary action, is such a powerful force that things will work out despite all this government intervention. Take a look at the difference in government intervention between the depression of 1920-21 and the great depression. Funny how the one with almost no intervention is the one nobody even remembers because it was so short.

We can see an example of this with Greece. Austerity has not worked and made the situation worse. If Germany gave them a stimulus that worked as a LOAN or a GRANT, Greece could use that money to get things back together and net more revenue in taxes with the jobs it creates from it. It takes money to make money.

Greece cannot be compared to anything in the U.S. A country is wealthy (or not) because it is productive. Greece isn't productive - that's the problem.


Hayeks ideas were not popular in the 20s-70s. He could barely find a job after he wrote his most famous book "The Road to Serfdom" after WW1. Which he fought in on Austria's side. In that book he criticized Keynes and his ideas. Keynes ideas were holy scripture at that point. However, in the mid 1970s, way after he wrote his book and after reading a life of exclusion and disrespect, he was awarded the 1974 nobel peace prize for economics.

Its still debated today on who is right and who is wrong. I personally think Keynes is correct but it is definitely debatable especially when you talk about inflation.

If there is anything I've learned in researching this stuff for five years now is that economics is still kind of in the dark ages. Economists can't agree on even the most basic things. Despite that, 95% of economics is taught as if there is consensus. What gives? You can take any subject and find massive disagreement between economists like Krugman, Sumner, DeLong, Murphy, etc.


A test of a model/theory it its ability to predict. Keynesianism economics has a better track record with prediction.

That's interesting. Who predicted the crash of 2007/8? It sure wasn't the Keynesians. They and the Federal Reserve talking heads were all claiming there was no housing bubble. (and some of them still make this claim, cuz "bubbles don't exist").
ConcludedFever9
Posts: 2
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10/26/2015 4:15:58 AM
Posted: 1 year ago
Government spending itself isn't a good measure of how big it is. You have to see what it was spending it on. When I say republicans don't like big government, I mean they don't like government regulations in the free market and want things to be states issues. So your chart and your claim don't work well together.

A corporation isn't a thinking, living thing. You haven't arrived at anything close to the truth until you've found the core human incentives that are the same for a factory worker and a CEO. I mean really, do you think they are different species?

Firstly, corporations do think. They are run by few people in comparison to every employee.

Also, no I do not consider a factory worker and a CEO different species. They do think very differently and try to achieve the greatest amount of happiness differently. The core human incentives you speak about is money. A factory worker wants to make more money and so does a CEO. A CEO can make more money and make the corporation look more attractive by withholding benefits and paying that worker a low wage. The worker tries to make more money by working more hours.

Huh? You say this like it's a decision they can just choose to make without any other consequences. They get to pick a wage, you know, just pick a number. It doesn't matter.

You know what a minimum wage is right? You don't just "pick a number"... If you pay under a certain amount it is ILLEGAL. This isn't southeast Asia.

I'm not sure what your saying here, sorry. Yea, that is what Keynes supported. I just happen to believe it doesn't work. The confusion is that the free market - the natural will of people and voluntary action, is such a powerful force that things will work out despite all this government intervention. Take a look at the difference in government intervention between the depression of 1920-21 and the great depression. Funny how the one with almost no intervention is the one nobody even remembers because it was so short.

How have you studied this for 5 years but you do not understand this? Yes people will always create a market system but a market system unregulated an ungoverned screws certain people over without obstruction. Adam Smiths 3 laws, self interest, competition and supply and demand. These are seen in all markets. Another things we see in all markets is discrimination. Self interest can be deceitful and hurts other people.

Its not an issue of if markets will be formed but rather, will civilized markets be formed. Government help with this. People are naturally cruel. Its not confusion.

Greece cannot be compared to anything in the U.S. A country is wealthy (or not) because it is productive. Greece isn't productive - that's the problem.

Sadly its not that simple. Because Greece uses the euro, it made it easier for them to borrow money from other eurozone countries, mostly Germany. Because their GDP (productivity like you said) was low they could not pay them back. But you miss the root of the problem. That money was spent on questionable things like campaigns and pensions. Things are not going to get better for Greece or the eurozone if they are not getting any money to make their country better. It should be in Germanys self interest to help Greece so the Euro will stay strong. Germany and all of the other eurozone countries can decide what terms to draft before this, such as monitor where they are spending and cut pensions down more, but these austerity measures are BS.

If there is anything I've learned in researching this stuff for five years now is that economics is still kind of in the dark ages. Economists can't agree on even the most basic things. Despite that, 95% of economics is taught as if there is consensus. What gives? You can take any subject and find massive disagreement between economists like Krugman, Sumner, DeLong, Murphy, etc.

Of course you can find disagreement in any thing. Its a better of hearing both sides. Ask two people what 10+10 is. One says 20 and the other says 30. Thats a disagreement but obviously someone is wrong and it is YOUR job to find out the truth through evidence.

That's interesting. Who predicted the crash of 2007/8? It sure wasn't the Keynesians. They and the Federal Reserve talking heads were all claiming there was no housing bubble. (and some of them still make this claim, cuz "bubbles don't exist").

I don't know much about the federal reserve talking heads or if they were Keynesian or not, but cherry picking is not a good way to form an opinion. You have to look at overwhelming evidence.

I must say, I appreciate your points (a bit capricious) but interesting. However I am not looking for a debate on a forum like this so I will stop speaking about this now. I just wanted a rebuttal to the things you pointed out.
Insignifica
Posts: 285
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10/27/2015 5:03:57 AM
Posted: 1 year ago
At 10/23/2015 1:22:16 AM, dylancatlow wrote:
So I've been reading quite a lot of economics lately. A common theme is the idea of self-perpetuating processes, and in particular how they can lead to economic disaster. For example, how a collapse in demand feeds upon itself. However, what's never discussed is the flip side of this equation: shouldn't a collapse in demand, and thus profits, and thus the prices of companies, encourage investment, thus offsetting the effects of collapsed demand? Is the argument that people, as a whole, just aren't rational enough for that to work i.e., are reluctant to lend out money even when it's in their best interest, or is there more to it?

That's the problem with free-market capitalism, as well as with democracy and pretty much any system that places the majority of power in the hands of the general populace. People are far too concerned with their own short-term self-interests to cooperate with each other and act in favor of long-term collective interests.

"I don't wanna risk losing money by investing during a recession"
vs.
"Maybe if we all make a concentrated effort to invest, we can end the recession"

The latter never happens because people are stupid. That's why we need the government to be involved in the economy and get us out of recessions via tools like fiscal and monetary policy.
ax123man
Posts: 317
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10/27/2015 12:18:46 PM
Posted: 1 year ago
At 10/26/2015 4:15:58 AM, ConcludedFever9 wrote:
corporations do think. They are run by few people in comparison to every employee.

You sorta just contradicted yourself. Abstracting to "corporation" is just a way for progressives to easily attack that abstraction. It ignores public vs private corporations, CEO's vs board's of directors, shareholders, and separates them from "real employees" which is a Marxian concept. Which managers are the "the corporation"? How much stock do you need to own before you are "the corporation"?


Also, no I do not consider a factory worker and a CEO different species. They do think very differently and try to achieve the greatest amount of happiness differently. The core human incentives you speak about is money.

Actually, humans are trying to improve their happiness, or limit uneasiness. It's a distinction that becomes critical the deeper you dig into economics. It isn't just money.

Huh? You say this like it's a decision they can just choose to make without any other consequences.

You know what a minimum wage is right? You don't just "pick a number"... If you pay under a certain amount it is ILLEGAL.

You've completely missed my point. The minimum wage didn't exist prior to 1938. Were workers paid zero dollars prior to that? Why is it that only 3% of American workers are paid the minimum wage? Based on your thinking, it should be 100% of workers. It appears to me you have no background on how wages are actually set, which is based on marginal productivity of labor.


I'm not sure what your saying here, sorry. Yea, that is what Keynes supported. I just happen to believe it doesn't work. The confusion is that the free market - the natural will of people and voluntary action, is such a powerful force that things will work out despite all this government intervention. Take a look at the difference in government intervention between the depression of 1920-21 and the great depression. Funny how the one with almost no intervention is the one nobody even remembers because it was so short.

How have you studied this for 5 years but you do not understand this? Yes people will always create a market system but a market system unregulated an ungoverned screws certain people over without obstruction. Adam Smiths 3 laws, self interest, competition and supply and demand. These are seen in all markets. Another things we see in all markets is discrimination. Self interest can be deceitful and hurts other people.

Perhaps it's you who doesn't understand. I don't really see you answering my question about the depression of 1921. People will always create a market system? I guess the leaders of China (and other socialist/communist countries) aren't people. Marx & Lenin must have been aliens.

Discrimination has NOTHING TO DO WITH MARKETS! Does discrimination disappear in non-market economies? Considering that TENS OF MILLIONS of people were murdered by their own NON-MARKET based governments in the 20th century (often based on racial hatred), I'm a little confused as to why you think this. Can you explain, a priori, how markets CREATE discrimination?

Its not an issue of if markets will be formed but rather, will civilized markets be formed. Government help with this. People are naturally cruel. Its not confusion.

No, people who have monopoly power, guns and the law backing them up are naturally cruel. I don't see how an aggregation of voluntary actions, where legal systems provide protection from physical harm, results in natural cruelty.


Greece cannot be compared to anything in the U.S. A country is wealthy (or not) because it is productive. Greece isn't productive - that's the problem.

Sadly its not that simple. Because Greece uses the euro, it made it easier for them to borrow money from other eurozone countries, mostly Germany.

WEALTH is NOT MONEY! Wealth is stuff that people create: cars, housing, food, clothing. If you create it efficiently, you can borrow money and go into debt. Greece sucks at creating stuff.

When the federal reserve "prints" money and it goes into the economy, all this is doing is stealing wealth from the productive. You create wealth be creating some physical thing that other people want. Next, you work to create an excess of that thing, save some of that stuff (which is now stored as money), and eventually apply that capital to improve efficiency (machines, R&D, technology). This is basic economics. I don't think even Paul Krugman (who many economists clearly see has gone off the progressive deep end) would disagree with this.


If there is anything I've learned in researching this stuff for five years now is that economics is still kind of in the dark ages. Economists can't agree on even the most basic things.

Of course you can find disagreement in any thing. Its a better of hearing both sides. Ask two people what 10+10 is. One says 20 and the other says 30. Thats a disagreement but obviously someone is wrong and it is YOUR job to find out the truth through evidence.

Economics isn't a hard science like math. If it's as simple as basic addition, you should be able to go read Says Law from 1803, then read Keynes discussion of it, then read these:
http://consultingbyrpm.com...
http://consultingbyrpm.com...

and, after more than 200 years of debate just clear this all up for these guys.

And there are hundreds more of these topics, none of which economists have been able to agree on.Economics is a social science, dependent on human behavior, which is endlessly complex and nuanced. Anyone who thinks otherwise has never done a deep-dive on any economic topic.


Who predicted the crash of 2007/8? It sure wasn't the Keynesians.

I don't know much about the federal reserve talking heads or if they were Keynesian or not, but cherry picking is not a good way to form an opinion. You have to look at overwhelming evidence.

So you don't know that Keynesian economics includes both fiscal and monetary components, the purpose of the Fed is monetary stimulus, so is Keynesian in nature, but you do know that Keynesian's are better at predicting things?

Failed to predict: Bernanke (Keynesian by association with the Fed)
https://www.youtube.com...

More, including Krugman:
https://www.youtube.com...

Listen to this moron claiming that bank underwriters are going to do their jobs on loans - did he really not understand that the federal govt. was undermining mortgage underwriting?

This idea that economists can predict anything is nonsense. That isn't even the purpose of economics, and if an economist is claiming that is his purpose, they are wrong. If you want to find ANYONE able to predict, it's entrepreneurs, not economists.


I must say, I appreciate your points (a bit capricious) but interesting. However I am not looking for a debate on a forum like this so I will stop speaking about this now. I just wanted a rebuttal to the things you pointed out.

If you can see my point of view, it would help to understand the Capricious nature of my text. You can debate whether I'm correct or not - no problem. But imagine, as a thought experiment, that I AM right. This effectively means we live in a world of utter madness regarding economics. That the consensus opinion is not only hopelessly wrong, but does nothing but hurt us all in the long run, and keeps an elite group in charge, ruling over us. I really don't see how this is that much better than life was centuries ago, except for the fact that we are wealthier (which has nothing to do with our overlords).