Yeah or disposable income.
The Economics Thread
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Why is Real Analysis required for Econ PhD programs?
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it's only been replicated about a thousand times.
e - https://www.aei.org/carpe-diem/quotation-of-the-day-james-buchanan-on-the-minimum-wage/
a specific response to the card/krueger paper!
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That idiot is at the Heritage Foundation, I see. Nuff said.
So, inflation.
Causing a lot of concern worldwide. My initial thesis was it was temporary and would be alleviated once supply chain problems dissipated... However there are concerns the inflation may become "sticky" and persist for more than a few months.
Causing a lot of concern worldwide. My initial thesis was it was temporary and would be alleviated once supply chain problems dissipated... However there are concerns the inflation may become "sticky" and persist for more than a few months.
Two main things is both that it's a useful signal for general math ability, which is very important, and because especially micro is chock-full of optimization problems with a ton of variables.
The supply chain problems are still there. I also thought the concerns were overstated but 6% is incredibly high.
Interesting read. Thanks for posting.
Not many people believe market forces will ever spread wealth, even in the most idealized economic models wealth is arbitrarily distributed.
There's also no historical pattern of growth spreading wealth as far as I know, although everyone do get richer.
There's also no historical pattern of growth spreading wealth as far as I know, although everyone do get richer.
Oh yeah, Wall Street...making record profits again.
https://www.ft.com/content/c3e4bcce-00fa-43fb-a427-625523cdebdb
https://www.ft.com/content/c3e4bcce-00fa-43fb-a427-625523cdebdb
I don't know exactly how it happened, but the discussion on financial stability really evaporated the past 4-5 years. From the hottest topic on the block after the financial crisis, it's not a parenthesis in many narratives.
Asset prices are definitely inflated by the expansionary policy, which is one of the main reasons for the growing profits in the finance industry.
People concerned about systemic risk are probably pretty scared now.
Asset prices are definitely inflated by the expansionary policy, which is one of the main reasons for the growing profits in the finance industry.
People concerned about systemic risk are probably pretty scared now.
We are quite clearly on the precipice of another bust. As has been the cycle for generations. All of the trends and metrics look eerily similar to '07.
Something will soon pop consumer/investor confidence. Then unfortunately things will tumble again, has always been so, and will be again.
It's interesting whether inflation targeting as monetary policy will survive the next crisis. For the first time since forever, there's some really unconventional theories of monetary policy emerging. Mainly from either automated or consensus based ideas on various blockchains.
Although it's always happened before, there's no real proof that financial crisis is inevitable so the search for some optimal monetary policy will likely continue
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paper - https://www.pnas.org/content/119/5/e2115649119
"Shortly after giving birth, mothers were randomized to receive either a large or nominal monthly unconditional cash gift. Infant brain activity was assessed at approximately 1 y of age in the child’s home, using resting electroencephalography (EEG; n = 435). We hypothesized that infants in the high-cash gift group would have greater EEG power in the mid- to high-frequency bands and reduced power in a low-frequency band compared with infants in the low-cash gift group. Indeed, infants in the high-cash gift group showed more power in high-frequency bands. Effect sizes were similar in magnitude to many scalable education interventions, although the significance of estimates varied with the analytic specification. In sum, using a rigorous randomized design, we provide evidence that giving monthly unconditional cash transfers to mothers experiencing poverty in the first year of their children’s lives may change infant brain activity. Such changes reflect neuroplasticity and environmental adaptation and display a pattern that has been associated with the development of subsequent cognitive skills."
writeup - https://www.vox.com/future-perfect/22893313/cash-babies-brain-development
Ideally, you'd want to track this cohort more and take different types of measurements rather than just EEGs, and see what effects (if any) a cash transfer would have on an already-rich household (if the underlying theory is right, it should be close to zero). But this in itself is a pretty stunning result, and adds to a lot of literature on poverty and brain development (cited at the start of the paper).
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Thoughts on Varoufakis here? I found it interesting that he said we've never had such low levels of investments relative to how much money is floating around. In other words...massive hoarding?
Great listen and a great analysis. He has a lot of interesting points and I agree with most of it.
Definitely good to see more criticism of the complete bullshit "give rich people tax cuts and it pays off because they invest and hire, blah blah blah"". Trickle down never works, rich tax cuts just go to stock buybacks and other vehicles to circumvent actual investment.
I think he's spot on about how backwards the response to 2008 was from the central banks and governments and how heavily they just rewarded the people who were at fault for the global economic collapse.
Not sure I believe his assertion that social democracy is dead because of that. I do think there is something to his analogy of industrial fueled capitalism from WII to 1970/80s vs. finance fueled capitalism of 21st century but I don't agree that social democracy is dead because of it.
He puts it far more extreme and fatalist than I have with his techno-feudalism stuff. I'm not nearly as worried about "big tech" as him, Trumpsters or some elements on the Caf.
Central bank blockchain-based currencies are the future was interesting and I agree with that. Overall, agree with most of what he said though and he's light years better than wankers like Thomas Sowell.
Kind of. Lots of people have been getting salaries and government handouts over the last 2 years with nowhere to spend them. For a year you could barely go out for dinner and high ticket items like holidays and cars have been limited due to supply issues or people not feeling comfortable in their jobs. UBS said last year their personal bank deposits have risen 30% through the pandemic.
It's not only rich people who have increased their wealth through the pandemic. Virtually everybody with a job has and a lot of them are still not able/willing to spend at pre pandemic levels. There is now $17 trillion in balance accounts but only around $1-4 trillion of that was ever destined for investment markets.
This is really fascinating. I've had this introduction to Neuroeconomics by Colin Camerer (one of the NY cab guys) for ages, but never found the time to properly read it.
I think it's at Caltech he has a Neuroeconomics group.
Although the conclusion itself is not that original, richer does better is usually what people find.
Dimishing returns is probably there, but for policy it matters a lot where the effect goes away. Anyway it goes a long way to show how persistent economic policy can be, and how e.g. effects of inequality could linger decades after policies to abate it is in place.
I'll admit to not knowing much about this. Could you expand on your money supply comment?
As an accounting identity you have that PQ=MV, where P is the price level, Q is the real economy (goods produced), M is the money supply and V is the velocity of money (if the economy has one $100 bill, which gets spent twice, then M is 100 and V is 2).
This has to be true. Dividing by Q gets us that the price level P equals MV/Q, which also means that inflation (change in P) depends on the change in M, V and Q. In the short run prices are sticky, so Q is relevant. Increased wages do not impact the money supply, so inflation would have to be because of an increased velocity of money (possible) or lower GDP (possible). In the long run money is neutral, meaning that it doesn't affect the real economy, so we can disregard Q; changes in the price level depends on changes in the money supply and the velocity of money. Again, higher wages do not impact the money supply so the velocity of money is the only avenue. The Quantity Theory of Money is the introductory thing to read about if you want to google. Here they drop the V as well, but you don't have to buy that to get the gist of it.
This isn't even touching on employers having market power (meaning that higher wages wouldn't necessarily depress production, it might increase it, it might do nothing, it might depress it but not proportional to the wage hike), or changes in the exchange rate.
Of course, a way to view GDP is the sum of all incomes, so in that sense it's impossible to increase income without changing the price level, but this is pedantic because this is all sources of income instead of wages, and in addition when we talk about how wages haven't kept up with inflation we're talking about the median wage or below, not even all wages.
Very interesting, thanks for taking the time to write that out. Two things I was wondering about:
I don't get this bit. How does money not affect the real economy? Do you mean that GDP is not affected by the amount of money in circulation? And is your final conclusion here then that inflation (prices going on) depends only on how much or quicly the money circulates?
To go on a tangent for GDP - does it matter in this context if GDP is defined more inclusively, e.g. not limiting it to goods or incomes, but also including household work and other non-renumerated work?
I love posts like this.
I do feel you've snookered yourself a bit in the explanation, because velocity is relatively inelastic in the short and medium term but it's still great.
There's a lot of money as well as a lot of misguided monetary theory floating around at the moment though.
What @NotThatSoph said ( PQ=MV ) is the commonly accepted theory in textbook economics. However V is incredibly hard to measure if memory serves me right.
Yea its basic monetarist theory. That's why is was a great post explaining it in terms we can all understand! (And without going into the frankly retarded newfangled theories that states can essentially print as much of their own denominated currency as they like without causing inflation. (MMT))
An interesting 'new' theory is r-g>.0 (basically growth > interest payments) which isn't really new but is convenient to politicians/economists to make an excuse for the post 2008 debacle/car crashes. Wrt inflation, it's generally positing that adding more money doesn't cause significant inflation as long as the abovestated conditions are met.
I'm not as good at explaining things so I'll link this: https://www.economicshelp.org/macroeconomics/inflation/monetarist-theory-inflation/
"Monetarists believe that in the short-term velocity (V) is fixed This is because the rate at which money circulates is determined by institutional factors, e.g. how often workers are paid does not change very much. Milton Friedman admitted it might vary a little but not very much so it can be treated as fixed."
Do you fellas have economic degrees or did you learn all this through self-teaching?
I have a BSc in Economics. Still got some textbooks at home somewhere in a box!
What I'm saying is that in the long run money only impacts nominal values; nominal gdp, wage rates, price level. It has no effect on real gdp or real wages. If you produce 100 things that each cost 10, your gdp is 1 000. If you double the money supply and prices double as a result, your gdp is now 2 000 but you still produce the same amount of stuff. Nominal gdp is up, real gdp unchanged.
I'm not quite sure how to talk about this, I'm not used to talking with normal people about economics. Maybe it helps to think in terms of aggregate demand and supply. This isn't in any sense proving or even showing that money is neutral in the long term, but maybe it's useful anyway.
Here, as is standard in economics, production is on the x-axis and price on the y-axis. Just like how we can look at a single market and find the equilibrium where supply equals demand, we can simplify the whole economy to just supply and demand for the aggregate of stuff. The important point here is that aggregate supply is vertical in the long term, because it's constrained by the amount of available workers. At some point you cannot supply more stuff because the available labour is already in use. This is where we talk about full employment, which maybe confusingly is not 0 %. You've probably heard the quite ugly term natural rate of unemployment, or the NAIRU. You can temporarily produce above this, but it's not sustainable, and you can obviously produce below it.
You can influence demand by adjusting the amount of money in circulation: if people have more money they want more stuff. But, in an economy at full capacity that'll just mean higher prices. In the diagram above it would shift the AD-curve outwards, leading to a new equilibrium where Y is unchanged and the price level is higher.
That money isn't neutral and supply isn't vertical in the short term is what makes monetary and fiscal policy potential tools, so as always the question is what long term means. In the long run we're all dead and all that.
Better measurements of GDP is important for a lot of things, but it's not relevant here.
I didn't want to go full monetarist because how velocity operates isn't very intuitive and you don't need inelastic velocity to make the point that inflation is about money, but maybe it would've been simpler.
I'm always very unsure when writing comments like this. It has to make sense to people not familiar with the field and it has to be reasonably correct. That means I'll have to cut as much jargon as possible, go easy on the graphs, leave a lot of stuff out and include stuff that you probably wouldn't in a course. That's a lot of possible ways to mess things up, and I just wrote a comment that I'm 50 % certain is just shit.
I like this thread, but just to read, if I post I'll reveal my stupidity. Often though I don't get the detail, but I hope I do get the thrust. Well done chaps.
Thanks @NotThatSoph! (And also @owlo and @Abizzz. And also for calling me a normal person. 
)
So to bring it back to the current situation: the money 'printing' has probably been fairly insignificant in comparison to how much there was already, and I think its velocity has not really changed. (Although: are people spending it significantly less? But that would lower inflation.) So are we really predominantly looking at a drop in goods as the reason for current inflation? (Or maybe more accurately, a drop in available goods due to supply chain issues.)
Let's see if I'm still following.
)So to bring it back to the current situation: the money 'printing' has probably been fairly insignificant in comparison to how much there was already, and I think its velocity has not really changed. (Although: are people spending it significantly less? But that would lower inflation.) So are we really predominantly looking at a drop in goods as the reason for current inflation? (Or maybe more accurately, a drop in available goods due to supply chain issues.)
Let's see if I'm still following.
See, I just don't mind as much to look stupid.
Yea I think in this instance, omitting it entirely would have been fine. It's also a bit counterintuitive in todays world
I have a Masters degree, soon a PhD too.
This is how I at least understand it. Before the pandemic, the FED and the ECB were already printing money like mad and the inflation was in fairly normal parameters in most areas of everyday life. There is just simply a limited amount of biscuits people can cram down their throats, having more money won't be able to change that. So for products that had already reached a certain point of saturation, prices wouldn't go up.Thanks @NotThatSoph! (And also @owlo and @Abizzz. And also for calling me a normal person.
So to bring it back to the current situation: the money 'printing' has probably been fairly insignificant in comparison to how much there was already, and I think its velocity has not really changed. (Although: are people spending it significantly less? But that would lower inflation.) So are we really predominantly looking at a drop in goods as the reason for current inflation? (Or maybe more accurately, a drop in available goods due to supply chain issues.)
Let's see if I'm still following.
See, I just don't mind as much to look stupid.
On the other hand, there are other areas where the amount of available money most certainly had an influence on prices, most obviously the housing market. Companies and people invested the cheaply loaned money in real estate but since the supply in that area is somewhat limited prices went through the roof in the last 10 years.
So if I understand it correctly with my limited understanding of economics supply and demand are the predominant factor in determining prices but of course the demand can be influenced by the available money. That's at least how I always understood it, given that it's economics I wouldn't be surprised that I'm actually 100% off.
Nice. I bought an A Level textbook in economics yesterday so I'll be on your level in no time
Nomination for post of the year.
Sorry, forgot about this.Thanks @NotThatSoph! (And also @owlo and @Abizzz. And also for calling me a normal person.
So to bring it back to the current situation: the money 'printing' has probably been fairly insignificant in comparison to how much there was already, and I think its velocity has not really changed. (Although: are people spending it significantly less? But that would lower inflation.) So are we really predominantly looking at a drop in goods as the reason for current inflation? (Or maybe more accurately, a drop in available goods due to supply chain issues.)
Let's see if I'm still following.
See, I just don't mind as much to look stupid.
I'm pretty lazy at keeping up to date at the moment, but yes, as far as I understand this is being treated as a supply chain issue. Meaning that we're taking about something temporary as long as the setback isn't permanent (and even then, a permanent setback would change the price level but not the rate of change going forward).
There are some alternative voices on this, I haven't paid much attention. Maybe there are things I haven't considered.
Thanks.
I think that's also what I've been reading from CBC analysts. Or at least, I haven't really seen other factors mentioned.
