Fair enough... I just thought that ET wouldn't be a natural destination of choice for an economist.
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M
morganist
Quote from Martinghoul:
Fair enough... I just thought that ET wouldn't be a natural destination of choice for an economist.
i am not like other macroeconomists i do it because i care. my work is related to new tools used to control the economy for example instead of using interest rates to control inflation i created this thing called the current pension rebate.
http://www.morganisteconomics.org.uk/Documents/ThePensionProblem.pdf
it uses pension contributions and the tax relief to increase or decrease liquidity and doesn't have the knock on affects of the interest rate on capital generation.
i am viewed as being the considered economist. as in i take all people into account and have answers. rather than waste of time self gratifying policies to maintain power.
Quote from morganist:
it's an economics forum where else would i be. unlike other macroeconomists i think it is important to take other peoples opinions in consideration.
What do you think of that perception and terminology. Do you think it is useful.
most people aren't on ET, even under "Economics" seeking to bask in the glory of, or to get buy-in for, their clever new terminologies for the dismal science vernacular.
I think you accidentally veered off the interstate on your way to "academic papers."
M
morganist
Quote from TraderZones:
What do you think of that perception and terminology. Do you think it is useful.
most people aren't on ET, even under "Economics" seeking to bask in the glory of, or to get buy-in for, their clever new terminologies for the dismal science vernacular.
I think you accidentally veered off the interstate on your way to "academic papers."
the terminology is just a way to make explaining that situation easier. it by no means has an attempt to bask in glory of any type.
for example without a name for inflation would you be able to discuss it easily or would you have to explain the whole thing again and again.
I'm not an economist but it seems to me that one often overlooked source of rising prices (as opposed, at least at first, to monetary/credit inflation) is increasing prices of raw inputs.
If there is a kind of peak oil type scenario unfolding, or if supply of raw materials can't keep up with new global demand, then relative utility of physical assets will have risen, independant of credit, money or employment. This would bleed through to most other prices. If a commodity-based inflation were to slow the economy without being able to adequately quell commodity price increases (perhaps a result of decoupling or global rebalancing where demand continues to grow in Asia for example) then expansive monetary and fiscal policies would be relatively useless or else outright dangerous. And yet how else to service one's debt? An indebted nation in a commodity-caused stagflation would seem to be in a rather tough spot. Would this scenario fit into your dualflation? Is it maybe similar to your decreased competition model in the sense that there is some exogenous reason for prices to increase, aside from money, credit and employment?
Part two of the ramble:
Meanwhile, Japan just reported the worst deflationary numbers of a deflationary decade. Why might this not happen elsewhere? I recognize that in Japan's export-oriented economy prices were set at extremely high levels to begin with, in part through an exhaustively redundant supply chain, the demantling of which causes falling prices. Additionally any lowering of tariffs in Japan can cause falling prices. But something else seems to be going on. Fiscal stimulus Nippon style hasn't had much of an effect it seems. Low interest rates have helped carry trades flourish and perhaps have been a source of excess liquidity exported by those trades, and therefore a source of our housing bubble(s).
By excess liquidity I guess I mean money and credit expansion beyond GDP. So maybe in today's world, if there are low rates here in the States, dollars could flow out toward a decoupled Asia and Brazil with higher rates (and higher growth), helping to fuel a credit expansion there? In this sense it might be possible, conceivably, in my non-economist's naive conception (if not outright confection) for US private expansions of money and credit to flow out while at the same time the US gov't might temporarily at least continue to suck money into its coffers, until a better promise than US treasurys is found.
So maybe to add another dualism, the US could become more of a private lender and a public borrower. That would appear to be the trend so far, I guess, with the trade deficit falling as dramatically as the fiscal deficit rises...
At some point though, this perhaps last stage of dollar dominance would crack, one would think. If by that time there were still no replacement for oil, then the US (and I suppose the UK as well) could be in a very tight spot...
To conclude:
Does this make sense to you? Part two of the ramble is admittedly fuzzier than part one... But maybe my active imagination will lead you to a new spark. What would the trade balance effects be of your dualflation? What happens on a global level?
Oh yes, and if the US turned into more of a lender than a spender, it could mean that the US (and similar economies) could be funding the use of commodities there rather than here, no? In that sense our lending would fuel their fuel use, something easily overlooked.
Needless to say, I really really really hope we're not at peak oil...
If there is a kind of peak oil type scenario unfolding, or if supply of raw materials can't keep up with new global demand, then relative utility of physical assets will have risen, independant of credit, money or employment. This would bleed through to most other prices. If a commodity-based inflation were to slow the economy without being able to adequately quell commodity price increases (perhaps a result of decoupling or global rebalancing where demand continues to grow in Asia for example) then expansive monetary and fiscal policies would be relatively useless or else outright dangerous. And yet how else to service one's debt? An indebted nation in a commodity-caused stagflation would seem to be in a rather tough spot. Would this scenario fit into your dualflation? Is it maybe similar to your decreased competition model in the sense that there is some exogenous reason for prices to increase, aside from money, credit and employment?
Part two of the ramble:
Meanwhile, Japan just reported the worst deflationary numbers of a deflationary decade. Why might this not happen elsewhere? I recognize that in Japan's export-oriented economy prices were set at extremely high levels to begin with, in part through an exhaustively redundant supply chain, the demantling of which causes falling prices. Additionally any lowering of tariffs in Japan can cause falling prices. But something else seems to be going on. Fiscal stimulus Nippon style hasn't had much of an effect it seems. Low interest rates have helped carry trades flourish and perhaps have been a source of excess liquidity exported by those trades, and therefore a source of our housing bubble(s).
By excess liquidity I guess I mean money and credit expansion beyond GDP. So maybe in today's world, if there are low rates here in the States, dollars could flow out toward a decoupled Asia and Brazil with higher rates (and higher growth), helping to fuel a credit expansion there? In this sense it might be possible, conceivably, in my non-economist's naive conception (if not outright confection) for US private expansions of money and credit to flow out while at the same time the US gov't might temporarily at least continue to suck money into its coffers, until a better promise than US treasurys is found.
So maybe to add another dualism, the US could become more of a private lender and a public borrower. That would appear to be the trend so far, I guess, with the trade deficit falling as dramatically as the fiscal deficit rises...
At some point though, this perhaps last stage of dollar dominance would crack, one would think. If by that time there were still no replacement for oil, then the US (and I suppose the UK as well) could be in a very tight spot...
To conclude:
Does this make sense to you? Part two of the ramble is admittedly fuzzier than part one... But maybe my active imagination will lead you to a new spark. What would the trade balance effects be of your dualflation? What happens on a global level?
Oh yes, and if the US turned into more of a lender than a spender, it could mean that the US (and similar economies) could be funding the use of commodities there rather than here, no? In that sense our lending would fuel their fuel use, something easily overlooked.
Needless to say, I really really really hope we're not at peak oil...
M
morganist
Quote from day4night:
I'm not an economist but it seems to me that one often overlooked source of rising prices (as opposed, at least at first, to monetary/credit inflation) is increasing prices of raw inputs.
If there is a kind of peak oil type scenario unfolding, or if supply of raw materials can't keep up with new global demand, then relative utility of physical assets will have risen, independant of credit, money or employment. This would bleed through to most other prices. If a commodity-based inflation were to slow the economy without being able to adequately quell commodity price increases (perhaps a result of decoupling or global rebalancing where demand continues to grow in Asia for example) then expansive monetary and fiscal policies would be relatively useless or else outright dangerous. And yet how else to service one's debt? An indebted nation in a commodity-caused stagflation would seem to be in a rather tough spot. Would this scenario fit into your dualflation? Is it maybe similar to your decreased competition model in the sense that there is some exogenous reason for prices to increase, aside from money, credit and employment?
Part two of the ramble:
Meanwhile, Japan just reported the worst deflationary numbers of a deflationary decade. Why might this not happen elsewhere? I recognize that in Japan's export-oriented economy prices were set at extremely high levels to begin with, in part through an exhaustively redundant supply chain, the demantling of which causes falling prices. Additionally any lowering of tariffs in Japan can cause falling prices. But something else seems to be going on. Fiscal stimulus Nippon style hasn't had much of an effect it seems. Low interest rates have helped carry trades flourish and perhaps have been a source of excess liquidity exported by those trades, and therefore a source of our housing bubble(s).
By excess liquidity I guess I mean money and credit expansion beyond GDP. So maybe in today's world, if there are low rates here in the States, dollars could flow out toward a decoupled Asia and Brazil with higher rates (and higher growth), helping to fuel a credit expansion there? In this sense it might be possible, conceivably, in my non-economist's naive conception (if not outright confection) for US private expansions of money and credit to flow out while at the same time that the US gov't might for a while continue to suck in money into its coffers, until a better promise than US treasurys is found somewhere in the world.
So maybe to add another dualism, the US could become a private lender and a public borrower. That would appear to be the trend so far, I guess.
At some point though, this last stage of dollar dominance would have to crack, one would think. If by that time there were still no replacement for oil, then the US and I suppose the UK as well could be in a very tight spot...
To conclude:
Does this make sense to you? Part two of the ramble is admittedly fuzzier than part one... But maybe my active imagination will lead you to a new spark. What would the trade balance effects be of your dualflation? What happens on a global level?
the first part definitely makes sense. this was one of the fundamental arguments made by keynes. it is called cost push inflation when the output of the economy reduces and the price rises. unfortunately it is largely dispelled by macro economists since monetarism became dominant they claim inflation is only as a result of monetary stimulus in other words it can only be caused by excess money supply.
i myself agree with you inflation can be brought about by rising costs but monetarist would argue it is a supply shift and will dissipate over time. if you want to read some current economists that take your view thomas palley is good.
in relation to japan they save so they have low levels of demand thus deflation. the worse the economy gets the more they save so it gets worse. they tried negative interest rates in the 90's it was not that successful.
i hope that helps.
Quote from morganist:
In the next few years the likelihood of inflation is seen as a strong possibility and the cause of it is debated (if it occurs). There are a couple of opinions as to why it will occur if it does occur.
The first being over stimulation of the money supply through the fiscal stimulus, which some economist do not believe will increase output but rather stagnate and simply devalue the currency. This is one possibility as to why the inflation position might occur. The other is less accepted the concept that there will be a reduction in the ability to increase output or a reduction in output with no increase whilst the money supply holds or increases.
This is not a widely accepted reason for inflation since the 1970's when the augmented expectation phillips curve questioned the occurrence of such a situation. However if there is a reduction in the number of manufacturers and monopolies rise from the economic misfortune the price for goods will rise. As a result I think that it is likely that a form of price rise will come from a reduction in output ability and monopolisation over the next few years.
When you put these two factors together namely the over increase of money supply through the fiscal stimulus and the monopolisation and price rigging that is likely to occur during the downturn I have coined the term dualflation.
The reason for the name is based on the principle that there are two main causes for the inflated prices in the economy and that the term biflation is already used to denote when some prices are going down and some are rising.
What do you think of that perception and terminology. Do you think it is useful.
Well, you know what they say about economists....micro-economists are wrong about specific things and macro-economists are wrong about things in general.
Money supply has increased by an astonishing amount because the Fed has been buying practically every asset it can get its hands on. The fiscal stimulus has hardly been touched and will likely filter through very slowly. Either one is simple running of the printing press, though.
I accept the second position that the money supply will remain too high (especially in light of Fed Funds rates at 0%) in the face of falling output. I don't think there is a reduction in production capacity (why? No capacity has been destroyed). Increased taxes and a more progressive tax code will discourage the risk taking necessary to start and grow businesses. This puts downward pressure on GDP while the Fed floods us with money. So, the reduction in production will be incentive driven, not through a loss in capacity.
Of course, inflation is the goal. Governments benefit from inflation because it is a stealth tax which benefits borrowers and hurts lenders. As a net borrower, the government overwhelmingly benefits at the expense of the population.
John Maynard Keynes: "Lenin is said to have declared that the best way to destroy the Capitalist System was to debauch the currency. By a continuing process of inflation, government can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and while the process impoverishes many, it actually enriches some. ââ¬â As the inflation proceeds and the real value of the currency fluctuates wildly from month to month, all permanent relations between debtors and creditors, which form the ultimate foundation of capitalism, become so utterly disordered as to be almost meaningless; and the process of wealth-getting degenerates into a gamble and a lottery."
indeed
I don't accept your monopoly argument at all. Non-government mandated monopolies are very difficult to maintain. As soon as the monopoly raises prices such that it is earning excess profit, other firms are attracted by such rents to enter the business. Thus, I don't believe for an instant that monopoly pricing will be the cause of any meaningful inflation.
At the end of the day your "dualflation" is just plain inflation resulting from growth in money supply outstripping output. Inflation is always about the money supply relative to output.
Sorry, but I don't buy your argument, thus I don't think the terminology is useful. Are you in undergraduate studies in economics or are you a graduate student?
Quote from morganist:
in relation to japan they save so they have low levels of demand thus deflation. the worse the economy gets the more they save so it gets worse. they tried negative interest rates in the 90's it was not that successful.
That makes no sense. Saving and investing are synonymous. Japan is an export economy, thus it doesn't really depend on domestic demand. Thus, if the Japanese save, they are really making their earnings available for production of goods.
The problem with Japan is not the savings rate but the fact that taxes are incredibly high and revenue is used for inefficient government run programs like its terrible national health service and keeping Zombie companies alive. The incentive to work is low and so is optimism.
M
morganist
Quote from Angrycat:
Well, you know what they say about economists....micro-economists are wrong about specific things and macro-economists are wrong about things in general.
Money supply has increased by an astonishing amount because the Fed has been buying practically every asset it can get its hands on. The fiscal stimulus has hardly been touched and will likely filter through very slowly. Either one is simple running of the printing press, though.
I accept the second position that the money supply will remain too high (especially in light of Fed Funds rates at 0%) in the face of falling output. I don't think there is a reduction in production capacity (why? No capacity has been destroyed). Increased taxes and a more progressive tax code will discourage the risk taking necessary to start and grow businesses. This puts downward pressure on GDP while the Fed floods us with money. So, the reduction in production will be incentive driven, not through a loss in capacity.
Of course, inflation is the goal. Governments benefit from inflation because it is a stealth tax which benefits borrowers and hurts lenders. As a net borrower, the government overwhelmingly benefits at the expense of the population.
John Maynard Keynes: "Lenin is said to have declared that the best way to destroy the Capitalist System was to debauch the currency. By a continuing process of inflation, government can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and while the process impoverishes many, it actually enriches some. ââ¬â As the inflation proceeds and the real value of the currency fluctuates wildly from month to month, all permanent relations between debtors and creditors, which form the ultimate foundation of capitalism, become so utterly disordered as to be almost meaningless; and the process of wealth-getting degenerates into a gamble and a lottery."
indeed
I don't accept your monopoly argument at all. Non-government mandated monopolies are very difficult to maintain. As soon as the monopoly raises prices such that it is earning excess profit, other firms are attracted by such rents to enter the business. Thus, I don't believe for an instant that monopoly pricing will be the cause of any meaningful inflation.
At the end of the day your "dualflation" is just plain inflation resulting from growth in money supply outstripping output. Inflation is always about the money supply relative to output.
Sorry, but I don't buy your argument, thus I don't think the terminology is useful. Are you in undergraduate studies in economics or are you a graduate student?
it is good to have a decent response. although i don't agree with your position in entirety. i think there will be price rises due to monopolisation because of the difficulties in starting new businesses up to compete with the larger ones due to credit constraints and the lack of incentive for people to invest due to low interest rates. so i don't agree with your argument there due to the difficulties that the economy will create for entering a market with constrained capital when there is already an established provider there.
in relation to your argument against my first point that interests me. because that is the more widely accepted reason for inflation in macro economic circles currently due to the inflation is a monetary caused situation view by monetarists. you are pretty ballsy to go against the mainstream view although i understand why you have taken that stance.
to your last point. i am a macroeconomist not student or new graduate. it makes me wonder why you thought that. did you not think my position was valid. perhaps i did not explain enough but it is difficult to get people to read detailed posts so i kept it simple. in relation to my views, that would have no barring on my occupation or progress through my occupation some macroeconomist have very wild views mine are fairly common.
there are many macroeconomists who argue about inflation and how it should be catergorised if anything my post should make you think i am a marcoeconomist.
anyway thank you for your reply. it is good to get another persons opinion and it was well written with some good argument some of which i espouse.
oh sorry i forgot to answer you point on reduction of capacity to manufacture. the fact is there will be little investment to enable the ability to manufacture to the capacity that it existed previously. you also have to take into consideration that when the products manufactured altered the labour force has to develop the skills to produce them so they will need retraining. this will take time. although there will be an emergence from the recession once the ability to generate sufficient capital to enter these new markets and also retrain people to manufacture them it will be a few years at least and there will likely be a short term reduction in manufacturing and service providing capacity, apart from very menial forms.
M
morganist
Quote from Angrycat:
That makes no sense. Saving and investing are synonymous. Japan is an export economy, thus it doesn't really depend on domestic demand. Thus, if the Japanese save, they are really making their earnings available for production of goods.
The problem with Japan is not the savings rate but the fact that taxes are incredibly high and revenue is used for inefficient government run programs like its terrible national health service and keeping Zombie companies alive. The incentive to work is low and so is optimism.
actually savings and investment are not necessarily synonymous. as the bank holds the money people save and then invest it they act as the agent. this causes problems for example at the moment receipts of money in banks has risen however the lending out to businesses has fallen because of the high risk that the bank has to take. because the bank acts the agent people don't take the risk into consideration they just take the low return the bank offers and don't question where the money is going. it is not necessarily invested in new businesses in fact the interest rate for new start ups is high if they can get that money in the first place. that is part of the problem at the moment is people cannot get credit due to the investment problems banks have. until september 07 banks would sell off debts as credit and default derivatives now no one is buying so they have to take more of that risk on themselves making them less willing to lend.
although your position makes some sense on a macro level in financial reality it makes no sense. by your judgement of a macroeconomist you are one yourself wrong about things in general.
also in relation to japan having negative interest rates due to saving. it is history not my opinion here is a link.
http://money.cnn.com/1998/11/06/economy/japan_bank/
i wasn't stating that as my logic but merely what happened. it is common knowledge this was the case and there are some macroeconomists that support it now for example willem buiter in england.
my personal opinion is that it does not work but i was just informing the poster what the common macroeconomic stance is.