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At 11/4/10 03:00 PM, Musician wrote:

At 11/4/10 02:47 PM, Der-Lowe wrote: In this particularly dreadful example, the "profit" (more like consumer surplus) means not dying.

Could you clarify this? I don't understand what you're trying to say

The idea of economic profit, and what makes it different from the layman's definition on profit, is that it includes opportunity costs, ie the costs of not taking another action. If my explicit costs are only labor costs, let's say of $100 a year, and my sales are $300 a year, then one would say that profit is $200. However, if I use $2000 of capital and the interest rate is 10%, even if I didn't take a loan to pay for it, my implicit capital costs are $200 (because, having lent it at interest, I could've got $200), and therefore my economic profit is zero.
The whole idea behind economic profit is basically beating the market. If all firms are the same, and there are no barriers of entry, then economic profit for all will be zero, because if their economic profit is negative, then it means they could do better, and therefore change industry, and if it's positive, then more firms will enter the industry until they have no incentives to do so, ie, until economic profit is zero.
However, firms are not equals, some have advantages. Austrians emphasize this is a dynamic process, entrepeneurs are always looking around for positive economic profit opportunities, if not creating them. That's what makes markets shift, and economic variables be in constant motion.
And well the excess "utility" (benefit) over the costs paid for goods is not called economic profit, but consumer surplus, profit is reserved to firms. So instead of smart entrepeneurs making a kill on a new manufacturing process, or creating the most fashionable good, we have smart people that know the adverse effect of a good, and therefore they can avoid death.

Forgot to say that Krugman was a Neokeynesian. I'm not correcting you, but precision is needed because neokeynesians are also known as bastard keynesians by postkeynesians.
Anyway.

At 11/4/10 02:52 PM, RightWingGamer wrote: Oh right, well it worked in Cuba!
Oh right, well it worked in Greece!
Oh right, well it worked in Venezuela!
Oh right, well it worked in China!
Oh right, well it worked in France!
Oh right, well it worked in, uh, nowhere!

Define Marxism, please.

At 11/2/10 07:46 PM, SadisticMonkey wrote: der lowe cheer up
guessing you've already seen it but if not, enjoy

YAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAa aaaaaaaaaaaaaaay
---------------
We don'tcelebrate halloween, I found out about it because I signed in here the other day.
Congratulations Befell on creating a human/bear.

Being an Economics student, this does not surprise me at all. You could add the effects of fiscal policy to the list of "issue[s] on which the emergence of consensus, or near consensus, among scientists has failed to achieve anything close to that among members of the public" and even add Chicago economists to the "non-scientist" list.

Cochrane makes me sad :( I wanted to get my Phd there but after he showed he does not understand Ricardian Equivalence I don't wanna have anything to do with that University.

Actually the information issue has been treated extensively by Austrians. The emergence of economic profit is almost exclusively related to information advantages. In this particularly dreadful example, the "profit" (more like consumer surplus) means not dying.

Also, what's with your sig (again)? Krugman didn't advocate the creation of a bubble, he merely stated that to reflect on the dire situation the US was in 2001.

At 10/25/10 09:25 PM, SmilezRoyale wrote:

At 10/19/10 11:04 AM, Der-Lowe wrote: I was not talking about core inflation, I meant CPI including food and gas.

XD But i *was*, whenever i hear of inflation statistics in mainstream politics, it's core inflation that is used. Maybe that's just my experience.

Ah well, I'd have to give you the upper hand on this, given that your contact with American mainstream politics is obviously much greater than mine.

I heard it during a radio interview,

I used Babelfish to translate the text in order to find out what it was saying, but i think it confused me more than my rudimentary knowledge of spanish considering BF is only 30% accurate :P

The writer's ironic tone does not help, I would think (he celebrates how inflation went down from 32.6 to 31.9%, and how the central bank, instead of tightening the money supply is increasing it so that inflation does not erode the real money supply, ie avoiding the self-correcting mechanism)

I need to ask before i make any comment on the matter, are you saying that the dark blue [bold] line is the 'public' i.e. government data, and the lighter blue line called BsAsCity is the private data?

Yes, private data calculated for the Great Buenos Aires (around 14 million people). The other one is the official inflation reported by the provinces, which, because Argentina is a federal republic, are not subject to (direct) central government control. You'll see that some converge or diverge from the main trend, that has to do with governors going friendly/not friendly with the president. Most notably, Santa Fé and Mendoza.

Are you saying that the consumer will not face a lower utility if both prices increase or not?

I am not.

Again this befuddles me, and I'm sure in your next post you're going to enlighten me on the topic. Ok we've established that they have the income,

ahhhhhhhhh, cut off mid sentence >=(

1) The weights that shift based upon price changes (relatively higher price changes end up with relatively lower weightings) do so by straight mathematical adjustment that the BLS once described as "mimicking" substitution effects. Theshifts are not calculated based on any consumer surveying done, for example, as to how candy bar consumption would vary given relative price changes.

How would you do that? you'd have to take a sample of consumers and ask them their hypothetical consumption preferences with different relative prices of the different goods so as to build their utility function and then apply the mathematical methods neoclassical economics is so fond of. Moreover,merely asking them would not be enough, for the study to be serious, the subjects would have to face real relative price and income changes.
It's really just another cost-benefit analysis the BLS has taken. And exchanging accuracy for lower costs is what statistics is all about, really.

2) I would argue, to the contrary, that it is the so-called "overstatement" in the cost of living that enables the maintenance of a constant standard of living, where the consumer does not have to be concerned with changes in price.

Your view is clearly at odds with neoclassical consumer theory . You'd have to give them an upper hand, because their theoretical construct was carefully built with logical consistency, and, although it is true that it has come under criticism and scrutiny by behavioral economics, it remains mainstream even nowadays. This does not mean that you are not allowed to disagree, but you certainly cannot expect the BLS to base it indexes upon intuition instead of economic theory.

You could probably refute those claims better than I could understand them, but as i see it, he is simply commenting on the difficulty of statisticians to actually know what 'utility' consumers recoup from substitution and thus how much the 'real' inflation rate should diverge from laspyres.

But the point is that Laspayres overstates inflation, and the BLS estimates how much it does. An index that might be right is better than an index that is clearly wrong (by neoclassical economics standards). Moreover, even if we could calculate an exact global index, as the Austrians vehemently say, it would still be approximate, for we are applying it to a heterogeneous group, which have preferences different from the group.

I do agree that the BLS might make poor choices for estimates, but that's not the same as saying that the government is manipulating the inflation rate to make him look good.

At 10/26/10 01:09 AM, SmilezRoyale wrote: I don't want to participate in this 'discussion' except to make a few side points...

Of course you do, otherwise you would've said nothing.

1) The Mises institute went through the effort of organizing the fund raising for the charity, which in itself is probably more than the one hour they are asking out of krugman. Unless you're claiming that 1 hour of Krugman's time i worth more than 100,000 dollars, i find it hard to believe that Krugman would end up spending 100,000 dollars out of his own pocket to avoid the debate with Murphy.

That's what I'd do, but people always spend other's money more freely that their own.

After All, i'm sure he DOES put a bit of time into his blog posts criticizing the hangover theory.

One in the 90s and a few blog posts ever since. IE no.

2) Marxism can be refuted on Aprioristic grounds. And it's almost disgusting that Logical positivists think the way an idea gets proven or refuted is to try it out on a country and potentially subject a nation's citizens to that kind of plight.

The idea of theoretical construction is to create refutable hypothesis. With no empiricism there is no science. I'm not saying that we ought to use different societies as guinea pigs, but all paradigm shifts in macroeconomics have taken place not only by a revolution of ideas, but a major economic phenomenon that could not be explained by conventional theory. And that's how it happens, whether you like it or not.

3) I've heard the argument concerning 'if an idea is valid, why hasn't it been tried yet' a few times before, and i might as well address it now.

That's not what I was saying, I meant quite the opposite, that it is impossible to say whether an idea is WRONG if it hasn't been tried yet, not that it is wrong because it nobody has tried it yet.

4) If Krugman is as brilliant as the mainstream treats him,

He's a brilliant economist in the field he specializes, ie international trade, and can defend himself in pretty much any economic discussion, but that doesn't make him an expert in every subject in economics there is. Economics is too wide a subject of study to be able to claim expertise on it.
A more fruitful debate would be between an expert on history of economic thought ( like my 5th year Professor, Calderón :D).

actual debate over the business cycle that apparently never took place between Hayek and Keynes [as it should have].

I believe there was, Keynes was quite debate friendly (as everyone who has the unpopular theory that wants to spread around is).
Here, I've found it.

At 10/28/10 01:38 PM, morefngdbs wrote:

At 10/27/10 12:26 PM, Der-Lowe wrote: A sad day for Argentina, former President of the Republic (2003-2007)

What !
Another DEAD Politician YAAAAAAAAAAAYYYYYYYYYYYYYYYYYYYYYYYYYYYY YY !

not funny

A sad day for Argentina, former President of the Republic (2003-2007) and President of UNASUR passed away today, at the age of 60, of a heart attack.
Brasil and Venezuela have decreed 3 days of mourning, and presidents of the region are expected to fly here for the ceremony.

At 10/25/10 10:13 AM, SadisticMonkey wrote: Nah socialism is easily refuted before its widespread failure.

Same with laissez-faire policies, no country in the world follows them, because of its social consequences.

Same will happen to Krugman, he probably does not know what Austrian Economics is all about,

And yet he frequently writes about and criticises them....

No, he challenges neoclassical economics, ie Chicago. He wrote a column once about Austrian Economics.

but because Austrian Economics is a marginal school of thought at best, and as such is it not taught in "normal" American Universities, and only marginally here. Why is the Austrian school so unpopular?

never getting a foothold compounds the issue, because not being taught leads to not being taught

Not really, the failures of neoclassical economics, ie, its complete failure to explain prolonged slumps, lead to keynesiansim, Keynesianism's failure to explain high inflation AND unemployment lead to rational expectations, RBC theory et al.

Sigh....(by none other than Robert Murphy himself)

And the claim the Hoover was ALSO a commie, but if you see the graph on govt expenditure, he is resorting to "creative" accountancy or lying.
The claim that WW2 didn't pull the US out of the recession is also false, even by private consumption measures, graph below.

The only way for Austrians to become the Mainstream is for the unstoppable hyperinflation they've been talking about for decades, despite periods of low inflation, stability and growth, takes place.

Decades?

Yes, from the 40s to the 70s.

Our experience with Hyperinflationary economies tells us it's not going to happen, but hey, who knows, maybe you're right. Until then, 95% of economists are Neokeynesians, and in 95% of Universities Neokeynesian economics is taught.

Keysneianism: Even their Nobel laureates are disastrously wrong.
lol

Yes, that's why nobody hires mainstream economists and we're all unemployed. Oh wait, we have full employment and make a nice sum of money. The market must not work, then. Or, we're not wrong.
Choose.

Hell, no. Demand management and income distribution are the topics in Economics that interest me the most.

I didn't think you did,

Yeah, well, I'm not really certain, but as the day of me graduating gets closer (2 years left) I'm trying to decide.
Economic Policy in general looks fun. But you tend to be overworked and underpaid so *shurgs*. The financial sector pays well and looks boring, in comparison. And Academia pays little and it's the most competitive of the three.

and i misunderstood what you said.

Anyway its stupid because the same people who clamour for endless taxation, regulations and wage and labor controls are the ones who act all outraged and surprised when there isn't full employment.

You're saying that taxation creates unemployment?

It's also stupid because they will complain about lobbyists and "corporations owning capitol hill" and everything, and then when this results in artificially high wages for one end of the economic spectrum, turn around and blame "the free market".

Well, anyway, you seem to have a specific group in mind, whereas the author is Keynes and really has nothing to do with what you said.

I'm talking about literal equality.

Ah, ok then.

At 10/21/10 09:43 AM, zephiran wrote:

At 10/21/10 07:47 AM, Der-Lowe wrote:

At 10/20/10 04:54 PM, zephiran wrote: God knows if this is true though.

House really popular in Finland or are you a kind of a House freakie? :P

House IS really popular in Finland. Not as popular as Conan O'Brien, but he's getting there.

I think I read that story on the back of the first season House DVD box or something...

Conan O'Brien, really? How odd. But well, you invented your own tango so *shrugs*
And don't try to hide it, you are a House freakie. But you're not alone, judging by staff's linky.

@Proteas
Never had a job, so I don't know :/
I was quite scared about it when I chose my course of studies, but my professor told me that since our Uni is teh shiz all of us get employment, and the pay is quite good (I'll make as much as my mum the moment I graduate, and twice her income in 3 years, but she's a high school teacher, so not really a challenge to beat her paycheck), especially if you work at the bank. He says it is to compensate for the boringness of make ends meet by buying and selling stocks.

Jackass, eh, don't like it.
aaaaaaaaaaaaaaaaaaand I learned that if you keep your heart beats below 160/minute you can run indefinitely.

WHY HAS NOBODY EVER TOLD ME THIS BEFORE??????

I have to run uber slow (8 minutes the km O_O_O_O_OO) , but well, I ran 30 mins like nothing. Will run 40 tomorrow. ^_^

At 10/25/10 08:15 AM, SadisticMonkey wrote:

At 10/25/10 07:56 AM, Der-Lowe wrote: And do you think that debating with Austrians would be pleasant to him? Would you be entertained if I threw you in the middle of my local Marxist party?

Lol he is always criticising them, both explicitly and obliquely.
I'd love the chance to rip on Marxism in front of a lot of people, and based on how much he dislikes free market economists he should enjoy getting a chance to publicly embarrass them.

The thing is that you don't know Marxism, therefore you'd probably lose, and you'll know you're right, because marxism has failed in the most crucial source of accuracy of a theory: it failed. Are we 100% certain? No, because Communism in general has a spectrum of policies and views, therefore, who knows, maybe if "real" marxism would have been implemented, it would've worked.
You'll be frustrated because you know you're right (or mostly right), but they'll win the argument, in the sense of creating the most logical construct.
Same will happen to Krugman, he probably does not know what Austrian Economics is all about, not because he is an ignorant that knows nothing of Economics, but because Austrian Economics is a marginal school of thought at best, and as such is it not taught in "normal" American Universities, and only marginally here. Why is the Austrian school so unpopular? Mainly because Keynesianism was a great success after the Great Depression, not only it gave a solution, an active course of action to be taken, which is better in the western world than doing nothing and waiting, but because it worked, and the US was able to come out of the Great Depression as the world superpower. All the claims against it, that it would create inflation, inefficiency, etc were wrong, or at least until the 70s. Only then, not because someone came up with a better theory, but because theory ceased to explain reality was it that the "Mainstream" changed from Keynesianism to the Neoclassical Synthesis.
The only way for Austrians to become the Mainstream is for the unstoppable hyperinflation they've been talking about for decades, despite periods of low inflation, stability and growth, takes place.
Our experience with Hyperinflationary economies tells us it's not going to happen, but hey, who knows, maybe you're right. Until then, 95% of economists are Neokeynesians, and in 95% of Universities Neokeynesian economics is taught.

Because people who disagree with me are dumb!

Wait..you disagree with the statement ?

Hell, no. Demand management and income distribution are the topics in Economics that interest me the most. I was accusing you of thinking the quote was stupid because it did not agree with what you believe in.
On the other hand, your quote IS most idiotic, because none of the Welfare States turned into a totalitarian regime, and that's the common scare tactic used by conservatives. It's completely wrong, because the OPPOSITE is true, the places that experienced a communist revolution were the countries with high income inequality, because they had not turned into a welfare state.
Unless, of course, you believe that Social Democracies ARE totalitarian regimes, then congratulations, you got yourself a tautology.

At 10/25/10 07:40 AM, SadisticMonkey wrote: Or he could stop being a woman and just debate.

Because women are inferior.
And do you think that debating with Austrians would be pleasant to him? Would you be entertained if I threw you in the middle of my local Marxist party?

Also your sig is dumb :[

Because people who disagree with me are dumb!

If I were Krugman, I would decline to debate because of the appallingly low moral standards of the Austrians, and donate the 100,000 myself.

At 10/22/10 04:08 PM, SmilezRoyale wrote: @DerLow

Trying make highly controlled laboratory experiments out of statistics gatherings is precisely the problem here; you can't. There is no way thus far discovered that you can account for every possible variable that could effect the outcome of an 'experiment'

I am aware of the complications of it, but simplifying is the ley motiv of my course of studies so *shrugs*.
And your criticism would be valid if I had reached an r^2 of 1 and gone AHA, IT WAS REGULATION ALL ALONG!, then you could shout SPURIOUS CORRELATION and all that.

And even if we could, the 'number' of regulations, it's not so much their number as their effect. When we want to see how much energy a country is using, counting the number of appliances they have is a messy way of doing it, to say the least.

Who ever said I counted the number of regulations? I took the data from the OECD (as I've said) and used the PMR, as it can be seen in the graph, and if you Google PMR OECD you come to the OECD,and two clicks later, you get here, which clearly shows that the PMR is much more than counting.

At 10/24/10 05:59 AM, lapis wrote: I wonder what caused that spike between 1940 and 1945. It's probably health care reform or something similar, which would make Memorize's comparison to other presidents very valid.

Making fun of Memorize would be too easy, so let me focus on another thing the graph shows.
See that gigantic spike of spending during the commie years of FDR, the infamous New Deal?
No? Me neither.
How was the US going to get out of the GREAT depression with such a small spending increase?
That's why the definitive study of fiscal policy in the '30s, by the M.I.T. economist E. Cary Brown, concluded that : "fiscal stimulus was unsuccessful "not because it does not work, but because it was not tried".

At 10/24/10 07:58 AM, SadisticMonkey wrote:

At 10/22/10 08:11 PM, Drakim wrote: The europian nations don't have a republican party doing everything in their power to freeze the actions of elected leaders though. If they ever get their act together, they will at least have the possibility of doing some smart things, unlike America, which is always a start.

Let me guess, when you're bankrupt and heavily in debt, the "smart" thing to do is...borrow and spend even more, right?

Actually, you can. There's a fallacy of composition taking place with the debt issue, which a school of thought that is entirely microeconomic would surely miss.
As households try to cancel their debt, they obviously consume less. You'd say that the creditors would consume as well, and therefore compensate for the diminished consumption, but this is not so, because debitors have a higher marginal propensity to consume. So as everyone tries to pay debt back, because GDP is plummeting (and maybe there's even deflation, which makes the vicious cycle worse) Debt/GDP increases.
A much better solution would be to have our pie and eat it too: Government, who has a much softer liquidity restraint (was going to say trap, hahaha) can print money, lend it to itself, and spend it. It increases its debt, but it also pushes GDP up, through increased output, and maybe even inflation. Then, the debt problem the economy was in ends. Once the debt induced depression is over, the Government can commit itself to long term budget balance path, which won't be as harsh, considering that GDP is higher, so it can sustain higher debt.
Don't believe me?
I'm not talking hypothetically, I'm describing history:

YES MORE GRAPHS
and yes I continue to steal from PK's blog

At 10/24/10 01:46 AM, Camarohusky wrote:

At 10/24/10 01:26 AM, Memorize wrote: Which I consider a tie because the highest amounts of public debt are all Democrats.

It would seem that the most astute revelation from this graph is that when the economy is bad spending goes up.

Eh, his graph is debt/GDP, so it doesn't really treat spending. As I've said, the deficit could go up because of falling revenues, and moreover, the debt/GDP ratio could go up because of um, a recession that makes GDP plunge.
Here's the graph for expenditures in real dollars (2005 dollars):

I agree with the stance lapis here has taking, that your claims are, imperfect.
The high deficits we are experiencing right now have little to do in most cases with irresponsible spending, but rather with collapsing revenues do to lower economic activity, and minimum automatic increase in spending due to social programs, as unemployment benefits.
The US is the most blatant example, and Spain was even running a surplus before the crisis, unlike other European nations, yet its budget situation is temporarily worse

*cough*Germany*cough*

At 10/21/10 08:22 AM, SadisticMonkey wrote:

At 10/18/10 12:44 PM, Der-Lowe wrote: Of course not. My statistics says precisely that: since the R^2 is low, there are other explanatory factors involved.

Why do you assume the quantity of regulation is what matters?

This is how the scientific method works

Hypothesis
Experiment
Comparing results with Hypothesis
If correct, then Theory
If incorrect look for new hypothesis

I could've chosen whatever Hypothesis I cared for, evidently regulation (actually, regulation as measured through the OECD index) evidently is not the main explanatory factor for it.

Certain regulations so obviously have a far greater effect than others, and this simple minded "oh look no blatant correlation i guess its wrong" thinking is, well, simple minded.

It is one of the simplest econometrical methods, but it's better than nothing and quabbling about possible causes with no empirical observations (or vague ad hoc ones) to back up your claims.

Or even worse, using a synthetic object of study and extrapolate to reality with no empirical confirmation.

Well, I provided a tentative answer, leaving the moralistic approach to others.
Interestingly, Frank (the author of my Micro I book, <3) states that economists HAVE a say on morals, and that income inequality is definitely BAD and we should try to reduce it.
The most interesting thing I have read today :D

So much for economics being a science.

Economists should say why there is inequality and how inequality can be reduced (and the effects of policies with such aims). But economists explicitly making value judgements or claims about "morality" end up being used as political bludgeons.

So much for me ever linking to sources, if nobody cares to read them and say exactly the opposite of what the author says.

At 10/20/10 03:14 PM, Ravariel wrote: So my roommates just had twin girls! Mono-amniotic, which is like a 1/60,000 thing and has a 50-80% mortality rate.... both babies are doing fine.

Well, good for them!
Myself, I just learned what monoamniotic means.

Unrelated, anyone have a cheap room to rent in the Ann Arbor area? >_>

I wish.
Living off rent ftw.

At 10/20/10 04:54 PM, zephiran wrote: God knows if this is true though.

House really popular in Finland or are you a kind of a House freakie? :P

At 10/20/10 09:40 PM, SmilezRoyale wrote: I'm just going to Copypasta a relevant quote.....

That's why I linked Frank's article?

At 10/21/10 06:34 AM, gumOnShoe wrote: I've had a hard time finding sources to back up this theory, and that's mostly because I can't find anyone who has done the research.

Well, now you have Frank's paper :D

No idea what that is :S
But apparently, the Sun is not good for his skin.

More disturbingly with stuart little and the president of the US

I watch House. And Friends. Aaaand two and a half men.
Edn.

And I'm sick :(
Stupid cold

At 10/19/10 05:00 AM, SadisticMonkey wrote:

They're doing another round because the inflation rate was SO LOW this year.

And I explained why.

besides, you do realise that oil, precious metals and agricultural commodities i.e. things affected by inflation are all out-performing the Dow jones, right?

The Dow is also affected by inflation. Firms hold real assets, and sell real products.

Or maybe your scenario will happen and the fed, which consists of the world's best economists,

HAHAHAHAHAHAHA oh my god this is too easy.

Ben Bernanke, chairman of the fed, who has a PhD in economics from MIT which makes him a certified super expert on economicz, had been saying that there would be no housing collapse as early as 2005 right up to late 2008. So, he was kind of disastrously wrong for years on end.

According to him, his greatest intellectual influence is Paul Samuelson, who won a nobel prize in economics, making him pretty much as much of a certified super expert as one can be, said some things like this:

"It is a vulgar mistake to believe people people in Eastern Europe are miserable." (1976)

Of course, millions of people had died and many more were impoverished and starving.

"The prospect of the Soviet union exceeding the US in per capita standards of living by as early as 1990 is not the least bit implausible, and will in all likelihood be a reality." (1973)
"Contrary to what so many sceptics had earlier believed, the Soviet Union is proof that a socialist command economy can function and even thrive" (1989)

The soviet union was dissolved in 1991, after tens of millions of deaths. Gee, the best economists in the world are kind of complete fucking morons.

Most importantly Samuelson claimed that after the US dropped the dollar standard, the price of gold would plummet. Instead, it actually rose and has not once fallen below its gold standard price. This proves just how pathetic the Keynesian understanding of monetary theory is, and this the guy the Fed's chairman primarily bases his understanding of economics upon!

First of all, Bernanke et al, (ie, the Mainstream) is not Keynesian but neo keynsian, which is the sythesis of Keynesianism with Neoclassical Economics.
Secondly, that they have been wrong in the past does not mean that their whole model of thinking is wrong. Moreover, a view held by one economist does not necessarily mean that all the economists close to him/her methodologically think the same. For example, Krugman had been crying bubble on the housing market for a long time. On Samuelson's take on the USSR, he decided to accept the USSR's shaky statistics. We don't even know today when the USSR stopped growing (some say late 60s).

The Austrians have been fundamentally wrong on the effectiveness of aggregate demand managing, which was the leading policy through the period of greatest prosperity in the US, 1945-1970.
Then came Barro and the neo classics, and to compensate the neoclassical synthesis, which concluded in growing disparity that was one of the major causes of the current crisis. However, there is no political initiative to trigger a WW2 scale spending surge. Core inflation is going negative, unemployment is at 10% and nothing is being done.
Japan, here we go!

At 10/18/10 07:13 PM, SmilezRoyale wrote: Sorry, i really should be replying to these things more often, With crappy college internet connection I'm less inclined to go online.

Heh, I thought that online happened here because of the low budgets and corrupt student councils.

$2 for hot water!!! $2!!!!

At 10/13/10 11:58 AM, Der-Lowe wrote: That's a well-known (among economists) psychological bias that exists with the inflation rate: people tend to notice only when some prices go up, but ignore that in their overall basket of goods many are left unchanged and therefore the inflation rate is lower

I'm not saying that what constitutes inflation for the average joe is different from what statisticians are interested in because of psychological factors, I'm saying that a consumers interpretation of Core inflation being seemingly less than what consumers are now dealing with precisely because consumers do not ignore food and energy when looking at changes in prices over time like statisticians do.

I was not talking about core inflation, I meant CPI including food and gas.

I wanted to find a paper, but could only find a paper-ish article here
The author you quoted is either ignorant or the phenomenon, or simply hypocritical by purposefully failing to mention it.

But even if he did not know that people psychologically overstate inflation,

He Stated that older consumer price indexes methodology has made them more distant from it's original purpose; to see how much individual incomes would have to rise to maintain the same living standards. Reading the first paragraph makes it appear to be an appeal to popularity, but he talks about the flaws in their reasoning.

That's what happened here with the inflation tensions induced by the devaluation of the peso in 2002, people didn't believe the govt, but private organizations calculated it by themselves and came up with similar inflation rates.

I'd like to read about that.

I heard it during a radio interview, as the journalist was kind of ridiculed, itll be impossible to find the recording (and it was in Spanish anyway). What I can provide is a graph that compares inflation rates when the government didn't use to lie, compared to now. You'll see here how the private estimates on inflation (light blue, series is called GBA Buenos Aires city, GBA= Great Buenos Aires, Buenos Aires city is the name of the organization that calculates it) and GBA alone is the public data. All the other series are from Provinces that are not under control of the federal government (those that skyrocket together, that is).

It is, substitution effect is defined in economics as the change of composition of the bundle consumed by an individual when relative prices between the goods are changed, with his real income (utility) remaining constant.

I said relative prices don't have to change. What I mean is that if the price of steak and hamburgers both rise by, say, 5%, and consumer incomes remain the same, substituting the hamburgers for the steak might be a utility maximizing act, but only relative to having to buy steaks at the higher price, that doesn't mean they're just as well off as they were had the prices not risen in the first place. If prices rise and you have to change your lifestyle to accommodate for the fact that your real income is falling, you're still 'losing' utility.

I know, that's the income effect, substitution effect has a sine qua non condition the change of relative prices. Can there be substitution without substitution effect? YES, because one of the goods is an inferior good and the other a normal good. Will the consumer face a lower utility if both prices increa

It's not, the explanation I can make without jumping to graphs, is that individuals given the same income that will allow them to buy the same bundle with the new prices will increase their welfare because they will substitute goods.

This sounds ridiculous to me, unless I'm misinterpreting it. If prices rose to such a level that people eating catfood instead of roast duck [Because the price of catfood now equals what roast duck was priced at some number of years ago] Can someone actually say with a straight face that the utility hasn't changed?

The thing is that the total change is (methodologically) divided into two step:
1) The income effect, which is reduces utility
2) The substitution effect, which is positive but never manges to offset the loss of utility by the income effect.

Measuring by laspayres (what the bls used to do) ignores 2), and therefore overestimates inflation. What the bls uses is a mathematical procedure to estimate 2). There will only be a substitution effect if relative prices change, by substitution, but there might be substitution nevertheless.

At 10/5/10 05:13 PM, Patton3 wrote: With your charts there DerLowe, aren't you trying to measure something that is influenced by numerous factors (i.e. Income inequality) yet you're only showing two factors, regulation and government spending. Certainly over bearing regulations and over taxation/massive borrowing to fund that are large factors, yet I don't think they're the only ones.

Of course not. My statistics says precisely that: since the R^2 is low, there are other explanatory factors involved.

Yet this doesn't answer my original questions of what caused this,. has this wealth been truly earned, and so on and so forth.

Well, I provided a tentative answer, leaving the moralistic approach to others.
Interestingly, Frank (the author of my Micro I book, <3) states that economists HAVE a say on morals, and that income inequality is definitely BAD and we should try to reduce it.
The most interesting thing I have read today :D

Hahahahaha.
Well, in all honesty I didn't understand it (ie agree with it) at first either.
But as Von Neumann said, in Math you don't understand things, you get used to them.

At 10/9/10 10:12 PM, SmilezRoyale wrote:

Oh, he is so, ugh, wrong. He's just another conspiracy theorist.
on (1)
Economists are interested in core inflation because it allows us to see how inertial inflation is doing.

That the statisticians want inflation statistics based on prices that move with less extremity seems self evident. But when inflation statistics are put on the news, they are reported as being such that their semblance to the prices most people care about in their every day lives is remote to say the least.

That's a well-known (among economists) psychological bias that exists with the inflation rate: people tend to notice only when some prices go up, but ignore that in their overall basket of goods many are left unchanged and therefore the inflation rate is lower.
I wanted to find a paper, but could only find a paper-ish article here
The author you quoted is either ignorant or the phenomenon, or simply hypocritical by purposefully failing to mention it.
But even if he did not know that people psychologically overstate inflation, his whole methodology is wrong: he uses common sense to prove a claim: it's like saying that scientists are wrong about the sun being millions of km away from earth by saying "Come on, look at the sky, isn't it obvious that's a 1m wide burning plate that's a few km away?". The correct way of proving the bls wrong would be to calculate an index of his own, but that would prove him wrong and uh, take longer.
That's what happened here with the inflation tensions induced by the devaluation of the peso in 2002, people didn't believe the govt, but private organizations calculated it by themselves and came up with similar inflation rates.

and (2) is also blatantly wrong. the type of index used to calculate CPIs all around the world, that is Laspayres, OVERestimates inflation, not underestimates it. Apparently, the bls has dealt with this by correcting the index for it to account to substitution effects.
More info here

Quoting from the source you gave me...

"No. In January 1999, the BLS began using a geometric mean formula in the CPI that reflects the fact that consumers shift their purchases toward products that have fallen in relative price."

They don't necessarily have to fall in relative price in order to create a substitution effect.

It is, substitution effect is defined in economics as the change of composition of the bundle consumed by an individual when relative prices between the goods are changed, with his real income (utility) remaining constant.
There might be substitution between bundles and no substitution effect, simply because one of the goods is an inferior and the other a normal good. If my income is doubled, I will probably change from consuming my cheap 1.25 dollars notebooks and buy a fancy executive one, which costs 2.15

I'm sure the BLS, and accounting agencies in general produce multiple variants of statistics that are confounded with one another, and, somewhat to no fault of their own, the best ones are cherry picked by politicians.

Another claim that I have not seen proved (or at least some empirical confirmation) is that the media reports core inflation as being the "real" inflation rate.

"Some critics charge that by reflecting consumer substitution the BLS is subtracting from the CPI a certain amount of inflation that consumers can "live with" by reducing their standard of living. This is incorrect: the CPI's objective is to calculate the change in the amount consumers need to spend to maintain a constant level of satisfaction."

I may be misreading this, but if they want to 'calculate the change in the amount consumers need to spend to maintain a constant level of satisfaction' then no substitution would be required. If the price of a steak and a hamburger both rise by 15%, and people marginally switch to hamburgers, you could only say that in order to maintain their satisfaction they would have to spend 15% more on that steak, but they simply aren't willing to do that.

It's not, the explanation I can make without jumping to graphs, is that individuals given the same income that will allow them to buy the same bundle with the new prices will increase their welfare because they will substitute goods. What the BLS calculates is a slutsky compensation, but what it wants to measure (and it's impossible because it does not know the preferences of all consumers) is a hicks compensation.

At 10/9/10 10:38 PM, SmilezRoyale wrote: http://www.shadowstats.com/article/speci al-comment

Ah well, he did take the time to analyse the data more deeply. Most of his reply is irrelevant to my criticism, the part that interests me in the last: on quality adjustments, and his index corrections. I'm a bit pressed for time, so it would be impossible to me to get on the data and argue it, but it seem to be way off, even above inflation perceptions.
Rechecking, I won't be able to check it since it requires me to pay an amount which is waay off of my budget, so I'll have to leave it there.