The Autism Spiral? (obligatory loluk thread)

[Liare]

You must spread some Reputation around before giving it to Lallante again.

that one was a masterpiece Lallante rarely have i seen so many disgusting insults compressed into so little text.

The reason Florida and Texas get a bailout that Greece can only dream of is simply because Florida
and Texas contribute to the Federal tax take. And (my figures are out of date) I think that they are net contributors as well.

The EU simply doesn't work that way - wet dreams of EU breaucrats aside - so the comparision simply doesn't work and makes Krugman look stupid.

Congratulations on missing the point!

I think it's safe to say that Krugman knows that the EU doesn't work that way. But that doesn't make the comparison invalid. Forget about the fact that all EU countries (at least theoretically) contribute to the EU budget. The point is that for the Eurozone to work, it is probably required that it works more like the US system, i.e., a mechanism for automatic bailouts. Perhaps like Eurobonds?

you gotta be kidding me Bart.

do you honestly think you are ever going to be able to walk out to the population of northern europe (ie, Germany and everybody else who's not completely bumfucked yet) and tell them that they have to take significant cuts in their welfare and living standards so those poor people down "south" can catch up and we can all sit around the campfire singing happy happy hippie songs ?

and how are you going to sell that "idea" ? because if its forced trough you will have another one of those lovely pan-european conflagrations on your hands, the kind we kick off every 50-90 years or so.

The problem is that fractional reserve banking means that most of the currency in circulation has been created by banks rather than governments.

There's nothing inherently wrong in fractional reserve banking, it just has to be properly managed. Generally banks are pretty good at that.

and inflation is good for you, amirite ?

i fail to see the advantage inherent in losing between 1% and 3% of my net worth on a annual basis since that forces me to attempt to claw that loss (and then some) in from my employer. (remember the wealth pie grows even more than inflation, so in order to retain the same overall share...)

but then, i dont have debt in a house or indeed at all, so i just get to lose part of my net value, add insultingly low savings interest (say i don't want to tie it up five years at a time, i end up losing money to inflation) and i must admit i struggle to see the "advantage".

as for the whole silver/gold vs fiat debate, get over it people, a return to gold backed currencies is not going to solve anything. its not going to make cyclical problems go away, and its not going to "bring down the central banker master race" either, mostly because many of them are running out of ideas aside from creating more money.

on the other hand, the way we handle momentary policy today sure as fuck is not working well either, so in my opinion that has to go as well if only because it will invariably lead to debt overload and the currency itself becoming meaningless.

so let's get something else on the table, what i don't know after all i work with computers for a living, not numbers.

[GeromeDoutrande]

You remind me of a guy guzzling lustily from his own 3 year old CumBottle while anally riding a harnessed, obese sumo wrestler smeared in a mixture of his own shit, horse blood and weaponised agent orange defoliant, while using his other hand to reach-around a deformed proto-human clone experiement gone wrong that has been stapled to the sumo wrestlers taint, while it feebly begs you to kill it and end its soiled misery.

It's uncanny actually.

My avatar approves.

[El Capitano]

and inflation is good for you, amirite ?

i fail to see the advantage inherent in losing between 1% and 3% of my net worth on a annual basis since that forces me to attempt to claw that loss (and then some) in from my employer. (remember the wealth pie grows even more than inflation, so in order to retain the same overall share...)

Inflation (at a low level) is useful as a tool to force money to flow rather than stagnate. If it goes too high though, then you do get plenty of problems.

[TheManFromDelmonte]

Have to say though: I understand why the Germans fear inflation more than others. They actually have something to lose. Lets face it, saving the Euro is looking more and more risky. And it would be the Germans shouldering most of those risks. They'd be wiping out their savings for only a chance of still saving the Euro, with the gains not much certain either. Krugman's argument is valid, but a bit simplistic if those bailed out countries won't allow Germany (like Washington in the US example) to have more say nationally as well. One doesn't work without the other there either.

And if (when) the euro collapses whatever currency they're left with will wipe out their savings anyway, at least relative to the rest of the world, as the value rockets. Switzerland have managed to buy their way out of this so far but Germany doing the same will definitely lead to inflation anyway as Germany actually manufactures stuff. So the only course left for Germany is to fudge it and hope. Luckily this is what Europe does best.

[El Capitano]

Sorry, I thought we were compiling a list of "Things the euro is blamed for that actually have nothing to do with the euro" through the medium of sarcasm.

Sarcasm can be a bit tricky to pick up over text, my apologies.

That the eurozone's interest rates were identical for 10 years has nothing to do with the euro and everything to do with money lenders having a decade-long collective spell of retardation and pretending a very heterogenous area was actually homogenous just because they used the same currency. The key indicators didn't similarly unify, in some cases they actually diverged (my A2 macro paper was on eurozone divergence, so it hardly went unnoticed, either), yet PIGS were paying the same rates as germany and france.

Admittedly I've not written any papers on the subject, but whilst the Euro may not have caused the huge increase in cheap lending, surely it exacerbated it. I really doubt Greece would be on pretty much identical rates as Germany if they both had disparate currencies, due to the combination of fiscal policy and the notion that the richer nations would bail the weaker ones out if the shit hit the fan under the Euro.

[elmicker]

[and inflation is good for you, amirite ?

usually yeah. zero inflation tends to be catastrophic for an economy. Anyway, it's questionable whether fractional reserve banking is even a source of inflation, so it's especially silly to consider it a cause of inflation. :monetarists:

[Ophichius]

[and inflation is good for you, amirite ?

usually yeah. zero inflation tends to be catastrophic for an economy.

I'm asking out of genuine curiosity, why is this is the case? I.e. why is the continual loss of purchasing power a good thing for keeping economies running?

-O

[definatelynotKKassandra]

[and inflation is good for you, amirite ?

usually yeah. zero inflation tends to be catastrophic for an economy.

I'm asking out of genuine curiosity, why is this is the case? I.e. why is the continual loss of purchasing power a good thing for keeping economies running?

-O

Deflation is catastrophic because it deters spending - if my money will buy more tomorrow than today, why buy today? Demand collapses -> depression.

Empirically, it turns out that the break even point is around 1 or 2 percent inflation - any lower and the above effect kicks in.

[Liare]

[and inflation is good for you, amirite ?

usually yeah. zero inflation tends to be catastrophic for an economy.

I'm asking out of genuine curiosity, why is this is the case? I.e. why is the continual loss of purchasing power a good thing for keeping economies running?

-O

pretty much my question as well.

most answers seem focused on "without it people wont indebt themselves to the hilt because it makes no financial sense to do so"

but pardon me for being backwards here, surely that's in some ways a desirable outcome ?

[and inflation is good for you, amirite ?

usually yeah. zero inflation tends to be catastrophic for an economy.

I'm asking out of genuine curiosity, why is this is the case? I.e. why is the continual loss of purchasing power a good thing for keeping economies running?

-O

Deflation is catastrophic because it deters spending - if my money will buy more tomorrow than today, why buy today? Demand collapses -> depression.

thank you, excellent point.

but there's a difference between actual deflation and mere stagnation, i would also challenge the last assessment if the values are kept low enough, people tend to want to get shiny when they see it, if they got the money.

[elmicker]

Put simply, in the short to medium term, you trade off inflation against employment. This is called the short-run phillips curve.



I think uniquely amongst economics concepts (particularly concepts labelled -curve), it stems not from theory, but from empirical observations of the data. It's very simple and has long since been discounted as a useful idea, except to illustrate the fundamental relationship and even then really only in the short term. When a policy change enacts deflationary pressure, it pushes employment down and vice versa.

The real costs of inflation, generally a single-figure percentage loss in the value of your monetary holdings per year, plus the associated menu and uncertainty costs, are very small. We expect an amount of inflation, we account for it, so in reality such costs haven't proven to be all that dramatic.

So, instead of trying to minimise those costs, thus maximising the pressure on employment, we set a moderate target. In practice, since the 1990s that has been 2%. The converse also applies. Governments needn't worry themselves too much about attaining full employment; putting generally artificial measures in place to scrape those last few percent of employment will generate significant inflationary pressure.

As I said, this relationship only applies in the short term. In the long term the new expectations of inflation are supposed to kick in and the economy readjusts and the curve changes and we end up at a new equilibrium point with lower inflation and lower unemployment. The problems exist in the costs incurred shifting the curve.

We're only in this situation of 2% inflation being a reasonable target because of extremely painful monetary policy enacted by Volcker and co. in the early 80s. He cut inflation from c. 10% (peak of 13%) at the end of the 70s to a much more modern 4% by 1983, by cranking interest rates waay up into the 20% region and cutting the growth of the money supply to zero (generally what is meant when people suggest eliminating inflation). In the process unemployment hit levels in excess of 10% and quarterly contraction as great as 8%.

And remember, this is a curve, not a line. The costs of adjustment get more severe the closer to that paultard bait zero. What would we gain? A couple of percent on the year for monetary assets. That's about it. What would we lose? Well, this is a bit more theorycraft, but if memory serves Mankiw's 5th put the trade-off at about 5% of GDP per 1% of inflation eliminated (based mostly on the 1980s data so it'll probably be higher than that), so to eliminate today's typical 3ish% would need 15%GDP, or about $2Tr for the US, all to eliminate some costs that no one is even sure are actual costs. We all expect inflation so we all account for it by not keeping stacks of raw cash around, itself a generally good thing for the economy.

Even then, the assertion that the economy permanently readjusts isn't certain. In the aftermath of the 1980s disinflationary recession, european employment in particular never quite reattained the levels it was at prior to inflation being reduced, and governments operating in a deficit became standard practice, leading eventually to the situation we're at today.

Further, in this day and age, where the inability of governments to face down markets has been proven beyond a shadow of a doubt, where the will of governments to attempt large-scale projects has been transformed into little more than a joke and where the reliability of governments is at nearly zero in all but a handful of cases, attempting such a readjustment would be insanity. Soros broke the pound 20 years ago, and hundreds would line up in his place to try it again.

tl;dr reducing inflation costs employment, productivity, and it's not certain whether it actually benefits the economy at all. Reducing to zero is generally considered to be fucking diastrous.

[Liare]

excellent post, thank you for that, got some reading to do then.

i suppose it comes from my rather naive view of money as a trade medium rather than what it is today, as well as the that is inherent in the way we conduct our lives. but then as i posted previously i work with computers not economics.

[F*** My Aunt Rita]

excellent post, thank you for that, got some reading to do then.

i suppose it comes from my rather naive view of money as a trade medium rather than what it is today, as well as the that is inherent in the way we conduct our lives. but then as i posted previously i work with computers not economics.

You might enjoy this book: http://www.amazon.com/Debt-The-First.../dp/1933633867

[Ophichius]

Excellent post accompanied by maddening graph with unlabelled axes.

Thanks for explaining that. It's sort of scary to me that we seem to have very little solid ground in economic theory, just lots of data that adds up to semi-conclusive sort-of-a-trend conclusions. (From the point of view of someone who thinks that a good long 60 or 100 years of withstanding rigorous experimental challenges is about the minimum testing period for a good theory. I.e. physics geek.)

Also, that graph makes me all sorts of twitchy. I feel the sudden urge to throttle someone.

-O

[elmicker]

If unlabelled axes, imprecision and an aversion to experimentally testing new theories irritate you, never study economics.

[Ophichius]

If unlabelled axes, imprecision and an aversion to experimentally testing new theories irritate you, never study economics.

It's not the imprecision that gets me. It's the imprecision without confidence intervals. We have math for a reason. So that we know -exactly- how uncertain we are!

-O

[Chrien]

We should just do a one off global redistribution of wealth taking a significant proportion of wealth from the top and giving it to the bottom so it actually gets spent. We can call it trickle up economics as they march proponents of it off to socialist prison.

[GeromeDoutrande]

Put simply, in the short to medium term, you trade off inflation against employment. This is called the short-run phillips curve. [...]

If unlabelled axes, imprecision and an aversion to experimentally testing new theories irritate you, never study economics.

And suddenly, the thread defied expectations and took a turn for the better.

A small post in a thread, a giant leap for threadkind.

[Aurora148]

the guy is a prick but he makes a good point

[orcane]

[elmicker]

It's not the imprecision that gets me. It's the imprecision without confidence intervals. We have math for a reason. So that we know -exactly- how uncertain we are!

-O

Don't look at me, my degree's in computer science.