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Four Basic Truths of Macroeconomics

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Re: Four Basic Truths of Macroeconomics

#11

Post by NortySpock »

tabtab wrote: 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…

Regarding point 5: increasing population via reproduction adds workers in 16-18 years. Immigration adds workers immediately.

Additionally, immigration increases both labor supply (obviously) but also labor demand (more consumption, because immigrants buy stuff and services just like anyone else) and as a result wages are flat even when a lot of immigrants join the economy in a short amount of time.

"This has been tested under conditions such as the Mariel Boat Lift, where a large number of Cuban immigrants all joined the Miami labor market in a short period of time, increasing labor supply by 7% very quickly. Research found that there was practically no impact on wages and employment for locals."

https://www.reddit.com/r/Economics/wiki/faq_immigration

https://www.jstor.org/stable/2523702?seq=1

Re: Four Basic Truths of Macroeconomics

#12

Post by AngrySkillzz »

xnx wrote: post #7

"I also think measures of price inflation are almost useless over the long run, because a person today consumes a very different bundle of goods than one in, say, 1950." I agree with this wholeheartedly. How do we put a value on the fact that, for the cost of no more than a day's labor, most in the US can have a handheld device with access to nearly the sum total of the world's knowledge and entertainment? No one, at…

It is tricky, but they try to apply what are called "hedonic adjustments." [1] If a new iPhone comes out that is way better than last year's iPhone, but it is the same price, then that's deflation! You got more stuff for the same price. Or even if your new plasma TV is more expensive than the old CRT, how do you compare them to decide whether the price level has increased or decreased while attempting to hold "quality" constant? They walk through an example like this on the webpage.

Of course it is very difficult to compare for entirely new product categories, though the good news is that brand new products likely are not a large portion of the consumption basket at the time they are introduced. So it shouldn't make that much of a difference. Otherwise, you are comparing each year to the next in a sort of "family resemblances" kind of way - maybe you can't directly compare a smartphone to something in the 1950s, but you can do incremental comparisons along the way.

[1] https://www.bls.gov/cpi/quality-adjustment/questions-and-ans...

Re: Four Basic Truths of Macroeconomics

#13

Post by WalterBright »

tabtab wrote: 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.

Re: Four Basic Truths of Macroeconomics

#14

Post by chordalkeyboard »

> 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 in complex financial transactions or simply print more currency to stabilize nominal demand and restore some measure of order.

Is it that hard to say “we think wages among the working class are too high so the central bank depreciates the currency”?

Re: Four Basic Truths of Macroeconomics

#15

Post by LeifCarrotson »

xnx wrote: post #7

"I also think measures of price inflation are almost useless over the long run, because a person today consumes a very different bundle of goods than one in, say, 1950." I agree with this wholeheartedly. How do we put a value on the fact that, for the cost of no more than a day's labor, most in the US can have a handheld device with access to nearly the sum total of the world's knowledge and entertainment? No one, at…

True, but a smartphone has become a component of participation in society. No one buys landline telephones anymore, but they were a part of a typical family budget in the 50s.

Re: Four Basic Truths of Macroeconomics

#16

Post by [deleted] »

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…

[deleted]

Re: Four Basic Truths of Macroeconomics

#18

Post by [deleted] »

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…

[deleted]

Re: Four Basic Truths of Macroeconomics

#19

Post by AngrySkillzz »

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.

Re: Four Basic Truths of Macroeconomics

#20

Post by arcticbull »

anarchop wrote: post #17

The only truth: central banking facilitates theft of savings through debasement of the currency. This is the reason the founding fathers fought to keep central banking out of the US.

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 umbrella.

Currency only has value while its changing hands and inflation is an incentive to change hands. If you'd invested in anything at all 100 years ago you'd have just as much value as you did back then - at an absolute minimum. If you insisted on sticking a square peg in a round hole and hid your cash in your mattress the whole time, inflation did its job and took that value from you.

> This is the reason the founding fathers fought to keep central banking out of the US.

Well, they also fought for slavery, they weren't perfect people. Better to stick to arguments on their merits instead of appeal to 300+ year old authority.

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