The Economics Thread

Abizzz

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MTF said:
The minimum wage is a benchmark for many other wage negotiations / adjustments, so its effect is usually much wider than just the labor that is employed at the minimum rate.
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I wouldn't say that they are a stronger benchmark than the inflation itself. Everybody not at minimum wage is there because of bargaining power and will certainly already take inflation into account when negotiating, why have the ones earning the least be the only ones where it doesn't matter?


MTF said:
A lowering in real wages is the most common adjustment in recessionary economies, and usually a healthy one:

https://www.imf.org/external/pubs/ft/wp/2015/wp15229.pdf
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UK real wages are lower now than they were at any time between april 2006 and march 2011, they have been since march 2011, given this is 7 years ago, where did the recovery go to? (https://www.ons.gov.uk/employmentan...mentaryanalysisofaverageweeklyearnings/latest)

At the exact same time productivity in the UK decreased after 2008 and hadn't returned to 2008 levels until 2015 and has hardly grown since. I'd argue that is a direct result of lower wages making other investments into productivity unnecessary for short term profits. Lower wages allowed for a weak recovery at the cost of future growth.
https://www.ons.gov.uk/employmentan...letins/labourproductivity/julytoseptember2017

I will look at the IMF study some more, having looked at the graphs it seems a bit misleading to compare Spain to the UK (when the historical and natural comparison would have been France/Germany) but I haven't read the introduction yet, I'll post again after the game or tomorrow.
 

oneniltothearsenal

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From Barry Ritholtz (and tonne of other supporting evidence)

Six Bogus Economic Principles:

1) Efficient Market;
2) Self-interest prevents recklessness;
3) Markets can self-regulate;
4) Deregulation is always good;
5) Consumers are rational;
6) Compensation is properly aligned.
 

Raoul

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oneniltothearsenal said:
From Barry Ritholtz (and tonne of other supporting evidence)

Six Bogus Economic Principles:

1) Efficient Market;
2) Self-interest prevents recklessness;
3) Markets can self-regulate;
4) Deregulation is always good;
5) Consumers are rational;
6) Compensation is properly aligned.
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Good to see business cycle theory isn't in there.
 

Raoul

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oneniltothearsenal said:
Are you an Austrian or Chicago school?
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I'm no economist, but from what little I've read I'd have to lean towards the Austrian side - although I don't really get into the nuts and bolts of things. I just know that business cycles come and go and use where I think we currently are in the cycle as one of several ways to inform my trading habits.
 

oneniltothearsenal

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Grinner said:
Isn't Hayek both?
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I'd have to look up some of his newer stuff but I don't think he rejected the primary Austrian principles in favor of empirical results but I don't know much of later Hayek so maybe he did turn more Chicago school later on when he was teaching there. Early Hayek is definitely full blown Austrian though.
 

oneniltothearsenal

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Raoul said:
I'm no economist, but from what little I've read I'd have to lean towards the Austrian side - although I don't really get into the nuts and bolts of things. I just know that business cycles come and go and use where I think we currently are in the cycle as one of several ways to inform my trading habits.
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the main difference between Austrian and Chicago school is that Austrians reject empiricism and empirical evidence. Austrians have their premises they believe are true no matter what and no amount of empirical evidence disproving their principles will ever convince.

Chicago school mostly believes the same things but they believe in empiricism. For example on the business cycle example, Milton Friedman did some research and his empirical research led him to reject the Austrian concept of business cycle as not being empirically valid. Austrians never reject their principles no matter how much empirical evidence is stacked against it.

For myself, I am in the camp of behavioral economics (micro) and I do believe in empirical results. This is why I reject a fair amount of Austrian principles because the last 30 years in behavioral economics disproves a number of Austrian first principles.
 

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oneniltothearsenal said:
the main difference between Austrian and Chicago school is that Austrians reject empiricism and empirical evidence. Austrians have their premises they believe are true no matter what and no amount of empirical evidence disproving their principles will ever convince.

Chicago school mostly believes the same things but they believe in empiricism. For example on the business cycle example, Milton Friedman did some research and his empirical research led him to reject the Austrian concept of business cycle as not being empirically valid. Austrians never reject their principles no matter how much empirical evidence is stacked against it.

For myself, I am in the camp of behavioral economics (micro) and I do believe in empirical results. This is why I reject a fair amount of Austrian principles because the last 30 years in behavioral economics disproves a number of Austrian first principles.
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I usually follow the work of Raoul Pal (not just for his amazing name). He's one of the main guys promoting the analysis of the business cycle over other methods to discuss markets.

 

PedroMendez

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Mike Schatner said:
Does anyone ever read stuff from Institute of Economic Affairs? I have a nephew that works for them and he is always posting stuff on his FB.
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they are a good think-tank, that promote a free-market/classic liberal view. They have a very good reputation in accademia. I have their version of "The Law" from Bastiat. Occasionally I read their blog/papers, when I come across interesting authors/topics.
 

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Mike Schatner said:
Does anyone ever read stuff from Institute of Economic Affairs? I have a nephew that works for them and he is always posting stuff on his FB.
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I wish I could say I stay up-to-date on what goes on in economic research, but I consume the trickle down of what makes it to newspapers, magazines and blogs these days.
 

Mike Schatner

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PedroMendez said:
they are a good think-tank, that promote a free-market/classic liberal view. They have a very good reputation in accademia. I have their version of "The Law" from Bastiat. Occasionally I read their blog/papers, when I come across interesting authors/topics.
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I always presumed they were a little biased to teh right because he is a budding young conservative.
 

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PedroMendez said:
they are a good think-tank, that promote a free-market/classic liberal view. They have a very good reputation in accademia. I have their version of "The Law" from Bastiat. Occasionally I read their blog/papers, when I come across interesting authors/topics.
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Their research is biased
 

berbatrick

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I had a question for people in this thread (who actually know something!)

So, I recently learnt about Boeing an Airbus filing counter-suits about the level of assistance the other got from their governments. Boeing has already won, and it looks like Airbus will too. Boeing's case involved EU subsidies/discounts to buyers, and Airbus' involved US military funding used for Boeing R&D.

So...is there a general rule about what types of subsidies/incentives are ok? For example, Amazon's HQ is being enticed to various cities with some amazing "discounts" like control of the city's tax revenue, or no electricity charges, or reduced local tax payments, etc. Do these state/local discounts matter in "unfair aid" cases? What about Special Economic Zones in India and China, where electricity prices are reduced, (sometimes) land is given almost free, and labour laws are reduced/suspended?
 

Javi

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Mozza said:
Seeing as they hide there funding I don't take anything they say seriously as you can't see who'll benefit from the policies they push

http://whofundsyou.org

The bottom tier is all right wing
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This can seem dodgy sure but is not yet evidence that their research is actually biased, is it? If that were to be the case then I imagine you could prove it with a few examples of where they mishandled numbers or were otherwise intellectually dishonest.

They could even hide their founding because they know that if they wouldn't, nobody would take them seriously because of their financial sources even though their academic work is top notch. Sounds crazy I know but theoretically possible ... they could have even thought about people like you, even though it's still not working.

Not trying to have a dig at you but to me it does seem like a bit of a stretch to go from not being transparent to being dishonest.
 

Mozza

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Javi said:
This can seem dodgy sure but is not yet evidence that their research is actually biased, is it? If that were to be the case then I imagine you could prove it with a few examples of where they mishandled numbers or were otherwise intellectually dishonest.

They could even hide their founding because they know that if they wouldn't, nobody would take them seriously because of their financial sources even though their academic work is top notch. Sounds crazy I know but theoretically possible ... they could have even thought about people like you, even though it's still not working.

Not trying to have a dig at you but to me it does seem like a bit of a stretch to go from not being transparent to being dishonest.
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Not being transparent is generally a sign of not being honest.
 

Javi

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berbatrick said:
I had a question for people in this thread (who actually know something!)

So, I recently learnt about Boeing an Airbus filing counter-suits about the level of assistance the other got from their governments. Boeing has already won, and it looks like Airbus will too. Boeing's case involved EU subsidies/discounts to buyers, and Airbus' involved US military funding used for Boeing R&D.

So...is there a general rule about what types of subsidies/incentives are ok? For example, Amazon's HQ is being enticed to various cities with some amazing "discounts" like control of the city's tax revenue, or no electricity charges, or reduced local tax payments, etc. Do these state/local discounts matter in "unfair aid" cases? What about Special Economic Zones in India and China, where electricity prices are reduced, (sometimes) land is given almost free, and labour laws are reduced/suspended?
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I don't know the first thing about econ but where is the econ question? ;)

Seems like a legal issue to me. Tax discounts normally are not a subsidy issue because they come after profit. Electricity charges on the other hand imo could qualify as a subsidy. There are two layers to this question. The first is the domestic market. Most countries have anti-trust laws preventing the state to subsidy a single company in order to not distort the level playing field. If anything the state has to provide subsidies to every competitor equally like it's the case in EU agriculture for instance. Btw. I don't know the first thing about India and China either, so no idea if they have laws like these.

The second layer is the international market. Now normally this is not a problem because if the state starts to subsidy any given company it distorts the domestic market and thus competitors will file suit right away. It's different if they only subsidy exports though or only exporting companies. That's where the WTO comes into play.

Definition of a subsidy by The Agreement on Subsidies and Countervailing Measures (“SCM Agreement”) from the WTO.

The definition contains three basic elements: (i) a financial contribution (ii) by a government or any public body within the territory of a Member (iii) which confers a benefit. All three of these elements must be satisfied in order for a subsidy to exist.
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Prohibited categories of subsidies by the SCM Agreement:

The first category consists of subsidies contingent, in law or in fact, whether wholly or as one of several conditions, on export performance (“export subsidies”).
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The second category consists of subsidies contingent, whether solely or as one of several other conditions, upon the use of domestic over imported goods (“local content subsidies”).
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Then there is the category of 'actionable subsidies':

Actionable subsidies are not prohibited. However, they are subject to challenge, either through multilateral dispute settlement or through countervailing action, in the event that they cause adverse effects to the interests of another Member.

There are three types of adverse effects.
First, there is injury to a domestic industry caused by subsidized imports in the territory of the complaining Member. This is the sole basis for countervailing action.
Second, there is serious prejudice. Serious prejudice usually arises as a result of adverse effects (e.g., export displacement) in the market of the subsidizing Member or in a third country market. Thus, unlike injury, it can serve as the basis for a complaint related to harm to a Member's export interests.
Finally, there is nullification or impairment of benefits accruing under the GATT 1994. Nullification or impairment arises most typically where the improved market access presumed to flow from a bound tariff reduction is undercut by subsidization.
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The link above also provides an introduction to countervailing measures. Disputes that arise from subsidies get settled through the WTO dispute settlement mechanism which I remember my prof saying has the best enforcement mechanism in international law, meaning even the super powers normally have to adhere to it's ruling which is really quite rare in international law.

Edit: If you want to dig very deep here is an OECD paper on the relationship between the WTO Agreement on agriculture and the SCM Agreement
 
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berbatrick

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The battle over the effects of minimum wages has been one of the most protracted and bitter fights in the history of empirical economics. Some researchers, such as David Neumark of the University of California-Irvine, continue to insist that pay floors kill jobs, and a few studies find negative effects. But a series of very careful, large-scale studies is finding that the minimum wage is as benign as its advocates have suggested.



One of these is a study by economists Doruk Cengiz, Arindrajit Dube, Attila Lindner and Ben Zipperer, which looked at state-level evidence and found no negative effect of mandated pay increases on employment. They found that minimum wage hikes tend to decrease the number of jobs just below the new cutoff, but increase the number above the line -- implying that the wage hike isn’t killing jobs, but simply giving people raises.



Now, Kevin Rinz and John Voorheis, a pair of researchers from the U.S. Census Bureau, have an even more comprehensive study with even more detailed evidence. Looking at data on individual earners from 1991 through 2013 -- a very long time period -- the authors take careful account of factors like mobility and transitions into and out of the labor force. They find that minimum-wage increases tend to raise incomes for people at the bottom of the distribution, and that the effect doesn’t fade with time. Meanwhile, they find that the probability of people losing their income entirely -- i.e., unemployment or dropping out of the labor force -- isn’t significantly affected by minimum-wage increases.
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https://www.bloomberg.com/view/arti...does-a-poor-job-of-explaining-depressed-wages
 

oneniltothearsenal

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PedroMendez said:
https://link.springer.com/article/10.1007/s00426-018-1013-8


In 20 years probably every claim that made K&T famous and that economists were giddy about, is going to be refuted. Remarkable how much bullshit people can produce without realising that they make nothing useful. Just a shame that they waste so much time, intelligence and money in the process.
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I disagree.

I think in 50 years their studies will receive even more converging supporting evidence. One study that questions one tiny aspect is normal and what happens in academics and science all the time. Theories get refined over the years. At least behavioral economics adopts a scientific process unlike the Austrian School where they can just stick their heads in the stand and refuse to accept empirical results as valid.

Speaking of people who waste time, money and intelligence, some great analysis about the wonderful Trump Tax Cuts:

"Investing is not inherently more valuable than labor, and it’s simply not true that investing in the stock market creates jobs.

Take it from me: I am an investor. I have not actually worked in years. I let my money make me money. Over the past year, do you know how many jobs I’ve created? Zero. The only thing that does create jobs is consumer demand for products and services that people can make and provide, not my investment dollars.

If we want to create jobs, we should be implementing policies that grow the middle class and help bring people up out of poverty so they can participate in the economy.

Unfortunately, the “Tax Cuts and Jobs Act” will do just the opposite.

The biggest rewrite of the tax code in decades
In the past few years corporate profits have reached record highs, and two–thirds of Americans agree that corporations pay too little in taxes. The Republican-controlled Congress disagreed.

Instead of closing loopholes and putting in place rules to ensure that corporations pay more, they passed a massive corporate tax cut that financially rewards companies for moving money and jobs overseas.

Now, corporations actually pay lower taxes rate (about half) on income earned overseas. Imagine that I have a business selling computer systems, and I have an 800 number that people call to get help using the systems. That support is a key part of the value of these system, and about half of my company’s costs involve running the telephone support center.

With the new tax system, I can:

  1. Open an affiliate in India to provide call center services.
  2. Send half of my money to the India affiliate.
  3. Pay the workers in India (where middle wages range from the equivalent of about $3,500 to about $13,000).
  4. Pay a tax rate of only 10.5% on half of company profits.
The new system put in place by the Republican tax bill is what economists call a modified territorial tax system.

In it, not only is the corporate tax rate on overseas profits just half the normal rate (10.5% versus 21%), companies still receive credits for the foreign taxes they pay. So if a corporation earns its profits in a country where the corporate tax rate is above 13.1% (nearly every other country), then it ends up paying nothing in US taxes."


https://www.theguardian.com/commentisfree/2018/apr/17/millionaire-zero-jobs-taxes
 

PedroMendez

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@oneniltothearsenal

https://www.bloomberg.com/amp/view/articles/2018-04-25/critics-of-economics-are-dwelling-in-the-past

I think you'll like this article and I agree with most of what he says.

It does open up new problems. Creating and working with data is extremely difficult. That's one of my biggest criticisms of modern Econ (and other social sciences). I am absolutly not against this approach in general, I just think that it is far far far more complicated than a big share of scientists think. I am also not coming from this from some kind of obscure angle. The problem has been recognised by very distinguished accademics. The problem is that the the mainstream of the research struggles to take this into account, because - quite frankly - it would make a lot of work a lot more difficult. It is a problem, that even some of the most accomplished economists of our time struggle with this. If they are allowed to make all these mistakes, your average Joe researcher is going to make them for sure as well.

Here are some links that might help to explain where I am coming from with my criticism:
stuff from John P. A. Ioannidis:
http://journals.plos.org/plosmedicine/article?id=10.1371/journal.pmed.0020124
http://journals.plos.org/plosmedicine/article?id=10.1371/journal.pmed.1002049

stuff from Andrew Gelman (his blog is quality): http://andrewgelman.com/
easy to understand example: http://andrewgelman.com/2016/02/12/priming-effects-replicate-just-fine-thanks/
here specificlly about Kahneman: http://andrewgelman.com/2014/09/03/...eman-regarding-strength-statistical-evidence/
the "The garden of forking paths" paper: www.stat.columbia.edu/~gelman/research/unpublished/p_hacking.pdf



There are many other challenges/problems with much of the research on almost every level. Its impossible to address all of them in the context of this forum (or in any context). Most of these are getting acknowledged occasionally, but taking all of these difficulties into account in actual research is an entirely different task. Some research topics are easier and sometimes researcher are doing fantastic work. Yet there is so much flawed research, that its really difficult to simply trust people - even eminent authorities - without actually double checking every single detail. Its a massive problem, when nobel laureats are not only making significant mistakes in their research, but are unwilling to acknowledge all these problems.


Btw: I am not an Austrian even so I have a lot of sympathy for parts of Hayeks work.
 
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