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Four Basic Truths of Macroeconomics

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Re: Four Basic Truths of Macroeconomics

#121

Earlier quoted context omitted.

> You only want your investments to increase in price if you intend to sell or collateralize them. As investments proper, you want to earn dividends. uh... no my dude. Whether a company buys back the shares, or issues a cash dividend, warrants, or someone else is willing to pay you more for the same shares, you've obtained what's called a "total return." What any investor is looking for is a total return, and it does…

> uh... no my dude. Whether a company buys back the shares, or issues a cash dividend, warrants, or someone else is willing to pay you more for the same shares, you've obtained what's called a "total return." You seem to be unaware that different investors have different investment goals. > What any investor is looking for is a total return, and it doesn't matter in what form. Yeah, no. Some investors want dividends,…

> Really now, this is rich. If you think my perspective is that outlandish then you truly have not studied this to any great extent.

You may have a bunch of other acolytes but that doesn't make you right.

Re: Four Basic Truths of Macroeconomics

#122

Earlier quoted context omitted.

> That's your duty in a capitalist society - to pick winners by investment. See, that, and well as your first point, are where the other person's philosophy and yours collide. I daresay his point is that "It should not be my defacto requirement in society to buy stonks in order to not lose the wages I have duly earned". You are saying "your obligation in society is to take the wages you earn and keep your money movin…

So buy gold. The point is that an inflationary fiat currency offers maximum flexibility by not forcing anyone into treating it as more than a medium of exchange. The OP is demanding the creation of a new class of thing, which is designed to preserve wealth, with no risk. Ok, pitch that. But there's many reasons why that isn't a good thing. Inability to react to shocks such as a global pandemic, generational wealth co…

If the central bank implemented inflation targeting by simply handing out cash to everyone, I'd probably shrug. But the current system is a moral abomination and I won't be surprised when it collapses in another decade or two. Looking forward to seeing your comments on future HN economics posts as that process plays out.

Re: Four Basic Truths of Macroeconomics

#123

What are the best introductory books to get more grounded in economics

I personally think a lot of established macroeconomics is bullshit. There's just no mechanism to verify many of the hypotheses, and practitioners rarely suffer from the kind of personal survival pressure that otherwise tends to filter out for people who are right.

Not to mention that the entire economy is such a complex system, and my experience with complex systems is that we can't predict them, we like to come up with causal explanations for observed events, and we're almost always wrong on closer scrutiny.

With all that in mind, I have started my economics journey not on the macro picture, but on the details. Book recommendations include:

- The Kelly capital investment criterion: a collection of historic peer-reviewed papers about what it says on the tin: how to allocate resources to risky ventures (read: how to size bets.)

- Red-Blooded Risk: a wandering tale about quantitative risk management and how it entered the world of finance in the seventies--eighties. As always with Aaron Brown, it contains lots of information on economic matters that aren't directly related to the main subject.

- The Economic Function of Futures Markets: a correct, for once, exposition on how futures markets are not about locking in prices (any regular contract can do that) or hedging (the people who supposedly would hedge don't) but about creating an implicit loan market for commodities, among other things.

- The Poker Face of Wall Street: a wandering tale on the similarities between betting, speculation in financial instruments, and insurance, among other things.

- The (Mis)Behaviour of Markets: Benoit Mandelbrot summarises some of his research into modeling markets with multifractal geometric ideas.

- Fortune's Formula: a more pop-sci friendly version of the Kelly criterion paper collection.

- Regression Modeling with Financial and Actuarial Applications: basic techniques used everywhere for statistical modeling of things.

- Moneyball: finding not the best, but the most undervalued through quantitative reasoning.

- Inadequate Equilibria: a framework for thinking about when economic incentives align with a desired outcome and when they don't.

I have also started a fairly advanced prediction market at work to get a better sense for how such things work, and I'm the guy who you either love or hate playing Risk and Monopoly with, because I invent derivative money and all sorts of exotic contracts as an aid to diplomacy.

But then again, I generally build knowledge by generalizing from specific concrete experiences. Maybe that bottom-up approach works badly for some people.

Edit: I should say that these are some of the books I have read and can personally vouch for. There are several more like them in my stack of books to read. I can list some of those that I think are more promising, but I can't personally vouch for them yet.

Second edit: oh, I almost forgot some of the most important parts. I don't have a specific reference, but double-entry accounting and financial reports are things that will teach you a lot of the basic terminology about assets, liabilities, equity, credit and so on.

I suggest maintaining your personal (or your family's) books with double-entry. A great pplace to start is Plain Text Accounting.

Re: Four Basic Truths of Macroeconomics

#124

Earlier quoted context omitted.

> So you do, at least, understand that a person with more debt benefits more than a person with less debt? I believe I explicitly stated it benefits debtors over creditors. Poor folks are leveraged substantially more than rich folks, hence the disproportionate benefit. Without inflation they'd be assessed the same interest rates, with the same risk premiums, but would not benefit from inflation so this is strictly wo…

> Poor folks are leveraged substantially more than rich folks, hence the disproportionate benefit. This is false, rich folks have far more debt than poor people, not to mention access to lower prices for loans. > Without inflation they'd be assessed the same interest rates, with the same risk premiums, but would not benefit from inflation so this is strictly worse, is it not? You’re right that the rich, who hold vast…

> This is false, rich folks have far more debt than poor people ...

On a percentage basis?

[citation needed]

Re: Four Basic Truths of Macroeconomics

#125
post #2

I get a "please subscribe" pop-up and can't get rid of it without fiddling with the CSS editor. Anyhow... Summary of Truisms: 1) During recessions, employers tend to lay off rather than reduce wages 2) Central bank stimulus helps recessions 3) Too much stimulus causes run-away inflation 4) Non-monetary problems like oil shocks and pandemics can cause recessions 5) Increasing population helps economies. ("Hump to de-s…

> Non-monetary problems like oil shocks and pandemics can cause recessions It wasn't the oil shock of the 70's that caused recession. It was our response to it - Nixon's oil and gas price & allocation controls. We came out of that when Reagan repealed it. Our current recession is not caused by the pandemic, but the lockdown response to it.

This is obviously false and all you have to do is acknowledge there are other countries in the world besides the US.

Every country in the world was subjected to oil shocks. Not every country had price controls. Every country experienced a recession.

Likewise, every country experienced the pandemic. Not every country had lockdowns. Every country experienced recessions.

Posts that had simple explanations for complex phenomena are almost always wrong, especially when they fail to account for the evidence of other countries.

Re: Four Basic Truths of Macroeconomics

#126

Earlier quoted context omitted.

Yeah, it doesn't, though. Inflation only matters from the time you receive your paycheck to the time you invest it in productive assets or buy the necessities of life. After that it sets the benchmark rate of return for your investments. If your salary fails to track inflation that's between you and your boss who's giving you a pay cut year over year, or between you and congress if you're under the minimum wage umbre…

Back with your "money under the mattress" red herring as usual, I see. This is not about inflation, it's about monetary debasement . Completely different concepts.

Explain to me how inflation affects people who don't have money, while their wages keep pace with inflation.

You say this like they're two different things. Debasement is the mechanism by which inflation is achieved. They're the same thing for all intents and purposes and italicizing one won't change that.

Re: Four Basic Truths of Macroeconomics

#127

Earlier quoted context omitted.

> What's your point. Should be obvious from the discussion, especially for someone who “knows quite a bit” about the subject. > Hi yes I know quite a bit about sticky wages and inflation. Then why did you ask me for a source for a statement that is well understood among anyone who has studied the subject? Krugman’s statements to this effect are so well-known as to have been written about in other publications. Back t…

You are purposefully ignoring the normal explanation, which is this: because wages are sticky, firms that need to cut costs in a recession are more likely to lay off people than they are to give pay cuts. Inflation helps to weaken that rigidity so that job losses are not as large. Maybe you know that. You claim that central banks depreciate the currency because they "think wages among the working class are too high."…

[flagged]

Re: Four Basic Truths of Macroeconomics

#128

Earlier quoted context omitted.

> It decreases the value of the money use to pay for them That is meaningless, though. Imagine last year you bought some asset, that someone else did not, and it appreciated 2% with the price level. You are not any better off. I see you are implying that the other person "couldn't afford" to invest and kept their money in cash instead, to argue that the other person is worse off. That is also wrong - the issue here i…

> Imagine last year you bought some asset, that someone else did not, and it appreciated 2% with the price level. You are not any better off. I am better off if the nominal value of that asset matters, which it does if I want to sell it or leverage it. And anyone on a dollar denominated income is worse off. > I see you are implying that the other person "couldn't afford" to invest and kept their money in cash instead…

> Obviously the wealthy are in much better position to take this advice than the middle class, the working class, and the poor. Therefore inflation benefits the wealthy disproportionately.

If the poor don't have cash, and their wages keep pace with inflation (they do) then how are they harmed by inflation?

Re: Four Basic Truths of Macroeconomics

#129

Earlier quoted context omitted.

> Ah you get it. That's the idea. Buy gold if you want, I don't care, but money is an intermediary, not a long-term store of value. Only because the wealthy benefit from depreciating currency. It doesn’t have to be this way, and it is this way because of policy that is designed to benefit the ultra-wealthy. > They're paying you less value so it's a decrease. You're tripping yourself up focusing on units. They’re payi…

> Only because the wealthy benefit from depreciating currency. It doesn’t have to be this way, and it is this way because of policy that is designed to benefit the ultra-wealthy. Do they? Generally inflation benefits debtors and not lenders, because debts are denominated in dollars in the year of issue, and repaid in future dollars, which are worth 2% less per year. Overwhelmingly poor and middle class folks are debt…

> Money isn't a long-term store of value, it never was

Yes, we all get your point: currency is not intended as a literal store of value. I think this is where the real misunderstanding lies. The good arguments against currency debasement are not about money's ability to "store value" but rather its ability to transmit information about value across time and space. These are arguably the same thing, but the more descriptive phrase makes it clear that the problem is not specifically that the unit of value corresponding to the currency "shrinks" over time, but that the processes used nowadays by monetary authorities to manage currencies severely distort the signals carried in that currency unit in ways that lead to economic waste and increasing inequality.

Re: Four Basic Truths of Macroeconomics

#130

Earlier quoted context omitted.

> Non-monetary problems like oil shocks and pandemics can cause recessions It wasn't the oil shock of the 70's that caused recession. It was our response to it - Nixon's oil and gas price & allocation controls. We came out of that when Reagan repealed it. Our current recession is not caused by the pandemic, but the lockdown response to it.

This is obviously false and all you have to do is acknowledge there are other countries in the world besides the US. Every country in the world was subjected to oil shocks. Not every country had price controls. Every country experienced a recession. Likewise, every country experienced the pandemic. Not every country had lockdowns. Every country experienced recessions. Posts that had simple explanations for complex ph…

> Every country in the world was subjected to oil shocks. Not every country had price controls. Every country experienced a recession.

> Likewise, every country experienced the pandemic. Not every country had lockdowns. Every country experienced recessions.

I can't speak to #1, but #2 is not a strong argument. Lockdowns covered enough of the world that you would expect to see a recession, on those grounds alone, in every country with any exposure to international trade.

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