DamnYankees: MattStafford: The problem is that people who do not provide anything to the economy are being cut out of it, which has a negative effect throughout the economy. For example, if a guy was being paid to dig ditches and fill them back in, and then was fired from that job, would you say his problem was that he has a lack of money or that his problem was he had no marketable skills/services.

So...where's the scarcity? Keep in mind, this line of argument is about scarcity, and how fundamentally that's the explanation for the situation we're in. Using your ditchdigger story, what's the scarcity which is preventing him from getting work?

There is a scarcity of people who will pay him to dig ditches and fill them back up. That is the only scarcity in that situation.

imontheinternet: Today, most large scale business models work on building demand for existing supply through marketing. The price that people are willing to pay is governed by perceived value rather than actual value, and the gross deviation of perception from reality is the product of marketing.

The value of any good is subjective. Value is not rational, in the sense of being objectively quantifiable. Most people have a certain degree of similarity in the values they place on various goods, but it's nowhere near being objectively rational. The whole "rational consumer" issue is a strawman.

Voiceofreason01: MattStafford: If we start cutting the DoD budget, it would be detrimental to our economy.

It's only bad in the short term. Look up the broken window fallacy; making bombs and ammo doesn't improve society, in fact, it draws away resources that could otherwise be spent on more creative projects.

/disclaimer: this is a very simple way of looking at the problem and there are a couple very important issues I did not address

I entirely agree. Doesn't that seem to invalidate the Keynesian idea of stimulus spending? Cutting the spending in unproductive sectors will cause a downturn as all of those people are laid off and have to find new work.

DamnYankees: Ok. So we can easily remedy that. Have the government pay him.

With what? Money?

If so, from what source?

Phinn: imontheinternet: Today, most large scale business models work on building demand for existing supply through marketing. The price that people are willing to pay is governed by perceived value rather than actual value, and the gross deviation of perception from reality is the product of marketing.

The value of any good is subjective. Value is not rational, in the sense of being objectively quantifiable. Most people have a certain degree of similarity in the values they place on various goods, but it's nowhere near being objectively rational. The whole "rational consumer" issue is a strawman.


Now wait a minute. Total Fark is about as rational a way to spend $5.00 as you can get.

GAT_00: snocone: GAT_00: Meanwhile, let's examine the current counter to the economic Krugman backs as working: austerity. It has failed in every country, all it does it cut GDP which cuts tax revenue which then fails to close the deficit gap it was designed to do since the people who promote it are incapable of seeing the reaction to their actions, and has caused England, who came up with it, to fall into a double-dip recession.

So I think any smart person would look just at that and go 'Hey, I think Krugman might be right here.' Of course, we are dealing with the GOP, so that isn't happening.

What works is taxing the rich 'till there are no rich no more.
Guaranteed results!

And here we present the other part of the argument, people who are incapable of seeing a middle ground and actually think the sum of current leftist economic ideas is 'tax the rich into the ground.'

They are rather stupid. I believe they spelled it "Amerika" which is how they finally crossed the line into "easier to ignore than to hope for sense."

DamnYankees: Phinn: DamnYankees: Ok. So we can easily remedy that. Have the government pay him.

With what? Money?

If so, from what source?

There are various options for how a government can get money - foreign investment, domestic debt issuance, printing money. What method is best depends on the circumstances. Right now, when interest rates are incredibly low, borrowing makes good sense.

None of those solve the underlying issue, however. The problem is not a lack of money, it is a lack of demand for his services. He is unemployed the moment the government cannot afford to pay him. Right now we are running a deficit of over a trillion dollars, and that money corresponds to real jobs. Unless you believe we can continue to come up with a trillion extra dollars a year, eventually we are going to have to start cutting. And as we've seen in Europe, once you are forced to start cutting, the economy starts to spiral down. More likely, we will just print to make up that trillion dollar deficit, and get some massive inflation instead. Either way, the problem is simply that we shouldn't be paying for ditch diggers with deficit spending. If we want a strong safety net, raise taxes, don't borrow. Borrowing leads to destruction.

DamnYankees: Phinn: DamnYankees: Ok. So we can easily remedy that. Have the government pay him.

With what? Money?

If so, from what source?

There are various options for how a government can get money - foreign investment, domestic debt issuance, printing money. What method is best depends on the circumstances. Right now, when interest rates are incredibly low, borrowing makes good sense.

In doing so, you have accomplished several negative effects.

First, you lose the benefit of whatever genuinely productive, desired work that this hypothetical man would have done if he had not been paid to do nothing. That desired work goes undone, or at an increased price, which means that some other good that would have been purchased with that extra money is not spent on something.

Second, government doesn't have any money of its own, because its money is obtained by force. Regardless of whether the money you use to pay the hypothetical man is tax revenue that is spent immediately, or he is paid with borrowed money that is then repaid with tax money, the true source is the taxpayer. By paying people with money that is taken by force, you are necessarily losing the purchase of the good that the taxpayer would have bought if he had been allowed to spend it himself. (We know that the government's purchases are different, which is why the money is taken by force in the first place.) You are therefore diverting an expenditure from a more-desired good to a less-desired one, or maybe a wholly undesired one (a guy doing nothing).

Third, when the man is paid with money invented out of thin air, you distort the market for whatever his labor might have been. Whatever labor is traded on a market, just like everything else, but now people who would employ him are competing with the government, who has no economic pressure to run its operation at a profit. The government has a tremendous capacity to sustain heavy losses (considering the fact that everything it does is That Which People Don't Want To Pay For). As a result, producers and consumers are less able to discern the market price for labor, and everything that is affected by the presence or absence of this man's labor. You've introduced more noise into the system of communication between producers and consumers.

All of these effects represent a net loss of wealth.

Multiply this net loss by several million people, and billions if not trillions of dollars every year, and you have an economy that is being dragged down.

(This doesn't even count the systemic costs that come with creating a large, dependent parasitic welfare class, which is catered to by an equally parasitical political class, and the proliferation of massive amounts of endless propaganda needed to keep people voting for more and more of other people's money, and thus the proliferation of a media class to cheer the whole thing on. All of these people could be doing things that are far more useful, if they weren't engaged in this racket. We can add the loss of their productivity to the list of net costs of your proposal.)

demaL-demaL-yeH: Just because markets are not completely rational does not mean that price suddenly stopped being an extremely efficient market information mechanism.

Price is the only market mechanism. Markets are information processors, and price is its information.

demaL-demaL-yeH: Central banks exist to guarantee market liquidity and to buffer the boom and bust cycle.

Central banks exist for the reason that every government-sponsored cartel exists -- to line the pockets of the cartel members at the expense of everyone else.

Also, central banks create the boom and bust cycle. In a free economy, the constant errors that producers and consumers make every day would be diffused throughout the economy, not clustered as they are in a central banking regime.

Phinn: Generation_D: Krugman's been right more often than not

Except for the time he thought it would be a good idea to create a housing bubble. That sure worked out well. From October 7, 2001:

economic policy should encourage other spending to offset the temporary slump in business investment. Low interest rates, which promote spending on housing and other durable goods, are the main answer.

Krugman: moran, economic criminal.

This.

DamnYankees: That was a long post. Made me chuckle though, so good on you.

It takes a while to describe the magnitude of the economic harm your ideology has caused, and will continue to cause.

The aggregate losses are not measurable.

Phinn: Third, when the man is paid with money invented out of thin air, you distort the market for whatever his labor might have been. Whatever labor is traded on a market, just like everything else, but now people who would employ him are competing with the government, who has no economic pressure to run its operation at a profit. The government has a tremendous capacity to sustain heavy losses (considering the fact that everything it does is That Which People ...

That's intentional.

The normal result of an economy like this one is for companies to pay less and less for workers as jobs become scarcer. Eventually, jobs pay next to nothing.

The whole purpose of the Fed and the banking system, and many of the laws, is to prevent scarcity from snowballing. When unemployment is greater than the number of jobs available, unemployment and the minimum wage keeps pay from falling too low. When the number of jobs is greater than the number workers, the government creates immigration visas so we can get more workers from other countries. If a government doesn't do that, the economy will collapse, as happened several times prior to 1912.

There are three ways for the government to get the money to do this: taxes, borrowing, and printing new money. Printing more money tends to be the fairest way to do this, as it's effectively a tax on money. The more money you have, the more new money affects you.

And that brings us to another point- right now, we need inflation. Inflation makes money less valuable. This means holding onto money will make you lose money. Therefore, you should spend it. When you spend money, you increase demand. When demand increases, production increases in order to supply it. When production increases, more people get jobs.

And right now, that's the top priority.

demaL-demaL-yeH: Dear fark,
The term is Ponzi scheme. Ponzi is a proper noun.
Thank you.

Are you you sure it isn't a Fonzi scheme?

DamnYankees: Because as we all know, there were no bubbles or crashes before 1913.

Before 1913, similar credit-expanding effects were achieved through the use of less comprehensive means, like special protections for insolvent banks, price-fixing of currencies, devaluation decrees, state-level cartels, etc. The Fed merely organized and systematized the whole operation.

This goes back a long way. Ancient Rome destroyed its monetary economy through the debasement of its coins with inferior metals. It led to massive inflation, followed by increasingly draconian penalties for violating the anti-inflation edicts that followed. It wrecked the European economy for a few centuries.

Imperial Spain experienced an economic disaster following its boom in currency that it extracted from the New World. Through military means, gold and silver were mined and shipped to Europe, where the injection of new money caused a boom. The monetary expansion distorted the Spanish economy so thoroughly that the entire Spanish economy collapsed by the mid 1600s.

This process is very old. The only thing that's new is that the creation of money has been freed from the constraints of physicality, and now dollars can be created by the millions with just a few keystrokes.

DamnYankees: MattStafford: More likely, we will just print to make up that trillion dollar deficit, and get some massive inflation instead.

Ah yes, the spectre of inflation we're always warned about. You know, the one that has only gotten even moderately worrisome once in the last hundred years. What a rational fear.

Once we can no longer borrow money (will be soon, the only people buying are Japan, UK, and the Fed - none of which are positioned to be long term buyers) we will presented with two extremes. On one end we cut our government spending by our deficit (which will lower revenue even more, so more cuts) and the other we simply print the deficit. Either will be extremely painful. You can scoff at the idea of inflation, but it will happen.

Phinn: demaL-demaL-yeH: So, you're hanging your hat on the proposition that prices in an economy with a common currency are not real, unreliable and distorted?

What magic medium of exchange would you use, oh great economic wizard, Bitcoin?

Central banks do not exist to provide a common currency. Different forms of money can be traded, just like anything else. There's a certain convenience value in having a common currency, and that convenience value has a market price, just like anything else. No one has any way of knowing what the market value of such commonality of currency is, because the government mandate and currency monopoly destroyed that money-trading market.

Money should be whatever people choose voluntarily.

Governmental action destroys market information. That's what it does. That's its purpose and function.

Well who the hell is going to volunteer to use a form of money they don't have? If we didn't have the government printing money, we'd have several different forms of currency, depending on where and when you got a loan/job. If you don't believe that, just look at credit cards. Different forms of currency, not always universally accepted, with differing degrees of value based on their usage.

imontheinternet: If actors cannot be trusted to be rational, what is the virtue of letting them operate without a safety net?

What finer grade of human being is supposed to be supplying this safety net?

Phinn, if nothing else, you are helping us determine whose arguments quickly devolve into ad hominem. Good job at keeping an ever temperament.

I usually get the same reaction from a certain core segment of liberal farkers whenever I post this

impaler: Phinn: impaler: You've failed to address the problem of the creation of wealth without an increase in money supply. If money remains fixed, but the number of goods and services increase, the price of those goods and services decrease...............

Yes, in a stable monetary regime, all else being equal, as efficiency and productivity increase, prices decrease. That's a good part of the reason for the amazing material bounty that we enjoy today, and why things like shoes are so cheap, historically speaking, when they've been beyond the reach of even moderately poor people for most of human history. It's why food is insanely cheap today,

Those things are cheaper because of automation and industrialization. Not because of monetary policy. My point went completely above your head.

One of the tenets of capitalism is that it spurs innovation and efficiency, weeds out the weak and wasteful. By it's very nature, the system itself demands prices go lower. If it works as it says, then we should constantly see an increase in efficiency and innovation, and prices should constantly be going lower. If they don't, which they aren't, then it is inherently broken, which is it.

imontheinternet: Private enterprise brings innovation and growth, while regulatory schemes minimize abuse and depletion of resources, and social safety nets keep the people at the lowest end of the economic spectrum from starving to death.

Finding the proper balance is key, not completely dismantling either side. Having zero regulations will lead to abuse, while over-regulation and central planning will stifle growth. A hybrid economy is far superior.

That's a pleasant, facile, middle-of-the-road position to take, full of comforting thoughts about moderation and born of an essential intellectual conservatism, but the problem with it is that it explains nothing about how the real world actually works, has no scientific or analytical basis whatsoever, and is premised on several outright false assumptions, the first of which is the idea that something as extraordinarily complex and multi-variant as an economy is capable of "balance."

But if it makes you feel better ...

impaler: The system itself makes no such demands for lower or increasing prices. There is no reason that prices should constantly be going lower.

Sure, it does.

The entrepreneurial functions of a business are primarily focused on increasing efficiency. This is true because the business owner, in exchange for being paid last and on a contingent basis, is paid for his executive decision-making services to the extent that he reduces costs and maximizes revenue. What is called "profit" is actually the market price for these entrepreneurial services (i.e., identifying a profitable line of business and selecting all of the factors of production). If you do these things better, you get paid more. Price (both in terms of revenue and overhead) is what guides every decision.

That kind of entrepreneurial freedom is what spurs constant improvement, adoption of new technologies, and implementation of other efficiencies, but only when they are economically beneficial (i.e., they do not cause a company to experience a net loss).

impaler: Only yours is actually contradicted by scientific analysis.

No, it isn't.

Hey, this self-serving declaration thing is easy and fun!

impaler: There's a name for your affliction:

I am starting to think that yours is Tourettes. I mean, who the hell needs manners anyway, amirite?

imontheinternet: Ah, yes. And, Free MarketTM capitalism is based on irrefutable mathematical models and historical examples of success.

No, economies are too complex to either model mathematically, or to draw reliable inferences from historical experience. There are no control groups, and economic processes are irreversible.

We're stuck with logic a reason.

imontheinternet: I never said perfect balance is obtainable, but the perfect is often the enemy of the good.

It's not. "Balance" doesn't exist in a system of several billion actors making hundreds of economic decisions every day, based on their imperfect awareness of what physical resources exist and what everyone else in the world is doing or not doing. The magnitude of complexity of that system is greater than most people are capable of appreciating, even if they wanted to.

demaL-demaL-yeH: Do you see that source URL?

Yeah. Doesn't change the fact that the chart was made by the GAO using the CBO Alternative Baseline Scenario.

Sorry for the kooky link, but my computer skills are not good enough to link to a pic from a pdf.

Voiceofreason01: impaler: Yep. I'm actually surprised anyone still pretends that people are rational actors in an economy.

it's still a useful way to model certain systems(commodities for example) and an excellent teaching tool, although you have to invent concepts such as utility to make it work beyond very basic examples. The problem is when you end up talking to freshmen business majors who just passed "intro to economics" with a cool 'C' and are now convinced that they know everything.

It also doesn't help that people really ARE "rational" actors...by the economists' definition of "rational".

To an economist, "rational" just means (to paraphrase) that "someone does something because they think it will get them something that they want", and has nothing to do with rational in the sense of "rational thinking".

In other words, someone who sends their life savings to a TV preacher because they think God will give them twice as much money as a reward is acting, by economic definitions, "rationally".