Trade deficits are ALWAYS detrimental to their nationsÂ’ GDPs.
- Thread starter Supposn
- Start date
itfitzme
Silver Member
Not really.
For instance, I did a Google on "benefits of tarriffs." I get these results;
"The benefits of tariffs are uneven"
"Except in all but the rarest of instances, tariffs hurt the country that imposes them, as their costs outweigh their benefits"
"It is hard to think of any benefits from tariff's for consumers"
"Tariffs Benefit Few, at Cost to All"
"For goods which we import, domestic prices fall and consumers benefit while producers are hurt as"
"The European Union intends to increase tariffs on developing countries including China, India and Brazil unde..."
The fundamentals include comparative and absolute advantage. While economists are generally two handed, as in "on the other hand", my experience is that absolute advantage isn't given as much attention compared to comparative advantage. If we can infer anything from history, the examples presented as the outcome of tariffs, such as sugar and steel, don't speak well of them. I haven't read anything that presents an example of a tariff having a positive effect in general. As I have gone along reading things, I simply haven't seen any strong support of tariffs. Not in the long term or in the general macro economic functioning.
I am, of course, speaking in general and over the long term. There may be some "right time" and "in the right amount" which I am still trying to find.
So, not really.
And in your reply, you didn't present anything that changes my impression.
Not sure what that means. As in general, the driver of the automobile knows how it works better then the automobile mechanic? Or that consumers are driving the wheel while manufactures are getting rolled over?
I'm saying that, given the general principles of comparative advantage and absolute advantage, especially when comparative advantage gets highlighted in the fundamentals, it seems a bit difficult, as a layman, to come to the conclusion that imports are definitively a problem without attending to that comparative advantage issue. I certainly can't ignore it given that the greater body of economics recognizes it as significant.
If we are talking about a specific product, like an imported automobile, being a serious competitor to a domestic product, at a micro-level, it surely does. But the whole idea of macro-economics and comparative advantage is to consider the process across markets. The idea here is that labor is freed up to do more productive things. The general consensus seems to be that consumption is still pretty much unlimited.
On one hand, it lowers the price of domestic products and on the other hand, it lowers the price of domestic products. The difference being from the perspective of the manufacture or the consumer. Sure, tariffs raise prices for the manufacture but at the same time they raise prices on the consumer. And, increases in prices to consumers drives the demand for higher wages. To say that imports lower wages is to also say that imports lower costs. They go hand in hand.
So no, I'm not ignoring the fact that the wheel looks very different when you're sitting on top of it versus when you're being rolled over by it. I'm saying that both views are equally relevant.
There is mirco-economics and there is macro-economics. What happens at a macro level is often completely opposite of what happens at a micro level. What happens in the long term is often the opposite of what happens in the short term.
While increasing production, from the perspective of a single farmer, increases income by increasing quantity sold, the problem that was encountered during the run up to the Great Depression what that it depressed prices as all farmer increased production.
While tariffs on sugar imports raised domestic prices for sugar manufactures, it resulted in candy manufacturing being driven out of domestic production and a fall in the quantity produced and consumed.
You're wheel analogy doesn't really explain anything. It doesn't give me any new information with which to change my considerations.
And given that economics keeps talking about tariffs generally resulting in fewer wheels for people to sit on top of, it seems kind of important to listen.
Widdekind
Member
- Mar 26, 2012
- 813
- 35
- 16
if +100 "novel exotic" products appear; then they "attract" half of the money supply (100 x P = 100 x (M/200) = 1/2 M), i.e. only half of the "value" in the economy continues to "fund" domestic production. Ergo, available of foreign "exotic novelties" lures money-and-value, away from domestic "mundane banalities".
are we not agreeing on concepts, if not with terminology ?
i called that an "indirect" effect, i.e. not a direct displacement from market-share, e.g. "Japanese cars displace American cars"; but an indirect displacement, i.e. "buying Chinese silk leaves many consumers unable to further afford American cars". An economy's money supply (M) represents the "value" in that economy; availability of foreign "exotic novelties" spreads M more thinly, over more products.
i.e. imports cost jobs & wages, "harming" employees, in the "short-term". Failure to think "long-term" is, in that "long-term", un-competitive.
does not the importer already gain wealth, via wages paid, to dock-workers & port-authorities, in unloading cargo ships? foreign trade represents "(global) transportation employment".
a greater variety of available products (potentially purchasable assets) is, generally, advantageous (arguably excluding "truck-stop trinkets" of no functional productive potential).
from a global perspective, inter-national trade is merely "on-world production"; and "on-world production", of "assets" (purchased products), is the generation of wealth, by the employment of labor, for productive purposes. (un-purchased products, attributed no economic value, are not perceived, nor treated, assets.)
itfitzme
Silver Member
We could only hope.
Sorry it took so long to reply.
The ***** about economics is that there are constantly competing and cooperative forces so that every statement of observation and interpretation is typically true in once sense or another. We've got micro and macro views in which what is so at a micro level becomes questionable if it is so in the aggregate balance. We have these darned business cycles that are significantly different at their peak, trough, run up and recession. Then, it all rests on this ever increasing population, inflation, efficiency, and standard of living.
Unlike more formal sciences, the concepts often lack a certain level of precision that fixes them well into context and connection. Perhaps it does at the PhD level. For the most part, it is this interesting "ceterus paribus" where "ceterus paribus" is whatever the "all other things being equal" is that is necessary to understand what the economics intends.
I have no doubt that, at any point in time, there may have been imports that were resulting in relative decline in some micro economic domestic production of a similar product or "crowding out" of even unrelated products. In one sense, it is the whole "creative destruction" thing. The old is replaced with the new and better. Efficiency eliminates the need for labor while invention creates a need for it. Borders Book Store lays off people as Amazon becomes more popular.
Macro economics is a bit of a brutal science in that it cares less about the single individual, company or market while it considers the health of the overall economy. I find every manner of subjective and personal annoyance in considering macro economics objectively, with the knowledge that an objective conclusion may just as well have me personally living under a bridge, satisfied that I am, as bridge dwelling trolls go, better off then my troll grandfather of some fifty years ago.
And no disagreement here, in the formality of it as I presented it as a static process. I was hopeful that it was sufficient to present the idea. It becomes an issue in that I over simplified the process.
Still, in returning to it, I don't see the issue. The real process is a bit more complicated. But even with each p at half what it was before, in this simplification, it's not an issue.
The total funding isn't half the "value" in that, in this example, the rate of inflation is -50% and the real value has doubled. The number printed on the money is exactly the same it represents twice as much stuff. Where one dollar would buy one thing, it now buys two of them.
In nominal dollars the price is half. In real dollars, it's exactly the same. In real dollars, one nominal dollar now is worth two real dollars because one nominal dollar now buys twice as much stuff.
"Money", those otherwise useless pieces of paper had been spread out, but that is just an accounting issue that has no bearing on the consumption. Consumption has doubled and that is the real measure of value, the stuff.
The stuff has doubled and the same money can now buy twice as much stuff as it could before.
Twice as much real value is funding the economy as it was before because each piece of paper now has a "value" of 2*q instead of just q.
The money supply is M = p* (2 * Q) and M/p = 2*Q now where before M/p = Q.
In truth, the key is that M isn't constant. I apologize. I have gotten use to the assumption that the money supply isn't constant. The fact that we have inflation, a necessary thing, is due to it expanding in excess of both efficiency, population, and inflation.
In fact, it wasn't long ago that I was working on that whole issue of MV = PQ requires that it expand if we expect an increase in efficiency and standard of living, increasing Q per capita, and increasing prices, inflation. Again, I apologize in that I look at that thing and just assume it is changing.
The idea is that as the process of the introduction of imports is going on, the money supply is expanding. The expansion of the money supply is enough to account for the added products, the added population, and also accounts for that little bit of a 2% inflation rate. Of course, the other thing is that income also increases to account for the additional products and inflation. If we throw population change in there, then production is increasing as population is adding to consumption and the labor force.
If, in fact, income has not increased as it "should", and I suspect it hasn't over the past thirty years, it is an income issue rather than an import issue.
It really doesn't matter if the new products are imports or domestic, from that standpoint, the concept is the same.
In the dynamics of it, the mathematical expression needs to be a function of time. For the purpose of simplification, it is easier to ignore population growth and inflation. So let me define it this way.
At time zero the money supply is M(t=1) and at the later time it is M(t=2). In this oversimplified economy, there is only one product of quantity q1(t=1) selling at price p1(t=1). And, in this over simplified economy there is exactly one of these per person. So the total money supply, ignoring that whole velocity of money thing, is M(t=1) = q1(t=1) * p1(t=1). And, in fact, being one person per each q, income per person is exactly i(t=1) = p1(t=1). Total income is M(t=1)=q1(t=1) * p1(t=1).
Now in comes the imports. Suppose they are complimentary. I think we should do that first as it is the simpler situation and appreciate that you picked it. They are, in fact, not just dumped in but get introduced at some rate that the economy is able to adjust to them. As they are being introduced, the Federal Reserve doing what it is suppose to do, is increasing the money supply as well. Prices are adjusting, income is adjusting, and all manner of things are adjusting.
So at time t=2, q2(t=2) is, for simplicity, the same as the existing domestic product q1(t=2) which is still the same as it was at q1(t=1). So now there are simply twice as many q_total=q2(t=2)+q1(t=2)=2*q1(t=1). What was M(t=1) is now M(t=2) = 2 * M(t=1), twice as much money. And, if the economy is working well, income is now I(t=2) = 2 * I(t=1). And every one has twice as much money to spend on twice as many products which cost exactly the same as before, p1(t=1) = p1(t=2) = p2(t=2). If we throw in inflation, then the money supply keeps up with it, expanding to M(t=2) = 2*(1+r)* M(t=1).
This is, of course, ignoring the question of if we are in a recession, just coming out of it, etc. We are ignoring the whole efficiency issue and that in the comparative advantage thing. It is based on the idea that the economy is humming along nicely at full employment and full labor utilization. If we throw in the increase in efficiency, then we have q_total increasing even more. So the money supply has to account for some rate of increase in efficiency as (1+e). The whole trick is that the Fed keeps the money supply expanding. And that, apparently is as much an art as it is a science. They have to be sure that M(t=2) = 2*(1+r)(1+e)* M(t=1)= P(t=1)(1+r)*2*Q*(1+e) and hopefully, that is all equal to I(t=1)*(1+e)*(1+r). {it would be (1+r)^(t-1) if we were doing the ongoing time}
I believe, though I haven't read it overtly stated, that even under less preferable conditions, the concept still holds. This is the part that I am working on.
The apparent losses of jobs due to the sharing of the market by imports is not an effective loss. Simply because whatever production has been displaced by the imports in now producing something else. When the recession occurs, it occurs across all products, domestic and imports. If it were an economy of just domestics, then it would occur across all those is the same proportions as when there are imports.
The appearance of there being an effective loss is on the assumption that, should the economy be closed to imports, there wouldn't be any job losses in those domestic markets or that the proportion would be less, that backing into it, those working in other industries and now unemployed could be making imports that are now being imported.
The macro idea is that, if the economy was closed to imports, the recession would still happen. And it would still happen in the same proportion. The lack of imports would slow progress in increases in efficiency and standard of living. So maybe it would happen differently or later. There is no way of knowing, it is literally a different universe. Never the less, at some point later, the same thing would happen and there would be the same relative loss to the domestic production as is experienced with the imports. Essentially, the market is shared by imports and domestic products so that they both take part of the hit from the recession. Without the imports, domestic production would be spread out among domestic production of both the existing domestic product and a similar product produced domestically.
In an oversimplified expression, t=2 would get shifted out to t=3 or 4. For all we know, being that it is a feedback system that is now on a shorter loop, domestic only, it may cycle more often but less deeply or any manner of ways. However the period would shift, q2 would change from being imported to being made domestically. And when the recession hit, that 5% increase in unemployment would simply be shifted to the additional domestic production. Without someone doing some really complex model, there is no saying exactly how the whole thing would shift, but what macro is saying is that the hit to employment wouldn't be lessened. It would only mean that the twice as much domestic production markets would get hit with the same 5% decrease rather then 5% shared across both domestic and imported. We can imagine all manner of scenarios in which products are divided up, but whatever that division, it all get hit. Either it is 5% of qa_domestic and qb_domestic or it is 5% of qa_domestic' where qa_domestic' is twice as big as qa_domestic because domestic production isn't getting split across both qa and qb. The other country has the same issue with the qs swapped around.
That, I believe, is a fair assessment of what macro economics is presenting.
And while it is true that, should an imported product completely displace it's competitor, it does so only in that, in the greater balance of things, domestic production finds more advantage to producing some other widget. This is the point that DSGE keeps making, that from a macro standpoint, the boundaries are artificial. The movement of candy manufacturing to Mexico while the US manufactures medical products is no different then the movement of domestic auto production to Detroit while California specializes in bell peppers and other agriculture.
Now this doesn't address the OPs concern regarding a trade "deficit" for about thirty years. Nor does it address absolute advantage, intentional devaluation of currency by China, lowering of corporate tax rates to 12.5% by Ireland, compression of wages, oligopolies with political influence, "excessive" dependence on consumer credit, and a host of other conflagrating issues, some of which fall into the unfortunate category of "a race to the bottom". It only spells out why imports alone, and in general, are not considered to be an issue but rather an asset.
In the greater scheme of things, damage isn't mitigated by closed border policies. The economy is big enough that Global big is just the same as National big. (It is 7.7 million businesses in 2000.) And whether it is global or national, the same thing happens in the same proportion. On the other hand, we have more opportunities for getting out of it, more countries with more businesses with more opportunities to hit on something. And, imports allow us to grow faster, sharing a larger pool of resources and allocating them in the most appropriate global location.
The simplest idea is that the recessions are not caused by imports and restricting imports would not make them any less or make them go away. If your car runs out of gas, you wouldn't try and "fix it" by changing the tire, even if they are imports.
And we can't get from here to there. From where we are to where the concept of an import is removed. Keep in mind that with every recession, the negative or positive net export moves towards zero. Demand hits imports just as it hits domestic markets. (It would be interesting to see if there are somethings that are more immune.) This last recession, it fell in half. So the losses are shared with the foreign producers.
On one hand, it seems as if imports are commanding part of the market and "detracting" from that much domestic production. On the other hand, they absorbed that much of the losses that would otherwise have hit domestic production. In the larger scheme, the systematic forces are combined. The random problems all cancel out. Obviously, we had an issue with a systematic problem globally as that whole housing market flipper thing hit Ireland just like the US.
Before the recession hit, and before every recession hits, labor is fully utilized. So, before unemployment lost to the recession, there was no room for producing those imports. A trade barrier would have simply shifted labor from one domestic product to another domestic product. The previously imported domestic product would have crowded out some production of other stuff. And when the recession hit, the same number of losses would have occurred, just spread out between two domestic products instead of between one domestic and one imported. The same level of unemployment, just spread out differently. Countries would not go into recession at the same time, being no longer connected.
And, unfortunately, we can't get from here to where we have gained that much employment that the imports now command overseas. It's not like we can just plop in a bunch of factories all tooled up to make aluminum pots at the level that aluminum pots are now demanded. If we were making them, aluminum pot manufacturing would have seen a 5% loss in employment. And we would be making that much less of whatever other production got "crowded out" by the demand for aluminum pots. Ramp up domestic pot production, lose the equivalent labor hours to auto manufacturing. Then when the recession hits, there is that 5% loss to domestic pot and domestic auto manufacturing. The same 5% gets spread out among more products, one that is producing less then they would otherwise be if the other were imported.
Even if we were to phase in an import restriction, to force a domestic increase in manufacturing pots, it would crowd out an increase in making something else, and wouldn't speed up the recovery because the recovery isn't dependent upon the existence, or lack of, imports.
You now what, that MV = PQ does work in that we can split it out to M = PQ_1 + PQ_2. Except we really need to put it in the better units, rather then quantity, equivalent man hours or something. And we'd have to do the income equation and the consumption equation, then we'd find that, in the greater balance of things, stuff just shifts around between markets but the overall issue remains the same.
What really happened, what isn't in that MV=PQ, is that, in fact, it isn't just currency, it's revolving credit. In fact, it is (M+C)=PQ and the reason Q fell was because consumer credit fell. Moving all the Qs about wouldn't change the C.
(For referance, keep in mind, we are not discussing GDP=MV=PQ, just product consumption. It is obviously more complicated when we have to differentiate between imports, exports, domestic consumption and domestic production. We are cheating a bit in the expressions.)
The whole thing is that the money itself doesn't mean much of anything. The limiting factor is the quantity, not the money. That is on the underlying assumption that consumption has no upper bound. At some point it must, obviously. And I have no clue how to measure that yet. It has to do with the rate at which people can buy stuff given that they also have to spend time working and consuming the stuff they buy. With online shopping, we can consume more faster. On the other hand, we don't need to employ as many people to sell it so demand is down on that issue.
That the constraint is in the stuff, not in the money, is the point that DSGE was making in simply saying that we have to look at the goods, not the money. The money is simply a tool we use to account for the movement of the goods. As long as the money is increasing and moving, it doesn't mean anything.
The issue is in that full production just before the recession thing. The level of output that we had, and the level of consumption that we enjoyed, is the result of the efficiency increases. Within that constraint, an increase in domestic production of silk crowds out domestic production of cars.
The real issue rests in the fact that we were producing as much as we could produce, consuming as much as we could consume, and employing everyone that we could employ. A shift would have been from autos to domestic silk.
The money supply only represents the perceived relative value of the stuff in the economy. It is caused by the stuff, not the other way around. (Though there is the interesting effect that it's rate of change does have a causal effect). There is no effect of imported products leaving consumers unable to afford domestic products. A lack of supply of domestic products leaves consumers unable to "afford" domestic products. The perceived "value" of the money simply changes to represent the amount of available stuff relative to the amount of available money. In the short term, the very short term, the rate of change of the quantity of money relative to the quantity of products a short term effect, but in the long term, there is nothing.
That rate of change thing is the interesting one, as noted by Hume in his essay "On Money". If the Fed didn't keep the supply increasing, it would be effectively decreasing relative to the quantity of product. And in that relative rate of change, the money supply relative to the goods must be increasing, not decreasing. It's a really interesting thing that it must be increasing not just flat. There is this , part psychological, part material, aggregate effect that output will increase on an increasing money supply and decrease on a decreasing money supply.
So, if this is what you mean, then yes.
Widdekind
Member
- Mar 26, 2012
- 813
- 35
- 16
i gather "displacement" & "crowding out" are synonymous formal terms ?
so "consumer credit" (C) is "instant inflationary money", that tends to increase the effective money supply (Meff = M+C), tending to increase prices (Meff ~ P, for constant V,Q) ?
"aggregate" total value remains the same; total consumption remains the same; half of the total value now buys imports, leaving only half the total value for domestics. Prices fall, because demand for domestics has halved, cp. Supply vs. Demand; and because equal demand, for imports, is comparably "weak".
Now, for "individual" consumers, their pocket-money could buy 2x domestics -- if-and-only-if-and-when everybody else is spending half their money on imports. Again, when everybody else is "lured" to foreign products, remaining domestic products can command only half-price, i.e. "they're now desperate for any buyer's business".
Last edited:
The benefits of being able to buy goods cheaply fades over time as FREE TRADE slowly but surely eliminates jobs in the nation that allows a massive TRADE DEFICIT.
EVen if the GNP seems healthier, that new wealth is so unevenly distributed that not only does a huge percentage of the population suffer, but the government of that nation also end up losing their revenues so overall the nation begins to not work all that well.
I cite as an evidence to support my theory that unbridled free trade is a bad policy our CURRENT ECONOMY.
The investor class has enjoyed enormous benfits from hiring slave-like labor in third workl authoritarian nations, but the working classes in this natiuon are more than paying for that happy circumstance for the well off, and are becoming poorer over time.
EVen if the GNP seems healthier, that new wealth is so unevenly distributed that not only does a huge percentage of the population suffer, but the government of that nation also end up losing their revenues so overall the nation begins to not work all that well.
I cite as an evidence to support my theory that unbridled free trade is a bad policy our CURRENT ECONOMY.
The investor class has enjoyed enormous benfits from hiring slave-like labor in third workl authoritarian nations, but the working classes in this natiuon are more than paying for that happy circumstance for the well off, and are becoming poorer over time.
itfitzme
Silver Member
Now, I think, we are connecting the dots of what the process is, what is happening.
And curiously, with every recession, the trade imbalance reduces naturally and dramatically of it's own accord, having fallen to 50% it's pre-recession per capita level.
I posit that the developed countries that were the conquerors of the World Wars, the natural outcome of every Malthusian catastrophe, enjoyed the benefits of having been the dominant military and economic power.
The Great Depression was an economic Malthusian catastrophe that began before the onset of WWI and, having not seen full resolution as a result, continued into the Great Depression and was part and party to the natural outcome that was WWII.
The German Nation, so devastated from both the beginning of the global economic failures that spurned WWI, regrouped on that process and began WWII as the global world recession became a global Great Depression. As all nations before them have done, they responded with WWII.
And both Europe and the US, in being victorious from that global battle, reaped the rewards of that domination, like kings and countries have in the history of mankind since before the Roman Empire conquered the world. Spurned on by the successes of those wars, especially in terms of it's successes in developing technologies from Marconi's radio to the atomic bomb, the US and Europe continued to dominate the global economy.
The conquered societies, having learned from thousands of years of both being conquerors and conquered before happily reaped the benefits of being a conquered nation in learning from the economic successes of their conquerors.
There still remains a finer imbalance in how the global economy functions. But still, there also remains insufficient reason to consider that a net export imbalance will not do exactly what it always does and has done since the end of 2006, correct of it's own accord as each individual economic agent makes all those individual, free market, decisions in an economy resting on a foundation of democracy and capitalism as they all seek the common goal of ever increasing life, liberty and the pursuit of happiness.
I site as evidence that you are correct, any excessive trade imbalance that becomes bad for the economy corrected on it's own accord, as it did by falling to 50% of its real dollar per capita level, by $372 billion nominal dollar from -$753.3 billion in 2006 to -$381.3 in 2009.
As each individual in a free market society finds a way to improve their -$560.956 billion in 2011 as the economy solves the problem of how to best return to the level of full output and full labor utilization that it was at in 2006.
In a democratic free market society with a mixed economy sitting on a foundation of capitalism, the aggregate choices of 160+ million individual workers and so many more consumers are assumed smart until proven otherwise.
(I think that we have proven already, by the testimony of Greenspan to Congress, that the Wall Street derivative devising investor class is short sighted, willing to bet the bank on systematic risk not developing in the home mortgage markets because they are well aware of the fact that if they can't walk away with their million dollar bonuses or their investment schemes finally crap out, they can always walk away or declare bankruptcy and play the game again later.
I also believe that the nature of advertising is highly suggestive of another class of the economy lacking a few watts of power in that dimly lit bulb over their heads as they trample each other at the front doors of Walmart to purchase the latest, limited supply, CD that is "on sale", below the exorbitant price the month before because their even more dimly lit kissing cousins were willing to pay 50 times it's production cost.
I have no manner of disdain for a consumer class that is willing to purchase imported products from a national store chain at 50 times it's third world production cost while screwing their neighbor, who use to work as a checker, by scanning the product in the automated check out machine.
Nor do I think a lot of the middle class housewife that actually pays more per oz when buying the economy size peanut butter for her eight hedonistic-ally produced and bred spawn, because she is stupid enough to believe that economics guarantees lower price when purchasing higher quantity. The only think that economics guarantees is that your going to pay as much as your willing to pay, and not a penny less.
And anyone that thinks that the one year warranty means anything else then that the product is going to break in 366 days should have their voter registration revoked.
But damned if I'm going to consider that stupidity automatically requires sweeping regulation. Because if history has taught us anything, it's that the business class has every manner of creativity is ensuring that the only people that suffer from general regulatory policies are the consumers.)
itfitzme
Silver Member
The only way I can proceed is upon the fundamentals that have been defined by the greater body of economics. Unless we accept them as basic fundamental definitions, we cannot begin to proceed forward without confusion. Every manner of utterance becomes confused as we make similar sounding statements that, in fact, have completely opposite meaning but for want of some underlying foundation.
I have no doubt that every manner of utterance by people is based upon a real observation and experience. Unfortunately, it is all to often in the underlying assumptions that define the language, the meaning of the words, that things get quickly confused.
From an individual business, even from a domestic market perspective, imports like steel and sugar import may affect domestic businesses by out competing them.
Unfortunately, business is not economics. One may get a degree in one, the other, or both. And while engineering economics melds into business economics, business economics shares much with micro economics, something goes quickly awry when going from micro economics to macro economics as the short term market forces do not play out well in the aggregate of long term macro economics. And while there are economists that enjoy some sort of position that seems to be as a philosophical antagonist with the may others, I would suggest that they are business economists, not marco economists. While the business of economics includes businesses, the businesses on businesses is not economics. The business of business is production and competition for consumer demand in the market place.
One thing to note is that, Editec pointed out, something suggests that short term macro economic gains in consumer consumption may have played out quite the opposite in the long term. (I caution him though that we may want to consider the causal chain of income, credit, demand, and imports that suggests that the initial issue in the causality was declining income and the availability of credit that allowed demand for imports, not imports that went the other way around. Then, as I will state later, causality is bi-direction in macro economics. So the question becomes where can chain be broken, not what was the initial cause).
So I have no doubt that there are all manner of observations that are true and correct. The trick is to figure out if they are simply isolated observations from the market place of it they do, in fact, have long term economic effects that we would rather not repeat.
Anyways, I digress.
There are a couple of points I would like to hammer home with regard to macro economic fundamentals. One is the meaning of value and the other is the assumption of unbounded consumption.
It is interesting how your vision of "value" and consumption leads you in one direction while mine leads me in the opposite.
I have addressed these fundamental definitions below along with some other points that your response elicited. I tried to rearrange them in a manner that flows better. I actually wanted to start out with something that wasn't a "disagreement" out of the starting gate, but relegated to putting the fundamental definitions, upon which I am working, up front.
Here is the short version.
Economics is a study of how society reallocates scarce resources. And in that term "scarce" lies a clue. Macro economics assumes unlimited consumption. As such, the introduction on an import into the market place will be entirely consumed without any decrease in the consumption of the existing domestic consumption. While that is not necessarily taken as foundational in micro economics, it is considered foundational in macro economics as labor simply shifts about to fill in where the demand is most needed.
And I can only speak to what the general macro economic fundamentals presents.
Value is not intrinsic to money. The number on it is a count of the bills, not value. Money has no value except that it is assigned a goods-value by two parties in the moment of the exchange. The rest of the time, it is valueless except in that it is assigned potential future value by it's owner and may be used as a proxy measure of the money used in exchanges by counting it's rate of change in money stocks.
When examining an exchange, going to Target and watching a transaction, the POS machine asks, "Do you want to put it all on your Target card or pay some in cash?" And with that, it is obvious that consumer revolving credit is a source of increasing the money supply used in exchanged of MV=PQ. Being sure to not double count stuff is the issue as the entire fractional reserve banking system relies on credit to increase the money supply and one man's savings is another man's credit. While I am still working on finding some way to combine the rate of change in consumer credit to the existing money stocks, it remains elusive for the reason stated.
Prices fall because demand falls for lack of money, not because of an increase in product. And, demand is unlimited. The existence of another product does not decrease demand for the first. It is, in fact, as noted by Hume in "On Money" that it is the rate of change of the money supply that causes demand/production to rise and fall. It is an interesting effect.
We have to be so careful with economics to be clear what is an immediate cross causal relationship as opposed to a secondary effect. The economic process is a closed feedback loop where causality goes in both directions. The elemental process of two people in an exchange is a negotiation with information moving in both directions. As well, goods move in one and money in the other. Causal in not uni-directional. In the bigger loop, a consumer connects to a sale, a sale connects to production, production connects to wages, wages connect to consumption, and around it goes. Goods, money and information flow in both directions around the loop. And while someone might note that a change in production is associated with a change in consumption, it is misleading because the there is causality in between.
As you note, imports also include the importers, the dock workers, etc.
What may be considered as a full body of formal economic terms remains elusive to me. It's easy with medicine, they are all Latin. It's easy with physics and engineering, the tend to be all mathematically defined measurements. Economics is young, not as mathematically defined, and of particular interest to everyone. So it's kind of hard to distinguish between formal terms, colloquial terms and whatever some writer needed to coin to get the idea across. Some seemingly formal definitions actually depend on who you ask that is aware of formal definitions. That whole MV=PQ thing is defined differently by Hume then it is used by the monetary guys. It seems that some things that were developed earlier and put into words without any fundamental measures and methods to define them mutated as the economists of one era adopted the economist terms from an earlier era. And there is the interesting thing that, for more then 200 years, inflation has meant price inflation yet some people will absolutely insist it has always meant monitary inflation. I believe that is a political effect. Everyone has there hand in the economics dictionary.
I've tried to detail this all out coherently, in relationship to your comments. Every time I do, I seem to see it just a tiny bit more clearly.
Later, please clarify
My knee jerk reaction is to reply "Supply AND Demand", not "vs."
Thanks.
______________________________________
On the simplifications that we are using, [note_1]
a. the money supply remains the same from period one to period two,
b. there is no effect due to the effective relative rate of change in the money supply,
then;
It is clear, at this point, where you are in disagreement with macro economics. I can only speak to what the general macro economic fundamentals presents, and try to connect it into the larger picture.
______________________________________
You suggest that
I previously noted that, macro economics concludes that;
That is the difference between what your considering and what the macro economics is presenting.
The assumption in macro economics that consumption and demand are unbounded. If you build it, they will buy it. That the same amount of domestic product is available and that the total amount of product has doubled given that imports are now adding the equivalent amount necessitates that consumption has doubled in the aggregate. It necessitates that each producer is selling everything they can produce.
The definition of the science of economics is the study of how society redistributes scarce resources. The key is in the term "scarce".
To borrow from the woodchucks, if a consumer can consume as much scarce resources as it can consume, how much scarce resources would a consumer consume? A consumer would consume as much scarce resources as it can consume if a consumer can consume scarce resources.
If we are not discussing "scarce resources" but talking about an over abundance of resources, then we are not technically discussing economics, by definition. And while I continue to question the validity of this assumption as universally applicable, I cannot speak to it.
The underlying assumption is that Q consumed is Q produced. Total consumption is driven by total production. That is, after all, Say's Law. Whether Democrat or Republican, "liberal" or "conservative", everyone seems to agree that, in the long run, Say's Law holds. The significant difference, between "supply side" and "demand side", an odd distinction given that supply and demand cannot be separated, seems to be in that "supply side" takes Q_consumed = f( Q_produced ) and "demand side" takes Q_consumed = f( Q_produced, Income, time, whatever other factors can be identified that have the whole thing stuck at Q_consumed < Q_produced ).
______________________________________
You suggest that;
I did point out that macro economics defines;
We are using "value" differently.
The money stocks represent a potential for money to be used in MV in representing the value of PQ. The first point is that M1 represents the potential for money used in MV. The second part is the value is in PQ, not in M. Money has no intrinsic value. It has no assigned value until it is assigned that value in the moment that it is mentally attached to the product q just before the purchaser puts that money "on the barrel head".
Technically, value is measured by the equivalent quantity of stuff, a standard basket of goods. If the standard basket of goods is doubled, then value doubles. We can infer that this is one of those formal definitions. It is also why others point out that we have to look at the goods, not the money. Money does not have intrinsic value. In fact, nothing has intrinsic value. Value is a subjective quality that is an attribute of the individual and is individually assigned to the money and good. The Consumer Price Index and similar indexes are the technical definition, the mathematical expression applied in the practice of measuring aggregate value. Each month, the BEA assigns a Consumer Price Index number to a standard basket of goods that defines that months aggregate value of money as it has been demonstrated in the aggregate behavior of all of the economic agents in the economy. It measures how much value each dollar has in terms of a standard value unit, a standard basket of goods. The unit of value is a standard unit of goods. An amount of money isn't a measure of value without the every changing conversion factor of the consumer price index. Of course, these are aggregate averages, both the consumer price index and the standard basket. There are numerous indexes, including PCE, CPI-U, CPI-W, and others. Each individual has there own personal standard basket and individual price index that they could measure by examining their own purchases.
As I sit in my house with an amount of money sitting on the table, it has no value. As I consider tomorrows shopping and subsequent purchases, I imagine the value that it will have at that later time. I think of the things that I need, recall the prices I paid before, and I assign a value to my money in terms of the products I need and estimate how I will divide up that money. It still has no intrinsic value because the other half of the exchange is missing, the vendor. At the same time, in a store a mile away, the store keeper is considering how much money he still needs to balance his monthly books, what he will need to buy at a later date, and goes around marking the products on the shelf. He is estimating what I will be willing to pay when I arrive the next day. His product has extrinsic value, intrinsic to him, in that he has plenty and sees the opportunity to exchange it for money.
When I arrive at the store in the morning, I may find that the prices I expected are, in fact, not the same as the prices that the vendor has marked on his products. I do some recalculations, reconsider the quantities that I need, and my estimation of what store keeper puts on my good will. With my future basket of goods in hand, I meet with him at the cash register and we discuss how much I am willing to pay and how much he is willing to sell for. We begin bargaining on the finer point of precisely what value this basket of goods has and what value money has in terms of this basket of goods. The extrinsic and momentary value of the money is a function of my standard basket of goods, his standard basket of goods, our estimate of what these will be at some later date when we enter into other transactions, the rate of flow of money into and out of our individual wallets, and any other factors that we each find relevant in assigning standard-basket-of-goods-value to the money that I expect to give up and he expects to receive. At the moment when we have come to a mutual agreement, then and only then does the money in my pocket have an extrinsically assigned potential for goods-value. I put the money on the counter. He picks it up, and like making a chess move, the moment he touches the money, it suddenly has an assigned value. And in that moment, as I no longer care about the money, now in possession of the thing that has real value to me, the goods, the money no longer has value. The assigned standard-goods-value came and went in the smallest increment of time, a moment.
Money has no intrinsic value. Goods have value. Money has the potential for value. Money is assigned an accurate but imprecise estimated and potential goods-value by each party in the earlier times leading up to the exchange. In the short time just before the exchange, both parties negotiate the potential goods-value that the money will have at the moment of the exchange. The estimated potential value becomes precise when the negotiation has concluded. Then, in that moment, the money inherits the estimated goods-value that was agreed upon. At the moment that the vendor accepts the money in exchange for the goods, the money then inherits the assigned value, going from potential to real, the real value of the goods. And in but the single tick of the clock of the universe that is time passing as moments are created and destroyed, one upon the other, that value disappears again, leaving only the remnants of that exchange, a proxy measure of accounting, the otherwise useless pieces of paper that are so plentiful and such supply that toilet paper has more value and people will happily part with it in exchange for toilet paper. The only "value" that money has is in it's potential for being exchanged for something of value and how much of it exists compared to all those things of real value.
And I speak of this, not in any personal authority, but in passing on the authority of the observable nature of physical reality. While we may not be able to look into the cranium of those busy little bees that buzz about the shopping mall, making every manner of exchanges, we can infer much from watching their behavior. And curiously, there seem to be more of them willing to part with money, that they seem to have in short supply, relative to the fewer shop keepers that are collecting that same money and putting it into draws replete with similar paper. In the oddest sort of fashion, the money seems to collect into plentiful piles, in complete opposition to the natural laws of thermodynamics while the goods disseminate, becoming further disorganized in exactly the fashion that we expect of a thermodynamic process. While people a plenty seem to be somehow attracted towards the goods while they have some modest quantity of money in their possession, the money is repelled from them in the opposite direction.
There is an oddity in these processes where, as entropy (the thermodynamic measure of randomness) of goods increases, money seems to move from lots of small quantities to piles of larger quantities. And where entropy of goods decreases, becomes organized into products that seem to be of later value, the money moves from larger quantities and disseminate into smaller quantities. As the entropy of the goods increases, the entropy of the money decreases and vis a vis.
We might, I suppose actually create a formal definition out of this, I hope the point is clear. There is every reason to conclude out of observation that money has no value. We get use to perceiving it as such because, from out subjective position, we assign it value quite naturally. And, since the our first paper route or recycling of glass bottles, we are simply use to it. But in objective examination, it is an illusion of our own devices.
And, you will find every manner of well versed economist that will insist that money has no value, the value is the goods. Even then, the goods have value only as we assign it as such. As they say, on man's trash is another man's treasure. And while some may be willing to pay enourmous sums for a collector baseball card, gold coins, or a diamond, we cannot help but recognize that, if stranded on a desert island, food and water are far more valuable than any trinkets.
It isn't, as is often misquoted, money that is the root of all evil. It is that "The love of money is the root of all evil." And that alone, a statment that echos from early history, makes it clear that money is only in that it is perceived as money. It is the love, intrinsic to human nature, that is the object and assigns value, quite erroneously in this case, to the otherwise useless object that we use as money.
______________________________________
Curiosly, you say;
Macro economics say that;
Given that M is constant, and assuming that all other things balance out then where
MV= P(t=1) Q(t=1) = P(t=2) Q(t=2),
if
Q(t=2) = 2 * Q(t=1)
then
P(t=1) Q(t=1) = P(t=2) *2 * Q(t=1)
P(t=1) = P(t=2) *2
Therefore
P(t=2) = P(t=1)/2
Which says that price has fallen simply because the same money must be utilized for twice as may products.
(Now, the fact that the money supply has fallen relative to the total number of goods will initiate Hume's notable rate of change in the money supply effect. But I am not considering that we are discussing that one.)
______________________________________
Well, if you agree, that will be two of us.
Just to be clear, when I speak of the money supply, M, I use Hume's initial definition and the definition as the equation of exchange would have it defined as a real physical process. Unless otherwise stated, I don't mean the monetary base, M1, M2 or MZM which the Federal Reserve bank uses as a proxy measure to the real physical money used in the exchange. There can be some confusion over that as, since they figured out that they can use the rate of change of the monetary base as a proxy for the rate of change of the real dynamic money supply, macro guys tend to think of it only in terms of the monetary base. Being of a physics and engineering background, I am familiar with physical reality standing as an authority. And seeing as we can walk down to the store and watch an exchange in process, a real physical process, we can use it as an authority for defining M. V is, of course, a real physical process of the frequency of money flowing in the economy and is dependent on the physical processes like walking money from the cash register, to the accounting office then down to the bank or the time it takes for the debit card swipe to register in the POS machine and then show up on the banks computer system.
So we can get a lot of traction out of that fundamental model of the physical process that is precisely and accurately modeled by MV=PQ.
We know that the professional economists track consumer credit and spending as an indicator of demand and economic health. So that's a clue that validates our perception. We hear that in the headline constantly.
We can simply go to Target and make a purchase to validate that the exchange is driven by the combination of cash and credit as the POS machine asks, "Would you like to pay for part of your purchase with cash?" That doesn't simply validate it, it demonstrates it. M, modified by V, is the sum of all those exchanges, including that Target purchase.
To be very clear, M is not the amount noted on my Target credit card bill. That is an accounting of what pq was at the moment of the exchange. pq actually existed only in the moment of the exchange, being spontaneously created out of the actions of myself and the clerk, then dissipating like some transitory elementary particle that leaves tracks in the bubble chamber of a particle collider in the moments after a the beam has smashed into the target. It is there and gone, leaving only a record of it's existence in the flipping of little digital bits that stream down the data wires. And if pq was created out of the potential for it's existence in the availability of revolving credit, and is track-able by the change in the aggregate sum of revolving credit on my credit card bill, in the Target bank computers, and eventually in the accounting of total consumer credit by the Fractional Reserve Bank, then we know that revolving credit is, in fact, part of M. The increase in revolving credit as it is created when that credit card is swiped is an increase in the M that accounts for all the pq's in the exchanges. (There is a formal term in economics, the exchange, the moment of the transaction between a buyer and a seller when money flows in one direction and a good flows in the other.)
We should take extreme care in considering that an ".. economy's money supply (M) represents the "value" in that economy; availability of foreign "exotic novelties" spreads M more thinly, over more products." The money stocks, M_b, the monetary base, and other measures such as M1, M2 and MZM do not represent the economy's value. I say this on two counts, which I will combine into one. The money stocks represent a potential for money to be used in MV in representing the value of PQ. The first point is that M1 represents the potential for money used in MV. The second part is the value is in PQ, not in M. Money has no intrinsic value. It has no assigned value until it is assigned that value in the moment that it is mentally attached to the product q just before the purchaser puts that money "on the barrel head". ( I explain this in more detail below.)
We tend to think of money as those pieces of paper that reside in our wallet. And they are "money", but they are not "the money in M". They are only the representation and potential for the money in M. They are the money in M only in the moment that they move from my wallet to your wallet. Once that has occurred, we can back into what must have transpired by comparing the change in the money in my wallet to the change in the money in your wallet. Mine went down, yours went up, and the amount by which they both changed is a proxy measure, an accounting of what pq must have been that is part of the larger M.
In the same fashion, we know that the change of my credit card balance with Target Bank is an indicator that some pq transpired.
In fact, the very nature of the fractional reserve system and the endogenous creation of money through business loans necessitates that the expansion of M itself be the result of some sort of credit as some initial point. And we know that it must be continuously refreshed in order to maintain M at it's current level.
We can infer that, in the macro accounting of the monetary base (M_b), M1, M2 and MZM, the Federal Reserve surveys the static balance of accounts at some point in time and uses the results of those surveys in some calculation such that they are a proxy measure of the money after it was created rather then an actual tracking of the money as it is being created.
As one macro economics professor was fond of saying, "If you buy that, then you have to agree that ...."...
... consumer credit is just the economic natural evolutionary outcome of that fractional reserve banking process finally getting down to the point of the individual. Somewhere, money was borrowed in the the banking system to invest in the creation of "value" in a business and flowed about in the economy, finally coming to rest in a reserve account of Target National Bank such that it was available for me to borrow against in my creation of money during an exchange of money for goods with the clerk at Target Store down the street from my house.
The trick is to not count anything twice in later attempting to account for the money of the exchanges.
As long as we don't count things twice, in the accounting of M, we get
M_exchange * V_exchange = PQ
Â…Â…Â…Â…Â…Â…Â…Â…Â…Â…Â…Â…Â…Â…Â… = Σ( p q )
Â…Â…Â…Â…Â…Â…Â…Â…Â…Â…Â…Â…Â…Â…Â… = Σ{( cash plus credit ) * q }
Â…Â…Â…Â…Â…Â…Â…Â…Â…Â…Â…Â…Â…Â…Â… = (M_other + M_consumer revolving credit this month) * V_exchange
Â…Â…Â…Â…Â…Â…Â…Â…Â…Â…Â…Â…Â…Â…Â…= M_b * V_b (monetary base)
And given this, do you agree that
I can find no reason that it isn't.
______________________________________
I doubt that. As far as I've seen, economics has few truly formal definitions, compared to physics, engineering, medicine, biology, chemistry, etc. It is, after all, a social psychological science and like any psychological sciences everyone "understands" it because everyone is involved in it in their day to day lives. Social psychology and individual psychology seem to have about as many formal definitions as economics.
Obviously, it's impossible for any one person to have a PhD in everything so I can only speak from what I know, not definitively. Like, I'm no medical doctor but I think we all know how formal medicine is in it's language of Latin names for everything. One would almost expect different formal terms for a fungus on the big toe and a fungus on the little toe. That is exactly how they name stuff. Dermatitis is literally, "an abnormality on the skin". The hippocampus is named for it looking like a hippopotamus. Of course, one misspoken word in medicine and the nurse or another doctor amputates the guys foot instead of removing his gall bladder. Then medicine has the whole medical billing and coding issue to deal with. Medicine has formal terms. Indeed, now that I think about it, the very use of Latin assures that the terms remain formal even when they do become part of common usage.
Physics and engineering has been around for as long so it enjoys much of the same formality. It's formality isn't so much for the same reason as medicine. It is similar in that ordering materials necessitates it. Misspeak and use milli- instead of micro and you end up with a thousand times as material as you need and the purchasing agent spend a thousand time as much money as you wanted to. And the nature of physics seems to lend itself well to maintaining the formality. It actually suffers from a bit of "corruption" because terms like "precise" and "accurate" are used commonly and incorrectly. Everyone thinks they understand what they mean. In the sciences, especially engineering, "precise" and "accurate" have very accurate and precise meaning that can be expressed mathematically in terms of variance and average. Commonly, they are used accurately but imprecisely. It's like there terms "law", "theory" and "hypothesis" which are commonly used inaccurately.
The psychologies, social, individual and economics are all fairly new having been effectively born out of the era of the Great Wars and the Great Depression. Maybe it's more accurate to analogize them going through their teen years then. And, of course, everyone thinks they understand economics and psychology. We all to, after all, live it. Every businessman thinks he understands economics. And half the politicians like make this claim, that because they ran a business, they understand economics very well and can run a country. That's like saying that because I once played an airline pilot as an actor in a movie I can fly an airplane. Or because I have children, I understand pediatric medicine. But the voters buy it.
Economics, being rather young, has adopted much of its terminology from other sciences and coined others from common usage. I'm not even sure if there is anything that one might consider as technically a professional economist. A "professional engineer" is a legally defined term requiring licensing. A medical doctor, M.D. requires a license as does the whole body of physical and psychiatric medicine. Even the practice of business has licensing like a tax preparer, a CPA, real estate brokers, and financial consultants. Things become formal when the legal profession, licensed to practice law, gets involved. I've never heard of a license to practice economics. If lawyers can't tie it directly to personal loss of life or money, it doesn't need to be so formal.
So, things like my using "displaced" and "crowded out" are just because it seemed like the best descriptive term.
[note_1] There are additional over simplifications made here. We haven't added in the increase in money supply, as noted.
But more importantly, if domestic prices fall, to match the money supply, then domestic income must fall to match the prices at the same quantities. As well, half that money is going to foreign manufactures. Unless we wrap that back in again, by including exports and government sales of treasury certificates plus government spending, then, things don't exactly become 1/2 or doubled.
It's is a goal seeking problem. To properly get what that goal seeking finds necessitates also changing the money supply we are oversimplifying in not noting that, in fact, if M_domestic is half it was, then I_domestic must become half.
There is actually, two processes to deductive reasoning that has played out historically. One is to find a simplified model that captures all the essential elements and leads to the generally correct, accurate conclusion. As Einstein said, "When solving a problem, it helps to know what the answer is."
The second part, that has played out historically, is that the model is then added to, refined so that it goes from simply accurate to precise.
Physics mechanics was generally correct. Then Newton devised calculus and made physics mechanics far more precise. Then Einstein devised relativity and made physics, including mechanics, even more precise.
Adam Smith made economics generally correct, then the Great Depression happened and it wasn't precise enough. Then Keynes made it even more precise. Then Nash came along and demonstrated that equilibriums occur which are different then the equilibriums that were previously understood.
In order to get to what imports do, we really need to add in the income side of consumers, exports, the increasing money supply, government securities, the government deficit, and the public debt. Then we have a closer model with the full number of constraints that can lead to a goal seeking problem. And, with the exception of those government securities, we still haven't accounted for the financial process that is suppose to be moving money, and thus resources, to where they are suppose to do the most good.
A complete model then becomes a closed loop and has to reach an equilibrium.
At that point, the very nature of "causality" becomes a mute point as demand causes sales, sales causes production, production causes income, and income causes demand. Even imports cause services, "via wages paid, to dock-workers & port-authorities, in unloading cargo ships? foreign trade represents "(global) transportation employment". And those cause income which in turn causes demand which stimulates more sales and production, whether it be domestic or foreign.
And in the balance of things, without being able to get down to the point of counting stuff, we are completely unable to distinguish what force dominates it's opposing force in the aggregate effect.
______________________________________
I have no doubt that every manner of utterance by people is based upon a real observation and experience. Unfortunately, it is all to often in the underlying assumptions that define the language, the meaning of the words, that things get quickly confused.
From an individual business, even from a domestic market perspective, imports like steel and sugar import may affect domestic businesses by out competing them.
Unfortunately, business is not economics. One may get a degree in one, the other, or both. And while engineering economics melds into business economics, business economics shares much with micro economics, something goes quickly awry when going from micro economics to macro economics as the short term market forces do not play out well in the aggregate of long term macro economics. And while there are economists that enjoy some sort of position that seems to be as a philosophical antagonist with the may others, I would suggest that they are business economists, not marco economists. While the business of economics includes businesses, the businesses on businesses is not economics. The business of business is production and competition for consumer demand in the market place.
One thing to note is that, Editec pointed out, something suggests that short term macro economic gains in consumer consumption may have played out quite the opposite in the long term. (I caution him though that we may want to consider the causal chain of income, credit, demand, and imports that suggests that the initial issue in the causality was declining income and the availability of credit that allowed demand for imports, not imports that went the other way around. Then, as I will state later, causality is bi-direction in macro economics. So the question becomes where can chain be broken, not what was the initial cause).
So I have no doubt that there are all manner of observations that are true and correct. The trick is to figure out if they are simply isolated observations from the market place of it they do, in fact, have long term economic effects that we would rather not repeat.
Anyways, I digress.
There are a couple of points I would like to hammer home with regard to macro economic fundamentals. One is the meaning of value and the other is the assumption of unbounded consumption.
It is interesting how your vision of "value" and consumption leads you in one direction while mine leads me in the opposite.
I have addressed these fundamental definitions below along with some other points that your response elicited. I tried to rearrange them in a manner that flows better. I actually wanted to start out with something that wasn't a "disagreement" out of the starting gate, but relegated to putting the fundamental definitions, upon which I am working, up front.
Here is the short version.
Economics is a study of how society reallocates scarce resources. And in that term "scarce" lies a clue. Macro economics assumes unlimited consumption. As such, the introduction on an import into the market place will be entirely consumed without any decrease in the consumption of the existing domestic consumption. While that is not necessarily taken as foundational in micro economics, it is considered foundational in macro economics as labor simply shifts about to fill in where the demand is most needed.
And I can only speak to what the general macro economic fundamentals presents.
Value is not intrinsic to money. The number on it is a count of the bills, not value. Money has no value except that it is assigned a goods-value by two parties in the moment of the exchange. The rest of the time, it is valueless except in that it is assigned potential future value by it's owner and may be used as a proxy measure of the money used in exchanges by counting it's rate of change in money stocks.
When examining an exchange, going to Target and watching a transaction, the POS machine asks, "Do you want to put it all on your Target card or pay some in cash?" And with that, it is obvious that consumer revolving credit is a source of increasing the money supply used in exchanged of MV=PQ. Being sure to not double count stuff is the issue as the entire fractional reserve banking system relies on credit to increase the money supply and one man's savings is another man's credit. While I am still working on finding some way to combine the rate of change in consumer credit to the existing money stocks, it remains elusive for the reason stated.
Prices fall because demand falls for lack of money, not because of an increase in product. And, demand is unlimited. The existence of another product does not decrease demand for the first. It is, in fact, as noted by Hume in "On Money" that it is the rate of change of the money supply that causes demand/production to rise and fall. It is an interesting effect.
We have to be so careful with economics to be clear what is an immediate cross causal relationship as opposed to a secondary effect. The economic process is a closed feedback loop where causality goes in both directions. The elemental process of two people in an exchange is a negotiation with information moving in both directions. As well, goods move in one and money in the other. Causal in not uni-directional. In the bigger loop, a consumer connects to a sale, a sale connects to production, production connects to wages, wages connect to consumption, and around it goes. Goods, money and information flow in both directions around the loop. And while someone might note that a change in production is associated with a change in consumption, it is misleading because the there is causality in between.
As you note, imports also include the importers, the dock workers, etc.
What may be considered as a full body of formal economic terms remains elusive to me. It's easy with medicine, they are all Latin. It's easy with physics and engineering, the tend to be all mathematically defined measurements. Economics is young, not as mathematically defined, and of particular interest to everyone. So it's kind of hard to distinguish between formal terms, colloquial terms and whatever some writer needed to coin to get the idea across. Some seemingly formal definitions actually depend on who you ask that is aware of formal definitions. That whole MV=PQ thing is defined differently by Hume then it is used by the monetary guys. It seems that some things that were developed earlier and put into words without any fundamental measures and methods to define them mutated as the economists of one era adopted the economist terms from an earlier era. And there is the interesting thing that, for more then 200 years, inflation has meant price inflation yet some people will absolutely insist it has always meant monitary inflation. I believe that is a political effect. Everyone has there hand in the economics dictionary.
I've tried to detail this all out coherently, in relationship to your comments. Every time I do, I seem to see it just a tiny bit more clearly.
Later, please clarify
My knee jerk reaction is to reply "Supply AND Demand", not "vs."
Thanks.
______________________________________
On the simplifications that we are using, [note_1]
a. the money supply remains the same from period one to period two,
b. there is no effect due to the effective relative rate of change in the money supply,
then;
It is clear, at this point, where you are in disagreement with macro economics. I can only speak to what the general macro economic fundamentals presents, and try to connect it into the larger picture.
______________________________________
You suggest that
I previously noted that, macro economics concludes that;
That is the difference between what your considering and what the macro economics is presenting.
The assumption in macro economics that consumption and demand are unbounded. If you build it, they will buy it. That the same amount of domestic product is available and that the total amount of product has doubled given that imports are now adding the equivalent amount necessitates that consumption has doubled in the aggregate. It necessitates that each producer is selling everything they can produce.
The definition of the science of economics is the study of how society redistributes scarce resources. The key is in the term "scarce".
To borrow from the woodchucks, if a consumer can consume as much scarce resources as it can consume, how much scarce resources would a consumer consume? A consumer would consume as much scarce resources as it can consume if a consumer can consume scarce resources.
If we are not discussing "scarce resources" but talking about an over abundance of resources, then we are not technically discussing economics, by definition. And while I continue to question the validity of this assumption as universally applicable, I cannot speak to it.
The underlying assumption is that Q consumed is Q produced. Total consumption is driven by total production. That is, after all, Say's Law. Whether Democrat or Republican, "liberal" or "conservative", everyone seems to agree that, in the long run, Say's Law holds. The significant difference, between "supply side" and "demand side", an odd distinction given that supply and demand cannot be separated, seems to be in that "supply side" takes Q_consumed = f( Q_produced ) and "demand side" takes Q_consumed = f( Q_produced, Income, time, whatever other factors can be identified that have the whole thing stuck at Q_consumed < Q_produced ).
______________________________________
You suggest that;
I did point out that macro economics defines;
We are using "value" differently.
The money stocks represent a potential for money to be used in MV in representing the value of PQ. The first point is that M1 represents the potential for money used in MV. The second part is the value is in PQ, not in M. Money has no intrinsic value. It has no assigned value until it is assigned that value in the moment that it is mentally attached to the product q just before the purchaser puts that money "on the barrel head".
Technically, value is measured by the equivalent quantity of stuff, a standard basket of goods. If the standard basket of goods is doubled, then value doubles. We can infer that this is one of those formal definitions. It is also why others point out that we have to look at the goods, not the money. Money does not have intrinsic value. In fact, nothing has intrinsic value. Value is a subjective quality that is an attribute of the individual and is individually assigned to the money and good. The Consumer Price Index and similar indexes are the technical definition, the mathematical expression applied in the practice of measuring aggregate value. Each month, the BEA assigns a Consumer Price Index number to a standard basket of goods that defines that months aggregate value of money as it has been demonstrated in the aggregate behavior of all of the economic agents in the economy. It measures how much value each dollar has in terms of a standard value unit, a standard basket of goods. The unit of value is a standard unit of goods. An amount of money isn't a measure of value without the every changing conversion factor of the consumer price index. Of course, these are aggregate averages, both the consumer price index and the standard basket. There are numerous indexes, including PCE, CPI-U, CPI-W, and others. Each individual has there own personal standard basket and individual price index that they could measure by examining their own purchases.
As I sit in my house with an amount of money sitting on the table, it has no value. As I consider tomorrows shopping and subsequent purchases, I imagine the value that it will have at that later time. I think of the things that I need, recall the prices I paid before, and I assign a value to my money in terms of the products I need and estimate how I will divide up that money. It still has no intrinsic value because the other half of the exchange is missing, the vendor. At the same time, in a store a mile away, the store keeper is considering how much money he still needs to balance his monthly books, what he will need to buy at a later date, and goes around marking the products on the shelf. He is estimating what I will be willing to pay when I arrive the next day. His product has extrinsic value, intrinsic to him, in that he has plenty and sees the opportunity to exchange it for money.
When I arrive at the store in the morning, I may find that the prices I expected are, in fact, not the same as the prices that the vendor has marked on his products. I do some recalculations, reconsider the quantities that I need, and my estimation of what store keeper puts on my good will. With my future basket of goods in hand, I meet with him at the cash register and we discuss how much I am willing to pay and how much he is willing to sell for. We begin bargaining on the finer point of precisely what value this basket of goods has and what value money has in terms of this basket of goods. The extrinsic and momentary value of the money is a function of my standard basket of goods, his standard basket of goods, our estimate of what these will be at some later date when we enter into other transactions, the rate of flow of money into and out of our individual wallets, and any other factors that we each find relevant in assigning standard-basket-of-goods-value to the money that I expect to give up and he expects to receive. At the moment when we have come to a mutual agreement, then and only then does the money in my pocket have an extrinsically assigned potential for goods-value. I put the money on the counter. He picks it up, and like making a chess move, the moment he touches the money, it suddenly has an assigned value. And in that moment, as I no longer care about the money, now in possession of the thing that has real value to me, the goods, the money no longer has value. The assigned standard-goods-value came and went in the smallest increment of time, a moment.
Money has no intrinsic value. Goods have value. Money has the potential for value. Money is assigned an accurate but imprecise estimated and potential goods-value by each party in the earlier times leading up to the exchange. In the short time just before the exchange, both parties negotiate the potential goods-value that the money will have at the moment of the exchange. The estimated potential value becomes precise when the negotiation has concluded. Then, in that moment, the money inherits the estimated goods-value that was agreed upon. At the moment that the vendor accepts the money in exchange for the goods, the money then inherits the assigned value, going from potential to real, the real value of the goods. And in but the single tick of the clock of the universe that is time passing as moments are created and destroyed, one upon the other, that value disappears again, leaving only the remnants of that exchange, a proxy measure of accounting, the otherwise useless pieces of paper that are so plentiful and such supply that toilet paper has more value and people will happily part with it in exchange for toilet paper. The only "value" that money has is in it's potential for being exchanged for something of value and how much of it exists compared to all those things of real value.
And I speak of this, not in any personal authority, but in passing on the authority of the observable nature of physical reality. While we may not be able to look into the cranium of those busy little bees that buzz about the shopping mall, making every manner of exchanges, we can infer much from watching their behavior. And curiously, there seem to be more of them willing to part with money, that they seem to have in short supply, relative to the fewer shop keepers that are collecting that same money and putting it into draws replete with similar paper. In the oddest sort of fashion, the money seems to collect into plentiful piles, in complete opposition to the natural laws of thermodynamics while the goods disseminate, becoming further disorganized in exactly the fashion that we expect of a thermodynamic process. While people a plenty seem to be somehow attracted towards the goods while they have some modest quantity of money in their possession, the money is repelled from them in the opposite direction.
There is an oddity in these processes where, as entropy (the thermodynamic measure of randomness) of goods increases, money seems to move from lots of small quantities to piles of larger quantities. And where entropy of goods decreases, becomes organized into products that seem to be of later value, the money moves from larger quantities and disseminate into smaller quantities. As the entropy of the goods increases, the entropy of the money decreases and vis a vis.
We might, I suppose actually create a formal definition out of this, I hope the point is clear. There is every reason to conclude out of observation that money has no value. We get use to perceiving it as such because, from out subjective position, we assign it value quite naturally. And, since the our first paper route or recycling of glass bottles, we are simply use to it. But in objective examination, it is an illusion of our own devices.
And, you will find every manner of well versed economist that will insist that money has no value, the value is the goods. Even then, the goods have value only as we assign it as such. As they say, on man's trash is another man's treasure. And while some may be willing to pay enourmous sums for a collector baseball card, gold coins, or a diamond, we cannot help but recognize that, if stranded on a desert island, food and water are far more valuable than any trinkets.
It isn't, as is often misquoted, money that is the root of all evil. It is that "The love of money is the root of all evil." And that alone, a statment that echos from early history, makes it clear that money is only in that it is perceived as money. It is the love, intrinsic to human nature, that is the object and assigns value, quite erroneously in this case, to the otherwise useless object that we use as money.
______________________________________
Curiosly, you say;
Macro economics say that;
Given that M is constant, and assuming that all other things balance out then where
MV= P(t=1) Q(t=1) = P(t=2) Q(t=2),
if
Q(t=2) = 2 * Q(t=1)
then
P(t=1) Q(t=1) = P(t=2) *2 * Q(t=1)
P(t=1) = P(t=2) *2
Therefore
P(t=2) = P(t=1)/2
Which says that price has fallen simply because the same money must be utilized for twice as may products.
(Now, the fact that the money supply has fallen relative to the total number of goods will initiate Hume's notable rate of change in the money supply effect. But I am not considering that we are discussing that one.)
______________________________________
Well, if you agree, that will be two of us.
Just to be clear, when I speak of the money supply, M, I use Hume's initial definition and the definition as the equation of exchange would have it defined as a real physical process. Unless otherwise stated, I don't mean the monetary base, M1, M2 or MZM which the Federal Reserve bank uses as a proxy measure to the real physical money used in the exchange. There can be some confusion over that as, since they figured out that they can use the rate of change of the monetary base as a proxy for the rate of change of the real dynamic money supply, macro guys tend to think of it only in terms of the monetary base. Being of a physics and engineering background, I am familiar with physical reality standing as an authority. And seeing as we can walk down to the store and watch an exchange in process, a real physical process, we can use it as an authority for defining M. V is, of course, a real physical process of the frequency of money flowing in the economy and is dependent on the physical processes like walking money from the cash register, to the accounting office then down to the bank or the time it takes for the debit card swipe to register in the POS machine and then show up on the banks computer system.
So we can get a lot of traction out of that fundamental model of the physical process that is precisely and accurately modeled by MV=PQ.
We know that the professional economists track consumer credit and spending as an indicator of demand and economic health. So that's a clue that validates our perception. We hear that in the headline constantly.
We can simply go to Target and make a purchase to validate that the exchange is driven by the combination of cash and credit as the POS machine asks, "Would you like to pay for part of your purchase with cash?" That doesn't simply validate it, it demonstrates it. M, modified by V, is the sum of all those exchanges, including that Target purchase.
To be very clear, M is not the amount noted on my Target credit card bill. That is an accounting of what pq was at the moment of the exchange. pq actually existed only in the moment of the exchange, being spontaneously created out of the actions of myself and the clerk, then dissipating like some transitory elementary particle that leaves tracks in the bubble chamber of a particle collider in the moments after a the beam has smashed into the target. It is there and gone, leaving only a record of it's existence in the flipping of little digital bits that stream down the data wires. And if pq was created out of the potential for it's existence in the availability of revolving credit, and is track-able by the change in the aggregate sum of revolving credit on my credit card bill, in the Target bank computers, and eventually in the accounting of total consumer credit by the Fractional Reserve Bank, then we know that revolving credit is, in fact, part of M. The increase in revolving credit as it is created when that credit card is swiped is an increase in the M that accounts for all the pq's in the exchanges. (There is a formal term in economics, the exchange, the moment of the transaction between a buyer and a seller when money flows in one direction and a good flows in the other.)
We should take extreme care in considering that an ".. economy's money supply (M) represents the "value" in that economy; availability of foreign "exotic novelties" spreads M more thinly, over more products." The money stocks, M_b, the monetary base, and other measures such as M1, M2 and MZM do not represent the economy's value. I say this on two counts, which I will combine into one. The money stocks represent a potential for money to be used in MV in representing the value of PQ. The first point is that M1 represents the potential for money used in MV. The second part is the value is in PQ, not in M. Money has no intrinsic value. It has no assigned value until it is assigned that value in the moment that it is mentally attached to the product q just before the purchaser puts that money "on the barrel head". ( I explain this in more detail below.)
We tend to think of money as those pieces of paper that reside in our wallet. And they are "money", but they are not "the money in M". They are only the representation and potential for the money in M. They are the money in M only in the moment that they move from my wallet to your wallet. Once that has occurred, we can back into what must have transpired by comparing the change in the money in my wallet to the change in the money in your wallet. Mine went down, yours went up, and the amount by which they both changed is a proxy measure, an accounting of what pq must have been that is part of the larger M.
In the same fashion, we know that the change of my credit card balance with Target Bank is an indicator that some pq transpired.
In fact, the very nature of the fractional reserve system and the endogenous creation of money through business loans necessitates that the expansion of M itself be the result of some sort of credit as some initial point. And we know that it must be continuously refreshed in order to maintain M at it's current level.
We can infer that, in the macro accounting of the monetary base (M_b), M1, M2 and MZM, the Federal Reserve surveys the static balance of accounts at some point in time and uses the results of those surveys in some calculation such that they are a proxy measure of the money after it was created rather then an actual tracking of the money as it is being created.
As one macro economics professor was fond of saying, "If you buy that, then you have to agree that ...."...
... consumer credit is just the economic natural evolutionary outcome of that fractional reserve banking process finally getting down to the point of the individual. Somewhere, money was borrowed in the the banking system to invest in the creation of "value" in a business and flowed about in the economy, finally coming to rest in a reserve account of Target National Bank such that it was available for me to borrow against in my creation of money during an exchange of money for goods with the clerk at Target Store down the street from my house.
The trick is to not count anything twice in later attempting to account for the money of the exchanges.
As long as we don't count things twice, in the accounting of M, we get
M_exchange * V_exchange = PQ
Â…Â…Â…Â…Â…Â…Â…Â…Â…Â…Â…Â…Â…Â…Â… = Σ( p q )
Â…Â…Â…Â…Â…Â…Â…Â…Â…Â…Â…Â…Â…Â…Â… = Σ{( cash plus credit ) * q }
Â…Â…Â…Â…Â…Â…Â…Â…Â…Â…Â…Â…Â…Â…Â… = (M_other + M_consumer revolving credit this month) * V_exchange
Â…Â…Â…Â…Â…Â…Â…Â…Â…Â…Â…Â…Â…Â…Â…= M_b * V_b (monetary base)
And given this, do you agree that
?
I can find no reason that it isn't.
______________________________________
I doubt that. As far as I've seen, economics has few truly formal definitions, compared to physics, engineering, medicine, biology, chemistry, etc. It is, after all, a social psychological science and like any psychological sciences everyone "understands" it because everyone is involved in it in their day to day lives. Social psychology and individual psychology seem to have about as many formal definitions as economics.
Obviously, it's impossible for any one person to have a PhD in everything so I can only speak from what I know, not definitively. Like, I'm no medical doctor but I think we all know how formal medicine is in it's language of Latin names for everything. One would almost expect different formal terms for a fungus on the big toe and a fungus on the little toe. That is exactly how they name stuff. Dermatitis is literally, "an abnormality on the skin". The hippocampus is named for it looking like a hippopotamus. Of course, one misspoken word in medicine and the nurse or another doctor amputates the guys foot instead of removing his gall bladder. Then medicine has the whole medical billing and coding issue to deal with. Medicine has formal terms. Indeed, now that I think about it, the very use of Latin assures that the terms remain formal even when they do become part of common usage.
Physics and engineering has been around for as long so it enjoys much of the same formality. It's formality isn't so much for the same reason as medicine. It is similar in that ordering materials necessitates it. Misspeak and use milli- instead of micro and you end up with a thousand times as material as you need and the purchasing agent spend a thousand time as much money as you wanted to. And the nature of physics seems to lend itself well to maintaining the formality. It actually suffers from a bit of "corruption" because terms like "precise" and "accurate" are used commonly and incorrectly. Everyone thinks they understand what they mean. In the sciences, especially engineering, "precise" and "accurate" have very accurate and precise meaning that can be expressed mathematically in terms of variance and average. Commonly, they are used accurately but imprecisely. It's like there terms "law", "theory" and "hypothesis" which are commonly used inaccurately.
The psychologies, social, individual and economics are all fairly new having been effectively born out of the era of the Great Wars and the Great Depression. Maybe it's more accurate to analogize them going through their teen years then. And, of course, everyone thinks they understand economics and psychology. We all to, after all, live it. Every businessman thinks he understands economics. And half the politicians like make this claim, that because they ran a business, they understand economics very well and can run a country. That's like saying that because I once played an airline pilot as an actor in a movie I can fly an airplane. Or because I have children, I understand pediatric medicine. But the voters buy it.
Economics, being rather young, has adopted much of its terminology from other sciences and coined others from common usage. I'm not even sure if there is anything that one might consider as technically a professional economist. A "professional engineer" is a legally defined term requiring licensing. A medical doctor, M.D. requires a license as does the whole body of physical and psychiatric medicine. Even the practice of business has licensing like a tax preparer, a CPA, real estate brokers, and financial consultants. Things become formal when the legal profession, licensed to practice law, gets involved. I've never heard of a license to practice economics. If lawyers can't tie it directly to personal loss of life or money, it doesn't need to be so formal.
So, things like my using "displaced" and "crowded out" are just because it seemed like the best descriptive term.
[note_1] There are additional over simplifications made here. We haven't added in the increase in money supply, as noted.
But more importantly, if domestic prices fall, to match the money supply, then domestic income must fall to match the prices at the same quantities. As well, half that money is going to foreign manufactures. Unless we wrap that back in again, by including exports and government sales of treasury certificates plus government spending, then, things don't exactly become 1/2 or doubled.
It's is a goal seeking problem. To properly get what that goal seeking finds necessitates also changing the money supply we are oversimplifying in not noting that, in fact, if M_domestic is half it was, then I_domestic must become half.
There is actually, two processes to deductive reasoning that has played out historically. One is to find a simplified model that captures all the essential elements and leads to the generally correct, accurate conclusion. As Einstein said, "When solving a problem, it helps to know what the answer is."
The second part, that has played out historically, is that the model is then added to, refined so that it goes from simply accurate to precise.
Physics mechanics was generally correct. Then Newton devised calculus and made physics mechanics far more precise. Then Einstein devised relativity and made physics, including mechanics, even more precise.
Adam Smith made economics generally correct, then the Great Depression happened and it wasn't precise enough. Then Keynes made it even more precise. Then Nash came along and demonstrated that equilibriums occur which are different then the equilibriums that were previously understood.
In order to get to what imports do, we really need to add in the income side of consumers, exports, the increasing money supply, government securities, the government deficit, and the public debt. Then we have a closer model with the full number of constraints that can lead to a goal seeking problem. And, with the exception of those government securities, we still haven't accounted for the financial process that is suppose to be moving money, and thus resources, to where they are suppose to do the most good.
A complete model then becomes a closed loop and has to reach an equilibrium.
At that point, the very nature of "causality" becomes a mute point as demand causes sales, sales causes production, production causes income, and income causes demand. Even imports cause services, "via wages paid, to dock-workers & port-authorities, in unloading cargo ships? foreign trade represents "(global) transportation employment". And those cause income which in turn causes demand which stimulates more sales and production, whether it be domestic or foreign.
And in the balance of things, without being able to get down to the point of counting stuff, we are completely unable to distinguish what force dominates it's opposing force in the aggregate effect.
______________________________________
itfitzme
Silver Member
Don't quote me on this one, it's still hypothetical.
The combination of declining income and easy revolving credit backed up by the illusion of home equity gains in a flipper driven, over inflated housing bubble allowed the middle class to maintain a 1970's standard of living while purchasing impoted products that were over priced relative to the production costs of cheap foreign labor.
EdwardBaiamonte
Platinum Member
- Nov 23, 2011
- 34,612
- 2,172
- 1,100
except our best newspapers and economists on left and right agree it was unbridled liberal government that caused our current economy.
"First consider the once controversial view that the crisis was largely caused by the Fed's holding interest rates too low for too long after the 2001 recession. This view is now so widely held that the editorial pages of both the NYTimes and the Wall Street Journal agree on its validity!"...John B. Taylor
You may not have heard of the Federal Reserve system but it exists to inflate and deflate the currency supply through the housing market. They inflated too much for too long. This caused what they call a housing bubble. While the bubble was inflating all the big banks and many insurance companies bought bubble mortgages thinking they were sound rather than merely purchased or made possible by newly printed funny money. When the bubble deflated they all lost money on the mortgages. It would be analogous to the government making cars and giving them to GM so everyone could have a car. If GM got them by the ton and for very little money of course they would find a way to move them . This is essentially what the Banks did with the free money. In addition to the Federal Reserve System you had Fanny and Freddie which bought and guaranteed many of the mortgages so no one had to worry about them failing. Then you had CRA, FHA, Federal Home Loan Bank Board( 3% down payment loans) and several others that were designed to get everybody in their own home.
When the states tried to move against predatory lending by national banks they were blocked by the bank's federal regulator, the office of the comptroller of the currency, That empowered money lenders say Lynn Turner.
Just as significantly you had very badly conceived accounting rules that hid the problems from everyone until it was too late. Accounting rules are supposed to do the opposite, not move billions in potential liabilities off the balance sheet onto tiny footnote on the bottom of a page as happened at Citibank, or onto on sentence at the end of a 10-Q report as happened at AIG, or as generally happened with SIVs (structured investment vehicles). Then you had gov't rules from the last crisis, the Enron Crisis, the created mark-to- market accounting rules for this crisis that many believe greatly exacerbated this crisis.
Then you had the problem with the government backed ratings agencies that simply failed to rate the mortgage backed and related securities, properly. Sorry, it had little to do with Bush, but had everything to do with inane attempts by the liberal to regulate the free market!
Warren Buffett: "There are significant limits to what regulation can accomplish. As a dramatic illustration, take two of the biggest accounting disasters in the past ten years: Freddie Mac and Fannie Mae. We're talking billions and billions of dollars of misstatements at both places".
Now, these are two incredibly important institutions. I mean, they accounted for over 40% of the mortgage flow a few years back. Right now I think they're up to 70%. They're quasi-governmental in nature. So the government set up an organization called OFHEO. I'm not sure what all the letters stand for. [Note to Warren: They stand for Office of Federal Housing Enterprise Oversight.] But if you go to OFHEO's website, you'll find that its purpose was to just watch over these two companies. OFHEO had 200 employees. Their job was simply to look at two companies and say, "Are these guys behaving like they're supposed to?" And of course what happened were two of the greatest accounting misstatements in history while these 200 people had their jobs. It's incredible. I mean, two for two!
Courtesy A. Smith:FDR created Fannie.
LBJ Privatized Fannie - creating an "enron" like environment:
Greg Mankiw's Blog: Thanks, LBJ
Carter's Community Reinvestment Act - accelerated by Clinton - pushed risky loans:
Community Reinvestment Act - Wikipedia, the free encyclopedia
Clinton pushed Fannie into Subprime - the most critical mistake:
Andrew Cuomo and Fannie and Freddie - Page 1 - News - New York - Village Voice
Even the NY Times figured this out: Fannie Mae Eases Credit To Aid Mortgage Lending - NYTimes.com
Bush and McCain attempted to reform Fannie on 17 occasions
Bush Called For Reform of Fannie Mae & Freddie Mac 17 Times in 2008 Alone Only To Have Dems Ignored His Warnings :: Political News and commentaries :: Hyscience
The risky subprime loans fueled another layer of risk - derivatives
https://www.istockanalyst.com/article/viewarticle/articleid/2947518
The LA Times reported on Clinton's "subprime" success in 1999:
Minorities' Home Ownership Booms Under Clinton but Still Lags Whites' - Los Angeles Times
itfitzme
Silver Member
Why would you take someone elses statement and attribute it to me, by changing how the quote line comes out?
You stupid moron.
Of all people, as I know myself, I am the most patient and understanding person in the world. And yet, and perhaps it is the added irritation of the years, I find just a few people so without any socially relavent value.
There lack of attentiveness to reality is so beyond mere random error as to lead one to conclude that they are stupid on purpose.
You stupid moron.
Editec said:
Of all people, as I know myself, I am the most patient and understanding person in the world. And yet, and perhaps it is the added irritation of the years, I find just a few people so without any socially relavent value.
There lack of attentiveness to reality is so beyond mere random error as to lead one to conclude that they are stupid on purpose.
itfitzme
Silver Member
I can almost guarantee that, whatever follows after "EdwardBaiamonte" is somehow, in some way simply wrong. In a series of bets, you would do better betting against it, If you took all the statements, make the opposite statement, put them it a book, and teach a college course knowing that your students would go forth into the world and succeed with the information.
And, for whatever useful information that you might happen to glean out of every hundred posts, your time would be better spent looking elsewhere.
Conspiracy theory Moron
And, for whatever useful information that you might happen to glean out of every hundred posts, your time would be better spent looking elsewhere.
Moron
Moron
Moron
Moron
Moron
Conspiracy theory Moron
Last edited:
Widdekind
Member
- Mar 26, 2012
- 813
- 35
- 16
naively, "consumer credit", e.g. credit cards, not only increases the effective money supply (Meff=M+C), i.e. "charging the card makes more money to spend"; but our modern, high-speed, credit-card economy makes money move faster, i.e. "charge cards are so convenient". If so, then credit-cards increase M and V, on the LHS of that equation; and credit-cards are "doubly inflationary".
separately, access to foreign products, via imports, increases the total quantity exchanged (Qtot=QD + QF). Thus, other factors unchanged (M,V), imports increases quantity, driving down prices, cp. your "100+100" example, i.e. "money supply (MV) is spread more thinly, over more available products (Qtot)".
I understand your point that all economic forces tend to have their counterbalancing outcomes and this will certainly true in the case of FREE TRADE.
But no thinking economist who actually cares about his nation is sanguine waiting for the counterbalancing force to take effect.
The countervailing force to FREE TRADE is a collapse of the buying economy such that its stops or greatly reduces importing so much.
Rather like we're seeing right now, really.
But no thinking economist who actually cares about his nation is sanguine waiting for the counterbalancing force to take effect.
The countervailing force to FREE TRADE is a collapse of the buying economy such that its stops or greatly reduces importing so much.
Rather like we're seeing right now, really.
Last edited:
itfitzme
Silver Member
Don't forget that the inflation is held above 2%, so prices are not effectively inflated. They simply are what they are and the money supply M1 has been held constant in real dollar terms. You gotta check that out.
It's been really bugging me because it's not all adding up, or I haven't been able to add it up. One major issue is that it's all inter related and relative to itself, they is no objective absolute reference point. I cannot find a fixed point of reference so it all just kind of floats around.
As much as the fact is that C increases M and V which results in both an increase in P and Q, depending on the state of the economy, prices have not increased measurably because we don't have a baseline with which to measure the idea of "increase". It is at the targeted rate and noisy as hell.
And it would seem that consumption and efficiency have increased consistently.
It isn't that, in micro terms, the same concept isn't applicable. (M_housing + C_housing)*V = P_housing * Q_housing. That is perfectly valid. But housing prices supposedly are against a substitute of rentals. On the other hand, they are not identical substitutes, not when there is a deduction for interest. I once did a calc and a homeowner has more spendable income for the same income and equivalent payment. (I may have left out taxes).
Consumption, BTW, is not unlimited at all times. There is supposedly an oversupply of housing. This is a bit apparent given apartment complexes with a 30% vacancy rate and houses being bulldozed. Really, bulldozing them because they are "depressing prices". Here is a thought, that is the idea, enough houses that houses are cheap.
(a.) On one hand I've got anecdotal observations of middle class and lower middle class homeowners filling there house with revolving credit purchases which they then covered with a second mortgage only to redo the process.
(b.) Then I've got, as you've validated, the fact that credit itself serves as a direct money substitute in all ways, including affecting inflation. And, as you note, a double hit on M and V.
(c.) The very fact that it exists means competition for product, in the willingness to pay up to the limit of available cash plus credit, necessitates that prices be upwardly mobile. As such, they can exceed income. One should hope that in the aggregate, some purchase today, some purchase next month, and on average it's not driving them up. But, who's to say it isn't compared to the alternative of some purchased today and some purchase six months from now. You'd hope that the middle class would be smarter with their credit card but that brings me back to (a.)
(d.) Few of an age of wisdom fail to get the impression of thirty year imbalances. How long was the housing bubble? How long is the time span between recessions? How many economic factors are systematically accumulating beneath the surface?
(e.) The real income spread has compressed over the past decades, becoming highly skewed right and lepto-kurtotic. (Excellent terms, you have to learn them, Excel data analysis add-in to do histograms and summary stats) As God is my witness, I swear that on my now defunct computer, I had data that indicated this. My most recent data shows that, in real terms,.the lower income quitile gained more then the second. In real dollar terms, the gains from 1970 to 2006 are 0.38%, 0.34%, 0.59%, 0.98%,1.35%, per year. When the bottom rises more than the next, and the top rises more than all others, isn't that becoming skewed and lepto-kurtotic? It's hard to say, they are two completely different ways of dividing up the data. One is equal bin sizes and the other is equal bin counts. It means nothing that there is an interquintile mobility over thirty years. People are suppose to move upward over the decades. The thing is, over the years, when incomes fell, the lowest quitile would fall more and when they rose the upper quintile would rise more.
That percentage unemployment, and recession level unemployment, is not random across the population. There are systematic factors so that the same group end up unemployed every recession. That one really gets me. The better the company that one enters earlier, the more insulated from time spend off during recessions. The more time working, the better the opportunities to pick up skills. The better the skill level, the more demand commanded in the job market. There are systematic issues that case a separation into groups.
itfitzme
Silver Member
Sir Editec,
I agree that your statement of "The countervailing force to FREE TRADE is a collapse of the buying economy such that its stops or greatly reduces importing so much", is far closer to something viable then the OP. I was going with total agreement then, in retrospect, get this impression that there is something that needs more refinement. It has to do with a refinement of the nature of the causality, the difference between long term and short term, as well as the relative magnitude.
I agree that no one of a responsible temper is sanguine in waiting for countervailing forces to balance things out. If we know how to mitigate a problem, like wearing a seat belt, we do so.
In the end, when it comes to the voting booth, we vote our conscience and our beliefs. The real question is, can the greater body of voters find some common ground that necessitates a common statement made to whomever holds office before we even get to the voting booth. And can we find a common ground that stands the test of time as old voters disappear into time.
I think it is well worth hammering out. It needs a better statement of actual causality. It may be that it needs to be a paragraph, to fairly treat it properly. The idea is, with such a complicated issue is to solidify the underlying information that supports it, eliminate the stuff that just confounds it, and continue to condense that information into a clear, simple and reasonable statement.
In fact, we can be more specific and say that a countervailing force to a trade imbalance is a collapse of the global buying economy such that it greatly reduces the foreign trade market. There are other countervailing forces.
There is no doubt that global trade falls simultaneously with a decline in a national and global economy. It becomes a question of if the trade imbalance contributed to it's depth or contributed to it's collapse. It becomes a question of the collapse or depth might have been mitigated by eliminating the trade imbalance.
By the way, in my readings elsewhere, this was predicted by Frédéric Bastiat. Unfortunately, as seems typical of economics, I can find no formal deductive or econometric reasoning for the prediction.
There becomes a number of refining questions;
Is it simply that the collapse, caused by other factors, causes the collapse in trade?
Is it that the trade imbalance, even some portion of a balanced trade, contributes to the inevitable collapse in the run up?
Is it that when the trade collapses, the economy suffers to an extent such that we would be better off not allowing for that much trade in the first place?
Is it that the continuing trade imbalance presents an issue, RIGHT NOW, that we could attend to by restricting the trade?
Is it that in restricting trade, we cause other problems of such magnitude that they offset any gains made by the restriction?
Are we better off sacrificing some level of growth for the sake of stability? (This last one has some general support in examination of all living things. Steroids provide a short term gain at tremendous long term detriment. For some, the short term gains from being the winner, opens up future opportunities that sustain them better then they would otherwise have been. And eventually they die of old age anyways, perhaps accelerated, but once dead they don't care.)
I generally start with pointed questions. The reason is to be able to present the idea without forcing us to commit to it as if it was as fundamental as "when I hit my thumb with a hammer, it will hurt!"
Some may not understand that, in fact, we have the tools available on our own computers to make headway in proving that something exists, that it in fact doesn't exist, or that we simply fail to have enough information to know. This last one is a constant annoyance. We often have to accept that we simply don't know. We may feel, we may believe, but we may not necessarily know one way or the other. We can prove that, for now, we don't know. Often it is usually because the nature of the natural experiment hasn't played out, the precision of the information is lacking, and the natural random noise is too great. For instance, quarterly GDP may be insufficient in determining if consumer credit falling was a precipitating factor in falling GDP or if, in fact, they simply happened simultaneously.
My issue isn't so much whether it be true or not but whether it is the right problem for the nation to focus on. It is easy for me to pick some soapbox to stand on, joining the crowd of soap box standers and voice my particular peeve. I have my peeve noted below.
There is no doubt that the concept of absolute advantage must exists in some fashion somewhere in time. The question is if we can identify it as a real thing and show to what magnitude it has existed. It is in the magnitude of a thing, relative to others, the real concern exists.
There are two more reasonable ways to look at this trade deficit then as presented in the OP.
One is that, right now, if domestic production could be magically tooled up to replace those products, now currently in the market as imports, and the trade restrictions were in place, it may be that unemployment would be relieved. I can no more say this is not so then I can prove it to be so.
A secondary consideration to this is if, even if the trade deficit was a predominate factor in contributing to the seriousness of the recession, we simply cannot really get from what it is RIGHT NOW to what we reasonably see as what it might be had it not been there in the first place. If we put in trade restrictions right now, the first effect would be to cause a decline in GDP and a rise in unemployment at those domestic players in the import market are no longer in business and no replacement exists. As we force the market to switch, it takes time to tool up. And, in the balance, it may be that it will recover naturally with the imports as it would should it be forced to recover on domestics alone. If there is any opportunity to replace imports with domestic production, the initial consideration is that people in the business of imports will see an opportunity and do so. This is not necessarily so, but it is a consideration. And it may be that pushing towards domestics provides an opportunity for long term stability that would otherwise be unavailable.
Another is that, in the years coming up to the recession, the economy continues to sacrifice long term stability for the sake of short term growth. Growth ended, beginning 2007. We are now at 2012, some half a decade later. So, all the growth that was gained from 2002 to 2006 has been made entirely meaning less. And if, in fact, a substantial portion of that growth was due to comparative advantage, it make the whole concept a mute point. We might have never had the advantage in the first place.
We have, in fact, fallen back from December 2007 at 48.2% employment to total population ratio and -$289.7 net export imbalance real dollar per capita to March 1987 levels of 46.1% while the net export has fallen back to -$134.9. That 2.1% loss in employment, though not seemingly a big number, is a loss of 7.5 million jobs. (check it.)
And it really bothers me that a considerable amount of that growth was an illusion, based on the constant incurring of revolving credit by a goodly portion of the middle class as they offset the failure of wages to increase as might have been reasonably expected. I believe that we were better off, in the balance, in 1987,in that the standard of living was spread out among the total population while the working population has not seen any serious decline in living standard. The major burden of the losses are on the backs of the unemployed. (That is an interesting effect. I think it is best treated as real consumption per employment level but I need to find something better to measure it with then the C in GDP.)
This leads me to my particular pet peeve, the underlying issue that I see and might regail about should I choose to stand on my soap box and simply add more noise to the collective roar of the crowd.
My particular pet peeve is what seems like mistakenly easy credit that drove the economy into a bubble from which it inevitably collapses. When the bubble stops gaining sufficiently, they return to paying off the credit, incurred by filling their house with consumer products, and demand collapses. I might note that it isn't the entire population, just a subgroup. I can rest assured that some cultures still maintain the sense and sensibility to have a house that is almost barren of furniture as they are unwilling to sacrifice their future financial stability on niceties.
On the business side, it's an almost identical issue as the fundamental force that results in the collapse is businesses retracting when we reach full employment as they see sustainability insufficient and immediately turn to balance sheet issues in order to maintain the level of gains that they got use to during the run up. The problem being that, in doing so, they inevitably kill the goose that laid that golden egg and cause the decrease in demand which then decreased GDP which drives them harder to focus on reducing employment levels and fixing their balance sheet.
Clearly, the housing investment market, with the initial collapse as flippers walked away from insufficient returns, stands as a similar process of systematic behavior that has repeatedly damaged the economy.
Underlying this, I see, is that the necessary fractional reserve banking process which relies on the constant churning of business debt to increase the money supply contains the very systematic risk within it's structure. It is, unfortunate, that there is no simple measure by which to distinguish this particular loan from that particular loan as clearly the potential problem.
And it is so similar to the middle class consumer filling in lost wages with consumer credit, because little Johnny must have a new bed frame when I have seen many a family where every kid is fortunate enough to have a used mattress, that the whole process of credit driven growth becomes questionable.
There is no doubt that the consumer credit part of it may have presented the opportunity for the incremental decisions to be made that paved the road of good intent to this most annoying outcome. Give someone the need to purchase, the credit to make that purchase with, along with the reasonable belief that it will be okay, and over a hundred thousand individuals, over tens of years, and "gazillions" of transactions per year and the problem is magnified to enormous proportions such that when it collapses, over .05 * 160 million people suffer.
In a most general sense, it's like forcing nitrous oxide into the economic engine only to have it blow up before the finish line is reached. The problem with the economy is there is no finish line. If we supercharge it such that it burns out later, we always end up with an unsustainable process.
The only way to get past the collective roar of the crowd, all voicing any one of a dozen randomly chosen issues is if we come to some reasonable measures and reasoning based on those measures.
And the only way we can possibly deal with them is if we keep at them and get them into context, rejecting those who start from a position then collecting whatever validates it without necessarily rejecting there concept but the method of conclusion, and accept that the rational reasoning process will reveal the best conclusion, prepared for the likely possibility that it is not what we initially expect.
Along that vein, and perhaps in vein, I present a measure for the sake of a measure.
If we look more closely at the individual accounts of import and exports (Table 4.1. Foreign Transactions in the National Income and Product Accounts) we find that both have receded with each recession (check that).
Alone, if doesn't mean much. But, it is unmitigated fact. Whatever meaning that we might find begins with the unmitigated and initially mundane facts. It is a rough estimate, based on yearly average CPI and the best population data that I could kluge together.
This is the work. Finding, combining, massaging, normalizing, and plotting the time series data in a matter that show us exactly what has really happened. I would expect that, if we were doing things right as a collective, every comment would include or reference some fundamental data.
(There are all manners of stupid critiques like "who uses scaled unemployment", "the correct number is annualized quarterly, every one of your number is off by a factor of four", "the number I have is 253.02 and you have 253.03. Clearly yours is wrong." These are all meaningless as whatever table or data is chosen, however it is scaled, the values relative to each other are still the same.With enough time, the very shape of the curve becomes recognizable as being unemployment, net exports, CPI or whatever. And invariably, the critique fails to improve on what is presented.)
Curiously, there is a shape to that graph that reminds me of the time series data for M2-M1 and revolving credit. I have to compare them to see it, in fact, the are following a similar pattern. We should be able to recognize, all manners of correlations without clear causality before ever reaching a point of determining causality. If you've ever done trouble shooting of your automobile or electronics, this is exactly what is done, looking at all the performance information, including smell and sound, to find what is either different then before or correlated. And in doing so, you get closer to figuring out exactly what component went awry.
If we have any hope of finding actual evidence of what we believe must be so, it is in the fundamental data. If no evidence exists, then we must fall back on a hypothesis of how the fundamental data will accurately change as a result of a change in something else. The difference between science and belief is that science measures then commits to a definitive statement of how those measures with exactly change as the result of something else.
So the question becomes, given this hypotheses that "The countervailing force to FREE TRADE is a collapse of the buying economy such that its stops or greatly reduces importing so much" or "in the years coming up to the recession, the economy continues to sacrifice long term stability for the sake of short term growth", where is the data that shows it, if in no other manner then simply that is shows where it may be?
In my fantasy universe, every time some such issue is raised, someone would throw up the very graph that we all have agreed to and maintain a copy of on our own hard drive. Our personal copies would be continuously updated and improved as we get closer and closer to agreement on the body of facts.
In looking at this graph, what is a possibility is that, if a trade imbalance is detrimental to the importer, it is equally detrimental to the exporter RIGHT NOW. I see every reason to conclude that the same problem experienced by the exporter is equally experienced by the importer when trade collapses. China suffers from loss of production jobs in producing our imports when we stop importing them. Our net imports fell, their net exports fell. Everyone suffers.
I agree that your statement of "The countervailing force to FREE TRADE is a collapse of the buying economy such that its stops or greatly reduces importing so much", is far closer to something viable then the OP. I was going with total agreement then, in retrospect, get this impression that there is something that needs more refinement. It has to do with a refinement of the nature of the causality, the difference between long term and short term, as well as the relative magnitude.
I agree that no one of a responsible temper is sanguine in waiting for countervailing forces to balance things out. If we know how to mitigate a problem, like wearing a seat belt, we do so.
In the end, when it comes to the voting booth, we vote our conscience and our beliefs. The real question is, can the greater body of voters find some common ground that necessitates a common statement made to whomever holds office before we even get to the voting booth. And can we find a common ground that stands the test of time as old voters disappear into time.
I think it is well worth hammering out. It needs a better statement of actual causality. It may be that it needs to be a paragraph, to fairly treat it properly. The idea is, with such a complicated issue is to solidify the underlying information that supports it, eliminate the stuff that just confounds it, and continue to condense that information into a clear, simple and reasonable statement.
In fact, we can be more specific and say that a countervailing force to a trade imbalance is a collapse of the global buying economy such that it greatly reduces the foreign trade market. There are other countervailing forces.
There is no doubt that global trade falls simultaneously with a decline in a national and global economy. It becomes a question of if the trade imbalance contributed to it's depth or contributed to it's collapse. It becomes a question of the collapse or depth might have been mitigated by eliminating the trade imbalance.
By the way, in my readings elsewhere, this was predicted by Frédéric Bastiat. Unfortunately, as seems typical of economics, I can find no formal deductive or econometric reasoning for the prediction.
There becomes a number of refining questions;
Is it simply that the collapse, caused by other factors, causes the collapse in trade?
Is it that the trade imbalance, even some portion of a balanced trade, contributes to the inevitable collapse in the run up?
Is it that when the trade collapses, the economy suffers to an extent such that we would be better off not allowing for that much trade in the first place?
Is it that the continuing trade imbalance presents an issue, RIGHT NOW, that we could attend to by restricting the trade?
Is it that in restricting trade, we cause other problems of such magnitude that they offset any gains made by the restriction?
Are we better off sacrificing some level of growth for the sake of stability? (This last one has some general support in examination of all living things. Steroids provide a short term gain at tremendous long term detriment. For some, the short term gains from being the winner, opens up future opportunities that sustain them better then they would otherwise have been. And eventually they die of old age anyways, perhaps accelerated, but once dead they don't care.)
I generally start with pointed questions. The reason is to be able to present the idea without forcing us to commit to it as if it was as fundamental as "when I hit my thumb with a hammer, it will hurt!"
Some may not understand that, in fact, we have the tools available on our own computers to make headway in proving that something exists, that it in fact doesn't exist, or that we simply fail to have enough information to know. This last one is a constant annoyance. We often have to accept that we simply don't know. We may feel, we may believe, but we may not necessarily know one way or the other. We can prove that, for now, we don't know. Often it is usually because the nature of the natural experiment hasn't played out, the precision of the information is lacking, and the natural random noise is too great. For instance, quarterly GDP may be insufficient in determining if consumer credit falling was a precipitating factor in falling GDP or if, in fact, they simply happened simultaneously.
My issue isn't so much whether it be true or not but whether it is the right problem for the nation to focus on. It is easy for me to pick some soapbox to stand on, joining the crowd of soap box standers and voice my particular peeve. I have my peeve noted below.
There is no doubt that the concept of absolute advantage must exists in some fashion somewhere in time. The question is if we can identify it as a real thing and show to what magnitude it has existed. It is in the magnitude of a thing, relative to others, the real concern exists.
There are two more reasonable ways to look at this trade deficit then as presented in the OP.
One is that, right now, if domestic production could be magically tooled up to replace those products, now currently in the market as imports, and the trade restrictions were in place, it may be that unemployment would be relieved. I can no more say this is not so then I can prove it to be so.
A secondary consideration to this is if, even if the trade deficit was a predominate factor in contributing to the seriousness of the recession, we simply cannot really get from what it is RIGHT NOW to what we reasonably see as what it might be had it not been there in the first place. If we put in trade restrictions right now, the first effect would be to cause a decline in GDP and a rise in unemployment at those domestic players in the import market are no longer in business and no replacement exists. As we force the market to switch, it takes time to tool up. And, in the balance, it may be that it will recover naturally with the imports as it would should it be forced to recover on domestics alone. If there is any opportunity to replace imports with domestic production, the initial consideration is that people in the business of imports will see an opportunity and do so. This is not necessarily so, but it is a consideration. And it may be that pushing towards domestics provides an opportunity for long term stability that would otherwise be unavailable.
Another is that, in the years coming up to the recession, the economy continues to sacrifice long term stability for the sake of short term growth. Growth ended, beginning 2007. We are now at 2012, some half a decade later. So, all the growth that was gained from 2002 to 2006 has been made entirely meaning less. And if, in fact, a substantial portion of that growth was due to comparative advantage, it make the whole concept a mute point. We might have never had the advantage in the first place.
We have, in fact, fallen back from December 2007 at 48.2% employment to total population ratio and -$289.7 net export imbalance real dollar per capita to March 1987 levels of 46.1% while the net export has fallen back to -$134.9. That 2.1% loss in employment, though not seemingly a big number, is a loss of 7.5 million jobs. (check it.)
And it really bothers me that a considerable amount of that growth was an illusion, based on the constant incurring of revolving credit by a goodly portion of the middle class as they offset the failure of wages to increase as might have been reasonably expected. I believe that we were better off, in the balance, in 1987,in that the standard of living was spread out among the total population while the working population has not seen any serious decline in living standard. The major burden of the losses are on the backs of the unemployed. (That is an interesting effect. I think it is best treated as real consumption per employment level but I need to find something better to measure it with then the C in GDP.)
This leads me to my particular pet peeve, the underlying issue that I see and might regail about should I choose to stand on my soap box and simply add more noise to the collective roar of the crowd.
My particular pet peeve is what seems like mistakenly easy credit that drove the economy into a bubble from which it inevitably collapses. When the bubble stops gaining sufficiently, they return to paying off the credit, incurred by filling their house with consumer products, and demand collapses. I might note that it isn't the entire population, just a subgroup. I can rest assured that some cultures still maintain the sense and sensibility to have a house that is almost barren of furniture as they are unwilling to sacrifice their future financial stability on niceties.
On the business side, it's an almost identical issue as the fundamental force that results in the collapse is businesses retracting when we reach full employment as they see sustainability insufficient and immediately turn to balance sheet issues in order to maintain the level of gains that they got use to during the run up. The problem being that, in doing so, they inevitably kill the goose that laid that golden egg and cause the decrease in demand which then decreased GDP which drives them harder to focus on reducing employment levels and fixing their balance sheet.
Clearly, the housing investment market, with the initial collapse as flippers walked away from insufficient returns, stands as a similar process of systematic behavior that has repeatedly damaged the economy.
Underlying this, I see, is that the necessary fractional reserve banking process which relies on the constant churning of business debt to increase the money supply contains the very systematic risk within it's structure. It is, unfortunate, that there is no simple measure by which to distinguish this particular loan from that particular loan as clearly the potential problem.
And it is so similar to the middle class consumer filling in lost wages with consumer credit, because little Johnny must have a new bed frame when I have seen many a family where every kid is fortunate enough to have a used mattress, that the whole process of credit driven growth becomes questionable.
There is no doubt that the consumer credit part of it may have presented the opportunity for the incremental decisions to be made that paved the road of good intent to this most annoying outcome. Give someone the need to purchase, the credit to make that purchase with, along with the reasonable belief that it will be okay, and over a hundred thousand individuals, over tens of years, and "gazillions" of transactions per year and the problem is magnified to enormous proportions such that when it collapses, over .05 * 160 million people suffer.
In a most general sense, it's like forcing nitrous oxide into the economic engine only to have it blow up before the finish line is reached. The problem with the economy is there is no finish line. If we supercharge it such that it burns out later, we always end up with an unsustainable process.
The only way to get past the collective roar of the crowd, all voicing any one of a dozen randomly chosen issues is if we come to some reasonable measures and reasoning based on those measures.
And the only way we can possibly deal with them is if we keep at them and get them into context, rejecting those who start from a position then collecting whatever validates it without necessarily rejecting there concept but the method of conclusion, and accept that the rational reasoning process will reveal the best conclusion, prepared for the likely possibility that it is not what we initially expect.
Along that vein, and perhaps in vein, I present a measure for the sake of a measure.
If we look more closely at the individual accounts of import and exports (Table 4.1. Foreign Transactions in the National Income and Product Accounts) we find that both have receded with each recession (check that).
Alone, if doesn't mean much. But, it is unmitigated fact. Whatever meaning that we might find begins with the unmitigated and initially mundane facts. It is a rough estimate, based on yearly average CPI and the best population data that I could kluge together.
This is the work. Finding, combining, massaging, normalizing, and plotting the time series data in a matter that show us exactly what has really happened. I would expect that, if we were doing things right as a collective, every comment would include or reference some fundamental data.
(There are all manners of stupid critiques like "who uses scaled unemployment", "the correct number is annualized quarterly, every one of your number is off by a factor of four", "the number I have is 253.02 and you have 253.03. Clearly yours is wrong." These are all meaningless as whatever table or data is chosen, however it is scaled, the values relative to each other are still the same.With enough time, the very shape of the curve becomes recognizable as being unemployment, net exports, CPI or whatever. And invariably, the critique fails to improve on what is presented.)
Curiously, there is a shape to that graph that reminds me of the time series data for M2-M1 and revolving credit. I have to compare them to see it, in fact, the are following a similar pattern. We should be able to recognize, all manners of correlations without clear causality before ever reaching a point of determining causality. If you've ever done trouble shooting of your automobile or electronics, this is exactly what is done, looking at all the performance information, including smell and sound, to find what is either different then before or correlated. And in doing so, you get closer to figuring out exactly what component went awry.
If we have any hope of finding actual evidence of what we believe must be so, it is in the fundamental data. If no evidence exists, then we must fall back on a hypothesis of how the fundamental data will accurately change as a result of a change in something else. The difference between science and belief is that science measures then commits to a definitive statement of how those measures with exactly change as the result of something else.
So the question becomes, given this hypotheses that "The countervailing force to FREE TRADE is a collapse of the buying economy such that its stops or greatly reduces importing so much" or "in the years coming up to the recession, the economy continues to sacrifice long term stability for the sake of short term growth", where is the data that shows it, if in no other manner then simply that is shows where it may be?
In my fantasy universe, every time some such issue is raised, someone would throw up the very graph that we all have agreed to and maintain a copy of on our own hard drive. Our personal copies would be continuously updated and improved as we get closer and closer to agreement on the body of facts.
In looking at this graph, what is a possibility is that, if a trade imbalance is detrimental to the importer, it is equally detrimental to the exporter RIGHT NOW. I see every reason to conclude that the same problem experienced by the exporter is equally experienced by the importer when trade collapses. China suffers from loss of production jobs in producing our imports when we stop importing them. Our net imports fell, their net exports fell. Everyone suffers.
EdwardBaiamonte
Platinum Member
- Nov 23, 2011
- 34,612
- 2,172
- 1,100
That's very believable coming from a guy who lacks the IQ to know if he's a Democrat or Republican.
Why so afraid to give your best example of "simply wrong" with explanation for whole world to see????What does your fear tell you?
EdwardBaiamonte
Platinum Member
- Nov 23, 2011
- 34,612
- 2,172
- 1,100
Actually imports from China, for example, are still heading straight up. Sorry. Also, there is no need of collapse of the buying economy unless liberals interfere with free trade so as to hide the price signals that would slowly balance trade.
- Thread starter
- #239
Editec, free trade proponents do not accept the statement “trade deficits are ALWAYS detrimental to their nations’ GDPs” does not mean that trade deficits solely by themselves destroys their nations’ economies.
Because GDP and median wage are among, (if not the) most significant indicators of nationsÂ’ economic indicators, A nationÂ’s economy is less robust than otherwise due to the extent of its trade deficit.
Respectfully, Supposn
Euro
Senior Member
Here is what US imports.
Exports: US$994.7 billion
Imports: US$1.445 trillion
Imports - commodities: agricultural products 4.9 percent, industrial supplies 32.9 percent (crude oil 8.2 percent), capital goods 30.4 percent (computers, telecommunications equipment, motor vehicle parts, office machines, electric power machinery), consumer goods 31.8 percent (automobiles, clothing, medicines, furniture, toys)
Imports - partners: China 16.5 percent, Canada 15.7 percent, Mexico 10.1 percent, Japan 6.6 percent, Germany 4.6 percent
Similar threads
New Topics
-
-
-
It took 11 years defending himself over one story. This is what they do to people who hold them accountable.- Started by excalibur
- Replies: 1
-
Special Report: Trump fires Attorney General Pam Bondi- Started by Chuz Life
- Replies: 3
