Avi's Economics Thread

[Avi1001]

Will these findings affect Piketty's chances of winning a Nobel ?

Are there, indeed, errors in his famous book?

Anyone want to debate the Gini coefficient? The r>g inequality ?

 

[metis]

I haven't read it, but Paul Krugman says it's fantastic, although he makes no mention of it being divinely inspired.

 

[Avi1001]

I haven't read it, but Paul Krugman says it's fantastic, although he makes no mention of it being divinely inspired.

, not only is it not divinely inspired, but as the author of the article says, economics is sometimes known as the "dismal science".

 

[Shadow Wolf]

If they hold the patent, it would prevent farmers from making money on it without a license.
But they don't own it. You can let the crops grow, & use them for personal consumption.

In the case of Monsanto, yes, they own everything from a legal perspective. Even if the wind blows seeds or pollen into the field of another farmer, Monsanto lawyers have successfully sued. Farmers are legally bound to not save any seed, and lawsuits have been filled over stray seeds. If you use their seeds, they will expect your harvest.

 

[metis]

, not only is it not divinely inspired, but as the author of the article says, economics is sometimes known as the "dismal science".

It's an imprecise art, to say the least, but we've gotten a lot better at it. Trouble is most politicians undoubtedly have little education in that area, plus any economics proposal instantly get politicized. A classic example of this occurred in September of 2008 when Republicans were willing to let our economy, and much of the world's economy, tank for political purposes.

As distasteful as bailing out the big banks, AIG, and G.M. and Chrysler were concerned, we really had no choice unless we were willing to probably slip into a depression that some economists felt could be deeper than the Great Depression.

 

[Avi1001]

I agree the bailout was a necessity.

Some people believe we are approaching another real estate bubble in the big cities. Are we ready to deal with this ? Why do we not do a better job planning for this problem?

Have we solved our manufacturing problems? How many American manufactured products do you own in your home? Why do we not do a better job planning for these problems?

It's an imprecise art, to say the least, but we've gotten a lot better at it. Trouble is most politicians undoubtedly have little education in that area, plus any economics proposal instantly get politicized. A classic example of this occurred in September of 2008 when Republicans were willing to let our economy, and much of the world's economy, tank for political purposes.

As distasteful as bailing out the big banks, AIG, and G.M. and Chrysler were concerned, we really had no choice unless we were willing to probably slip into a depression that some economists felt could be deeper than the Great Depression.

 

[metis]

Some people believe we are approaching another real estate bubble in the big cities. Are we ready to deal with this ? Why do we not do a better job planning for this problem?

There are always going to be bubbles popping up now and then, but at this point in time I think we're in better shape than in 2007-8. However, with the big banks being even more "too big to fail", there easily could be more danger down the line. I'm somewhat more optimistic that the banks did learn a lesson, but will they remember this in maybe a decade or more?

Have we solved our manufacturing problems? How many American manufactured products do you own in your home? Why do we not do a better job planning for these problems?

To me, when H. Ross Perot talked about the "great sucking sound" of manufacturing being lost to other countries, he was pretty much predicting what was going to happen, and he clearly was correct. Many of these jobs lost were unskilled or semi-skilled, which helps to explain why the unemployment rate is so high with certain groups here. Also, the service sector is more prone to economic fluctuations than the manufacturing sector.

There are steps that can be taken to bring some of these jobs back, but getting anything through the House right now that would have an effect of helping lower and middle income families at the expense of the upper is simply not going to happen, especially since we are now are more of a corporatocracy that a representative democracy.

BTW, I don't want to blame the "job creators" as, frankly, we as a people are a large part of the blame. If we were to "Buy American" more, this would help, but unfortunately so many of us just want to have the most at the lowest price possible. We are a highly materialistic society to the point whereas probably most of us aren't even aware of the fact that we are materialistic. Reminds my of Gandhi's comment when asked what he thought of western civilization, his response was "They ought to try it".

 

[Revoltingest]

I agree the bailout was a necessity.

Some people believe we are approaching another real estate bubble in the big cities. Are we ready to deal with this ? Why do we not do a better job planning for this problem?

The political incentives are against economic stability, ie, satisfying short term voter wants, while ignoring long term risk (which no one cares about til it happens). Consider that government loves a little inflation (4% to 7% or so), & as a matter of policy creates it by expanding the money supply faster than economic growth. It encourages people to buy highly leveraged real estate, because the value measured in dollars goes up because it takes more dollars to represent a constant value. But the loans don't increase, so the owner gains equity. So long as one doesn't sell, this is untaxed. And the property taxes & interest, even personal, are tax deductable, which further subsidizes ever more expensive purchases. Naturally, people will borrow as much as they can to buy the spendiest property they can, which makes debt service a larger portion of their income. So when we get an economic hiccup, as we did in 2001, unemployment creeps up & wages go down, leaving people unable ot cover property costs. This triggered the loan crisis which ensued a few years after the towers fell, culminating in the more noticeable crashes on Wall St.

It's happening again because history teaches us that history teaches us nothing. Since crashes are probabilistic events, we can't know when the next one will be. And since they're not certain, politicians can ignore the danger by expecting/hoping for the best outcome. Most years they're right. The problem is that when they're wrong, they're really really wrong.

Have we solved our manufacturing problems? How many American manufactured products do you own in your home? Why do we not do a better job planning for these problems?

Government imposed incentives on manufacturing steer the results. Restrictive environments in many states are are among the factors sending it overseas. What to do? Become friendlier to manufacturers without sacrificing environmental & safety wants.

Bailouts:
They should not all be grouped together. Some, eg, Countrywide, were unnecessary. If the company failed, the assets (loans receivable) would simply be purchased & serviced by another entity. There would be little loss of economic efficiency. Sure, the shareholders would lose, but that was the risk they assumed. But others such as GM are different. While I wouldn't have bailed them out either, the bailout was useful. If the company failed, then their assets would become relatively worthless. This is because production machinery & facilities are geared to making a particular product. No one else can buy the parts of the company, & efficiently use them, so most of the value is lost. (At industrial auctions, formerly productive machinery often sells for scrap value.) Moreover, GM's suppliers are in the same boat. If they lose their big client, their specialized machinery & facilities become unproductive.

 

[Revoltingest]

Some news about economic stability...
Media outlets work overtime to spin bad economic data | Fox News
http://www.huffingtonpost.com/2014/05/29/us-economy-decline-3-years-contracts_n_5410035.html

 

[Avi1001]

There are always going to be bubbles popping up now and then, but at this point in time I think we're in better shape than in 2007-8. However, with the big banks being even more "too big to fail", there easily could be more danger down the line. I'm somewhat more optimistic that the banks did learn a lesson, but will they remember this in maybe a decade or more?

Good points, and good question. Perhaps our best hope is that in most parts of the country, real estate has not yet returned to 2008 values. Will that help enough?

To me, when H. Ross Perot talked about the "great sucking sound" of manufacturing being lost to other countries, he was pretty much predicting what was going to happen, and he clearly was correct. Many of these jobs lost were unskilled or semi-skilled, which helps to explain why the unemployment rate is so high with certain groups here. Also, the service sector is more prone to economic fluctuations than the manufacturing sector.

All true, we now need robotics even more than we did during the last attempt, in the 1970's.

There are steps that can be taken to bring some of these jobs back, but getting anything through the House right now that would have an effect of helping lower and middle income families at the expense of the upper is simply not going to happen, especially since we are now are more of a corporatocracy that a representative democracy.

Right. That is why we need Hillary in '16.

BTW, I don't want to blame the "job creators" as, frankly, we as a people are a large part of the blame. If we were to "Buy American" more, this would help, but unfortunately so many of us just want to have the most at the lowest price possible. We are a highly materialistic society to the point whereas probably most of us aren't even aware of the fact that we are materialistic. Reminds my of Gandhi's comment when asked what he thought of western civilization, his response was "They ought to try it".

All true as well. We need all the above, and to convince ourselves again that we can make good enough products to buy our own. A country that refuses to buy their own products cannot be successful.

 

[Avi1001]

I agree with most of this, but think that at least 10-20% down payment should be required to purchase real estate. The 0% down that became popular in the 2000's fed in to the real estate bubble. We have to prevent another real estate bubble through more prudent banking practices. I have heard that in some of the bigger cities, real estate prices are already approaching 2008 values. This is concerning in that it might be followed by another collapse.

With respect to bailouts and the big three auto (I guess it's now big two), after all these years of bailouts, I still don't see much in the way of value in American cars. Chevy maybe has a couple of competitive models, the Corvette and Suburban (what a gas hog ).

The political incentives are against economic stability, ie, satisfying short term voter wants, while ignoring long term risk (which no one cares about til it happens). Consider that government loves a little inflation (4% to 7% or so), & as a matter of policy creates it by expanding the money supply faster than economic growth. It encourages people to buy highly leveraged real estate, because the value measured in dollars goes up because it takes more dollars to represent a constant value. But the loans don't increase, so the owner gains equity. So long as one doesn't sell, this is untaxed. And the property taxes & interest, even personal, are tax deductable, which further subsidizes ever more expensive purchases. Naturally, people will borrow as much as they can to buy the spendiest property they can, which makes debt service a larger portion of their income. So when we get an economic hiccup, as we did in 2001, unemployment creeps up & wages go down, leaving people unable ot cover property costs. This triggered the loan crisis which ensued a few years after the towers fell, culminating in the more noticeable crashes on Wall St.

It's happening again because history teaches us that history teaches us nothing. Since crashes are probabilistic events, we can't know when the next one will be. And since they're not certain, politicians can ignore the danger by expecting/hoping for the best outcome. Most years they're right. The problem is that when they're wrong, they're really really wrong.

Government imposed incentives on manufacturing steer the results. Restrictive environments in many states are are among the factors sending it overseas. What to do? Become friendlier to manufacturers without sacrificing environmental & safety wants.

Bailouts:
They should not all be grouped together. Some, eg, Countrywide, were unnecessary. If the company failed, the assets (loans receivable) would simply be purchased & serviced by another entity. There would be little loss of economic efficiency. Sure, the shareholders would lose, but that was the risk they assumed. But others such as GM are different. While I wouldn't have bailed them out either, the bailout was useful. If the company failed, then their assets would become relatively worthless. This is because production machinery & facilities are geared to making a particular product. No one else can buy the parts of the company, & efficiently use them, so most of the value is lost. (At industrial auctions, formerly productive machinery often sells for scrap value.) Moreover, GM's suppliers are in the same boat. If they lose their big client, their specialized machinery & facilities become unproductive.

 

[Avi1001]

We can't pay much attention to Fox News, and one quarter of shrinkage in three years is not the end of the world, but I am concerned that we have not yet repaired some of the fundamental practices in our economy.

No country can be successful if we do not buy our own manufactured goods. This might require many years of education at the primary and secondary levels and has not even started yet. We need to train more scientists and engineers, maybe even economists. We need to prepare for more robotic based manufacturing. This is the only way we can compete with low wage international competition. We need to educate people for higher level jobs.

Some news about economic stability...
Media outlets work overtime to spin bad economic data | Fox News
U.S. Economy Shrinks For The First Time In 3 Years

 

[metis]

I agree with most of this, but think that at least 10-20% down payment should be required to purchase real estate. The 0% down that became popular in the 2000's fed in to the real estate bubble. We have to prevent another real estate bubble through more prudent banking practices. I have heard that in some of the bigger cities, real estate prices are already approaching 2008 values. This is concerning in that it might be followed by another collapse.

Well said. And countries that didn't allow the holding rate to be reduced didn't have the bank failures that we did.

With respect to bailouts and the big three auto (I guess it's now big two), after all these years of bailouts, I still don't see much in the way of value in American cars. Chevy maybe has a couple of competitive models, the Corvette and Suburban (what a gas hog ).

They have improved, and they're doing quite well as of today, but the question is what's gonna happen in the long run.

BTW, the CBO testified in a congressional committee that if they had let these two fail, maybe as high as 3 million more Americans could have found themselves out of a job at a time when we were losing jobs hands-over-fist. They also stated that it would have been a greater burden put on the federal and state's budgets if they let them default than if they were to bail them out.

Yes, there were some poor judgments made by the leadership, but letting these two fail would have been devastating to so many families and making it so difficult for them to find new jobs.

 

[Revoltingest]

We can't pay much attention to Fox News, and one quarter of shrinkage in three years is not the end of the world, but I am concerned that we have not yet repaired some of the fundamental practices in our economy.

It shouldn't be dismissed because of the source of the news.
Note that I provided a Huff Po article about the same thing.

No country can be successful if we do not buy our own manufactured goods. This might require many years of education at the primary and secondary levels and has not even started yet. We need to train more scientists and engineers, maybe even economists. We need to prepare for more robotic based manufacturing. This is the only way we can compete with low wage international competition. We need to educate people for higher level jobs.

That's a reasonable view. But Commercial, market & industrial policies of both parties
these last few decades are failing, so the status quo is a poor model to continue.

 

[Revoltingest]

I agree with most of this, but think that at least 10-20% down payment should be required to purchase real estate. The 0% down that became popular in the 2000's fed in to the real estate bubble. We have to prevent another real estate bubble through more prudent banking practices.

Banking practices are only part of the problem though. Bubble risk management must be a
more comprehensive management policy, including bank regulation, tax incentives, inflation
reduction, transfer cost reduction, & bail-out reform.

I have heard that in some of the bigger cities, real estate prices are already approaching 2008 values. This is concerning in that it might be followed by another collapse.

This is because gov hasn't changed anything fundamental with respect to bubble probability.
All the risk factors for a bubble & crash are still there.

With respect to bailouts and the big three auto (I guess it's now big two), after all these years of bailouts, I still don't see much in the way of value in American cars. Chevy maybe has a couple of competitive models, the Corvette and Suburban (what a gas hog ).

There are many more good cars & trucks made here than you mention. Americastanian cars
have gotten more competitive over the last few decades. But this is irrelevant to bail-out analysis,
since the companies do a large volume of business, the loss of which would be catastrophic.
Note: The Suburban is a fine vehicle for heavy towing.

 

[Revoltingest]

Right. That is why we need Hillary in '16.

What Hillary policies would improve things, & why?

 

[Avi1001]

What Hillary policies would improve things, & why?

My response was to this post:

There are steps that can be taken to bring some of these jobs back, but getting anything through the House right now that would have an effect of helping lower and middle income families at the expense of the upper is simply not going to happen, especially since we are now are more of a corporatocracy that a representative democracy.

I am not allowed to discuss politics further in the Economics DIR D)

 

[Avi1001]

All signs point to another bubble forming in real estate. We need greater government control of banking practices. Banks are too greedy.

There are few competitive American cars. The Germans have improved styling quite a bit in recent years. Audi's, Mercedes and Beamers are good examples. But their service costs are overpriced.

It is well known that the only decent American vehicles are Chevy and Ford trucks. Everything else is garbage.

Toyota makes the best cars and has the best service. It will take 25 years for us to catch up, if we start now.

Banking practices are only part of the problem though. Bubble risk management must be a
more comprehensive management policy, including bank regulation, tax incentives, inflation
reduction, transfer cost reduction, & bail-out reform.

This is because gov hasn't changed anything fundamental with respect to bubble probability.
All the risk factors for a bubble & crash are still there.

There are many more good cars & trucks made here than you mention. Americastanian cars
have gotten more competitive over the last few decades. But this is irrelevant to bail-out analysis,
since the companies do a large volume of business, the loss of which would be catastrophic.
Note: The Suburban is a fine vehicle for heavy towing.

 

[Revoltingest]

All signs point to another bubble forming in real estate. We need greater government control of banking practices. Banks are too greedy.

Gov can no more regulate away greed than they can sex drive. And bank regulation is problematic.
First, it's only part of the problem. Gov can limit the LTV ratio to 70% or 80%, but that won't stop speculative buying.
Second, bank regulations are part of the problem. When gov requires lending to high risk borrowers in order to further societal goals (eg, lending to the poor, lending in bad areas), Gov actually increases lenders' risks. Of course, when lenders sell loans to Fannie or Freddie, then taxpayers get stuck with the costs of failure. And gov backed loans are riskier for borrowers in trouble because gov will not negotiate down principal.

There are few competitive American cars. The Germans have improved styling quite a bit in recent years. Audi's, Mercedes and Beamers are good examples. But their service costs are overpriced.
It is well known that the only decent American vehicles are Chevy and Ford trucks. Everything else is garbage.
Toyota makes the best cars and has the best service. It will take 25 years for us to catch up, if we start now.

Evidence for your claims?

 

[metis]

All signs point to another bubble forming in real estate. We need greater government control of banking practices. Banks are too greedy.

There are few competitive American cars. The Germans have improved styling quite a bit in recent years. Audi's, Mercedes and Beamers are good examples. But their service costs are overpriced.

It is well known that the only decent American vehicles are Chevy and Ford trucks. Everything else is garbage.

Toyota makes the best cars and has the best service. It will take 25 years for us to catch up, if we start now.

But Toyota had some recalls in the last couple of years that weren't exactly minor. Two of my friends had Camrays and they couldn't get rid of them fast enough.

BTW, I'll be leasing a Ford starting early next year, but I'm undecided on which model. Of course what helps my decision is two things: 1.my one son-in-law works for Ford at its international headquarters in Dearborn , and 2. s.e. Michigan lives or dies by the Big Three.

BTW, it also helps my decision considering I get a 10% discount on Fords because of my son-in-law.