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Four Basic Truths of Macroeconomics

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Re: Four Basic Truths of Macroeconomics

#131

Post by WalterBright »

unethical_ban wrote: post #96
WalterBright wrote: post #13

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 We came out of that when Reagan repealed it.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.

I read it a few times to realize you aren't being political (I hope). I know nothing about the oil shock, and I know the lockdowns were somewhat needed at the time.

You can google the Arab oil embargo. Most of what you'll read is garbage, but it should give an overview.

Re: Four Basic Truths of Macroeconomics

#132

Post by jkhdigital »

AngrySkillzz wrote: post #31
chordalkeyboard wrote: post #27

Earlier quoted context omitted.

[flagged]

Hi yes I know quite a bit about sticky wages and inflation. What's your point.

"Sticky wages" is typical macroeconomics pablum. Imprecisely defined, completely unfalsifiable, used when it supports an argument and ignored when it doesn't. Contributes absolutely nothing to true understanding of the economy.

Re: Four Basic Truths of Macroeconomics

#133

Post by arcticbull »

chordalkeyboard wrote: post #118
arcticbull wrote: post #113

Earlier quoted context omitted.

> like you were supposed to This is exactly how the central bank policy is set up for the wealthy. The poor have no assets to invest. > Alas, most Americans (and all the poor ones) do not have the same access to investment opportunities as myself. Yes they do. If they have money, they have Robinhood. If they don't have money, inflation doesn't matter.

> The poor have no assets to invest. They (or their households) have an income, which is paid in units that are constantly depreciating while the investments are increasing in nominal terms. Of course they have no assets, because central bank policies have priced all of the assets out of their reach. > Yes they do. If they have money, they have Robinhood. If they don't have money, inflation doesn't matter. They don’t…

> They don’t have enough time after working and chores to investigate which assets to purchase on the stock market, which is why banks existed before the central bank destroyed the savings market.

There's plenty of roboadvisors with no minimums like Betterment or Wealthfront. There's Acorns. There's all sorts of technology to solve this problem. Heck how much time does it take to hit "buy" on SPY in RH once a quarter? I'm pretty busy but somehow I find the time to day-trade /NQ futures.

What do you mean "destroyed the savings market" -- remember when interest rates were 12% poor people couldn't really afford much house. How much good is a savings account when you can't afford anything? I suspect they'd be more than willing to trade a 2% mortgage interest rate for having to download a second app on their phone.

Re: Four Basic Truths of Macroeconomics

#134

Post by chordalkeyboard »

arcticbull wrote: post #128
chordalkeyboard wrote: post #74

Earlier quoted context omitted.

> 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?

> If the poor don't have cash, and their wages keep pace with inflation

Their wages don't keep pace with the inflation of assets, so they are continually unable to save or invest their way out of poverty.

> (they do)

Consumer goods and assets don't appreciate at the same rate.

> then how are they harmed by inflation?

for the umpteenth time, they are paid in depreciating units while the real value of assets appreciates in nominal units; creating a problem where in order to save they must invest, and they continually have less real income to invest, because the paychecks are getting smaller (in real terms) and the assets are getting pricier (in nominal terms).

Re: Four Basic Truths of Macroeconomics

#135

Post by chordalkeyboard »

arcticbull wrote: post #108
unethical_ban wrote: post #97

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…

> 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.

Thank you for the complement but I didn't invent banking.

Re: Four Basic Truths of Macroeconomics

#136

Post by throwaway34241 »

unethical_ban wrote: post #97
arcticbull wrote: post #28

Earlier quoted context omitted.

> It means the people who save by depositing cash in the bank lose value over time, causing them to purchase investments out of necessity. Ah you get it. That's the idea. Buy gold if you want, buy real estate, buy annuities, buy fixed incomes, I don't care, but money is an intermediary - not a long-term store of value. If you treat it as one you'll have a bad time. Just like if you treated your car as a boat. It'll w…

> 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…

I don't think it's just a matter of philosophy - I think a major problem is that modern macroeconomics has a number of counter-intuitive properties that do make sense, but only after studying it for a while and doing thought experiments. But because the system is complex and often counter-intuitive, people often over-estimate their ability to reason it out from first principles (especially common on HN, which is full of smart people but without any particular economic focus).

To give some examples of how it can be counter-intuitive (I'm not an expert, so hopefully this is all correct):

Unlike a household, if you look at the economy in total everyone can't save up money at the same time (unless more money is printed). Most of what people think of as money (checking accounts etc) is bank credit that was created by people taking out loans. In fact, savings and debt are basically two sides of the same coin - savings are forgoing current consumption for the future, and debt is a promise to forgo future consumption.

People can try to all save money (by reducing spending) at the same time, but since everyone saving at once isn't possible what actually happens is that reduced spending causes incomes to drop, and people have no more savings and less income.

It's easy to say things like it should be easy to save, inflation should be zero, interest rates should be high, etc. But there are certain mathematical limitations to what can happen. If most people have high savings (promises for future consumption), that's basically the other side of a debt (promises to forgo future consumption). Who should hold that debt? Should the government run a big deficit? There are similar issues with inflation / interest rates etc.

Unfortunately the discussion in some of the other comments here has gotten a bit heated. I'm sympathetic to how frustrating it must be to people with more formal economics training than me though - it seems like every economic discussion immediately devolves into to people (with supreme confidence) arguing against economics 101.

Re: Four Basic Truths of Macroeconomics

#137

Post by WalterBright »

bawolff wrote: post #39
WalterBright wrote: post #13

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.

That seems like a silly splitting of hairs. Why stop there? By that logic the recession is not caused by the lockdown but by less businesses being open and reduced consumer spending.

Let's say Bob insults me and I punch him in the nose. Did Bob cause me to punch him in the nose? Of course not. Just like the Terminator, I scrolled through a list of options, and selected "punch him in the nose". I could have selected "your mother is a hamster and your father smelt of elderberries." I could have selected "do nothing".

Re: Four Basic Truths of Macroeconomics

#138

Post by arcticbull »

jkhdigital wrote: post #122
arcticbull wrote: post #108

Earlier quoted context omitted.

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.

"Moral abomination"? The fed controls interest rates. Lower interest rates are handed out to everyone. Credit card holders. Mortgage refinance. HELOC. Just who do you think is disproportionately benefitting in a way that's causing you to throw up the moral white flag? With sources please.

Re: Four Basic Truths of Macroeconomics

#139

Post by vladvasiliu »

Aerroon wrote: post #86
p1necone wrote: post #35

Earlier quoted context omitted.

Sure you can have the entire worlds information and entertainment at your fingertips with a $50 smartphone, but if you can't afford to have a roof over your head I'd argue the smartphone is irrelevant. I don't think we should be including basic necessities alongside improvements in entertainment in the same statistic, because it will just hide problems.

I think the problem is that housing is exclusionary and people want to live in some locations rather than others. Typical housing doesn't scale well. This creates an effect where people are effectively bidding each other up on the price of housing, because the winner gets to live in that location and everyone else doesn't. This means that the cost of housing scales with how wealthy the people who want to live in that…

There is an exclusionary side to housing. But there's also a stock component to it. If I can buy the same iPhone as you it's because Apple is willing to build more iPhones to follow demand. Cities don't seem to follow housing demand (for a reason or another) hence the shortage and the high prices.

> A 2000 sqft house in the middle of nowhere in Wyoming might cost $200k. In SF you'll get far less for the same money. People want to be in SF, because there's more to do, but also because the better paying jobs are there. This uplifts the entire area, but also makes things like housing more expensive.

Of course people follow the jobs and other things coming from there being many people around. Hence why the house in the middle of nowhere is cheap, no one wants to live there. It's a self-reinforcing feedback loop.

But would less people want to live in SF if somehow tomorrow there would be X% more housing units available on the market such that the price would be drastically lower? Of course, there being more housing would have to have other consequences which could (and probably would) effect the desirability of the city. I'm not familiar with SF, but for example in Paris that would probably mean replacing older buildings with newer, taller ones.

That would of course change many things, the first of which is its "visual character". Which would make it look more like say NY (because of the tall buildings) than it currently does. People would try to prevent that (if for no other reason than because people are sometimes against change) but, in the aggregate, would that bring less people here? I doubt it.

However, that would probably create more jobs in the city, which would bring in even more people, and so on. After all, today's big cities all started with a bunch of shacks, right?

My hope, as has been discussed in other threads, is that with remote work gaining traction, at least some people will leave the cities. I know many people who would like that because they don't particularly enjoy city life. This would allow, of course, some other people to come in who couldn't afford it but wanted it, but maybe, in aggregate, city population would be lower. I, for example, would gladly go live further out in the suburbs if I only had to come in the office once in a while (say no more than once, maybe twice a week).

Re: Four Basic Truths of Macroeconomics

#140

Post by phabora »

AngrySkillzz wrote: post #19
chordalkeyboard wrote: post #14

> Nominal wages are sticky, for a complex mix of sociological reasons, and so employers do not always respond to lower demand with lower wages for workers. Instead they lay some people off, and that can lead to a recession. > The second thing to know is that well-functioning central banks can offset such demand shocks to a considerable degree — or even prevent them from arising in the first place. The bank can engage…

I'm just going to call you a conspiracy theorist because it's probably not worth arguing with you, and "the amount of energy needed to refute bullshit is an order of magnitude larger than to produce it." If what you want to say is that you think the government is run by a shadowy cabal of elites whose main purpose is to impoverish the common man, then just say that.

That governments act more in the benefit of business owners than workers was observed by Adam Smith and is still true today. Further that’s a sociological fact and not a “conspiracy theory”, but I don’t have time to write ten sentences to refute your single sentence of bullshit so I won’t bother.
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