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At 9/19/13 07:19 PM, RydiaLockheart wrote:

At 9/19/13 04:19 PM, Der-Lowe wrote: Hi Rydia!!! How have you been?
Myself, I've been studying, travelling, working, researching. Ya know.

Got myself a second Master's, a better job, and a husband since I last heard from you. I doubt I'll be having kids though. Not interested.

Cool. I did a semester abroad, and I guess you could say I got a master's degree? System's different here so I got like half a masters and now I wanna go to France to get another one (an explicit one) but eh, no French professors in my uni so the bridge to be built for me to go is kinda hard. I'll probably end up in some uni from the US *sigh*

Most likely increased employment and a small price increase.

Though it being California, how many illegals would snap those jobs up? The welfare state over there is one major reason they're in trouble.

Ohh, you mean you have people getting paid I think the expression in English "under the table"?
I've been casually treading on the subject lately, thinking about possible policy when informality is a problem, mainly because 30%+ of the argentine employees are not paid legally (which is sadly well below the latin american average).
If your question is what happens what happens when you raise the minimum wage and a significant part of the labor force is working illegally, the answer is nothing, since the law is not enforced. That's what happened in Argentina during the initial raise of the minimum wage in the early 2000s.
But I think the situation is different in the US because you actually have two clearly differentiated markets: illegal and legal residents, whereas employers in Argentina can choose to make a person an illegal or a legal worker.
Let me get you back on that, I know some people who can guide me on that.

At 9/20/13 12:18 PM, SmilezRoyale wrote:

At 9/20/13 12:01 PM, SmilezRoyale wrote:

More importantly are there good defenses that can be found online against the criticisms made of the study since?

Wait nevermind, found some stuff.

Share!

At 9/15/13 12:58 PM, RydiaLockheart wrote:

At 9/15/13 11:24 AM, Der-Lowe wrote: The OP's approach is pretty cynical;

Holy crap dude, where have you been all this time? It's been awhile.

Hi Rydia!!! How have you been?
Myself, I've been studying, travelling, working, researching. Ya know.

At 9/15/13 01:47 PM, RydiaLockheart wrote: California is raising the minimum wage to $10 by 2016. Of course, California is an absolute basket case that is hemorrhaging money even when the cost of living is so high there. Obviously there are multiple reasons for this, but that's another topic entirely. I'm wondering what this is going to do to the state.

Most likely increased employment and a small price increase.

At 9/16/13 11:43 PM, aviewaskewed wrote: The only decent argument I've ever heard for not raising the minimum wage is what it does to small business owners who do not have large amounts of capitol and consequently hire less employees due to the costs associated with payroll which increase thanks to a need to pay a higher minimum (and then perhaps a premium on top of that to be competitive).

The thing with this line of argument is that small business owners will be hit the hardest by pretty much any regulation, because they are, well, um, small. Their fragility is not a case for abandoning every kind of regulation, but quite on the contrary, for policies targeted at strengthening the relative position of small business.

At 9/17/13 06:48 PM, ArtistJ wrote: What is really needed is Maximum wages and to fight the culture of inequality at its base, which is to eliminate the mindset that people of lower class's time is worth less, that physical effort is worth relatively little and that investment is worth a lot, and that people in positions that force them to live below a common dignity are entitled to more.

The problem is that high wages are not the main leading force of inequality in the US; it's profits, as the graph shows. Capping wages would only exacerbate the issue because companies wouldn't have to pay high wages even to those with specific skills. Plus, why would you set a maximum wage when you could tax them instead?

The OP's approach is pretty cynical; all I'll say is that performing such experiments on your people will quickly put you out of the list of the most developed nations in the world. Developed nations base policy on the best quality of research they can get their hands off (but obviously tilt to one side or the other based on their ideological beliefs).
This leads me to the belief that economists (Smileyz was the more conservative one saying most economists) believe that rising the minimum wage would reduce employment. But that is simply not true, the best paper written on the subject by Princeton's economists Card and Krueger find that it doesn't. This means that the theory that best describes reality is one of monopsony: since labor can not flow seamlessly from one firm to the other firms are able to pay employees wages below their productivity.
This also tell us that we probably won't be able to afford raising the minimum wage to infinity and not expect a fall in employment, because people's productivity has a limit, which partially answer's Lydia's question. Brian has said 20 USD/h, which would link wages to productivity, but there's a menu of possible answers: linking to inflation since 1969 would lead to a minimum wage of 9.25, linking it to average wages would push it to 10.50, linking it to productivity to the 20 USD mark Brian said, and more populistically, linking it to the earnings of the 1% would push it to 30. I think a conservative rise would be 9.25, but ideally I would push for minimum wages being linked to productivity. I like the German system best, in which there's no minimum wage, but each sector has its union and they are able to push each sector's productivity increases to wage increases.
Korriken's view is a more fundamental approach, in which one reduces the supply of unskilled workers so that the natural wage of unskilled labor increases by market forces and not by regulation. Although I enjoy the elegance of the approach, I am highly doubftul both of the effects and the implementation. Firstly, I do not think the American higher education system is one of the most open in the world, with a thorough system of scholarships and loans. Secondly, this process is already taking place; the wage premium between unskilled and skilled labor is falling, as all those college graduates flood the labor market. It's a phenomenon quite regular across nations; the higher the level of development the lower the gap between skilled and unskilled labor. And the problem with low wages doesn't seem to come from a clash between unskilled and skilled labor, but between labor and capital:

The US economic policy debate has been marked by a strong division in people's opinions. What is remarkable about this process is that such a division is not reflected in the specialist's discussion of the same topics. A survey taken by the Chicago Booth's School of Business revealed the following consensus:

1. Obama's stimulus helped reduce unemployment: 92%
2. Bush's bank bail outs reduced the jobless rate: 100%
3. Tax-cuts will not raise revenues: 100%
4. Imposing a gold standard would not improve price stability and employment: 100%

Why such a divergence? Quoting from the NY times:

"Partly itâEUTMs a colossal, bipartisan lack of the political courage required to tell people what they sort of know but donâEUTMt want to hear. Partly itâEUTMs a Republican Party that, for its own cynical reasons, wants no deal with this president. Partly itâEUTMs moneyed, focused lobbies that swarm in defense of specific advantages written into the law; there is no comparable lobby for compromise, let alone sacrifice."

Original source where I got all this from: http://www.freakonomics.com/2012/07/25/the-secret-consensus-

among-economists/

Update: Unemployment at 8.1%
Meanwhile, in the nation who has been slashing spending to cut back its deficit...

Funny how I leave for like a year and the economies of the developed world haven't really changed that much. I've read somewhere that the Obama administration is finally seeing the light after this whole Greece/Spanish austerity failure, and might push for stimulus in the second presidency (hell, even the GERMANS are finally seeing the light and might create a fund of 200 billion to spend in infrastructure), if he gets it. Who would have thought that cutting spending in a recessed economy would turn to be self-defeating? Anyone who has read the first chapter of an introductory economics textbook.

At 8/15/11 10:04 PM, SmilezRoyale wrote:

At 8/15/11 09:53 PM, Der-Lowe wrote:

At 8/13/11 08:43 PM, SmilezRoyale wrote: I said that more to point out that there *are* victims in this plan of yours. You made it sound as if that wasn't the case with your inflation scheme.

I fail to see them really, apart from a temporal mismatch in relative prices coming from inflation. Elaborate please?

The people paying the consumption tax?

But that was on the non-inflationary scenario :/ In the inflationary one, an inflationary tax would exist, so it's basically the same. Of course first best would be to agree on debt reduction costlessly, or a widespread debt reduction a la Argentina.

At 8/13/11 08:43 PM, SmilezRoyale wrote: I said that more to point out that there *are* victims in this plan of yours. You made it sound as if that wasn't the case with your inflation scheme.

I fail to see them really, apart from a temporal mismatch in relative prices coming from inflation. Elaborate please?

At 8/12/11 11:33 AM, SmilezRoyale wrote: Or you could just impose a cross-the-board sales tax and give the proceeds to foolish borrowers [and ultimately foolish lenders], is the effect not the same?

It's the same, but it's way easier to generate inflation than to get the majority to make a new tax, and then give money back to lenders. And inflation's more subtle, it won't make the point of borrow all you want, the State will pay you back.

I don't think it is such a bad plan. It is economically sound: tarriffs are preffered to quotas, and in general, price restraints (through taxing) are better than quantitative restraints. Therefore, a tax on immigrant labor is better than a quota on immigrants, as the system works in every country.
I am no lawyer, but although controversial, since the US has no social rights anyway (equal pay for equal assignment is the Argentine constitution, as well as equality between foreign residents and Argentine citizens) I think such a law would be legal.
The most elegant part of the plan is that it erodes the losses that American citizens face with immigration. To understand this, take the pricing behavior of airlines: they offer discount tickets to those who are poorer (students, for example) or those who are willing to travel on exotic hours. The reason to do this is that those people are showing that they are less willing to pay than the others, either by not having the money (being poorer) or willing to exchange other things for the actual prize (time). Why do airlines do this? After all, a discount is against their favor. Well, because if it didn't it'd have to charge a medium prize, leaving some of the poorer ones out, and losing profit on the wealthy clients. This practice is called price discrimination, and it is efficient, because more people end up using the service/getting the good. A similar practice with Labor would have the same effects: it'd let Americans keep a "high price" (high wage), and make the immigrants compete in a differentiated market.
Is such a scheme immoral? I don't think so. Nobody is forcing the immigrants to go to the US. Clearly, if they do migrate, it's because the post tax salaries they have in the US are significantly larger than those in the US
However, the tax on immigrant labor should be huge, to make up for the gigantic immigration the US would face if such a law were to be implemented. This, of course, would lead to tax evasion. If the US can't control the employment of illegal immigrants, I don't see why it'll be able to control evasion on the "immigrant tax".

At 8/10/11 03:32 PM, SmilezRoyale wrote:

At 8/10/11 01:07 AM, Der-Lowe wrote:

Well, houses are a different issue, since their price determines the soundness of the mortgage, and therefore the solvency of banks. As I said before, inflation can solve that problem, it would be an efficient solution.

I had figured that it was the unsoundness of the loans that was driving the housing prices, not the other way around.
and I don't see how making everything else more expensive in order to level up with housing prices is an efficient solution.

How can you execute the mortgage of a worthless home? Inflation would avoid the costly rewriting of contracts, and reduce real debt burden. People would be able to pay back their mortgages, and getting some money back is better than getting zero (the real figures are 40% of the real value) from the point of view of the banks. Since your accounting is in historical terms, the income reports of bank won't look too bad either.
Everyone is better off, therefore it is Pareto superior to the present.

At 8/10/11 05:50 PM, lapis wrote: Eh, I found this paper about the relationship between riots and budget cuts on some blog. I'm tired right now and I've only skimmed through it but the results look rather weak; the values for R^2 that I see in table 4 don't make me happy. There are also no F-test results given. But it's a discussion paper so I guess that makes it okay.

Well, I guess that expenditures cuts (not tax increases! :D) do cause unrest, but there's more to it than that.
I've been taught not to pay too much attention on R^2 anyway.

I don't know any paper, nor think one exists, about the economics of riot clear-ups.

At 8/9/11 07:08 PM, SmilezRoyale wrote: In the case of S+P, it looks as if the prices were brought to an artificially high level in the late 90's, fell in the early 2000's, was brought up again, then fell back to roughly what it would have been had it followed more closely with the trend line set up from approximately 1980 to 1995. but people get so accustomed to the high point that they assume that there's something wrong with the low rather than the other way around. The same way people talk about housing prices, as if they *ought to* have been as high as they were at their peak, rather than following much more reasonable historical trends.

Well, houses are a different issue, since their price determines the soundness of the mortgage, and therefore the solvency of banks. As I said before, inflation can solve that problem, it would be an efficient solution.

At 8/9/11 07:49 PM, adrshepard wrote:

At 8/9/11 05:30 PM, Der-Lowe wrote:

At 8/9/11 11:38 AM, SmilezRoyale wrote: My preference would be for the Federal Government to have spend several times more in the past than what it had actually done, and done so in a very short period of time, say, 4 trillion instead of 1 trillion At least to such a degree that if it failed, the plan's proponents could not have blamed it's failure on the plan being too modest. If it ended up being successful, that's just as good.

I agree, but the political system does not work like that, unfortunately in this case.

At 8/9/11 01:20 PM, adrshepard wrote:

At 8/9/11 11:02 AM, Der-Lowe wrote:

I think the theoretical relationship is muddy. What creates inflation is excess supply of money (excess demand of goods). Expansive monetary policy affects both income and prices (positively), but it is not that growth causes inflation, but that both inflation and growth may have a common cause (reading Durkheim pays off 3 years later).

I don't see how.

This is why mathematics is so important in Economics *glares at Austrians*.
Anyway, this is my model. Any mathematical model in general and in Economics in particular consists of two types of variables, explanatory variables, and explained variables. Explained variables are the ones that the model tries to explain how they behave in respond to a change in the explanatory variables. In this case, the variables we are trying to explain are output, or its equivalent income, and prices. See how thiese are determined by (as always) the intersection of aggregate demand AD and aggregate supply AS.
AD slopes downward because as income increases, there is a higher level of real money demand, and for real supply to expand, lower prices are needed.
Supply slopes upwards because as prices increase, the real wage falls and businessmen are willing to hire more workers, therefore more is produced and output increases.

So my parameters are these: for demand, government expenditures and money supply. Both expand demand outwards.
What I was saying specifically was that as the money supply expands and there is no full employment, then a monetary disequilibrium appears. For money demand to increase, the interest rate must fall, which causes more output, and at the same time, more output is needed so that money demand increases. So at the same price level more output is needed to mantain equilibrium, ie the curve shifts outward. Since AS is upward sloping, the new equilibrium will be of higher prices and higher output.

The theoretical relationship is clear; an increase in income will increase demand, which will raise the price level assuming a constant supply.

Here you fall into a contradiction: you're moving a variable (income) that you're saying it's staying fixed (constant supply). What you would like to move is some factor that affects demand (government expenditures, money supply, pessimism, you name it) but that variable you're moving as a parameter cannot be the variable you're trying to explain!
What I think is causing confusion here is the microeconomic model of demand and supply, where indeed income is a variable that shifts demand, but note the difference: in microeconomics the explained variable is the output of one commodity, which is supposed to be irrelevant in aggregate production.

Even if technological advances increase production, they would still have to keep pace with income growth for there to be no inflation.

Yes, but there my mental exercise was to leave aggregate demand alone, and shock productivity so that Aggregate Supply expands to the right. Since AD slopes downward, there are lower prices and higher income. The ceteris paribus clause applies often in Economics for mathematical simplicity, and clarity.

I don't know Durkheim, but inflation and growth are reflections of price level and consumption, which reflect supply and demand. The empirical evidence as shown by your graph doesn't dispute that, it only suggests the same things aren't being held constant as in theoretical models.

Durkheim, just minor digression of mine: if A and B happen together it may be that A causes B , or that there is event C which is causing both. I meant that if there's growth and inflation, it may be that growth causes inflation, or there is C, expansion of AD, which is causing both.

To test this, the model points that growth and inflation might go different ways if it is that Aggregate supply moves while aggregate demand stays constant. This is what happened clearly three times in the graph: when the inflation rate went up to 12.5% 15% while at the same time growth went down -2.5% and 0%, and then inflation falling to 1.5%? and growth going up to 7.5%. These are all supply side shocks, the first negative, as the US was unable to import enough oil for production, and therefore real income corrected itself through inflation, and the last one a productivity boom that made goods suddenly cheaper, and increased income.
Moreover, Price level and consumption determine inflation and growth tautologically: growth is the percentage change of income over time, and income is consumption, government expenditures, investment and net exports, whereas inflation is the percentage change over time of the price level.

The OP's idea would still lead to inflation barring some dramatic production increase of all goods.

Depends on the size of the transference. The output gap curently stands at 1 Trillion dollars, according to the CBO, so that amount should do the job.

Mah homie lapis, wai ain't u askin ur econometrishian fellas?

Nah, I only got a 9/10 in my Econometrics class :(

*ahem*
DiPasquale and Gläser (1996), inspired by the 1992 LA riots, have run a series of regressions to determine the causes of rioting, based on international data and the race riots of the 60s in the US. Based on those estimates, they show that the probability of rioting in LA in 1992 was quite high relative to most other American cities.
Their approach is similar to neoclassical theory on crime, people riot because it's profitable (marginal cost, benefit, blah blah blah) and adds "community" variables, showing how certain communities might be more pacific and how they are able to reach to an agreement that does not involve setting each other's propert on fire.
Their theoretical model is like this: there are underlying factors in society, that make a fertile ground for rioting. The paper tries to find what these underlying factors are. A trigger appears (generally a violent case against a member of a minority), and hell breaks loose. Why a trigger? Well, have you ever tried to riot by yourself? Most probably, you'll get hit in the head and sent to jail in a minute; there are economies of scale in rioting, and something has to push the numbers of rioters up so that your individual costs of rioting are reduced, and rioting becomes profitable.
They use number of riots for some period as dependent and ethnic heterogenity, real gdp per capita, urbanized population ratio, population, dictatorship (dummy), latin american country (>=(), ethnicity times urbanization as independent variables, all significant.
We would expect a negative relationship between GDP per capita and riots, for GDP per capita serves as an opportunity cost. Dictatorships have fewer riots per year, since rioting has higher costs when there are no constitutional guarantees. Urbanization also increases rioting, ,because abundance of people congests law enforcement and creates information flows across rioters. Finally, ethnicity has a postive relationship, however, relative poverty is irrelevant D:

Finally, their 1960 riots regressions show that nonwhite unemployment (unemployed people have more free time to learn to play an instrument and mass destruction of property), relative homeownership between nonwhites and whites ( if the house is mine, not gonna burn it) are significant at the 10% level, whereas southern city (dummy), nonwhite population, nonpolice govt expenditures per capita (the state will pay for the reconstruction, so burn away) are significant at the 5% level.

However, the R^2 for the second regression sucks, so caution is advised. I wanted to see how the currently rioting cities compared to the cities in the sample, but the predicted probabilities are not shown :(

At 8/9/11 10:34 AM, SmilezRoyale wrote: If they are accepting the official statistics on inflation, then the interest rates don't seem negative to me [yet]

Eh, unless the government is overstating inflation, a divergence of real inflation and announced inflation means that the real interest rates are lower in reality than according to government statistics.
I was talking about the yield of TIPS, Treasury Inflation Protected Securities for the next 10 years. They are indexed to the CPI.

Then again, lending someone money at negative interest rates, if it's the government, is simply a tax.

No? Lending is not compulsory.

And then again again, I don't particularly care if the stock market falls, especially S+P 500, which, by the looks of it, has been held up unreasonably high for 15 years.

I'm more worried about what the fall shows, pessimism about future growth, which has a bit of self-fulfilled prophecy in it.

At 8/9/11 11:38 AM, SmilezRoyale wrote: My preference would be for the Federal Government to have spend several times more in the past than what it had actually done, and done so in a very short period of time, say, 4 trillion instead of 1 trillion At least to such a degree that if it failed, the plan's proponents could not have blamed it's failure on the plan being too modest. If it ended up being successful, that's just as good.

I agree, but the political system does not work like that, unfortunately in this case.

At 8/9/11 01:20 PM, adrshepard wrote:

At 8/9/11 11:02 AM, Der-Lowe wrote: That's true under normal economic conditions. Your central assumption here is that we are under full employment, therefore the economy does not expand when money is created and therefore households do not increase their quantity demanded for money.

I don't think he meant an increase in the money supply through open market operations so much as literally printing the bills and handing them out to people, taking banks and deposits out of the picture entirely.

Well, when people (and economists, heh) say "print money", OMA is generally meant. But anyway, handing the money directly to people would change things completely, since it wouldn't be monetary but fiscal policy, a transfer program. I believe a mild relief program for the poor was included in the stimulus plan. And I'd favor such program, although it'd be a second-best. Transfers should be directed at those who are budget constraint, either statically (those who have low incomes and save little) or intertemporally (those who can't get a loan due to credit rationing).

Charting real disposable income expenditures seems to match the CPI much better than the monetary base does, so a sudden increase in income would probably lead to the inflation everyone's talking about.

I think the theoretical relationship is muddy. What creates inflation is excess supply of money (excess demand of goods). Expansive monetary policy affects both income and prices (positively), but it is not that growth causes inflation, but that both inflation and growth may have a common cause (reading Durkheim pays off 3 years later). An rapid expansion of aggregate supply, caused by technological innovation or massive immigration will lead to high growth and deflation. A supply shock will cause low growth and high inflation.
Graph below shows just that, the oil shocks. Taking a closer look (meaning, I did not post it to make this point, but just realized) it also makes us infer that the recent crisis has been one of a contraction of aggregate demand, ha.

At 8/8/11 09:47 PM, airsoftar wrote: Im not sure if you are serious but for sport I'll take the bait. This plan would cause hyper inflation and ruin the economy irreversibly. For example, say there is 100 Billon dollars in circulation. Now the government prints and enters another 100 Billion into circulation. Now that your money is less rare in the market it is worth less, in this example, half. So an Xbox now costs $1000 and a soda is like $3.00. Take that times the federal debt (trillions) and a 3 bedroom house would cost 4 million dollars. No bueno.

That's true under normal economic conditions. Your central assumption here is that we are under full employment, therefore the economy does not expand when money is created and therefore households do not increase their quantity demanded for money.
Another condition that could lead to a non inflationary expansion of the money supply is that households are willing to demand unlimited amounts of money at the given interest rate. In this scenario, an expansion of the money supply has no real effects (setting portfolio shifts aside) for the interest rate simply does not change, then investment can not react. Therefore, money supply expansion is not only not inflationary, but also not expansionary. If this takes place when the economy is not under full employment, then monetary expansion has no effects "good" or "bad".
This is the situation that we're living in, as you can see from the graph below , increases in the monetary base (currency+reserves) are not causing inflation (CPI Index is completely unrelated to the expansion).

I said "good" or "bad" because moderate inflation is desirable under a deleveraging economy, as Gunner D pointed out. We have lots of households that simply cannot repay their debts. They failing to do so is bad for debtors, but also bad for creditors. A good way of getting to a middle ground is through a reduction of their real debts through inflation.

However, neither inflation nor recovery will happen soon, so we're just talking hypothetically here.

As a side note to Warforger, the hyperinflation in Zimbabwe started as a foreign currency shortage because of a redistribution of land that crippled agricultural exports. The nature of their crisis has nothing to do at all with the US.
SmilezRoyale, your first post on this thread is a pure straw man attack.

At 8/8/11 04:11 PM, SmilezRoyale wrote: By the way *and sorry for the double post* Am I the only one that finds it interesting that the S+P downgrading the credit of the UNITED STATES GOVERNMENT, correspond with a sell off in the stock market, and people rushing to buy US treasuries as a safe haven?

Like Adam said, that means the financial markets are not reacting to it, they are reacting to the risks of recession. If people want out from the private sector (they're selling stocks), and are willing to lend the government at negative real rates, that is, they are basically asking the government to take their money, then logic dictates the government should spend more to reactivate the economy.
How the current Administration does not see that baffles me.

I really don't understand why the US has a debt limit at all. Here the Congress passes the budget (or not) and there it says how much it will spend, how much it will tax, and how much it will borrow. (The central bank also presents its monetary targets by then, so inflation tax is not signed by the same law, but at nearly the same time). Why doing this twice?
Useless, and now even harmful.

At 6/22/11 03:21 AM, lapis wrote: How about 60 billion barrels of oil underneath its coastal waters.

Not really, we want Malvinas because they're righfully ours, or so we are told. I think it's the last unresolved issue of our sovereignty. They were unlawfully (ie, through force) taken from us in 1833 and have remained in British control ever since. The Malvinas march is from the first half of the 20th century, and the war from 1982, way before any oil was discovered. It's a national pride issue, and boy are we a proud nation. Borges described the war as "the struggle of two bald men over a comb", and it was used as an example of irrational behavior in my (American) microeconomics textbook.

And about the "natives", they are the descendants of the British invaders, of course they are going to choose Britain over Argentina. They're pathetic, Britain didn't consider them equals until the 1982 invasion.

@igott, Iron-Hampster, Camarohusky

Krugman, yet again.

--------------------

At 5/21/11 10:41 PM, SmilezRoyale wrote: ___________

Well I read up the wikipedia article on the topic, I'll assume because you didn't provide a specific link that Wikipedia does the job.

Wikipedia is evil (except for getting the functional forms of probabilistic distributions, and its parameters). Here's the Original paper.

I'll begin by saying frankly that I'm amazed something as mundane as this can pass for a momentous discovery in the world of economics.

It was the starting point of the mainstream's treatment of information and contracts, more precisely, asymmetrical information. For this paper, among others, Akerlof was awarded the 2001 Nobel Prize in Economics. If you are interested in its relevance, you should read his prize lecture.

I see this as unlikely save ...

You're challenging axioms here. What you should have clear is that the example is not really an example, an empirical verification of a hypothesis, but a model. It's like challenging profit maximization on the ground that production functions have no derivatives. If the car market works like that or not, is irrelevant. Economics' concerns about information problems do not lie in the used cars markets, but mainly in insurance, financial and labor markets.
The key finding of the paper isn't that it is widespread, or that used car markets work like this, but that these kind of phenomenon is possible, an existence theorem if you like.

in a situation where the market for selling used Cars is highly cartelized, and while I'm not an expert on car markets this seems unlikely. Car sellers are simply engaged in facilitating the exchange of cars from one person to another, we're not talking about someone trying to build some very expensive power plant. There are obviously start-up costs, but they seem relatively small.

Your intuition is incorrect, people have an incentive to lie if they have no sunk costs. A power plant is to be trusted more than a normal salesman. A small firm with zero sunk costs has nothing to lose if it cheats on quality. A power plant, however, has incurred in huge capital costs, that are going to be very costly to be undone. A similar analysis can be made with firms that have reputation, or those who incur in the most popular sunk cost: advertising.
The original treatment on product quality assessment were treated in The Role of Market Forces in Assuring Contractual Performance, by Benjamin Klein and Keith B Leffer.

A monopoly wouldn't cheat, because it would then lose all demand for high quality products. As you said, a guy you're never going to see again and who's trying to sell you his car, however... That's why some people buy used cars only from people they know and can trust.

Either a continuum of seller qualities exists or the average seller type is sufficiently low (buyers are sufficiently pessimistic about the seller's quality)

Deficiency of effective public quality assurances (by reputation or regulation and/or of effective guarantees/warranties)

And i presume this is where the public servant descends from on high to cure the imperfections of Man?

Solutions to quality assessment include branding, guarantees, or official licencing.
Asymmetrical information in other markets may need specific measures, such as mandatory government provided health insurance in the health market.

Forgive the sarcasm but if nothing else, the democratic process is definitionally a lemon market.

Public choice is faced with huge information problems, asymmetrical information is a subset of the most general principal agent problem.

At 5/19/11 07:58 PM, Musician wrote: Take Africa for example. In the post free-market reform period, Africa is completely unable to compete in global markets with its cash crops, against heavily subsidized American agro-business.

This is contradictory. Optimum stationary production if there were no subsidies and the US had a comparative advantage in (let's say) manufactures and Africa crops, would be for the US to export manufactures to Africa and for Africa to export crops to the US.
What US subsidies cause in a free trade world is to reduce that country's comparative advantage. The reason the US and Africa trade is because their relative prices of manufactures to crops is different; crops are relatively cheap in Africa and manufactures are relatively cheap in the US. When the US subsidizes crops, it makes them relatively cheaper in the US (and since we have the assumption of equal prices home and abroad) and in Africa. The difference between the free trade relative prices and the autarchy relative prices is then reduced, reducing the benefits of trade through comparative advantages. Africa and the US trade less because of the subsidies.
If you wanted to create an argument against free trade, surely you wouldn't condemn measures that reduce trade!

Competent economic development demands protectionist policies to nurture infant industries until they are capable of developing economies of scale to compete on the world market.

This is one of the most famous arguments in favor of protectionism. However, given how international economics has advanced, the justification of infant industry protection arises not from economies of scale per se (production functions homogeneous of degree >1) but from learning by doing or "dynamic increasing returns".
The argument is as follows: experience in production tends to lower costs. Therefore, average costs are decreasing in cumulative output. If there are two nations, one with a lower cost schedule for each experience level, then it would be more efficient for the nation with the lower costs to produce the goods. However, this may not be the case if the other nation has started consumption earlier, and has accumulated enough experience so as to have lower average costs than the initial average costs in the other country.
Another argument is that of external economies of scale: concentrating industries geographically tends to lower their costs, creating decreasing costs when production increases. This phenonomenon was discovered by none other than Alfred Marshall himself. SinceEconomies of scale are external to the firm, firms behave competitively, but the industry as a whole has a decreasing average cost function.
The situation is similar: the developed country, having started the production of the good earlier, might be selling belowthe initial cost that the industry in the underdeveloped country( meaning the underdeveloped country won't be able to sell it) but above the cost that would arise if the underdeveloped country would produce if it were the one producing the good. Moreover, the underdeveloped country could be better off by banning imports if the differences in costs were high, since its autarchy price would be below that of the current cost of production of the developed nation, this time instantly, for cumulative output is not needed.

Internal economies of scale are either analyzed under monopolistic competition, where trade lowers prices and increases varieties of goods, since unifying nations creates bigger markets where economies of scale can be exploited.
Another model for increasing returns is oligopolistic competition, with reciprocal dumping and ambiguous welfare effects.

At 5/20/11 08:50 AM, SadisticMonkey wrote:

At 5/19/11 07:36 PM, Der-Lowe wrote: No idea.

Well done, an excellent argument for laissez-faire!

Heh.

Why? Well, because I care about income distribution and growth (communist me)

Fucking socialist. Obviously all I care about is corporations!
I obviously believe that the free market would lead to greater income inequality and economcic stagnation, and that's why I advocate in its favour!

I knew it
-_-

But that's in the long run.

The long run is here, its time to get sober.

Don't drink and derive.

An Austrian basing his argument on mathematical analysis? D:
WHAT'S NEXT? ECONOMETRICAL RESEARCH?

kekeke

It's still a priori :D

anyway, bob murphy has been known tear shit up with empirical data fo shizzle

It needs stata.

For Economics, I read Krugman, Mankiw, Freakonomics, Marginal Revolution , I follow the Economist on twitter, and I read several other blogs in Spanish.
Oddly enough, the Esquire has a nice Politics blog.

Don't read the Wall Street Journal.

At 5/14/11 03:38 AM, Jedi-Master wrote: What is your opinion on free trade? Do you think that it is the greatest thing to ever happen to economics, or do you think it brings nothing but detriment to middle class workers around the world? Do you think it is ethical, unethical, or neither? Personally, I think "free trade" is more efficient and generally superior to "fair trade", although I can see why fair trade is so appealing.

After having studied Economics for 3 full years at University level, and being currently studying International Economics, I can doubtlessly assert the following:

No idea.

Why? Well, because I care about income distribution and growth (communist me)

What does Mainstream Ecomomics say about free trade? Well, the theory of comparative advantages points out to the fact that given full employment, constant returns to scale, perfect competition in good and labor markets, a single factor, given factor endowments, free labor mobility among sectors impossible labor mobility among countries, balanced trade and zero transport costs, opening the economy to trade will have no negative effects on income. If relatives prices differ among countries, then trade will be positive, for countries will be able to exploit their comparative advantage.
When you move to a 2 factor model like Heckscher Ohlin, you see that opening up to free trade has some additional effects.0 You start by assuming equal technology, and define which labor is intensive in which factor. You also have to assume no externalities in production, and no inversion in factor intensity. Basically, if you were the owner of factors that is relatively scarce in your country ( a capitalist in a country flooded will labor or a worker in a capital rich country), free trade will screw you. So far, free trade hurts "the poor" in rich countries and "the rich" in poor countries (FPE). Potentially, however, winners could compensate losers so that everyone consumes more of each good.
But that's in the long run. In the short run, it all comes down to which factor is specific in the production of each good. Basically, owners of mobile factors will be meh about trade, their final decision will be based on whether the exported good is more relevant in their consumption bundle . If you are the owner of the specific factor of an industry that will become an exporter after trade, you win. Otherwise, you lose. Again, losers could potentially be compensated by winners.

So far, potentially is the key word here, and poor countries have it hard to compensate their individuals, because they simply can't collect taxes as easily as advanced nations.
Advanced nations, as well, have to tax corporations, which is kind of impossible with labor mobility.
Given these models, I would approve of trade if there were anti cyclical policies in place, and a system of income redistribution.

If we drop the assumption of constant returns to scale, we move to a world of imperfect competition. Using economies of scale becomes an additional argument pro trade, as well as increased product variety. However, whoever is able to get on the path of economies of scale will win the industry and ripe a net benefit, making protectionism good for the country. History matters under Increasing returns to scale.

And that's only the mainstream. Heterodox economics (German school) will point out that all those models go
L=Lo and K= Ko; ie factors are given. Technology plays a null role as well, so they are static models that do not take into account the effects of trade on economic growth. They argue that well, if you open poor countries to trade you're blocking their possiblities of finally developing "high-value added" industries, because mature countries already have them and will not let them develop these industries, either by market forces or by eh, well, by force. Even the ricardian model points to the evils of technology equalization among countries for the rich ones. That's why Britain forbid to export the technology of its train and manufacture production.

So the answer is basically "I don't know", but I do know why. My Econometrics professor insists that Socratic knowledge is a huge step over no knowledge at all.

Now, to comment on the responses of others.

At 5/16/11 08:12 PM, Punisher33 wrote: Well free trade is a joke it's an excuse that got started during the clinton administration so big busnesses can send jobs over sea's to third world countries

Last time I checked, Ricardo was not Clinton's Secretary of the Treasury. Although your accusation does make for an interesting thought on the effects of free trade+free capital mobility, which I do not remember reading. Hm.

At 5/18/11 11:33 PM, Musician wrote: "Can" does not mean "will". Free trade is often detrimental to developing economies.

The necessary and sufficient condition in the ricardian model is difference in relative prices. As well, you're talking under different models here, he's talking Ricardo, you're talking probably something else.

At 5/15/11 12:19 AM, SmilezRoyale wrote: So stop pretending that without the Leviathan everyone would voluntarily only buy the cheapest and most dangerous goods.

A Market for Lemons anyone?

At 5/14/11 11:32 PM, SadisticMonkey wrote:

At 5/14/11 08:44 PM, Camarohusky wrote: Comparative advantage is a bullshit theory made by the elites to legitimize how their trade practices reinforce the current states of wealth of poverty.

bahahaha, nice assertion. Sadly for you however, you can't really disprove it.
The maths clearly demonstrates that it is necessarily correct.

An Austrian basing his argument on mathematical analysis? D:
WHAT'S NEXT? ECONOMETRICAL RESEARCH?

off topic: Stata is the best program ever.

Okay, let's go by parts. What I think you are saying can be brought down to the following hypothesis and conclusions:

1) OPEC inflates oil prices through the restraining of their production. Ceteris paribus, if they are willing to supply less, there is an oil shortage, and demand must fall through an increase on prices.

Graphically, the demand is unchanged, and the OPEC moves along the demand curve to maximize profit.

We should then see the following in the data for the last years:
a) Rising prices
b) Falling OPEC production
And since (I think) you believe OPEC only is colluding
c) An increase in production from the non OPEC countries, since they behave competitively and increase supply when price increases.

Let me say before getting and processing the data, that your position is more restrictive than what one could originally think. What it is implied in your reasoning is that not only OPEC colludes, but also, that it started colluding now, because otherwise, we'd see the production rationing in the past, and price and production would behave in the same way than in a competitive scenario (price and demand go in the same direction).

My alternative hypothesis to this point is (and was before doing the research) that the price increase was not because of non competitive tactics, but rather by an increase in demand. If my hypothesis is true, then we'd see:

a) Rising prices
b) Increased production both in OPEC and non OPEC nations.

My hypothesis also requires an additional assumption, that oil production shows decreasing returns (supply curve to exist and have a positive slope).

Data
Methodological approach: The two variables that interest us are price of oil, and quantity produced, both by OPEC and by non OPEC nations. For the price of oil I have chosen the U.S. Crude Oil Imported Acquisition Cost by Refiners (Dollars per Barrel) from the Energy Information Administration. My reason for choosing this specific variable is that it is what it is considered to be the "oil world price" since it is a weighted average of all the oil the US buys from every corner of the planet, and data availability. I have brought it to real terms by adjusting with the US CPI
Finally OPEC production data is available from BP Global
I have examined the 2000-9 period on an annual basis.
I will propose the following models

OPECi = a1+b1 * Pricei+ui ; i=1,...,10
NotOPECi = a2+b2 * Pricei+ui ; i=1,...,10

Where OPECi is the aggregate crude oil production of opec nations for the period i in thousands of barrels a day,
NotOPEC is aggregate crude oil production of nations not in the OPEC for the period i n thousands of barrels a day,
Price is the U.S. Crude Oil Imported Acquisition Cost by Refiners for period i in Real Dollars per Barrel.

and solve a1,a2,b1,b2 through the least squares estimation method. Therefore, I will be using classical assumptions.

Results

The stata log is as following:

. regress notopec price if year>1999

Source | SS df MS Number of obs = 10
-------------+--------------------------
---- F( 1, 8) = 30.23
Model | 96704780.3 1 96704780.3 Prob > F = 0.0006
Residual | 25588457.6 8 3198557.2 R-squared = 0.7908
-------------+--------------------------
---- Adj R-squared = 0.7646
Total | 122293238 9 13588137.5 Root MSE = 1788.5

----------------------------------------
--------------------------------------
notopec | Coef. Std. Err. t P>|t| [95% Conf. Interval]
-------------+--------------------------
--------------------------------------
price | 329.7299 59.96687 5.50 0.001 191.446 468.0137
_cons | 25713.65 1507.68 17.06 0.000 22236.94 29190.37
----------------------------------------
--------------------------------------

. regress opec price if year>1999

Source | SS df MS Number of obs = 10
-------------+--------------------------
---- F( 1, 8) = 25.73
Model | 34350143.7 1 34350143.7 Prob > F = 0.0010
Residual | 10681420.7 8 1335177.59 R-squared = 0.7628
-------------+--------------------------
---- Adj R-squared = 0.7332
Total | 45031564.5 9 5003507.16 Root MSE = 1155.5

----------------------------------------
--------------------------------------
opec | Coef. Std. Err. t P>|t| [95% Conf. Interval]
-------------+--------------------------
--------------------------------------
price | 196.5163 38.74395 5.07 0.001 107.1726 285.86
_cons | 28230.74 974.0958 28.98 0.000 25984.47 30477.01
----------------------------------------
--------------------------------------

That is, we see a direct relationship between price and not opec, and between price and opec.
More precisely, an increase of the price of oil in one real dollar increases opec production by 196.51 thousand barrels a day in average, and not opec production in 329.73
Despite the small sample, the probability of price and production having no relationship is very low 0.1%, whereas the probability of price reducing production is even smaller, half of it (being the t distribution symmetric), 0.05%.

And here's the graph:

If the food industry is competitive, then do nothing.
If the food industry is monopolic (ie, there is only one "food replicator") lease it for a period of time to the highest bidder, use the proceeds to fund a transfer payment to everyone else.
Edn.

At 11/21/10 09:44 AM, zephiran wrote: But yeah. Increased stimulus with a mostly sort-of libertarian congress? It's not going to happen unless people actually start wanting it, and they'll only want it when enough bad things have happened to them.

Meh. NK won the elections with less than 20% of the vote, and passed historical reforms that were needed anyway, despite opposition. Obama won the elections by a landslide, and starting compromising right away. He needs the peronist view of "I won, you lost, I call the shots. Better luck next time" And if the economy had recovered, then he would've won the reelection with even a bigger margin, and made all the nay-sayers look like the idiots they are, and THEY would have to compromise, and start saying things like "Well, what we HAD ACTUALLY meant was..."

Actually, I think there's a BIGGER chance that some bright person DOES propose, and manage to enact, a banking reform for negative interest rates.

Though, here's an evil thought:

What if, say, the minimum wage was removed, and the labor unions were banned? That'd totally work, wouldn't it?

Collapsed wages would mean lower demand, would mean fewer jobs, a deeper recession, falling revenue, a higher deficit, more foreclosures, a weaker financial system. Moreover, falling salaries would mean falling prices, which would make debt in real terms higher, which would mean a negative wealth effect on debtors, falling consumption, and stronger recesssion. Falling prices means higher real interest rates, that would depress investment and consumption, making the recession worse.

Huzzah.

Who?
Néstor Carlos Kirchner (Spanish pronunciation: [%u02C8nestor %u02C8karlos %u02C8kir%u0283ner]; 25 February 1950 - 27 October 2010) was an Argentine politician who served as the 54th President of Argentina from 25 May 2003 until 10 December 2007.

Huh? But why?
Kirchner came into office on the tail of a deep economic crisis. A country which had once equalled Europe in levels of prosperity and considered itself a bulwark of European culture in Latin America found itself deeply impoverished, with a depleted middle class and malnutrition appearing in the lower strata of society. The country was burdened with $178 billion in debt, the government strapped for cash.
Shortly after coming into office, Kirchner made changes to the Argentine Supreme Court. He accused certain justices of extortion and pressured them to resign, while also fostering the impeachment of two others. In place of a majority of politically right-wing and religiously conservative justices, he appointed new ones who were ideologically closer to him, including two women (one of them an avowed atheist). Kirchner also retired dozens of generals, admirals, and brigadiers from the armed forces, a few of them with reputations tainted by the atrocities of the Dirty War.
During his first year of office, Kirchner achieved a difficult agreement to reschedule $84 billion in debts with international organizations, for three years. In the first half of 2005, the government launched a bond exchange to restructure approximately $81 billion of national public debt (an additional $20 billion in past defaulted interest was not recognized). Over 76% of the debt was tendered and restructured for a recovery value of approximately one third of its nominal value.

TLDR: Someone courageous enough to do what needs to be done, despite opposition for other political forces. He did all that (read above) with only 20% of the votes.

Just remember not to reelect him, or his wife, or his son, or anyone from his party.

IN THE MEANTIME IN GOTHAM CITY:
Bernanke:
"In sum, on its current economic trajectory the United States runs the risk of seeing millions of workers unemployed or underemployed for many years. As a society, we should find that outcome unacceptable. Monetary policy is working in support of both economic recovery and price stability, but there are limits to what can be achieved by the central bank alone. The Federal Reserve is nonpartisan and does not make recommendations regarding specific tax and spending programs. However, in general terms, a fiscal program that combines near-term measures to enhance growth with strong, confidence-inducing steps to reduce longer-term structural deficits would be an important complement to the policies of the Federal Reserve."

ie "Hey guys, apparently interest rates cannot go below zero. Can I get more stimulus plz?"
A bit late, aren't we? Might've made a difference when the first stimulus was passed.

At 11/4/10 04:09 PM, RightWingGamer wrote:

At 11/4/10 03:37 PM, Der-Lowe wrote: Define Marxism, please.

Excessive government entitlement programs and/or excessive gov't intervention in the market.

Then your statements have all been tautological, you define marxism with the word "excessive", which has a negative connotation, and then conclude it is not desirable.