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tdnola

Does the law of supply apply to non-profit maximizing producers?

Let's take oil companies as an example. Oil companies are making record profits due to high prices. My question is would a nationalized oil company -- either a government agency or an SOE that pursues public policy objectives -- produce less if it lowered prices to normal levels? My understanding is that private firms are willing to offer more higher priced goods on the market as a way to maximize profits. However, wouldn't it then mean that a publicly-owned oil producer that doesn't have the aim of maximizing profit would be able to sell petroleum at normal price levels without disincentivizing production and leading to shortages?

AskEconomics

Yes, that is essentially what happend in several state owned oil companies, such as PDVSA (Venezuela). They made production and price decisions for political reasons rather than economic ones. They increased pay and employment for political gain. They kept domestic prices low and used the profits from foreign exports to fund other domestic social programs. It can work if the state behaves responsibly by staying within the budget constraints that the company's profits provide. The problem is that the state's incentives are fundamentally misaligned. It's like expecting a private company to look out for the public good even though they only get rewarded for increasing profits. It CAN work but there's no gaurantee.

mzuhko

Can Nations still prosper without "economic growth" or GDP growth?

Just read a long government report on the possible global trends of the near future. Even in their most optimistic scenario they couldn't envision a world where economic growth ceases in order to stave off destabilizing climate change problems. While I understand we can still fight climate change while still growing the global economy I think there are potential benefits to not doing so. So my question is, how necessary is economic growth to the well being of nations?

AskEconomics

Can you state what you mean by prosper? E.g. life expectancy, cultural output? And how rich are you assuming that a country is before its future growth stops? Switzerland having no more economic growth is a different scenario to the Democratic Republic of Congo having no more growth.

5d9agl

Why did the 0.25% move to my street? Boston, MA

For 12 years I (have live/d) in the Jamaica Plain neighborhood of Boston, MA, three blocks from Egleston Sq, where there is often violence, gun shots, stabbing, etc. About 5 years ago, Atai Lourie, an investment banker and his family moved to our street (Robeson). They now own four residences, including my (former) apartment building. Has the concentration of capital actually become so extreme that the 0.25% are being "forced" to move out of their comfort zone, to find acceptable levels of profit? Thank you.

AskEconomics

I assume 0.25% refers to the top 0.25% income earners? In this case, purely out of curiousity, how did you estimate that this guy is in the top 0.25% or better yet, that he's representative of his cohort? If you're drawing conclusions about reality based off a single case, you could make the evidently ridiculous assumption that self made multimillionaires never leave their initial dwelling, based on the fact that Warren Buffet hasn't done so.

5nqbzj

How to calculate R squared from the auxiliary regression of u hat squared (residuals).

I'm just going over some last minute revision on the Breusch-Pagan test and am not to sure on how to calculate the R squared value for the F or Chi squared test. Thanks.

AskEconomics

Breusch-Pagan is a test for heteroskedasticity. The R^2 you want for the test comes from an auxiliary regression of the form `u^2 = b0 + b1(x) + e ` Where u^2 are the squared residuals from your original model. The relevant test statistic is nR^2 where n is the number of observations and R^2 is the R^2 you got from the squared residuals regression. The way to get the R^2 from the squared residuals regression is the same way you'd get an R^2 from any regular OLS regression: 1- (RSS/TSS). The classic residual sum of squares over total sum of squares method. The test-statistic has a chi^2 distribution. I invite anyone to feel free to correct me if I've made an error.

5q48b3

Question about Universal Basic Income/Nationalizing individual commodities with automation

I didn't really know what to title this. I just had a question kicking around in my head. I am familiar with the concept of universal basic income and some of its flaws/intricacies. Basically, I understand it's a model that would only work in a post-scarcity society, and we can't implement it in today's world because there's still too much scarcity. Often a solution like UBI will be shot down in comments on reddit as entirely a bad idea, or, at the very least something that is only a theoretical thing that doesn't apply to our current economy. Today I was thinking about our economy(nationally)(USA) and I was thinking about how as we automate ourselves out of some jobs, it might help one company individually but might hurt our country's economy as a whole, *in comparison to its rival/competing national economies*. The way I see it, automation has the potential to obsolete a major chunk of our current workforce. We won't be in a post-scarcity economy, but we'll also increasingly brush up against issues properly distributing goods to everyone who needs them. As wealth inequality starts to tip the scales *too far*, it starts to hurt even those with the wealth at the top - because our nation won't remain competitive against rival economic powers if we automate ourselves out of competition with them. What I'm saying is, automation -> people can't afford goods -> economy stops working -> other nations surpass us. So since UBI can't be a blanket solution to this problem, at least not yet, I was thinking... What if we did it piece by piece instead? Say we make radical advancements in our ability to produce food. Immediately the new automated/vertical/indoor gardening comes to mind. If we build a technological/automated means to create food, what about this? Nationalize all production of food of the type which has been automated. Remove all incentive for (excess,middle-man)monetary profit from the system. Utilize automation in place of labor. Distribute the resulting food to citizens of the country at a free or extremely low price. Provide all that is needed for citizens of your own country, then sell/export any excess food produced - and use those sales to somehow invest in further prosperity of our own nation. The logic here is that we as a nation are competing with other nations. We do not help ourselves as a country if we automate ourselves out of jobs, yet automation is clearly superior to human labor. If we look for a way to use automation to help us instead of hurt us, it can help us get a further advantage against other countries which don't do the same. Imagine how much people's *individual prosperity* would increase if we were able to do this with even one of their monthly bills. Imagine how much that prosperity could be a vehicle towards economic stimulation(And competition against our rivals!) I'm completely an armchair economist here. Can anyone who knows what they're talking about tell me if this is a good or flawed idea?

AskEconomics

>The way I see it, automation has the potential to obsolete a major chunk of our current workforce. [In short, technology creates more jobs than it destroys in the long run because it raises the value of jobs that humans can uniquely do.] (http://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.29.3.3) That's why the agricultural revolution didn't result in 40% unemployment for the next 100 years. To help in the short run though there should be something like help with re-education. Of course, you're probably thinking about some all-powerful AI that can do everything better than us. That would entail a massive amount of computing power and a surpassing of the human brain's capabilities. At the very least, that's very, very far into the future. * Scientists barely understand how the [human brain works.](https://www.nytimes.com/2014/11/11/science/learning-how-little-we-know-about-the-brain.html) We're still making progress on understanding how a [jellyfish functions.](http://redwood.berkeley.edu/bruno/animal-eyes/jellyfish-papers/Neuroscience%20and%20Biobehavioral%20Reviews%202011%20Albert.pdf) * It takes a [supercomputer nearly an hour](http://www.telegraph.co.uk/technology/10567942/Supercomputer-models-one-second-of-human-brain-activity.html) to simulate 1% of a human brain for a second. * Moore's law is [slowing down,](https://www.technologyreview.com/s/601102/intel-puts-the-brakes-on-moores-law/) and has been for the [past few years.](https://www.technologyreview.com/s/601441/moores-law-is-dead-now-what/) * Quantum computing is in its infancy, and quantum computers, if they come about in the next few years, will cost a fortune.

s953v5

Can the stock market always beat the economy, or will index funds eventually only return at the same rate as GDP growth?

Proponents of financial independence and many hobby-investors will tell you that a broad index fund gives an annual return of 5-7% over time, beating the growth in the economy as a whole. Looking at historical numbers, this at first seems like a fair observation, though if I look a bit closer the difference seems to have grown fairly recently (the last 30 years or so): US numbers (not inflation adjusted): GDP growth since 1929: +19 800% S&P 500 since 1929: +24 400% Discrepancy: 23% higher growth in **S&P 500** than GDP. GDP growth since 1990: +250% S&P 500 since 1990: +1280 % Discrepancy: 412% higher growth in **S&P 500** than GDP. If we exclude the last 30 years, the picture reverses: GDP growth from 1929 to 1990: +5 600% S&P 500 from 1929 to 1990: +1 830% Discrepancy: 206% higher growth in ***GDP*** than S&P 500. What mechanisms underpin the higher historical growth of stocks vs the economy, and especially in the last 30 years? Is it a transfer of wealth from public sector to private sector? Is it a concentration of wealth in bigger companies (who dominate the index funds?)? Is it the effect of globalization, giving international companies fantastic growth as their markets have 10x-ed? Is it something entirely else? Are these factors likely to continue? Surely stocks on average can't grow infinitely compared to the rest of the economy, but will eventually have to return to the same rate as GDP growth? For comparison, here are some more numbers for my own country, Norway (Measured in NOK, so would have to correct for that to directly compare to US numbers. Neither set of numbers are per capita either): GDP growth from 1929 to 1990: +1 032% Oslo Børs Index from 1929 to 1990: + 1 435% Discrepancy: 39% higher growth in **Oslo Børs Index** than GDP. GDP growth from 1990 to 2020: + 355% Oslo Børs Index from 1990 to 2020: + 1 078% Discrepancy: 203% higher growth in **Oslo Børs Index** than GDP. \--- Sources: US S&P 500 numbers from [https://www.macrotrends.net/2324/sp-500-historical-chart-data](https://www.macrotrends.net/2324/sp-500-historical-chart-data) US GDP numbers from [https://apps.bea.gov/iTable/iTable.cfm?reqid=19&step=2#reqid=19&step=2&isuri=1&1921=survey](https://apps.bea.gov/iTable/iTable.cfm?reqid=19&step=2#reqid=19&step=2&isuri=1&1921=survey)

AskEconomics

> Proponents of financial independence and many hobby-investors will tell you that a broad index fund gives an annual return of 5-7% over time, beating the growth in the economy as a whole. Yes. There are papers that come to the same conclusion. > GDP growth since 1929: +19 800% > S&P 500 since 1929: +24 400% > Discrepancy: 23% higher growth in S&P 500 than GDP. Have you included dividends here? When people talk about that 7% figure it is a *total return*. It includes both growth in the share price and dividend payments. > Surely stocks on average can't grow infinitely compared to the rest of the economy, but will eventually have to return to the same rate as GDP growth? No. Remember what I said just above about dividends. There are two aspects to businesses. Firstly, they grow as the economy grows. To put it differently, as businesses invest in new capital that grows the economy. The economy can't grow much without it happening. As a result the value of businesses grows in a roughly proportional manner. Secondly, businesses make profits. These profits are the possession of the shareholders. They can be used to reinvest in the business or the can be paid out. They can be paid out by dividends or by share buybacks. Now, as the size of the entire business sector grows so does the profits. That happens as long a profits remain a fairly fixed portion of GDP. So you see, both capital growth and growth in profits happen at roughly the rate of GDP growth. That means that total returns to shares grow at roughly *twice* the rate of GDP growth. Notice that to get this total rate of growth you must *reinvest dividends*. Now, you can do that directly by using money from dividend payments to buy more shares. But, what happens if the companies you invest in decide to use share buybacks instead of dividends? In that case it happens automatically, you get no dividend, but the value of your shares rises more. In the US this is what lots of companies have decided to do in the past few decades. In your calculations you find a big difference between the 1929-Today calculation and the 1990-Today calculation. That's because of this change in payout methods, the switch from dividends to buybacks. Today the stock market grows faster than it did because dividend payouts are lower and buybacks are greater. The effects I describe may not last forever. Some economic force or government actions may change them.

hzgncq

In regards to China, did other countries throughout modern history steal/use other companies'/countries' intellectual property (IP) and produce it cheaper/more efficiently to gain a dominant global market share?

I am interested in the historical records of modernizing countries/companies and their usage of other countries and companies IP when developing themselves? In regards to countries with no centralized control, did they turn a blind eye to such activity. A lot of focus is put on China nowadays with their currency manipulation, IP theft, and exploitative labor to name a few. Are these unique factors that didn't exist anywhere else or is it just looked down on in modern times when fair standards are demanded (regarding free trade and World Trade Organization). Though I say modern history, I think it is fine to choose periods mid to late 1700s and above. Essentially industrialization period.

AskEconomics

It's not unique to China. [The US was also a hotbed of intellectual property theft at the beginning of its industrialization too.](https://apnews.com/b40414d22f2248428ce11ff36b88dc53) What is unique about China is the degree to which the government not only encourages it, but actively uses organs of the state to engage in industrial espionage. It is very unusual that a state uses their own spying apparatus to gain not only military and diplomatic advantage, but also to spy on private companies and steal trade secrets. Whether that is significantly morally different is a matter of opinion.

5r3li5

The "one-in, two-out" rule and its economic & regulatory effects

Hi all, Given President Trump's signing of his "one-in, two out" executive order today (calling for each new regulation to require the removal of two old regulations), I wondered about the effects of these policies on other countries. Can anyone provide discussion or research on how similar policies have fared in the UK, Canada, or Australia?

AskEconomics

Usually you see stupid people online speaking broadly about regulations as if they are all some uniform thing without any specifics. Kind of disgusting the executive is actually acting on this same line of thought

8tti0x

When housing prices rise, where does all that money go? it has to eventually land in someone's pocket. Where does it land?

In expensive housing markets we pay more for housing. The people we pay probably pay more for housing, too, and those people pay more for housing. But it can't go around in a circle forever, can it? Where do those increased expenses go? If that's the case why wouldn't property owners live where it's cheaper and pocket the difference? If everyone decided to stop paying higher prices what would happen? Would anything actually change other than everyone would pay less?

AskEconomics

The destination of the "new money", the portion that is just the appreciation, is what you are asking, but this does also affect the where the "old money" goes in an interesting way, depending both on the quality of the loans the banks make, their securitization decisions, and the economy. In any economy, mortgages are bound up together into packages and sold to investors (at least in the US this was the practice for subprime mortgages). This process is called securitization, and these packages and named and shares of them are sold as if they were a type of variable bond. This bond has a fixed component, and a variable component. An example might be 1,000 medium-risk homeowners paying mostly 7% to 11% on a mortgage, in a bell-shaped distribution, being packaged together into a $100 million dollar package. This package might be guaranteed at 5% minimum, and the investors and originating bank might split anything over that. That means that if late payments (minor effect) and repossessions (major effect) make the effective rate of the whole package about 9% APR for a quarter, the bank and the investors will each make an additional 2% APR for that quarter. If the effective rate falls to 4% APR for a quarter, the bank will have to pony up the additional 1% APR that quarter to bring it to the guaranteed 5%. Loan performance of the pool (late and repossessed) are reported publically. Most importantly, the bank lent $100 million and within a few months they received a new $100 million from the investors, so they can start the enter process over again with another 1,000 loans. There are other minor factors, like swapping in new loans if there are too many bad loans, whatever the contract says. If the bank does this exact thing 20 times, they've loaned out $100 million dollars 20 times. In good times, several investors are making 5% + 2% (so a million dollars invested at this 7% effective rate would make $6653 a month for 30 years for $2,400,000 eventually returned.) The bank is making a breathtaking $2,800,000 a month in profit on nothing (before repos). Since most repossessions happen within 5 years, the age of the securitization makes a big difference. The terms don't change, but if most of the repossessions are done, investors might sell a $100 share for $104, since an 8% to 10% return is more likely. So first off, the quality of the "deal"... i.e. why 5% guaranteed for medium risk? Well, this depends on the economy. If housing prices are starting to fall or the economy falls, repossessions go up, and investor interest starts to dry up at current prices. Maybe these securitizations sell at 6% guaranteed, or they get pooled with some better quality loans too to reduce the risk. If housing prices increase and repos go down, perhaps the guaranteed rate drops to 4% or they change other terms of the contract. Rising home prices do help banks and investors both make maximum returns, lower the severity of reposessions, and reduce the risk. Falling home prices do the opposite. As far as who gets the new money, - For each house that isn't sold, nobody yet. But the homeowner can rest assured that he will make money when he does, or his kids will. - For each house that is sold, the homeowner only owes whatever part of the mortgage is left. If the home is paid for, the homeowner collects the original amount plus the new amount. If he only owned the house for a day and it went up $40,000 in value and he sells, it, he makes essentially $40,000 after real estate fees. Its new wealth, and the newer homeowner is taking out a larger loan and promising to pay more.

90ev2j

Austrian Economics validity.

As a person with a background in Mathematics, who has also done a minor in Economics, I've always been highly skeptical of the assumptions Economists make when building their models. As far as I can see, Mathematical modeling is effective in Physics because the systems studied are much, much simpler than those in Economics, due to fewer variables and the lack of free will in natural objects. Austrian Economics seems to recognize this, and rejects the use of Mathematics and symbol pushing in the study of Economic systems. Austian Economists have also predicted the rise of Bitcoin, whereas some classical Economists has failed miserably in this regard. Now, obviously, my Economics background is not as extensive as most of yours, so my feelings that the Austrian School is more suitable to real world use might be misguided, or logically flawed. This leads me to my questions: Is there something I'm missing about the use of Mathematics in Economics? and why is Austrian Economics usually not well regarded in academic circles?

AskEconomics

Austrian econ has a lot of it's own problems. I'm posting on my phone so might come back to flesh out later. The main problem with Austrian economical is that it is not based on formal logic. Austrian econ uses heuristic written statements in what amounts into a chain of P -> Q "P implies Q" statements. But a lot gets lost on the cutting room floor like game theoretic considerations that are much easier to parse out, discuss, and analyse in a mathematical context, or the information beliefs of individuals. But the written theory has no way to think about or address these concerns, while mathematical considerations are clear and precise. The main problem is that written statements are unclear about any number of things that matter to economists that Austrian theory is at best blind to. Comparably mainstream econ theory gives rise to models that we can explore mathematical properties of (often interested in comparative statistics, how changing one variable impacts another), which lead to testable theories against the data, ways to estimate those models, and ways to judge how well the theory actively fits. Yes these are often simple models, but they are clear from start to end, allowing clear points for other researchers to lay complaints and to change. The written language of Austrian econ lacks this.

54tkgn

TPP bullet points?

I apologize in advance if this has already been asked. I'm looking for the "bullet points version" of the provisions of the TPP. People love it or hate it. I don't have an opinion because I can't find a neutral simple explanation of what's in it. I appreciate any help you guys/gals can offer.

AskEconomics

https://ustr.gov/tpp/ and https://medium.com/the-trans-pacific-partnership http://www.international.gc.ca/trade-agreements-accords-commerciaux/agr-acc/tpp-ptp/understanding-comprendre/index.aspx?lang=eng

s825i2

Housing vs Income Discrepancies

I'm trying to understand how housing prices are so high nowadays, and I'm at a loss to figure out where the money is coming from! In the U.S., the median household income is $67,000 a year, but the median home price is $375,000. Given that most economists recommend spending no more than 2.5x your annual income on a house (which would be $168,000 on a $67,000 income), where is the money coming from to drive the housing cost increase? Does this mean that most households are priced out of the market and forced to rent? Are investors and/or people with multiple homes driving up costs? Are people just taking out way more debt than they can technically afford? Can anyone shed any light on how housing costs relative to income can continue to be so high, and seem to be getting even higher?

AskEconomics

Mortgage rates have fallen pretty steadily. https://fred.stlouisfed.org/series/MORTGAGE30US Mortgage debt payments as percentage of disposable income are pretty much the lowest they have ever been. https://fred.stlouisfed.org/series/MDSP How can people afford houses? They finance them, and do so cheaply. Yes, housing can be expensive. But keep in mind that the worst cities are usually ones with higher incomes.

cgb8f6

What do contemporary economists think regarding worker self-management?

By my question I mean its advantages, disadvantages, how labour-managed companies compare to "standard" management in terms of allocation of capital, etc.

AskEconomics

It is better for workers to have partial ownership in a large and diverse set of firms in a different industry than their own, then to have partial ownership in the firm they work for as a hedge risk. If your firm goes bankrupt, you dont want to lose your job *and* your savings. This is why index funds and mutual funds are so popular. It's partial ownership of a large amount of different firms. From the firms perspective it can be beneficial to provide stock in the firm as compensation. This is evidenced by the fact that a number of firms do this. This is a completely internalized decision between employers and employees and I don't think there's any reason to believe the pure market based frequencies we see in reality are not optimal

xxtep5

How good are neoliberal policies for developing countries? Is there a better alternative?

I've been wondering lately about this. Neoliberal policies seem economically sound, like they make sense, but at the same time, in practice, they have often cased bad results. Not only in terms of increased inequality, but also the growth itself is often far from spectacular. Seems that there are very few countries that managed to achieve serious growth in last 30 years on the basis of neoliberal policies. What is the alternative? Perhaps some kind of social market economy? Social democracy? State capitalism? Wellfare state? What sounds like best approach to you? Also wondering if center-right parties are by default neoliberal? Would center-left or left wing be a better choice in terms of stimulating growth, and keeping inequality from skyrocketing? P.S. I get how neoliberal policies might be good for already developed countries with strong and diversified markets, and lots of capital. I'm just a bit skeptical about the effect of such policies in developing countries.

AskEconomics

An issue withthis question is that you don't say what "neoliberal" means to you. I've heard the term used to refer to a wide range of policies. Frequently it just seems to mean policies that the speaker/writer doesn't like. Also countries like Denmark and Sweden who are sometimes called social democracies, undertook economic reforms in the 1980s and 1990s, in a similar spirit to reforms in the Anglophere countries. Are they neoliberal or social democracies?

54fq75

What kinds of jobs are available to people with Bachelors' degrees in Economics?

I took a macroecenomics class and a demography class, and they were both fascinating to me, and it was really interesting and often surprising to see how often they were very closely related. I'm an engineering major right now which I'm also interested in, and I'm just wondering the variety of jobs econ majors can get? I'm not asking about the job market, exactly. I'm not really worried about that. I'm mostly just wondering if getting an econ degree locks you into a small niche and the variety of paths you can take aren't as broad as, say, mechanical engineering, which is so general that you can get almost any kind of engineering job if you're lucky/smart/a hard worker/all of these. Is economics basically exclusively academic?

AskEconomics

>Is economics basically exclusively academic? Absolutely not. Economics grads mostly don't work 'in economics', but tend to be one of the highest paid majors because they go into related jobs that are considered high-skill. Typically, economics majors will go into * Finance * Banking * Consulting * General industry 'analyst' types of roles - analysts for specific industries and their trends, statistical data analysts, real estate analysts, etc etc etc. * General management/marketing/etc business roles Those are far more common than the ones who actually work in economics. For those, you'll see work in public policy for think tanks and governmental organizations. You'll see working as economists or economic forecaster for private companies or organizations. And you'll see those that go the academia route. Typically working in economics requires graduate school, although that's not a hard and fast rule. Overall, an economics degree is highly valued by the market and extremely flexible.

gw45e7

Boycotting everything

Obviously this question isn't feasible but how heavily would the economy be affected if the majority of the American populous did not purchase anything for a day? Would that cause lasting harm or would most firms be able to "shrug off" the losses on that given day? If they could "shrug it off" then how much time with how much of the population would be required to, long term, destabilize the American economy?

AskEconomics

Consumption is just shy of 70% of GDP. But in many cases goods are either durable and it simply defers consumption, or its a fixed cost where you can’t stop consuming for a day. For example, a person may choose to buy a refrigerator the day after a national boycott. The effect of that is minimal. Or a person has a rental property and can’t simply not pay for that day. So it’s unlikely to have any meaningful impact even if everyone was on board.

emndo4

Wage stagnation in the united states?

So you'll have to forgive me, I dont know much about economics, beyond what little I remember from a highschool class. But a friend of mine brought to my attention that supposedly wages and productivity have been tangibly linked for many decades up until the 70s whereupon they divereged. I found a few articles that seem to be supporting of this concept. Here being one: www.forbes.com/sites/timworstall/2016/10/03/us-wages-have-been-rising-faster-than-productivity-for-decades/amp/ My same friend also mentioned to me the idea of wage stagnation in the united states, the concept that the median wage when adjusted for inflation hasn't truly risen in decades. And a google search revealed supporting articles for this claim, here is one https://www.pewresearch.org/fact-tank/2018/08/07/for-most-us-workers-real-wages-have-barely-budged-for-decades/ Now my friend was pushing a political agenda with his claims(one I wont mention or go into here.) I am usually open minded and well receiving of new ideas I haven't thought of before, but I am also cautiously skeptical about figures and statistics, as they can generally be spun to push any agenda. So my question is thus. Is wage stagnation a real thing in this country? If so why is it happening? And what can we do to change it? Is automation to blame?

AskEconomics

That link your friend showed has been strongly (and successfully) pushed by a partisan think tank over the last few years. The other user gave links explaining why it's misleading. If you can't understand any part of the explanation let us know

6tckcf

Does the "lump of labour fallacy" argument assume non-saturated or infinite market potential?

Trying to wrap my mind around this concept. If, say, we need skilled immigrants to help make aeroplanes because we can sell and export them overseas to generate income. If, again say, the company needs skilled designers, engineers that it can't source locally (or not in the short term). Yet it seems that there would be an upper bound on the number of aeroplanes we can sell to foreign countries, irrespective of how much the company can haggle for lower wages in a global skilled worker market. Unless there is an infinite demand for aeroplanes (unlikely) it seems as though this market could easily be saturated. It seems such a scenario wouldn't create more jobs beyond the original demand for workers to turn out aeroplanes at a given rate. There seems to be no advantage of turning out the aeroplanes faster once the overseas contracts have been won. So is the "lump of labour" only a fallacy in terms of the economical big picture and not when looking at a single enterprise? Edit: Since I wrote this I did some googling and found [this](http://www.shorterworkweek.com/lumpoflabor.html) and I quote two parapgraphs from it: > Because economists are an authority figure whose field of study is classified as a social science, we assume that their conclusions are derived from fact-based, “scientific” research. Someone must have done a scholarly study and determined that that arguments proposing shorter hours to counteract labor displacement were fallacious. In fact, there were no studies. Even Paul Samuelson can’t produce the evidence to support his imagined “fallacy”. > Economic historians instead trace the “lump-of-labor fallacy” back to an 1892 publication by a certain D.F. Schloss who was discussing workers’ attitudes toward piece work. In the first decades of the 20th Century, the National Association of Manufacturers adapted this concept to its fight against the eight-hour day. Economists such as Samuelson unthinkingly picked up arguments from that discussion. The “lump-of-labor fallacy” was just public-relations rhetoric in service to a now discredited cause. Is this correct? Or is there indeed empirical evidence to this claim and if so would someone be good enough to provide me with a link?

AskEconomics

The lump of labour fallacy is the idea that it's fallacious to make the simple argument "fewer people, more work each" or "more people, less work each". As the name suggests, the fallacy is that the amount of work to be done is fixed (and importantly does not increase with the amount of people working - an obviously flawed argument). Whether migration or hours of work restrictions result in a net increase or decrease in wages or total employment depends a lot on the situation. There are models we can apply and data from countries where policy changes have been made we can use to answer a specific question, but the "lump of labour fallacy" is much simpler than all of that.

uciacb

Does lowering taxes lead to economic growth?

In my political science class, my professor was taking about fiscal policy and taxes. He claims that “there is no clear relationship between tax rates and economic growth” and “there is no empirical evidence that tax cuts lead to an increase in government revenue.” Are these claims really universally excepted in economics? I know that the models used in microeconomic and macroeconomic theory classes are just approximations and not realistic, but I feel like these claims violate some basic economic principles. As an economics and political science major, I am throughly confused.

AskEconomics

Tax cuts can result in economic growth, it just really depends. If the tax cut effects cash-constrained people/businesses, there's a lot of reason to expect the tax cut would cause economic growth, and if the opposite is true, there's reason to expect the tax cut wouldn't cause much growth. Your professor is correct in aggregate, as in, all tax cuts vs all future economic growth, but don't mistake this for the idea that tax cuts generally cannot/don't cause economic growth.

7k6lu2

A fictional economy based on microtransactions?

I'm writing a (semi-hard scifi) book where I'd like the economy to be based on microtransactions. I've really only been able to pin down some details of everyday life: getting a paycheck every day, all large purchases are paid over time, etc. What other systems and practices would have to be in place in order for that to be slightly realistic? Any links or print recommendations are *very* welcome. If this is the wrong place to post this, please point me in the right direction!

AskEconomics

Totally agree with u/Zerexthecool Something else to note: an economy that “prices everything” via a large number of transactions (meaning things with value are made transparent, charged for, and not ‘packaged’) would in theory be more efficient, provided the transaction fees are negligible. So instead of buying “food” at a restaurant, you would instead buy Steak + Fries + Napkin + Fork + Knife (sharpness extra) + candles + water. Anyone who forgoes water, napkin, and candles would pay less. In this example, a ‘classy date’ would cost more than a single patron wanting a cheaper steak dinner. And is that not preferred? Why not have intra-restaurant price-discrimination, in place of the current *inter*-restaurant price discrimination? In other words: We are currently paying more to “not sit next to cheap people” at restaurants - a cultural preference - that, when paired with the cost of creating new establishments and land value, etc, is less efficient/more expensive overall than this hypothetical hyper-transaction world. This example can be expanded substantially (and also probably explained more succinctly than I just did). And hopefully I’m not incorrect in my many assumptions here.

u487y5

If someone is as equally productive in Norway as they are in Burundi as a worker, why would they earn more in terms of net income in Norway?

Non-native English speaker here. This is a hypothetical question. Lets say I work as a bank worker. If I do the same job in Norway (where the per capita GDP PPP 63,000) as compared to say Burundi (where per capita GDP PPP is 752), does that mean I will have a higher real income (and thus be able to purchase a higher amount of goods and services)? If the answer is yes (which it obviously is) how can this be? I am as productive in Norway as I am in Burundi, so why am I earning more? Or is the answer no, because even though my income is higher in Norway, the cost of living is higher as well and so my net income is nearly the same in Norway as it is in Burundi?

AskEconomics

Productivity depends not just on the person but also many external factors: capital, infrastructure, institutions, laws, resources, productivity of others and many more. Norway is ahead of Burundi in many of these which is one of the reasons why it has a higher GDP per capita.Let's think of the simple case of a bank teller. It may seem like the bank teller in Norway and Burundi are doing the same thing, so should have the same productivity. But their productivity will depend on the rest of the bank and the country. Norwegians have more money to deposit (capital) and therefore for each customer the bank makes more money. Norwegian banks are in a country with stronger institutions which means the banks are more reliable and established. The other employees of the bank are more educated which means they do a better job, increasing your productivity. The list goes on... If we somehow got rid of all of these differences (too many to enumerate), and you were equally productive in both countries, then the per capita GDPs would probably be more similar. They don't have to be the same though since there's factors other than productivity that can account for the difference. A simple one would be hours worked; with the same productivity you'll have less income if you work less hours.

c3gqhu

What are some good books about economics?

Hi I want to get into economics, but I don't know where to start. What are some good books on the topic? I am currently reading capital in the twenty first century and it seems to have a good "difficulty". I am mostly interested in capitalism vs socialism vs communism, but books on other topics would also be appreciated.

AskEconomics

The book list the other user recommended is great. If you want to truly learn economics I recommend textbooks though, Blanchard's Macroeconomics and Mankiw's Principles of microeconomics. You can get older used versions online cheap. I strongly recommend staying away from nonsense about "isms". That's not really what economists talk about or study. Also Piketty's book you are reading is good but also note most economists disagree with his r>g hypothesis, which has problems.

hll6o4

Is an economy that depends on perpetual growth sustainable.

I admittedly know very little about economics, nothing past what you can learn in a 101 course. But I often think about it and wish I had people to discuss my ideas and viewpoints with. So here I am. One thing I often think about is the idea that the economy needs to always grow or we are in trouble. I understand that the more the economy grows the more every has (theoretically) and we have people in this country who has very little so we need to grow the economy so they can have more. But to me it seems like perpetual growth seems impossible to maintain. And from what I understand if the GDP stayed the exact same year after year we would still have enough to provide good lives for everyone. So why do we always need to grow? Isnt there a way to just have an economy that able to sustain itself at a level that provides for everyone? We can go for growth ofc but it seems like we are too dependent on it to get by. ​ Or is my whole premise wrong and we arent that dependent on growth and would do just fine if the economy stopped growing and just stayed where it is now?

AskEconomics

This question has been asked numerous times. For example: https://www.reddit.com/r/AskEconomics/comments/azspp2/can_economic_growth_continue_indefinitely_or_is/ https://www.reddit.com/r/AskEconomics/comments/d8fxkq/do_economists_really_believe_in_eternal_growth/

k42qvc

Is there a good reason to not have free trade with China?

My textbook was pretty heavily in favor of free trade and went through some common arguments but didn't mention stuff like currency manaluplition or state run business.

AskEconomics

If we're talking about purely economic reasons, then the consensus of economic theory is that free trade generally benefits both countries overall (although there may be winners and losers within countries). But the net economic effects are positive, due to comparative advantage -- each country focusing on what they can do relatively best, and then trading with each other. However, the purely economic arguments ignore human rights issues. Are we morally ok with doing business with an authoritarian communist dictatorship? Are we ok with receiving goods that have been manufactured by Uyghurs slaves in forced labor camps? I think these are the strongest arguments for possibly not having free trade with China.

5jlwno

How does a country grow its economy when it has a trade deficit?

Hello all, I am somewhat of an economics newbie and I seek to improve my understanding of things, so please bare with my super-novice questions :) I'm seeking to understand the effect of trade on economies. I think I'm fundamentally confused about how economies grow in general, but I'm wondering just how much of an effect that a trade surplus or deficit can have on an economy? As I understand it, many developing nations rely on trade to grow (including the spectacular examples of Japan and S.Korea in the past, and now China). As I understand it, when you have a trade surplus, money is entering your country and you are growing relative to other countries. I'm curious how countries like the United States which continually have extremely large trade deficits continue to maintain hegemony and grow? I understand that the United States is an innovative country with many strong companies, a skilled workforce, etc etc. however, if Americans are continually buying more from other countries than they are selling, then how are they growing relative to these other countries? Is the United States "falling behind" because of this trade deficit, and how big of a concern should it be? Thanks!

AskEconomics

Apologies in advance for this massive post. I'm going to explain the concept of a balance of payments which should clarify your confusion. I had this written out a while ago anyway for myself. The first 75% may seem irrelevant but it should be clear in the final few paragraphs how I answer your question. A current account is defined as the sum of the net trade balance (deficits are negative), net transfers from abroad, and net investment income from abroad. A capital account includes quite a few items and technicalities, but for the sake of building intuition, we will limit our definition to include net investment (foreign direct investment, portfolio investment, and other capital flows) and foreign currency reserves (of the country's central bank). Apparently a current account and capital account always balance each other out. But say's who? First, consider country A and country B; the sole two countries of the world. Initially, both countries are closed to each other. The demand for domestic goods is balanced by the supply of domestic goods in each country, and there is no demand for foreign goods. So let Y = $100 = income = production = expenditure in both economies. By the way, the people of country A happen to use a currency called the dollar, with $ as the symbol for it. Country B uses the euro, notated. Imagine that in country B, a fancy new cellphone had been invented a while ago: let's call it the jPhone. The folks in country A only hear about the jPhone this year, and suddenly they demand $20 of these goods. But there's a problem: where are they to find the money for it? Since the domestic economy is in equilibrium, every dollar earned is spent on some domestic good. We will investigate several scenarios, and see that in each, current account deficit = current account surplus (or vice-versa). Case 1: Foreigners invest $20 into country A. As a result, the residents of country A can finance their new demand for the jPhone. The current account balance is -$20, and the capital account surplus is $20 naturally. Case 2: Foreigners only invest $15 into country A. But however will we account for the other $5? Well let's say country A happened to have built some factories a while ago in country B. Until now the factories were still under construction and still waiting for legal approval, but now things are running smoothly, and they made $5. Thus the money will flow into country A, and country A can afford to buy $20 of the jPhone. Because we include investment income in the current account, our deficit falls to -$15, which is equivalent in magnitude to the capital account surplus (as foreigners only invested $15). Case 3: Let's recreate the scenario in the previous example, except there is no investment income. Another similar scenario that could play out is that the residents of country A receive $5 of net transfers from abroad. The current account balance is now -$15, equal to the capital account surplus (in absolute terms). Case 4: Now, imagine that foreigners invest only $15, but there is no source of net transfers or investment income. Luckily for the residents of country A, the central bank happened to have built up some reserves of the euro. So the central bank supplies $5 worth of euros so that the residents can afford their purchases. The current account balance is back to -$20, since the trade balance is the only factor influencing it. For the capital account, recall that changes in the central bank's reserve account are included. Since they supplied $5 worth of euros, the capital account rises from $15 to $20. Case 5: Finally, we will reconsider case 4, except the central bank has no desire to spend its reserves. The residents of country A really want the additional $5 worth of euros to buy jPhones, but they unfortunately lack the funds. As a result, since the demand for euros exceeds the supply of euros in country A, it appreciates relative to the dollar. This depreciation of the dollar causes the consumer's in country A to no longer desire the extra $5 worth of jPhones (since imports are now more expensive). The trade balance falls to -$15, and the total current account deficit is -$15, opposite of the capital account. But why must this depreciation happen? In all other cases we discussed, the consumers had the necessary funds to exchange dollars for euros and purchase the goods. Only in this case was there a disequilibrium in the foreign exchange markets before the change in exchange rates. It could be possible that this shift didn't happen: if the consumers never wanted the additional $5 of goods to begin with. But they did, so the prices of currency adjust so that demand and supply are once again equal. Case 6: To reverse things a little, let's consider the scenario that residents of country B want to invest $15 in country A. None of the residents of the country A have a desire for the jPhone. Will the current account fall by $15? Once again, we have a disequilibrium in the foreign exchange markets: the residents of country B demand dollars more than are supplied, and the residents of country A desire euros less than would be supplied (due to the investment). Naturally, the dollar will appreciate relative to the euro. By how much? The disequilibrium will not be cleared until the trade balance falls to -$15 (ignore the other components of the balance of payments for now). In this case, a net $15 will go in the direction of country B, enabling them to invest in country A. If the trade balance only fell to -$10, then there would still be a disequilibrium. Once again, we see the importance of prices adjusting to let markets clear. And like before, the central bank for country B, not desiring a depreciation of the euro, can supply the necessary foreign exchange. There will no longer be a disequilibrium, and there won't be any need for the residents of country A to run a trade deficit. If they do, however, the central bank need not act. Case 7: What if the residents of country A made $15 in investment income, traded no goods with country B, and there was no desire for country B to invest? The current account would be a surplus, but it should be zero. Well there is a greater surplus of euros in country A that is demanded (a repeat of the disequilibrium in case 6, stated differently), so depreciation of the euro results relative to the dollar. This occurs until the trade balance turns negative: the appreciation of the dollar leads country A to increase imports and reduce exports. It is therefore clear that in all possible scenarios, the current account deficit and capital account surplus balance out each other. If you are still skeptical: I challenge you to find me an example where the current account and capital account do not cancel out each other without a disequilibrium in the foreign exchange markets, though. Anyway, let's answer the essential question you had in the first place. The balance of payments simply tells us that the net flow of money out of a country must equal the net flow of money into a country, otherwise there would be corresponding shifts in exchange rates. The exchange rates will always force the balance of payments to net to zero, since this is the natural result of any disequilibrium in the supply and demand for foreign exchange. **So if there was any flow of money out of the U.S. with exchange rates left unchanged, then we know that some other money came from somewhere into the country. That the U.S. runs such huge current account deficits is evidence in itself that it was the recipient of loads of foreign investment (or Americans had a ton of income from abroad). If the investment was not occurring, then the deficits would have been impossible! Or the dollar would have depreciated.** (Please see [this comment](https://www.reddit.com/r/AskEconomics/comments/5gbibe/how_is_the_usa_able_to_run_such_a_huge_trade/dasne57/?context=3) from /u/TheMania for a more correct way of putting it.) So when is a current account deficit bad? If investment suddenly dries up, say because foreign investors all panicked about some event in the country, then the current account deficit would be unsustainable. Either the central bank would have to supply foreign reserves, the residents of the country would have to find income from somewhere else, or the country suffers from sharp depreciation. This is East Asia in the 1990s. Your characterization of trade deficits as good or bad is the wrong way to think of it. Keep the following in mind: when you go to the store, and buy a good, you are running a trade deficit with the store. Are you objectively worse off? In fact, you could argue the U.S. is better off running trade deficits due to all the investment flowing in.

icsa5r

Why does automation have a negative correltation with employment and wages?

https://www.youtube.com/watch?v=i1koC9LZgCQ So according to this video, automation has a negative affect on employment and wages. Why is this? Since it raises productivity shouldn't it raise wages?

AskEconomics

This is about industrial robots in particular. The video already explains why this happens. Basically, the displacement effect is larger than any counter effect through higher productivity. I would be cautious to apply this to every type of automation thought. The paper only looks at industrial robots and effects of other types of automation could very well look different.

5yy1og

A question about prices.

So from what i've learned so far; - Prices are sticky in the short run. - Prices are flexible in the long run. My questions are; - Why are they sticky only in the short run? - What is the empirical evidence we have for them being flexible in the long run?

AskEconomics

a) Because eventually the forces that act on prices (scarcity, abundance and shifts in demand) outweigh the various costs and social norms that keep prices from changing. b) https://en.wikipedia.org/wiki/United_States_Consumer_Price_Index#/media/File:US_Consumer_Price_Index_Graph.svg

nm9rdd

Is there such thing as independent markets anymore? Or is everything dictated by a global price?

Okay I know the title sounds a bit naive. I’m still learning about economics. But when looking at commodity spot prices, don’t they represent global prices all around the world just in a specific currency? Say corn is $6.50 per bushel. Does someone from Iowa pay the same amount as someone from Florida? Even if Iowa produces it, wouldn’t someone that lives there be able to buy it cheaper? I feel like I’m missing something pretty obvious. Also, are the days of buying non-perishable commodities physically at a low price and transporting them somewhere to sell at a higher price over? I know this has evolved into futures trading, but I don’t want to get involved with the technicalities.

AskEconomics

You're very much correct that due to arbitrage, markets across different locations are highly inter-connected. There is actually something called the Law of One Price, which states that an internationally tradeable good should sell for the same price in all markets. However, in the real world there are various reasons that a good/service may be priced differently in different markets: * Non-tradeable goods. Some goods are perishable, and therefore difficult to transport. Services are also often difficult or impossible to trade (can't import a haircut). Similarly, products that have a non-tradeable input (like a hamburger at McDonald's; I can trade beef but I can't trade the labor of the cook) will also have different prices across markets. * Transportation costs are often substantial. There are often other transaction costs as well. * Tariffs or other trade barriers can increase costs or limit trading. * Imperfect information, less of an issue now, but sometimes it's hard to tell when prices differ between countries. If you want to read more on this topic I suggest reading about Purchasing Power Parity (PPP). A very good and readable paper on this topic is [Taylor & Taylor (2004)](https://www.aeaweb.org/articles?id=10.1257/0895330042632744), even if you just read the start it gives a very good intro to the topic.

4tjc5o

Luddite Fallacy/creative destruction

I have a question about the Luddite Fallacy/creative destruction/lump of labour fallacy etc. The argument seems to be that it is a mistaken belief that technological advances have a long term effect on the amount of available work. That as new technology destroys one class of job new types of work arise in its place. Some of the new work that is created springs directly from the new technology, such as computer programmers from the introduction of computers. A lot of the new work is created by increased demand caused by higher wages that people earn when working with the new technology. The argument goes that you only have to look at what has happened in the past and it can be seen that while there may be some short term loss of jobs when new technology is introduced, over the long term enough new jobs are created to make up for those that are lost. To my mind when I look at this argument there is a very large elephant in the room - as follows: Between the 1870s and year 2000 there was a 48% reduction in annual working hours in the developed industrialised countries. (Huberman & Minns 2007) If you take lifetime working hours into account as well, the reduction is over 50%. If we were still working the same hours we did in the late 1800s, we would now have an unemployment rate of around 50%. Either that or we would have had to create many many more jobs than have been created in this period. A trend that consistently occurs over a period of 130 years is most definitely a long term trend, and clearly the main reason we have been able to reduce working hours so much is because technological innovation has made us so much more productive. The mistake that those who espouse the Luddite Fallacy make is they neglect to realise that unemployment and reduced work hours are two sides of the same coin. There has been massive loss of work (not jobs) over the long term due to technological innovation. Possibly the reason that this elephant in the room is not seen is that people are looking for something negative (ie unemployment), whereas the actual effect has been a positive one (ie more leisure time) I would be very grateful for any feedback on this.

AskEconomics

The other way you could read the decline in the hours of work is simply a substitution of leisure for work by workers as labour productivity and wages increased. Once you don't have to work 60 hour weeks just to feed your family, you stop choosing to. Obviously the rise of organised labour had a bit to do with this as well. Another way of looking at the lump of labour fallacy is that only people can receive income. If a machine replaces a person, the consumers of the cheaper good and the machine's owner will see their income rise by as much as the person's income fell. That income will be spent on something. That something will be made by a person or a machine. If it's a person, we've just created a job worth the same amount as the old job. If it's a machine, its owners get the money and we start again. Unless machines become free to create infinitely, improvements in technology that replace workers are going to create new gaps for workers.

7fmjtw

Confused about the terms liberalism (and neoliberalism) in economics vs politics.

I read through comments in the economics subreddit and see things like, "have the liberals taken over here?" Yet the comments in question seem to be advocating for totally free and unregulated markets. Further googling seems to tell me that liberalism is all about a laissez-faire govt approach to markets. However, it seems in the political world, liberalism is more linked to the govt acting in a way to protect consumers and have more regulation. Am I completely misinterpreting the issue, or is there a disconnect about how "liberalism" is used in different contexts? And if so, how did the two diverge so greatly?

AskEconomics

The economics subreddit is a cesspool. At least half of the content at /r/badeconomics comes from the comment sections in /r/economics. > is there a disconnect about how "liberalism" is used in different contexts? It's not a disconnect. It's a spectrum of meanings common to most political terms. Just like "red" can refer to any color between yellow and blue, "liberalism" can mean a variety of things depending on speaker and context. Like all political terms, it has no inherent connection to economics.

k3tbr7

Do real wages take improved quality of goods into account?

If my understanding of the term is correct, that means that on average people can afford services and goods to a similar extent today as 1990. The problem I see is that goods today can be different from goods in the 1990s. I assume the average TV today is larger, has higher definition and is at the same time flatter than the average TV in 1990. The average car today may be safer than in 1990 and have higher comfort (a navigational system and a CD player). How is this taken into account when calculating real wages? Let'sassume this hypothetical situation: in 1990, cars with power steering are expensive prototypes. People spend on average a certain amount of hourly wages on a new car (usually without power steering). In 2020, cars are regularly equipped with power steering. People spend on average the same amount of hourly wages on a new car as in 1990. Apart from that, nothing changed. Have the real wages now increased, since people can now afford better cars (with power steering) for the same wage hours as in 1990? Or have real wages remained the same as people spend the same hourly wages on the average car available on the market?

AskEconomics

Well.. Real wages are calculated via nominal wages adjusted for CPI inflation. Germany uses hedonic quality adjustments as well as option pricing. https://www.destatis.de/EN/Methods/Quality/QualityReports/Prices/consumer-price-index.pdf%3F__blob%3DpublicationFile

z4cme9

3rd party / independent inflation metrics?

We get CPI and PPI, along with several other measurements from government agencies. Are there any reputable non-govt entities that evaluate inflation? It doesn’t seem like something out of the realm of possibility for a think tank or university.

AskEconomics

No, that's definitely possible! The biggest is perhaps the billion prices project. http://www.thebillionpricesproject.com/ That said, collecting data like this all the time is pretty damn involved, you need a relatively large staff just doing that (if you want to do it extensively and continuously), and doing so is ultimately simply too expensive for universities. Especially because it doesn't really gain us any new insights usually. And because inflation data is more or less as accurate as it gets in western countries.

8buamr

Could we kickstart a hiring boom by switching the levels of subsidies for fossil fuels and renewables?

Since the cost per unit of energy of renewable energy is approaching that of fossil fuels even with subsidies for fossil fuels, and renewables take more manpower to produce per unit of energy, my question is whether we could create jobs by subsidizing renewables at the level we subsidize fossil fuels, or even if we subsidize both equally. My thinking is if we subsidize renewables at the same levels as fossil fuels, renewables become cheaper than oil, coal, gas, etc, and the consumer responds accordingly. Toss in an antitrust lawsuit that overturns laws re:solar panels like the ones that caused so much controversy in Florida after Hurricane Maria, and demand for renewable sources of energy will skyrocket. This creates more jobs than currently exist in oil, coal, and gas, because renewables take more manpower to produce. Am I on the right track?

AskEconomics

I think the optimal strategy is just likely the abolition of the subsidies + a tax on the fossil fuels. A tax would serve the same purpose, but wouldn't cost the government anything, and at the same time would avoid the problem of trying to pick winners for the government.

amkxrw

What is the mainstream opinion (if any) on immigration of unskilled workers to developed countries?

I've heard both ways, including from the Economist: 1) Unskilled people cannot in general generate enough tax revenue to offset the costs of providing for them, even in countries with a limited welfare state, unless wages or tax rates are extremely high. This includes not just welfare spending but infrastructure, police, and other costs that scale with population. 2) Unskilled immigrants, on net, will increase in productivity to such a great extent that they will offset most of their costs to the public budget. The only real negative impact of mass unskilled immigration is a possible slight depression on the wages of unskilled natives, which can be redistributed away.

AskEconomics

[This IGM survey is likely the closest you will get to a mainstream opinion](http://www.igmchicago.org/surveys/low-skilled-immigrants). So more likely than not, they provide a net benefit to society but may hurt low-skilled native workers (unless redistributions are used to compensate them).

7m9zfp

Why do restaurants take reservations? Why not just fill up until full?

What benefit do restaurants get out of letting people reserve them days in advance - instead of just filling up with the first however-many people to walk in off the street? I understand that they could simply raise prices until they didn't exceed capacity but I'm assuming that for each kind of restaurant, its clientele must be very price-sensitive: full house, needing reservations at $20 a plate - empty, no one even calling to reserve at $34 a plate. but that does not explain why it's not first-come, first-served...

AskEconomics

I think the points that Det_ and stillalive75 make are right. Another factor is staffing the restaurant. Reservations can tell a restaurant in advance that a particular night is going to be busy that means they can roster more staff.

ytuzh7

What was the marginal revolution and what does economics think of marginal utility?

I would like to ask questions 1. What was the marginal revolution? 2. What was its effects on economics and the real world? 3. What is marginal utility value? 4. Is it credible and widely accepted, does it have empirical evidence in the real world and real economies? 5. How is it compared to Marx's labor theory of value which is more accepted labor or marginal? 6. What do modern economists and economics think of it is it regarded as accurate or has it been debunked? Thanks to all that will respond 😊

AskEconomics

To add to the discussion, I don't think Marx, or the classical (pre-marginalism) economists, really believed the labour theory of value themselves. There's something about the way they write, e.g. Marx's "socially necessary labour time", and the amount of time they spend trying to explain away all the exceptions, that reads to me like they were full of doubts but just lacked the insight, whatever quirk of thinking, that led to marginalism. (I'm sure I would have been in the same situation if I was an economist back then). As the saying goes, "if you can't explain something to a five year old you don't understand it yourself."

uo0c1t

What is private equity exactly?

I always thought it was some kind of capital (as opposed to borrowed capital), but lately, I've seen it in a context, describing it rather as a branch of industry/ some kind of company (PE firms)

AskEconomics

Equity is shares/stocks of a company. A company will have millions/Billions of shares. Public - is the general public (we) is allowed to trade or invest in them through NYSE(New York stock exchange for US, exchange completely depends on the company where it was registered and listed) Private - is the not publicly listed in exchange but venture capitalists or big investment firms (Goldman or others) or even someone with big capital or if your friend is starting a biz and if you help him with funds, in return get shares for that then you are holding part of the company. As a private holder still u can sell your part but not on exchanges, you should do it privately as mentioned before. This is the simplest I can make it.

u70fos

is it M1 supply worth to consider?

I have red somewhere that it is not worth watching (in order to get an idea of the total money supply) because it only increased cause to the banks increasing the deposit thresold. Is this true?

AskEconomics

The problem with M1 is that the Fed [redefined it](https://fred.stlouisfed.org/series/M1SL). See the notes at the bottom of the page. The italics is mine. > Before May 2020, M1 consists of (1) currency outside the U.S. Treasury, Federal Reserve Banks, and the vaults of depository institutions; (2) demand deposits at commercial banks (excluding those amounts held by depository institutions, the U.S. government, and foreign banks and official institutions) less cash items in the process of collection and Federal Reserve float; and ***(3) other checkable deposits (OCDs), consisting of negotiable order of withdrawal, or NOW, and automatic transfer service, or ATS, accounts at depository institutions, share draft accounts at credit unions, and demand deposits at thrift institutions.*** > > Beginning May 2020, M1 consists of (1) currency outside the U.S. Treasury, Federal Reserve Banks, and the vaults of depository institutions; (2) demand deposits at commercial banks (excluding those amounts held by depository institutions, the U.S. government, and foreign banks and official institutions) less cash items in the process of collection and Federal Reserve float; and ***(3) other liquid deposits, consisting of OCDs and savings deposits (including money market deposit accounts).*** Essentially, in May 2020 the Fed decided to reclassify savings accounts as part of M1. Of course savings accounts are huge. So, this change made M1 rise in a vertical line exactly at that month! This has completely screwed it up for anyone who wants to use the statistics for historical comparison.

nfiji8

Why is youth unemployment so high in some countries?

I’m speaking specifically about the Southern European countries like Spain or Italy. Is it a problem of excessive regulation/taxation or something that goes deeper than that? What are some examples of policies that improved that kind of situation? Is this more of a natural phenomenon among developed nations rather than the result of mismanagement or decline?

AskEconomics

[This](https://library.fes.de/pdf-files/id/09476.pdf) paper makes some interesting points for Italy. Generally, a common problem is a relatively poor transition from education to work. In labour markets where there is competition, then, the experienced labour force is likely to be hired first. Youth unemployment then becomes a spiral. Jobs require experience, but there are no jobs available to gain experience. This can also lead to problems for a single generation - as at some point, even if entry-level jobs become available, younger candidates may be available as well with equally no experience. The paper itself raises more points and there are many sectoral factors which could play a role. For example, Spanish tourguides require a license, and (IIRC) local governance can limit new issuance. This of course has as a consequence that especially newly educated tour guides may not get a job in the sector. One possible option is a reduced minimumwage by age. This may either be applied step-wise (e.g. The Netherlands, New-Zealand, UK, Australia) or one lower minwage below a certain age (Portugal, Greece, Ireland). It seems to lower youth unemployment rates ([1](https://www.sciencedirect.com/science/article/pii/S0927537105000722?casa_token=j9BsOzczT2MAAAAA:TN0ix2KRrDkdujpxJkuKIn6macS6nOc8SyMCiw8JP8gyQmJUrxDhFfKe-R9OnclmbWvQG7OMK1w), [2](https://izajolp.springeropen.com/articles/10.1186/s40173-018-0098-4)) and makes sense - whilst those minwages are often relatively low they often go for ages at which the youth still lives at home. It also more or less garuantees that they have some professional experience, which makes the later transition easier.

zq1p8j

How Important is Theory of Moral Sentiments in Modern Economics?

1) Have you actually read this book? I’m chugging away at it but it’s such a hard read. 2) How important is it, and Wealth of Nations to understanding modern economics? 3) I’ve heard that these books and schools of thought no longer apply to economics, and that now it’s all “data driven”. 4) Who are you and why do you study economics? Trying to make things simple! Thanks everyone and happy holidays

AskEconomics

1. No. Barely have even heard of it. Would have never heard of it probably if it weren't for me being active on subreddits like this one 2. Not important. Reading a textbook would surely be several fold times more informative and up to date 3. Modern economics like any science is theory and empirical research used to test theory with data & Statistics or used to answer any other empirical questions economists may have 4. I have an econ & math degree and was a data analyst currently a graduate student. I studied economics because I found the subject interesting and I learned the employment prospects were pretty good before I went to college

d1t8ww

Can the stock market grow faster than GDP over the long term?

Historically US GDP grows 2%/year while stock market grows about 7%/year? How can this be sustainable? Imagine an economy consisting of just one company producing goods. That company's stock price should theoretically be equal to its future discounted cash flows. The GDP would be the total amount of goods it produces. If the stock price is going up 7% a year, that implies the company has or will have 7% more profits every year. Yet GDP growth of 2% suggests that revenue is increasing only 2% a year. The only ways I can see this happening in the short term is either the company cuts costs or the discount rate falls. Costs cant be cut below 0 so you cant sustain such growth by cutting costs. Is this only sustainable if discount rates go to -infinity?

AskEconomics

I think this thread is a bit of a mess. People are conflating different subjects. Now, the OP says that the stock market grows at about 7% per year. What does "*grows*" mean here? Well, the long-term historic rate of return on US stocks is 7%. Notice, that the subject here is *total returns*. It's the sum of dividend income and capital growth. Now, the equation that /u/smalleconomist mentions (G * E/G * P/E = P) does not address that subject. That equation is about *prices* of stocks. If you look at the equation carefully, you'll see that it's an identity. The Gs cancel and the E's cancel. The assumptions that smalleconomist describes are quite reasonable. The OP goes wrong by assuming that the 7% figure refers only to a price rise of the stock. The OP should see [this calculator](https://dqydj.com/sp-500-return-calculator/). The issue is here that capital gains are only one part of the gains from stocks. There are also dividends and share buybacks (which are equivalent to dividends, not to capital growth). Now, u/rotemberg_demon, Piketty is interested in the total rate of return, just like our OP. Piketty added capital growth to profits in his rate of return. His idea of the threat of extreme inequality is constructed by assuming that the rich don't consume capital income, but rather use it to buy more capital (and hence a greater share in capital output). I consider this assumption unrealistic over multiple generations and inheritances, which is the way Piketty's supporters seem to imply it should be used. But, the idea that Piketty's "r" can be much larger than his "g" is not at all threatened by the equation that smalleconomist mentions.

50gdza

Why are things regarded as cheaper in the past? Something costing $1.00 in 1970 would cost $6.20 today. What does this mean for us?

What does it mean when something that costed $1.00 in 1970 would cost $6.20 today? Is this bad for us? Wouldn't it be better if that same thing still costed $1.00 today instead of $6.00?

AskEconomics

[Inflation](https://en.wikipedia.org/wiki/Inflation) is the process where the purchasing power of a unit of currency loses value over time. In simple terms, inflation doesn't necessarily hurt because while the [price level](https://en.wikipedia.org/wiki/Price_level) of goods and services is rising, wages are also subject to the same forces and will rise as well. To put it roughly - something might have been 50% cheaper (in dollars) in the past, but your salary would also have been 50% less in dollars. Economists generally see a positive, predictable and low rate of inflation as the desirable level of inflation. The Federal Reserve in the US currently has a target of 2% inflation per year.

7eplsz

According to free market, should there be no legislation regarding nutritional content in food?

If people think that knowing the content of their food is important, then products that don't reveal the content of their food won't be bought. Additionally, there could be food review business who bring food to chemistry lab and get their nutritional content and then distribute this information, either through advertising, or through paid subscription. I'm not saying whether this is good or bad in general. But, according to free market theory, is this the best way to go?

AskEconomics

The problem with 'free market' theory, as you seam to be using it, is that it doesn't exist. Markets are not this godlike entity which always provides optimal results for whoever wants it. The two problems that you want to look into in food labeling are information costs and information asymmetries. What that means is that the markets do not provide you with the information you may need or want concerning the contents of your food, and it is expensive and difficult to find that information yourself. Because of this, if the government does not step in, the markets will fail, and you'll be buying adulterated food. With potentially fatal results.

715iqw

AI and Economics

I find a lot on what economists think of AI and automation and impact on the future but not much on the how the field of economics is using AI. Does anyone have any case studies into how AI can help economists/help grow the field? Some things I have found in are an AI that attempted to predict the recession, and some applications of the progression in big data and predictive analytics capabilities for economic analysis and econometrics. Any more ways AI is being used for in the field would be great

AskEconomics

There are definitely people (most notably Susan Athey and Guido Imbens) working on using ML methods in econometrics. Some good references: https://www.aeaweb.org/articles?id=10.1257/jep.31.2.87 http://people.ischool.berkeley.edu/~hal/Papers/2013/ml.pdf https://arxiv.org/abs/1607.00699 http://www.nasonline.org/programs/sackler-colloquia/documents/athey.pdf http://www.tandfonline.com/doi/abs/10.1080/01621459.2017.1319839

z6cczv

That might sound weird, but does the closure of entertainement venues/restaurants and other non essentials during covid, by removing high price "money sinks" cause some of the inflation we're seeing and how much of the total might this account for ?

People with more money and less places to spend it, turning around and spending it on fewer tangible durable goods, sounds to me like that would cause inflation ? Is there any way to measure the amplitude of this effect and whether it exists at all ? And I mean not just during covid, but now, those many places that won't be opening up again, seems like a permanent loss, and people will have changed their habbits just by those options not being available anymore. So that effect might have started with covid, but we would still be living with it, until those habbits re-grow and new entertainement options become available

AskEconomics

> People with more money and less places to spend it, turning around and spending it on fewer tangible durable goods, sounds to me like that would cause inflation ? Yes. Indeed many people cut back their spending overall during COVID and saved instead. They often saved the stimulus checks. [Here](https://fred.stlouisfed.org/series/PSAVERT) is a graph of the personal savings rate for the US. Notice the spikes in 2020 and how rare they are historically. Now, part of the reason for recent inflation is because people have been spending those savings. One of the reasons for rising prices of durable goods was that people were unable to spend on services. If that's what you mean, then you're right. > And I mean not just during covid, but now, those many places that won't be opening up again, seems like a permanent loss, and people will have changed their habbits just by those options not being available anymore. So that effect might have started with covid, but we would still be living with it, until those habbits re-grow and new entertainement options become available I'm not sure what you mean here. Certainly some businesses have closed during COVID. Some people have suggested that this has reduced competition, but it's not really clear than it has.

alrt4z

Fixed pie fallacy.

So I'm curious to know an economists' opinion of the fixed pie fallacy, which essentially states that people in an economy can only get richer at the expense of other people in that same economy. How is wealth created out of thin air? Does it come from other countries? Where does the wealth come from if not from other people? Some people say to look at GDP growth but im not sure that's a good indicator. Thanks in advance if anyone can enlighten me.

AskEconomics

Wealth is generated through deferring consumption and saving, which is used for investment and an expansion of the capital stock Note wealth and income are different things GDP is both a measure of both total output and income, not wealth.

cuhkum

Is the commercialisation of football players ( or any other sports) included in the GDP of a country ?

That is, say a certain team buys a young player from abroad, is it considered an import and taken into account when measuring GDP? Say this player develops well and is later sold by that team to an other one within the league for a higher price, is it considered in the measure of GDP ?

AskEconomics

No. GDP is the value of all *final* goods and services produced within a country. Unless an athlete is being produced in a Matrix-style vat and sold directly to consumers as objects then they aren't a part of GDP. The extra ticket sales that a club receives as a result of signing the player are part of GDP.

68ondh

Why are carbon fibre products so expensive when the material is like $10 per KG?

If you want a carbon fibre bike its going to cost like 1k more than aluminium yet the actual cost is $10 for the stuff. http://www.sae.org/dlymagazineimages/web/516/11618_15871.jpg

AskEconomics

Cost of materials != cost of part. Composite manufacturing tends to involve a lot of hand labor to lay up the part in the first place, and then a lengthy infusion step. Depending on how demanding the part is, the latter might need to be done in an autoclave. All this can add up to multiple hours per part, and throughput limited by how much capital you have for autoclaves et all. There are a lot of folks looking for ways to minimize the hand labor, lengthy process time, etc. Most of these are variations on the idea of using a heated press and tweaking the resin such that the time needed in the press is as short as possible. Re carbon fiber bikes specifically, look into the Motobecane Le Champion series available from bikesdirect.com. A neighbor that raced as an amateur hobby was extremely satisfied with theirs.

ushc6w

How do we know for sure that there is no fraud done by central banks?

Not directly related to economics per se, although a claim that confidence in a currency is crucial to a country's economy can easily be made. We take it for granted (or never discuss it really) but what are the specific mechanisms that ensure that the central bank doesn't actually "print" or transfer money (from its brokerage account?) directly into the central bank's governor or anyone really? Or that it "prints" more money than it says on its balance sheet? How can we trust the official numbers? Bonus: Does the central bank have like a brokerage account ala IB, Robinhood, Fidelity, etc. (of course not, but it's just to illustrate my point)? Also, institutions in western countries are generally more trusted by investors, but what about countries like China? Their government isn't exactly known to be the most open and trustworthy, and so why do investors invest there at all? I just don't get why anyone would want Chinese yuan when their institutions are so opaque because there's so much additional risk involved.

AskEconomics

Central Banks don't have brokerage accounts because they don't need brokers to do their trades. Instead, all trades can only happen with designated primary dealers, which are international banks that must bid for every new issue from Central Banks and then effectively distribute that to other parties. The Central Bank cannot enter into any trades with any account which is not a primary dealer. All Central Banks are audited by external auditors and the audit reports are available to the public. For example, the US Fed and Bank of England are audited by KPMG currently. The People's Bank of China works in generally the same way, and its operations are transparent and well-understood. The large difference is that the PBOC is not independent, and Chinese monetary policy is decided by political officials based on political priorities. This is generally frowned upon in most other countries because of the danger that politicians use monetary policy to shore up support during election years, and the inconsistency in future policy this creates over time. There is a lot of debate over whether this really matters - and also whether any central bank is really independent.

x90t23

why do real estate agents in the US make such high commissions given that barriers to entry are almost non existent?

What the title says. Based on different sources like Glassdoor, Indeed, Zip recruiter etc the average earnings for a realtor in year 1 are anywhere between $70-120k (geography matters) but still higher than the median income in the US. To become a realtor, you don't even need to graduate high school, you just need a real estate licence, which you can get within six months of study and prep. Why hasn't competition reduced the margins of realtors?

AskEconomics

As with all commission based jobs, the competition drives the people who earn less out of the business. I used to work a commission job where they always touted that the median (or average, can't remember) salary was 250k. Seems nice, right? What they don't tell you is that like 75% of the people who enter the business, leave it within a year and make less than like 30k.

66r4lf

[UK] Is studying economics at university worth it?

Hi all I can't really decide on what to study at university. I study chemistry maths and economics and I enjoy the actual economics but I don't know if I find it exciting enough (is that the right word?) to do it at a degree level. I am also not much of an essay writer and much prefer knowing an actual answer to something. So does anyone know of the sort of job prospectuses that come with an economic degree and also the salary? I can't choose between economics or pharmacology but as they are so different I'm forced to choosing early and sticking with it.

AskEconomics

According to a recent (2014) study from the NY Fed, going to college (especially finishing the degree) is - by far - a worthwhile investment. The "college wage premium has remained near its all-time high". Although wages of the college educated have stagnated, wages of non-college graduates have fallen as much, if not more. An economics degree, just like most business-related degrees, should be more than worth it for most people. Original paper: https://www.newyorkfed.org/medialibrary/media/research/current_issues/ci20-3.pdf Write up in US News https://www.usnews.com/news/articles/2014/06/24/benefits-of-college-still-outweigh-costs-fed-study-says

6kwsgs

ELI5: Transition to Euro Currency and Why Did It Cause the Euro Crisis

Today i was studying english and read this passage about Euro Crisis, and it stated that the cause of Euro Crisis was that after switching to EUR currency, countries with bad economies being able to take debts that they weren't able to previously. Here are my questions: 1 - How does the transition occur? Example: Let's say Turkey is joining EU and transitioning to EUR Currency. Current minimum wage in turkey is 1400 TRY, which is around 350 EUR, so the new minimum wage in Turkey will be 350 EUR. Am i correct? 2 - Why it caused the Euro Crisis? Let's use the same Turkey example: If Turkey transitioned to EUR currency, why would global banks give higher loans/loans with less interest? I understand switching to EUR would mean economy of the country improving, but it doesn't 'magically' fixes everything right? So why did countries like Greece was able to take loans that they weren't able to previously?

AskEconomics

1- Yeah, sort of. 2- Interest rates are "decided", or set, by many variables, among them, exchange rates, money supply, savings/investments ratio, inflation expectations, *et cetera*. In *very simple terms*, the interest rate is the cost of money over a period of time. Now imagine your country adopted a new currency which is used in many countries. Your domestic interest rates are now about the same of the ones in the other countries using your new currency (remember, the cost of *money* over a period of time). Why? Because interest rates in that new currency are determined by different savings rates, different equilibrium exchange rates, different inflation expectations and so on. Poor economies, like Greece, had their domestic interest rates being pushed down by higher foreign savings of stronger economies that adopted the Euro. EDIT: typo

8pz1bg

Housing Market Explanation?

Hey, so I live in Olympia and there has been a lot of discussion about the local housing market, but I'm not too sure I understand how things work. I know that the city is currently growing, and rent prices are going up. Jobs are hard to come by as well, and a lot of my friends have been priced out. There is a severe shortage in affordable housing, and an increase in folks losing homes after not being able to afford sudden jumps in rent. There has been a lot of talk about gentrification, which I understand on a basic level, though I don't fully understand ways to counteract negative effects. (Are there ways to do that?) There has been a lot of discussion about homelessness, and how to help folks get back on their feet. Some folks have talked about rent control laws, to help stabilize rent prices. And now this aritcle about diversifying the types of housing available by changing zoning laws: http://www.theolympian.com/news/local/article212855259.html Of anyone here could explain these concepts a bit more so I can understand what's going on better I'd super appreciate it! I want to be informed on my community but I haven't had the best education.

AskEconomics

Housing policy is one of the most rage inducing things because basically every economist knows the answer yet local governments are solely responsible for creating the problems in the first place with their shitty policies that everyone knowledgeable knows is bad and then as "solutions" they do things which only make the problem worse such as rent control or taxing foreign buyers. [Rent control has one of the strongest consensuses in all of economics](http://www.igmchicago.org/surveys/rent-control). This is known to every 101 student. You can read a very short literature review regarding housing supply/costs [here](http://www.nber.org/reporter/2009number2/gyourko.html) Relaxing zoning laws by a large amount can help increase the supply of housing and decrease housing prices and rent

ntsxn8

How do welfare states work?

Ive been reading on the "nordic model" and other welfare states. From what I understand these welfare states seem to have, free healthcare, free education including college, they treat prisoners like human beings and have a low rate of reoffenders.... Now we all know, free stuff is not simply "free" something is funding it, and on some research I learned a lot of Norways social programs were paid with state owned companies that owned oil. I also noticed the work week is less than 40 hours a week, on average, not just in Norway but many welfare states, like denmark and finland. Why in the United States are these policies not encouraged? Maybe these things arent possible in the United States? but why not? In the U.S. this is where I live, I work on average over 40 hours a week, and its encouraged to work at least 60, or else you are shamed. School is just debt slavery. Is there something bad about welfare states that just seems unappealing to americans? perhaps extremely high taxes? im just curious how these countries function? How can a nation be economically sound when it seems most everyone has stuff that people in the U.S. pay top dollar for, they get for free? And they work less? how does everyone have money? they get paid more maybe? but than what happens to the rich? what about the amount of commodities produced? wouldnt working less mean you have less goods to go around? Basically, how does a welfare state exist in these rich nations, without collapsing?

AskEconomics

The reasons *why* are not trivial to answer in detail. A lot of it is history, different social structures, different political influences, etc. The US and Europe are very different and there are plenty of plausible explanations as for why. For example: https://www.brookings.edu/wp-content/uploads/2001/06/2001b_bpea_alesina.pdf Do note that I'm pointing towards sociology, or history, or politics, because from an economics perspective there is no reason they *have* to be different. It's, to a large degree, a choice, and the explanations for those choices don't necessarily lie in economics. >Basically, how does a welfare state exist in these rich nations, without collapsing? To make a long story short, these governments generally spend more, so they take more money in and have more money available for redistribution. That's perfectly sustainable. >Is there something bad about welfare states that just seems unappealing to americans? perhaps extremely high taxes? im just curious how these countries function? How can a nation be economically sound when it seems most everyone has stuff that people in the U.S. pay top dollar for, they get for free? There's no such thing as a free lunch. Not in Norway or Sweden, either. So yes, they have much higher tax burden. https://en.wikipedia.org/wiki/List_of_countries_by_tax_revenue_to_GDP_ratio It's really a matter of choice. To a degree at least. The Nordic countries generally have a different mentality and are simply fine with paying more taxes compared to Americans. >And they work less? how does everyone have money? they get paid more maybe? but than what happens to the rich? what about the amount of commodities produced? wouldnt working less mean you have less goods to go around? Well, that is one factor that is a matter of choice. You have to consider the tradeoffs. Only a small number of countries actually make more per hour worked than the US. https://ourworldindata.org/grapher/labor-productivity-per-hour-pennworldtable Most countries work less than the US. https://data.oecd.org/emp/hours-worked.htm And yes, that does mean there is less to go around. https://en.wikipedia.org/wiki/List_of_countries_by_GDP_(PPP)_per_capita Ignoring tax havens (and Norway), the US has substantially higher GDP per capita. https://data.oecd.org/earnwage/average-wages.htm As well as substantially higher average wages. So yes, you can chose to work less, but then you also have to be content with *producing* less. There are other similar policy choices to make. For example, [stronger labor regulations tend to lead to higher unemployment](https://www.sciencedirect.com/science/article/pii/S0147596708000772). How hard you make it to fire people, and if you are fine with having higher unemployment because of that, is a matter of choice. The US has very low unemployment during "normal" times in part because these regulations are not nearly as strong as for example in France. A society has to decide what it values more, and the French chose a different position than the Americans.

gf7w7r

The economics of sex work and sex as a currency

Is there any book or paper that deals with sex from an economic perspective? I'm not only referring to sex work but also to sex as part of an exchange in general. Can studying the subject help us stop things like inappropriate workplace behaviour or exploitation in general? How should prostitution be regulated?

AskEconomics

To the best of my knowledge Scott Cunningham at Baylor is the leading expert on this stuff. I know Scott has worked on the prostitution/sex work aspect. I don't know if he's extended it to workplace exploitation outside of sex work. [https://www.scunning.com/research.html](https://www.scunning.com/research.html) His chapter in a recent handbook would be a good place to start. [https://www.scunning.com/cunningham\_shah\_chapter.pdf](https://www.scunning.com/cunningham_shah_chapter.pdf)

sg4jpv

How does a real estate based GDP even work?

If you come across a country whose GDP is heavily (30%+)based on real estate, what comes to mind? What are you picturing the people doing for wealth creation? Would it be safe to imagine that for the most part people are selling real estate assets to an increasing population? The actual nation I have in mind is Canada and my knowledge of how these things work is wanting. So please do share your thoughts and educate.

AskEconomics

Well, for starters, it's not. "Real estate and rental and leasing" makes up about 13.28% of GDP as of October 2021. https://www150.statcan.gc.ca/t1/tbl1/en/tv.action?pid=3610043402 >Would it be safe to imagine that for the most part people are selling real estate assets to an increasing population? The first thing to keep in mind that GDP only counts "new" goods and services. If you sell the house you live in right now to someone, that doesn't count towards GDP. GDP is still gross domestic *production*, you're not producing anything by selling an existing house as is. So what is "Real estate and rental and leasing" then? It's renting and leasing real estate, managing real estate, appraising real estate, acting as intermediaries during sales. All of these things are essentially services. "Real estate and rental and leasing" also includes other types of renting and leasing, it's more "real estate plus renting and leasing". So yeah, this includes leasing a car, renting construction equipment, etc. as well. Sadly we don't have more detailed information on what's real estate and what's renting and leasing. So no, selling real estate is only a fraction, or really acting as intermediaries for the sale of real estate.

q5r62i

What would be the key signs or the key sign that China’s real estate crash is heading to impact US markets?

Furthermore, what exactly would it be that’d throw US markets into a frenzy? Would it be something directly related to its real estate situation or something like China’s T-bond yield dropping dramatically that consequently effects money supply here in the US l, then interest then the overall market?

AskEconomics

The main fear is that China's real estate collapse hits the Chinese banking system. The Chinese banking systems collapse would then hit every other bank. Real estate as a sector is by design heavily levered. Developers take massive amounts of debt to fund the construction of buildings, homebuyers then also take massive amounts of debt to buy the buildings. An estimated 30% of all debt in the world is real estate debt, and that's significantly higher in China, which is in the stage of development where it builds a lot of new homes. As China built more homes, and people took more debt, regulators eventually realised they needed to stop this from getting out of hand, and so introduced rules to say that developers couldn't take more debt. The idea was that everyone would slowly reduce the amount of debt they had, and while some of the shittier ones might collapse, the system should be fine. It turns out there were a lot more shitty developers than anyone expected, and the shittiest one also happens to be the largest one. More worringly, the banks all seem to have lent extensively to these shitty developers, in ways which are only barely legal and not reported (hence called off-balance sheet funding). It would only really take one large bank in China to collapse to trigger a chain of other Chinese banks collapsing. While other banks may not be exposed directly to the real estate sector, they almost all lend money to each other, and since other bank assets are considered safe, they tend to have very very high leverage on loans to other banks. Insurance companies, pension funds, and regional governments also invest in real estate - and they also have a ton of debt. You know who else lends money to Chinese banks / insurance companies / pension funds / local governments? Foreign banks. US banks are major lenders, but the most major are the Japanese / Korean / Singaporean / UK banks. And you know who lends to those banks? US banks. That being said this is basically a low probability doomsday scenario. The odds are that Evergrande and some smaller developers explode, but the banks don't get into all that much trouble. Chinese regulators have been planning the surgical collapse of troubled real estate for quite some time now.

cxiggj

Why doesn't "trickle down economics" work?

Yes I know trickle down economics isnt actually a real thing in economics. What I am asking is why policies like tax cuts for the wealthy/corporations dont end up in higher economic growth? The common explanation Ive heard is that the rich are more likely to save than spend which stagnates the economy. I have also heard that higher saving leads to more long term growth according to Solow model, so then wouldnt that mean "trickle down" policies would increase saving and improve growth?

AskEconomics

I think the idea of trickle down isn't just that there is growth, it's that poor people benefit from rich people getting richer. The fact that there's growth isn't necessarily sufficient to deduce that, it's possible that that growth would only enrich wealthy capital owners.

51fca6

Some questions about the "real economy" vs the "parasite economy"

I came across this piece today, [Confronting the Parasite Economy](http://prospect.org/article/confronting-parasite-economy), and having only a basic college Micro/Macroecon background, I have a lot of questions and not a lot of expertise. How fair and accurate are the author's claims in this article? In specific: * The author implies that fast food companies/Walmart are examples of the free rider problem. Is this is a misappropriation? Is it fair to consider welfare to be a subsidy to low-wage businesses? Would the businesses realistically be forced to change their model and pay more if their labor wasn't being "subsidized"? * "Manufacturing workers earned middle-class wages because they were unionized, and as their bargaining power declined, so did their incomes." Isn't this because manufacturing left areas where unions were powerful? Would manufacturing have anywhere near the presence it currently has in the U.S. (particularly in the South) without right-to-work laws? Is it fair to make the argument that, based on the statistic the author cites just before this, that something like 1/3 of manufacturing jobs would simply not exist otherwise? * Similarly: "employers have relentlessly exploited this power imbalance, eroding labor’s share of the economy from an average of 50 percent of GDP between 1950 and 1980 to a ten-year-average of only 43 percent today, while profits’ share of GDP has risen by a similar amount." Once again, how tied is this to the loss of manufacturing? Also, 7% is actually a lot less than I would have guessed. * Is there information being omitted from the Sam's Club v. Costco comparison that would complicate the picture? * If the author claims that they couldn't compete if they raised their wages and their competition doesn't, aren't they implicitly acknowledging that a higher minimum wage raises the cost of goods in a burdensome way? Doesn't that completely undermine his argument? I guess the big picture question centers around the claim that "This is a ridiculously inefficient way to run an economy." Could we really just eliminate most welfare spending if corporations were made to pay their employees more? Would those companies survive? Does that amount of money exist in the "parasite economy"? I really appreciate the time and expertise you'd be willing to put into answering any/all of my questions!

AskEconomics

I didn't read the whole article, because, it seems like a waste of time. There are a few things I will say about wages and prices. If anyone wants to post a point-by-point rebuttal of this article, it would probably be great fodder for /r/badeconomics. 1) Wages are based on demand. If there is low demand for labor, there is low wages. Period. Unions increase wages via monopolizing the supply of labor. That is the only way they can drive up prices for labor. Manufacturing in the US has decreased because of globalization and automation. This has resulted in a wealthier country. Unionization hasn't worked well in the private sector, in the long run, because it incentivizes automation and outsourcing. 2) Walmart is not a parasite. This is a mathematical certainty. Furthermore, if anyone gave a crap about workers making more, they would shop at places that pay workers better. But humans are greedy, and they care more about 50 cent apples than about whether or not the worker can provide to their family. If anyone claims otherwise, they are liars. 3) Walmart has lobbied to raise the minimum wage. A cynic would say this is because it allows them to destroy their mom and pop competition. 4) It is irrelevant how much you are paid. All we should care about is how much we can buy. If we cut free trade to Mexico, ala Trump's Plan, we will get more higher paying manufacturing jobs in the US, but we will be poorer in aggregate. Our purchasing power will be lower. 5) If a worker at Walmart brings in $8/hr of value to the company, and the price of employing him is $15/hr, that worker won't have a job. Giving that employee a job is basically having the company become a charity. This is a breach of fiduciary duty to the investors. It is something that a company would be sued for. You could make a good argument that it is also immoral. 6) I would ask the author why he wants corporations to bear the burden of entitlement spending? Surely, if he cares about his fellow man, he would want all of us to contribute? Purely from a moral perspective, doesn't it make more sense for all of us to pitch in to an entitlement program run by either the government or a private charity rather than asking for it to be hoisted on a corporation? 7) The author is a philosophy major, so he might not understand this, but running an entitlement program like the EITC is far more effective at alleviating poverty than setting wage price floors. 8) The only way to increase wages is to increase demand for labor. There is nothing in this world that improves the wealth of labor than the ability of the worker to walk into his bosses office and say, "You're fired, because I have 20 other job offers". I'm going to repeat this. There is nothing on this planet more powerful to the average laborer than improved labor mobility. Nothing. Not unions, not tariffs, not workers rights laws. There is nothing that can even hold a candle to improved labor mobility. And I would challenge anyone, including this author to prove otherwise. In my opinion, and I think there is a lot of data to support this, if we are not relentlessly focused on improving labor mobility, then we are not focused on improving the lives of the average laborer.

77dd7w

Economics is very good at looking at why things happened, and ok at predicting what might happen. How about what could have happened?

Essentially I'm wondering if there are any models or categories of Economics that look at what could have happened. For example, if an organization had managed to get a certain prototype off the ground 5 years ago, how well would they have done over the past 5 years based on the economic conditions that we now know to have already occurred. There are obviously a lot of what ifs and guesswork involved, but is there some way to approximate this kind of thing? Thanks!

AskEconomics

In my understanding, economists look at what could have happened all the time. What could have happened if markets were perfectly competitive? What could have happened if economic growth were a function of capital and labor with exogenous technological progress? At least in my experience, figuring out what actually happened is a much trickier process than expounding on what could have been. > if an organization had managed to get a certain prototype off the ground 5 years ago, how well would they have done over the past 5 years based on the economic conditions that we now know to have already occurred It's possible that this is just not my area, but this doesn't seem like an economic question. Economics looks at the behavior of systems or groups, not at individual firms. Your idea might be more suited for business or management studies.

77dd7w

Economics is very good at looking at why things happened, and ok at predicting what might happen. How about what could have happened?

Essentially I'm wondering if there are any models or categories of Economics that look at what could have happened. For example, if an organization had managed to get a certain prototype off the ground 5 years ago, how well would they have done over the past 5 years based on the economic conditions that we now know to have already occurred. There are obviously a lot of what ifs and guesswork involved, but is there some way to approximate this kind of thing? Thanks!

AskEconomics

Generally, yes. Empirical industrial organization economists in particular love doing this - it's called counterfactual analysis. (I should note that it's not limited to them, they just like it a lot). The economist(s) estimate parameters of demand (often using a number of assumptions, though good papers will vary those assumptions to check robustness of their model). Then they use demand estimates to figure out the supply side behavior (i.e. if you understand demand well enough, you can predict how consumers will respond to price-setting behavior, how they substitute between products, etc.). The further away a counterfactual is from existing conditions, the more you need to rely on assumptions, so your example of a certain prototype (and over a span of 5 years, where a lot can change) would be very hard to reliably predict, by any measure. However, there are papers that have done this with incrementally new products. For instance, Berry, Levinsohn and Pakes (2004 JPE), predicted the impact of the entry of a luxury SUV on the automobile market, and they did pretty well.

evepnq

Why not only tax the rich?

I’m not some sort of socialist and don’t know much about economics but if I accept the rhetoric coming from some sort of politicians like Bernie Sanders, if what they’re saying is true, why can’t we just completely eliminate taxes on the bottom 99% and upend our rates on the top 1%? Or we could go higher with even just the 0.1% since many in the 1% aren’t super rich I guess

AskEconomics

According to Piketty and Saez the 1% earn about 22% of all US income. Total us personal income is about $13t so even if you were able to tax 100% of their income you'd be able to fund a government budget of about $2.86t which is just over half the current government budget. In short: Without even mentioning issues of fairness, the super super rich just don't have enough money to fund a government the size of the US.

bhx7uf

What books should I read if I want to understand both Capitalism and its philosophy as well as Marxism/Socialism? What works should I start with first? What order should I read them in? What about the history behind these two economic system? What books can help me understand the history as well?

I want to understand these two points of view so can evaluate these ideas and think for myself. I want to stop letting random people on the internet tell me what to do and think. So, people on the internet, what should I should read? The only capitalist books I know of are Adam Smith's Wealth of Nations and Tom Sowell's Basic Economics and Freidman's Capitalism and Freedom. I also know of Marx's Das Kapital and The Communist Manifesto. What other books are there? What order should I read them in? Do I have to read Capitalists first and Marxists after? Should I read them in any particular order at all? BTW I know there is a book list you guys have but I want one that is specifically helpful in comparing Capitalism and Marxism rather than just general economics. Edit: Dang, its taking quite a while for some of these answers to become visible

AskEconomics

> Edit: Dang, its taking quite a while for some of these answers to become visible On this subreddit the mods have to approve top-level answers. That's because we used to get a lot of bad answers. You have asked a controversial question, so, the mods are rather picky about the answers they will accept. I'll post on this tomorrow, if I have the time.

66g73s

Are franchise businesses counted in a country's trade balance?

Just as an example I was looking at records for the trade balance between the US and Colombia here: https://www.census.gov/foreign-trade/balance/c3010.html I wonder, do such figures account for things like US franchises that operate in Colombia? I imagine if the franchise gets most of its materials in Colombia, and obviously the goods are sold in Colombia, it seems that wouldn't affect the trade balance. But I'd expect some money is being made by the US company. Assuming trade balances do not count such profits, is there a better way to look at how much money is going into another country versus coming back? I realize this is probably a naive way to look at things, so I'm also open to hearing why that is a naive question to ask.

AskEconomics

FT-900 economist here: franchises fall under charges for the use of intellectual property in the current account (generated by the woman in the cube next to mine), so whatever the franchise licensing fee is. The goods and services that the actual restaurants produce is their own. Whatever money is sent back as part of the franchising contract revenue agreement will be in business transfers in the financial account. https://www.bea.gov/international/pdf/bach_concepts_methods/Royalties%20and%20License%20Fees.pdf Edit: this is purely intended as a post to share and explain public information about the US balance of trade measurement and does not express or represent the opinion of the federal government in any way.

rw408w

What would happen if we introduced price controls on these things?

What would happen if we imposed price controls on the price of housing i.e. the market price can only go up by x% from the price it was at the year before. Same question but for tuition, what if we placed limits on how much universities can raise tuition by every year? I assume some might say shortages so what if these things were nationalized like housing stock in Singapore and Austria or tuition free university like Germany and Sweden? Thanks.

AskEconomics

If you cap the price of something more people consume that thing. There can still be shortages even if something is run by the government. In housing, Sweeden has very strict rent control, insufficient housing production, and [nine year wait lists](https://www.bbc.com/news/business-58317555) for rent controlled housing in Stockholm. In education, California has world class universities (high demand), relatively cheap tuition (especially for CSUs), and constrained enrollment (largely because of local land use restrictions and funding limitations). The result is that there are [more qualified people interested in certain majors than there are spots](https://www.calstate.edu/attend/degrees-certificates-credentials/Pages/impacted-degrees.aspx), which results in long waiting lists for key classes and longer times until graduation. Nationalization does not guarantee (and in many cases impedes) adequate production of the desired good. Also, to preempt comments there are perfectly good arguments for having something like education price-capped and provisioned by the government, I just want to highlight that it's absolutely not sufficient for adequate production of that good.

76vgbl

What exactly is a Geary-Khamis dollar?

Could someone explain how they were developed and what exactly they are used for. I see them a lot in books dealing with economic history as a way to compare wealth across time and space.

AskEconomics

great question! the geary khamis dollar is also commonly called international dollar. it is used as a hypothetical unit of currency that has the same purchasing power parity that the U.S. dollar had in the United States at a given point in time. It is often used in economics. you can use e. g. the year 1980 as a benchmark year for comparisons that run through time. It is based on the concepts of purchasing power parities (PPP) of currencies and the international average prices of commodities. It shows how much a local currency unit is worth within the country's borders. It is used to make comparisons both between countries and over time. For example, comparing per capita gross domestic product (GDP) of various countries in international dollars, rather than based simply on exchange rates, provides a more valid measure to compare standards of living.

8j78a0

Can anyone recommend any good sources that talk about the reality of the stock market bubble that is talked about now?

I’ve been reading articles about people saying there’s a stock market bubble, but they give very little information and are mostly just quotes from people who are viewed as economic experts. I was wondering if anyone has any good sources that discuss the credibility of this claim. Here is one example of the type of article I’m talking about (this particular one is kind of old): http://money.cnn.com/2018/01/31/investing/alan-greenspan-bubble-stocks-bonds/index.html

AskEconomics

Out of curiosity, why? No one can time the market consistently. It's between tough and impossible to time a bubble in order to make money. Those who do are more lucky that good. These articles are by and large written by people who are trying to sell you something.

738hmf

If you could repeal the Jones Act, how would you then incentivize and grow a domestic maritime industry in the USA?

The Jones Act, for the most part, is a protectionist policy to safeguard the maritime industry. It's effectiveness is often debated, but a complete repeal may kill struggling shipbuilding industries in the USA. Shipbuilding is a critical strategic industry in the US. We need talented naval architects, shipwrights, and sailors not only to keep the US Navy in business, but to ensure competition within the industry to keep costs down. Since the growth of globalization, the US shipbuilding industry has effectively lost out to competition abroad. To subsidized shipbuilders in Europe, to cheap builders in Korea and China. This means we have fewer yards to repair ships, much less build them. Some examples: * All US Aircraft Carriers are built at one yard in Norfolk, Virginia * All submarines are either built in Norfolk or Connecticut * Destroyers, Amphibious Vessels, and others are built at three yards in Louisiana, Norfolk, or Portland, Maine. * One yard in San Diego is responsible mainly for building auxiliary vessels * The Littoral Combat Ships are built in two yards in Alabama and Wisconsin All these yards are vulnerable to shut down if any ship orders are cancelled. Most orders typically come from the US Navy. On top of that, shipyards are also few and far between, and most US Navy ones are in poor shape. We need ships, sailors, and shipyards. But the current way of keeping things going seems to be at great cost to the taxpayer, and great detriment to the strategic and economic outlook of the US shipbuilding industry. What kind of economic policies can help this out? Some I thought of: * Tax per tonnage of foreign build ships delivering good to the USA. Basically, every ton of cargo shipped on a foreign built ship will be taxed, but if you ship something in on a US built cargo ship, you pay 0 tax. This might force shipping companies to add US ships to their inventories to help reduce their rates. This tax is difficult to avoid given the current trade status of the US * Subsidies to modernize and repair shipyards around the US, or a huge infrastructure package. This is already needed, but would help bring quality up and costs down * Increased incentives to protect shipwrights unions and to bring in fresh blood... this likely is unneeded if you can somehow generate more business at shipyards from overseas * Build a second shipyard on the West Coast (preferably in California) that can build nuclear powered carriers/submarines. Order more of each. This might be toughest because of the high up-front costs and the green weenies in CA. * Taxes on foreign built cruse ships docking in the USA, this is harder to enforce though, because cruise operators will just dock in places where US passengers can fly to and embark. TL;DR - repeal the Jones Act, but figure out some way to increase the shipbuilding industry

AskEconomics

There is nothing stopping Congress from funding a contract the effectively guarantees that the military shipyards can stay online even if there isn't a current big need for them. This would likely be much cheaper than the combined economic costs to the economy. Congress already does this in a way when it vastly over orders tanks to keep jobs in Congressmans' districts. But at least it isn't as economically harmful as the Jones Act.

kcnsn3

Why are stock prices so important (and volitile), if the dividend is the only actual benefit of ownership?

I understand that this is in the secondary market, but I can't understand how prominent capital gains are in investment decisions as opposed to collecting on profit (usually issuing a dividend). I guess my question would be how to draw the line between gambling and holding onto stocks. The idea came considering the differences between bonds and stocks. How can there be so much "growth" if "value" is the goal. I'm not sure if I'm making this clear, but do the anticipated benefits ever meet the actual?

AskEconomics

The issue is that current growth affects future dividends. That's why we see such large fluctuations even for stocks that don't pay dividends. That said, there is evidence that stock markets have "excess volatility". That is, they move too much compared to the movement in long-run dividend payouts.

o09mqi

Why tax the super rich?

Say I have a trillion dollars in a foreign bank and I "avoid" taxation, sitting on my wealth and taking that money out of circulation. Wouldn't the government just want to print another trillion to make up for it and get a 100% return instead of what they would get through taxation? Further, after printing the money, they could tax that printed money as it trades hands and make more than 1 to 1 on the printed money. Would that in theory lower taxes on the countries population without widespread inflation?

AskEconomics

The thing is your money is not just sitting in foreign bank accounts (most of the time), it's being invested by hedge funds and in other investments. The money is still in circulation. Its just not being taxed, its not out of the system. Even if you hypothetically took the cash and kept it somewhere its still not a good idea for the government to print more money since they're relying on those people with the cash not putting it into circulation to prevent out of control inflation. Its not that they're paying zero taxes on their wealth they're paying a lot less then they should have, it's a lot easier to evade taxes if you have a lot of money. Should only the people who can't afford to pay taxes support all public services? While the rich profit more? And with your example if the government did print more money to replace the money that was lost, how much of that will be taken out again? I'm not sure how to refute your line of thinking because it's not very clear to me unfortunately, I've tried to make it a bit general. Lmk if you have any more questions I'll try to clarify it a bit more, sorry if this wasn't too clear

62646b

Are there any reputable economists who write that Trump can pull off prosperity for the average american?

Every economist I have read believes that Trump's policies are aimed at profiting the elite at the expense of the vast number of Americans. The argumets they present are difficult for the lay person (me) to argue against. But I'd like to read some opposite views. Are there any out there that can present the level-headed argument that would bring some perspective.

AskEconomics

Some of Trump's policies have quite wide support among economists (reducing corporation taxes, for example). Some though are supported by virtually no economists, such as the border adjustment tax. I have not read any reputable economist who believes that on balance Trump's policies will help the ordinary person economically. It's not clear that Trump's policies are *aimed* at profiting the elite. He and his advisors seem to actually think that protectionism is a good idea and will help ordinary people, for example. Whether they actually will profit the elite is a different question, they may well not profit them or anyone. On the other hand.... Politics and economics are connected. Trump's effect on political issues may have positive effects on the US economy indirectly. That can be seen as outside of the scope of the question, and outside of the knowledge area of myself and probably other people here.

w7khxr

Would the redistribution of the money of the richest Americans towards social programs and projects cause inflation?

So as I understand it, inflation is usually a bad thing and government spending of some sort under some circumstances seems to cause and/or contribute to it sometimes but not always? Given that, I just want to know if redistributive economics would cause inflation and if so under what circumstances. Because it seems kind of stupid to let a few people have more money than entire countries instead of using that money to make people not poor/miserable/dead. But if redistribution just makes people poor/miserable/dead via inflation, then I guess we can't do anything about it? If so, why? Someone help???

AskEconomics

>Would the redistribution of the money of the richest Americans towards social programs and projects cause inflation? Redistribution can cause inflation, yes. To make a dumb example, a single person buying a private plane is going to do less for inflation than a thousand people buying bananas and toilet paper, even if the money spend is the same. Does that matter? First of all, that inflation is unlikely to be larger than the increase in real incomes. Basically, we still make people better off because the income goes up more than prices. (How exactly depends on the specific policy.) Second of all, inflation doesn't happen in a vacuum. Central banks have inflation targets and generally try to meet them (other tradeoffs permitting). So even if such a policy would cause inflation, monetary policy would react accordingly. All in all, inflation really isn't a particularly good argument against redistribution.

gnyuod

Difference between PhD in Economics and PhD in Management

Hi guys, I'm considering going into research and academia and I'm wondering what are the differences between PhD in Economics vs. PhD in Management. A bit about myself: I recently graduated with a BCom (3.6 GPA) in management from a top University in Canada and have been working in an asset management firm for almost a year. Though I learned a lot about the wealth management industry, I find working in a job quite mundane. Therefore, I'm considering going back to school and doing research as I really enjoyed the school environment and being able to learn new things with lots of personal freedom, even though I had little research experience (worked with a prof before and took many research project oriented classes that taught me how to write academic research papers). My personal research interests are related to consumer behaviour/ behavioural economics/motivation/ choices (with the help of machine learning). And my personal goal (if following this path) is to go into academia and become a professor. So I'm considering doing a PhD in Economics. However, after looking at the research of economics faculty members, I realize they focus more on macro topics that I am not particularly interested in. The research that I am interested in are mostly from management profs. Then I looked at the profile of the management profs in business school, and they typically have a PhD in economics. So I'm not sure which kind of program I should prepare to apply for since it does take quite a lot of effort to start networking from scratch and I might need to take some economics classes as a non-degree student since I did not take them in undergrad. I'd also like to know which PhD would give me a better chance of securing a teaching position. Thanks in advance for your suggestions.

AskEconomics

>I really enjoyed the school environment and being able to learn new things with lots of personal freedom I'm sorry to say this, but this is a very bad reason to do a PhD. A PhD is a very different experience compared to being an undergraduate. You do not exactly have the same level or kind of freedom despite having more autonomy. Wanting to do research is obviously a much better reason. >My personal research interests are related to consumer behaviour/ behavioural economics/motivation/ choices (with the help of machine learning) Much of this is done in marketing departments, although done by researchers with more psychology training doing research closer to social psychology than to economics. Some related ideas are studied in management departments under the broad umbrella of "strategic management." I don't know much about how to qualify for those programs. There is very little overlap between those areas and what PhD economists work on. The training in an economics PhD is a lot different. Your math preparation is expected to be much higher. We have some discussion about how to prepare [in the wiki](https://www.reddit.com/r/Economics/wiki/career) although it's a bit overkill. This would apply the same for economics-oriented PhDs in business schools, including economics-track marketing PhDs. To be clear, one can do behavioral economics in a standard economics PhD, but not every department has relevant faculty and it would be a different animal than the sort of "consumer psychology" type ideas you see in popularizations.

tdnola

Does the law of supply apply to non-profit maximizing producers?

Let's take oil companies as an example. Oil companies are making record profits due to high prices. My question is would a nationalized oil company -- either a government agency or an SOE that pursues public policy objectives -- produce less if it lowered prices to normal levels? My understanding is that private firms are willing to offer more higher priced goods on the market as a way to maximize profits. However, wouldn't it then mean that a publicly-owned oil producer that doesn't have the aim of maximizing profit would be able to sell petroleum at normal price levels without disincentivizing production and leading to shortages?

AskEconomics

By definition, a state-owned entity that pursues public policy objectives would produce at a level most consistent with achieving their policy objectives. You can’t model their behaviour independently of that. In the case of the oil market, it really is heavily influenced by the decisions of state-owned producers - very close attention is paid to the decisions of OPEC+. It’s not easy to predict their behaviour because it’s not always clear what their policy priorities are.

9aiaiv

In the Keynes vs Hayek rap, what does Hayek mean by the "dials" being "mirrors and smoke"?

[Keynes vs. Hayek Rap Battle Round Two, at 7:24](https://youtu.be/GTQnarzmTOc?t=444) ​ *With political incentives, discretion's a joke* *Those dials you're twisting? Just mirrors and smoke* ​ What do these lines mean? EDIT: What is discretion in this context? What are the dials twisted and why is doing that mirrors and smoke?

AskEconomics

Beforehand Keynes says: ​ "The future's uncertain, our outlooks are frail That's why free markets are so prone to fail In a volatile world, we need more discretion So state intervention can counter depression" ​ and a bit later Hayek responds: ​ "With political incentives, discretion's a joke Those dials your twisting? Just mirrors and smoke" ​ Discretion: the freedom to decide what should be done in a particular situation. ​ Keynes is saying that there's a lot of volatility and uncertainty in life and in markets. In this uncertainty world we need more freedom to decide what should be done in a particular situation. Keynes supports government intervention during recessions to make the fallout from them less burdensome. ​ Hayek is saying that it's hard to justify state intervention into the market because political choices and policies tend to have an incentive behind them that serves the politician and their constituents, e.g. politicians tend to do what's best for themselves over what's best for the masses. Hayek is saying that steering the markets by "twisting those dials" isn't really doing anything, it's just a "show."

80671o

new structural economics

i have been reading about new structural economics recently. Many authorities in economics opt this economic thought, and my opinion is also rather positive. What do you guys heard or think about it? here is a paper on it from world bank: http://siteresources.worldbank.org/DEC/Resources/84797-1104785060319/598886-1104951889260/NSE-Book.pdf

AskEconomics

I feel like it’s a cop out, but it’s hard to agree with anything associated with Ha-Joon Chang. Dozens of threads have discussed this to death, so I would read a few of those to start. It’s also telling that a group of left-leaning economists who focus on trade policy as a component of development can’t get Krugman on board. Ultimately, protectionist policies present a host of problems and leave countries worse off. Historically, countries have developed in spite of these trade barriers, not because of. Side note: Stiglitz is a great theorist, but not nearly as good development economist.

67gaj5

[Help!] PhD aspirant : what am I doing wrong?

*tl;dr - tried applying for a part-time PhD in the UK universities thrice; got rejected at all times. Trying to find reasons why.* Long time lurker, first time poster. I am hoping someone from this sub could help me. I have a Master's in Economics; and an LL.M. in International tax law. I work (full time) as a tax manager. I had applied for admission into part-time PhD programmes in Economics with some top-of-the range universities (primarily in the UK). And got rejected, and again, and again. I am trying to find out the reason(s) why I was rejected. The Universities, as a rule, do not communicate the reasons for rejection. Getting entry into biggies like the LSE is extremely hard, I get that. Universities usually don't entertain people doing part-time PhD, I get that too. I want to ask you guys - being an "academic outsider", is there anything I am missing? Something which is pretty obvious to a career academician or a person who has been through the process? Edit1: Many thanks for the responses! I have given further information below. **The research proposal** "[Transfer pricing](https://en.wikipedia.org/wiki/Transfer_pricing) problem" occurs when connected parties in two different tax jurisdictions (multinational entities) transact with each other. The tax authorities care about it since there is an incentive to artificially shift profits to the tax jurisdiction which has lowest tax rates. In order to discourage this, an international consensus has emerged which says that the related parties should transact with each other the way unrelated parties would do. The OECD Transfer Pricing Guidelines go on to specify five methods to achieve this. To cut a long story short, one of methods (profit split method) makes most sense, but is exceedingly difficult to apply in practice. The other methods are simpler to apply, but are flawed. My research proposal is to devise a set of rules and tools which will use the imperfect methods to closely approximate the result which the profit split method would have given. **Other info** > How much math have you taken? You'll need to take more than just the minimum admission requirements. I had taken Econometrics as an elective in the Econ Master's. Is that below par? > What is your GPA? My GPA was 7.6 for the Econ Masters. (The University isn't a highly rated one, I am afraid.) > Who are your letters of recommendation from? A PhD program is only going to care about letters of recommendation from PhD economists. I can see this was a problem. The first rec letter was from my thesis supervisor, who is a PhD economist. The second was from the Partner of the consulting firm I was working for at that time.

AskEconomics

We need more info to even have a clue. How much math have you taken? You'll need to take more than just the minimum admission requirements. What is your GPA? Who are your letters of recommendation from? A PhD program is only going to care about letters of recommendation from PhD economists.

rzpj33

What would happen to the value of a currency if no money was printed/destroyed?

In more detail, and I hope I don't have any big misunderstandings here(please correct any wrong statements): Afaik, the central bank can destroy/print money at will to control the value of the respective currency. It does that (in theory) so that we maintain a fixed small amount of inflation to motivate spending money. How I imagine this right now is that we have X amounts of e.g.: euros in circulation, which have some value in total. This total value doesn't change if the bank prints money, so value per euro goes down in that case. But why does the value of a euro change when no money is printed/destroyed? Would we just get hyperdeflation if no money is printed?

AskEconomics

Everything else being equal, if no money was printed, we would see deflation in line with economic growth. Since as the economy grows, there are more and more goods and services each Euro can buy, the Euro goes up in value. So no, no hyperdeflation, just slight deflation.

5zcm9v

In terms of regulation/deregulation is there an economics equivalent to the law of conservation?

I'm thinking of it like this, if regulation "costs" an industry $X in lost profit, then deregulation would cost consumers $X. Another way is if regulation "costs" an industry $X in lost profit, then deregulation would cost $Y in some part of the economy (e.g., health care). That one might be more unintended consequences, but they are directly related and in some way proportional, if not overtly. Thinking there must be something, otherwise it would not be possible build a model.

AskEconomics

There's two things going on here. The costs of a regulation are a heterogenous thing. When we talk about costs we are talking about some combination of lower profits, lower wages or higher prices. There need not be any relationship beteeen then. One law could increase profits and raise prices while another could Lower profits while lowering prices. Economic regulation also need not be zero sum. There may be sources of market failure in the economy that the government can correct that leaves everyone better off. More generally if the government is passing good regulation the benefits should outweigh the costs.

847jx7

Why can't I borrow from the government?

Why does the government not lend money to its people? Why does it lend it to banks who in turn lends to the people at higher rates (since the bank wants to profit), surely the government could just skip the banks and lend to us directly?

AskEconomics

I agree with the replies by zzzzz94 and IDontGiveAFuckDude. What you seem to be asking is: Why don't the government nationalize the banking industry? One of the problems is that government tends to be unsuitable for running industries. Firstly, the term of each government is quite short. That often makes their interest quite short-term too, they're interested in winning the next election. When the state owns an industry there is no competition. That causes problems too. In the past various government have nationalized many industries and run them very badly. It's unlikely that banking would be much different.

55623k

Evidence of supply and demand?

I have a surprisingly simple question that doesn't have an easy solution it seems. I am trying to discuss that the law of supply and demand is a good model for very basic, real life conditions. The person rejects that they can assess their own behavior and say it follows a supply or demand curve. They also reject that they can look out at the world around them and see it. So, I need either a good basket of evidence or a mathematical proof. You know, I have a bachelor's in econ but something like this never came up. It was evident from behavior I observed around me and saw a few examples based on data. Google hasn't been the best tool, either.

AskEconomics

* http://static.luiss.it/hey/microeconomia/book/Ch16.pdf - demand curve for food in the UK, using national statistics. * evidence of labor supply curve in experimental setting in Malawi, Africa. https://economics.wustl.edu/files/economics/imce/goldberg_ganyu.pdf * Evidence of labor supply curve in teaching jobs in Chicago (note - they measure increases to non-monetary utility rather than wage) http://www.nber.org/papers/w16802 * Demand curves for a number of individual products based on retailer scanner data - http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1688936 * Evidence of kinked demand curves https://libres.uncg.edu/ir/asu/f/Morgan_Ashton_2008_Loss_Aversion.pdf * Evidence of the demand curve for Uber rides, using their surge prices to graph the demand curve - http://www.nber.org/papers/w22627 * Paper which discusses the methods economists can generally use to map supply and demand curves. Has real example from L'eggs pantyhose real-world data. http://www.econ.jku.at/members/WinterEbmer/files/Teaching/managerial/ss16/estimating2b.pdf * Duffy-Deno, Kevin T., “Business Demand for Broadband Access Capacity,” Journal of Regulatory Economics, 24(3), 2003:359–372. - This is an empirical estimation for the demand curve of broadband service in 2003 That's my effort for right now. If you search hard enough, there should be plenty more evidence. Or you could literally just offer them to do a few natural experiments if you're so inclined. >They also reject that they can look out at the world around them and see it. Wondering what this means. Do they think they're in the matrix or something?

lbj5ma

Do governments borrow money from private banks?

It is a silly questions, I know. I was wondering if governments also engage in "normal" loans just like people and private organizations do, i.e., getting money from a private financial institution with some interest rate to be repaid later. I know governments issue bonds to borrow money, but is this the only mechanism that exists? I was curious because I was thinking about what would happen in case a municipal, state or federal government defaulted on a loan with a private institution. Like, would the private bank be allowed to go to court and ask for some public asset to be liquidated in order to get their money back? Like, liquidating a public museum or whatever (yeah, sounds silly now that I think about this). Better yet, if specific public assets could be used as collaterals for loans.

AskEconomics

To be clear, something like [99 percent of state and local debt](https://www.cbpp.org/research/state-budget-and-tax/policy-basics-state-and-local-borrowing) is in the form of long term bonds. But some states like Georgia ([Ga. Const. Art. IX, § 5, ¶5](https://law.justia.com/constitution/georgia/conart9.html)) and [Washington](http://mrsc.org/Home/Explore-Topics/Finance/Debt/Types-of-Municipal-Debt.aspx#:~:text=Local%20government%20can%20borrow%20money,user%20fees%2C%20or%20special%20assessments) allow for short-term borrowing from banks, with a variety of restrictions. The kind of borrowing a government can do varies so much state by state that I can't possibly give you a full explanation, so I'll stick to what I know best, which is Georgia. In Georgia, municipalities are prohibited from using public property as collateral for loans. The debt is repaid through the general tax revenues of the issuing municipality (or, in the case of special revenue bonds, from a particular source of revenue). If a municipality goes fully bankrupt, that would be handled through a Chapter 9 bankruptcy, which I won't get into here. Suffice to say, a lender couldn't just force liquidation of public assets to pay the debt. The only kind-of, sort-of exception to this in Georgia is for multiyear purchase contracts, which aren't really "debt" so much as contracts, although they have to be included in the calculation of the municipality's total debt burden (O.C.G.A § 36-60-13(e)). In the case of a multiyear contract for the purchase of a specific property, the municipality "is authorized to transfer title \[of the property\] back to the vendor . . . in the event that the contract is not fully consummated." O.C.G.A § 36-60-15.

7wibqi

How does the Economy of the UK stack up against its former settler colonies (Canada, Australia and New Zealand)

The reason I ask is that i've recently seen a post about free movement in CANZUK, regardless of the thoughts on that I remember seeing comments saying the settler colonies all still have extraction based economies while the UK has a diversified service economy. I don't know much about economics so if anyone can help explain if that's true and what the means exactly I would appreciate it.

AskEconomics

I don't know as much about Australia and New Zealand, but Canada is certainly a broadly diversified economy. While all 3 may have a higher percentage of extraction industry still operating, that is in part an artifact of the fact that they have more things which can still be extracted. Canada has a significant manufacturing base, a fully developed service economy, and a large entertainment industry. Some elements of Canada's extraction industry are in decline, particularly Atlantic fisheries. Canada and Australia are fully developed economies. I think New Zealand slightly less so, but not to the point of being a 'less developed' or 'developing' economy. NZ suffers from being so far away from trade routes that they have difficulty integrating with the world, but are otherwise well developed.

5l3lb2

If a nearly free energy source came out tomorrow what would the effect be on the price of gas?

Let's pretend water could be used as fuel and some company was leasing devices that you could use water and you had a flat rate to produce as much power as you want even powering cars. How would this affect gas prices short and long term?

AskEconomics

So, let's assume that people think that there's no bad byproducts from this process. It doesn't matter if there actually is bad byproducts, people just need to believe that there isn't. Because this makes water a substitute for gas, the price of gas will decline. How much depends entirely on how much of the current gas consumption will shift to water, since producers will always demand more money to produce more, and therefore, assuming somewhat competitive markets, less money to produce less. One side effect of this process is that the price of water will go up, since there's more uses for it. Again, how much depends entirely on how much of the gas consumption becomes water consumption. And in areas where there's a drought, like Africa, might be much worse off due to this technology.

5oxah2

What is the economics of not combining dental and vision coverage with the general health insurance policy?

In the US, typically, dental and vision overages are kept separately from the general health insurance policy. For people, this requires them to carry three separate policies. Will it not make more sense for every stakeholder, including the insurance companies themselves, to club all these benefits together?

AskEconomics

Insurance is about spreading risk around. I may never get an illness that requires expensive medical attention but I like knowing that I will be covered if I do. Most people know how much they will spend on dental or vision. There is little left to 'insure'. Whether I put 50 dollars a month in savings account or whether I put 50 toward an insurance policy covering dental and vision, is more or less the same. On the other hand health insurance allows me to mitigate risk.

6z91r7

Yes the price is hypnotic to watch, but yesterday we had a Bitcoin round-table among friends and the things that were being discussed were well beyond price speculation, it was more like planning for a completely different world. This is why I enjoy Bitcoin.

With it's decentralized ledger and world-wide access, Bitcoin is not only an interesting investment, but it is also undermining every financial & political system on earth that requires us to trust a central entity to keep a record, and to speak that record back to the public for proof or decision making. Here are the things we spoke about at our round table - they give me some hope for the future that didn't exist in a real way before bitcoin. - The need for real life banks is gone, they can exist for other useful/different reasons, but everyday large scale transactions and most daily personal banking needs, and generally financial security are all no longer bank dependent (nor credit card/website dependent).. Just this alone could really change a lot. If all the resources and money lost to huge salaries, "legal corruption", along with a now very archaic infrastructure (right down to air-conditioned skyscrapers) and untrained staff, were all translated into savings for the common user, the world market would be very different. The amounts of profit that banks make alone is staggering. At least in the billions per bank per year in 1st world countries. Then there is the fraud... Our personal estimates of 10s of trillions of dollars saved over short amounts of times (a few years) seemed almost conservative when taking everything into consideration. - War resistant money! Bitcoin means that people can flee their homeland, leave their home and everything they have, get to some other safe place, use an airport internet hotspot and access their entire life savings without interruption. Also, as a whole, the public money is safe, even if taken over completely, when the military takes over, when the religious wars are waged, no money will necessarily be at risk. We wondered, if wars could not be funded by robbing the country being invaded, could they be fully paid for by taking natural resources and land alone? We weren't sure, but it would take out a big bite. There were so many different little reasons we came up with around war, but I'll move on. - Voting. No need to dwell on this one, obviously voting and fraud is a big conversation these days. A blockchain based voting system is surely going to shed some light on the true opinions of the nation. We were not so sure if this would be a big deal or not, but we decided its best to be sure fraud is dealt with at this level of decision making. But also, since voting could potentially be in your hands, on a phone or device, maybe we vote together on some of the simpler decisions, it could deflate the pressure on higher levels of govt to make these decisions, maybe they could spend some time on important things etc... Why spend so much time discussing things in govt when we could know the exact sentiments of the entire country very quickly and cheaply. This blockchain tech doesn't exist yet so I'll leave it alone. - Immutable history. I mean, this is the first time there is the potential for human history to be recorded in a verifiable way. We could actually be able to all agree on what happened and how it happened because there is a decentralized ledger. If one pays close attention to how much merit and importance we put into history and how things went...With modern education there is a constant need to show you how to feel about the world, why we are the good ones & who is bad. The internet feeds this desire to new heights of addiction. A blockchain of events, not only financial but of all events could change our relationships worldwide. I know some of these things are blockchain based ideas, I personally believe the bitcoin blockchain is capable of doing all of these things in some way, or at least the network could power & secure these types of tech. Being the one largest, most secure, immutable ledgers on earth with no central authority, there is a reason to continue on with Bitcoin as the main blockchain. These few things I mentioned above are just a small example of the earth-changing things that Bitcoin is capable of, we have only scratched the surface.

Bitcoin

I posted something similar about Monero, but I really think that cryptocurrency is in the early-1990s-internet stage, with the same knowledge gap between the early adopters and the public, but also the same potential to affect society. It was hard to explain to people what a website was and why they could be important. You had to use terminology that the average person just didn't have in their vocabulary. But as it took off and became usable for the average person, the public was eventually able to understand the value of the internet, even if they remained hazy on the details. This is because they had personally experienced it and could visualize new uses. Likewise, we are in a period where explaining the value of cryptocurrency is hard because it requires the usage of terms that need explanation themselves. The resistance by traditional investors is probably because they can't really envision what it is. Their mental picture of it may be similar to stocks or fiat currency, but it is neither; it's an entirely new sphere of financial activity. In the future, we will be able to speak about cryptocurrency without having to make analogies to other asset classes, just like we can talk with non-experts about websites without having to compare them to some other method of communication. This is why I'm not worried about price fluctuations. The philosophy behind it is solid and it solves needs in a novel way, many of which you mentioned. Maybe the future will not be Bitcoin but something better--that's great. But I am convinced that cryptocurrency is absolutely going to be a huge part of daily life and we will look back at this period the way we look at tech in the early 90s.

hnun3g

Where to store multiple sports cars?

I’m a car guy with a house and two car garage currently. I plan on collecting and storing at least two or three of my bucket list cars within the next few years. They’ll all be driven only occasionally, no daily drivers. I’ve been contemplating what’s the most cost efficient way to store these cars? The main restriction is that my wife and I each have our own daily drivers we’ll need to keep and preferably garage. Our thoughts was to eventually upgrade to a house that had at least a 3 car garage that can support additional lifts. However most houses with 3 car garages around here (Austin, TX) comes with massive square footage we would never use. My second idea was to buy some land nearby and install just a garage/storage. I’m finding that most areas have restrictions to build a residential building of some type as well. The third is to buy a commercial garage unit or “garage condo” being built around here. Not looking forward to paying HOA or commercial utility fees. For the car enthusiasts I currently have a 1992 Acura NSX that was on my bucket list. It’s sitting in the garage but thinking about renting self storage for the time being. I plan on buying a Porsche 997 cab and possibly a 04-05 Subaru WRX STI to complete the list. https://imgur.com/vgH07g9 Any other ideas I’m missing would be very welcomed, Thanks in advance!

fatFIRE

I buy vacation rental properties partially for this reason. Then I have an even stronger motivation to visit them at least once every six months to keep em going and change the gas if necessary. Not the cheapest solution though.

odcdf1

Asset backed mortgages - does the UK have them?

I have no employment income, so I expect no salary based lender is going to give me the time of day. I do however have stocks in a S&P500 company worth significantly more than the mortgage would be for, as well as a UK house I own outright (but don't want to sell because of who the tenant is and for tax reasons). Abroad (where I've been living), I would be looking for something called an asset backed mortgage, but when I Google for that in the UK I get no relevant hits. Googling 'asset backed loans' gets some UK results, but they are all business loans intended to leverage the physical assets of expanding firms. Is what I'm looking for called something else in the UK, or do they just not exist over here? If they exist, do you know what sort of rates (compared with a traditional mortgage) and terms & conditions they typically come with?

UKPersonalFinance

Kinda. As documented below, you can get a margin loan guaranteed against liquidizable assets worth at least 2x the loan amount: https://firevlondon.com/2021/05/03/margin-loans-in-the-uk/ However, tread with caution. Margin loans should be considered useful for the transactional costs of a property purchase, not for the purchase itself, unless you have several multiples of the property value available in liquidizable assets in order to ensure you remain well outside the callable margin of a margin loan. Note: Investments held in retirement accounts, or illiquid assets, are not viable collateral assets. Some private banks will offer you asset backed loans of you transfer sufficient assets to them to hold as collateral. Many will require management of those assets thus incurring additional fees. Some non-private banks' HNW service orgs may be a better bet, only requiring assets to be held with oversight over them, but not requiring assets to be managed by them. FWIW, three weeks ago, we completed a UK property purchase using an interest only mortgage for ~65% of the purchase price, plus around 35% cash deposit for which we we had to provide copious provinence info for, to prove that we were not purchasing the property using cash derived from nefarious nor leveraged sources. We used margin loan against a chunk of our asset portfolio to cover the purchase transactional costs. Having a decent chunk of investments held by the bank helped give them confidence that we have the assets necessary to eventually pay off a sizeable interest only loan. Hope this helps.

maxjx1

I have around £70k sitting idle in the bank - unsure whether, and how, to invest it

Hello, As per the title, I'm currently sitting on approx. 70k in savings from the past decade of working life. I've not been very sensible with my finances thus far, in that my earnings are all sitting in ordinary bank accounts (I'm deeply regretting having not invested them earlier after reading [this thread](https://www.reddit.com/r/UKPersonalFinance/comments/ma3qwh/should_i_have_invested_in_a_stocks_shares_isa_for/)!) I don't have much of a risk appetite, but want to put at least some of my savings somewhere that will hopefully give me a half-decent return on them. From the research I've done, an investment ISA seems the best way to go, but I don't know how to begin to choose one. A relative had suggested I look at Brewin Dolphin, which is where I began, though they seem to have a pretty mixed reception to the extent that I can find any reviews of them. Other ISA providers like Vanguard and Nutmeg seem to have better press, but I'm struggling to discern the advantages and disadvantages of each. My goal, assuming an investment ISA is the right route to go down, is to put 20k in before the beginning of the next financial year. I would ideally like to park it somewhere that I can access it without stress if necessary. I may like to put a deposit down on a house soon, though probably not for a couple of years, and my work situation is also a bit precarious due to Covid (travel sector), so while i have a lot of savings I don't want large sums locked away and inaccessible should I need to draw on them. If anyone has any recommendations for what I should be doing, whether in terms of choosing an ISA or other investments I should consider, I'd be very grateful for the advice.

UKPersonalFinance

Have you seen our sidebar? https://ukpersonal.finance/windfall/ and flowchart? https://flowchart.ukpersonal.finance/ You may find: https://ukpersonal.finance/recommended-resources/ useful to start some reading on asset allocation.

2sxrwc

The useability of Bitcoin is really starting to hit me

I'll be honest. I got into Bitcoin at first as a speculative investment and just held my coins in cold storage. But lately I've noticed more and more opportunities to actually use them and figured I'll give it a shot. I put a few coins in a hot wallet on my phone and it's just so easy. In the past month, I've bought furniture on overstock, this year's tax software on newegg, games from green man gaming, and paid a friend in another state who I owed money to. For one purchase, I even tried to use my credit card first, but it was declined. Called my bank, and they said the charge triggered a fraud alert. I had to jump through all these hoops, convince them it wasn't a fraudulent transaction, then submit the payment to the merchant again. Except the second time, I just used Bitcoin. So easy! Like using cash over the internet. When I got into this, I didn't even think about where I would spend it, and now I'm eager to find more places that accept it! I know I'm preaching to the choir here, but it just hit me that this is the way money should be. It all makes sense now.

Bitcoin

There is a lot of truth to this perspective. The standard anti-Bitcoin position is basically "who gives a shit credit cards work fine", except they really don't. Credit cards are a klunky, massively-insecure workaround to the problem of not having the technology to transact in real electronic cash.

rojxak

TLDR: Long Time Lurker On This Sub Doesn't Understand Why Some are Hyped on the Jan 21 Puts

As the title says, I don't get it. Here's why: From Investopedia: "There are a number of ways to close out, or complete, the option trade depending on the circumstances. If the option expires profitable or in the money, the option will be exercised. If the option expires unprofitable or out of the money, nothing happens, and the money paid for the option is lost." Ok, so whoever bought the put options loses the money paid for those options, sure. But I cannot find anywhere that the said party that bought the options would have to locate the shares or buy them back or be engaged in an FTD cycle. I only find that they would lose the premium paid for the option. As of now, though, I do not see why people are so hyped about all these puts besides the ever-growing plausible explanation (hiding SI). What comes after they expire is beyond me, but it seems like they successfully hide the SI and never have to report it. If I am mistaken, I would love someone to explain how/why. I'm not an options expert by any means right now. ​ Edit: Thanks for your helpful insights, everyone. I'm going to re-up on variant swaps / total rollover swaps and continue learning. I've learned more about economics and stocks in a year than the previous years combined. Also, I won't tell you what to do, but I will personally buy when I can, HODL, DRS.

Superstonk

Don’t know much about puts (married) divorced or whatever, but the theory is the hammering of the stock over the last 2-3 weeks prior was to balance the books and diminish year long gains the stocks has made. I would imagine that having a stock rise from $30 this time last year to above $250 (at the time) would have crushed margin for them and looked very bad to investors. This time of year is all about (bonuses). Most want to collect big fat ones and nothing will stand in their way of collecting them. Now first of year is a clean slate. I think we will see some repercussions of a year length of fu*kery. They never anticipated this going this long where they had to keep hiding these naked positions in married puts and options, ETF exposure on threshold, rollovers and They can now afford to allow this price to rise but, at what cost to them will break the camels back. Drs will continue and numbers are increasing. Along with any announcements could cause massive pressure. Whatever the outcome, this could be a different scenario this time around and tit jacking as time goes on.

ts53h9

What is happening to the Student Loan interest rate cap?

Hi, I'm on the plan 2 student loan. Obviously the possibility of 10+% interest worries me. I'm on a decent salary, so it's likely I'll pay 2x the loan even if the rest of the debt is canceled before I'll pay it all off. So far I know - Interest rate is updated in September to 3%+the RPI figure in March, likely to be 10+% - The rate was capped to 4.1-4.4% since SEP 21 (to match commercial loans) however from JAN/FEB 22 the cap was removed. What I want to know: - Has the government given any information on what the rate from from MAR - AUG 2022 will be? - Has the government given any assurance that a cap will be in place from September when rates reach 10+%? I've seen people post laws from 1998 that say loans must be capped but I'm skeptical that holds any weight as the government can and has changed terms at any time. I just want to know of any information or assurances have been given here recently.

UKPersonalFinance

Nothing has been announced as to what the interest rate will be from September. March-Aug this year will be 1.5-4.5% (unless any cap comes in). > I've seen people post laws from 1998 that say loans must be capped They're right, THEA 1998 limited educational loans to never being higher than loans from the private sector. This was ratified in the 2011 Education Act. Specifically 76.1.a: https://www.legislation.gov.uk/ukpga/2011/21/section/76/enacted Obviously legislation can change. But as this isn't a political sub, I'll just say that significant changes like that take time.

rwsj4s

(Charts!) Year-2000 Retirees: The ultimate survivors!

When I first started working toward FIRE around 2010, it was thought that 2000 would end up being one of the worst years ever to retire, and one of the few years that breaks the 4% rule. So every year I like to track their performance. Here is the update through 2021! (For the first time ever, I'm not only looking at people who are 100% stocks. I've also included people with a 60/40 stock/bond asset allocation) ​ **Charts** * [Graph](https://imgur.com/a/YvtUS4O) of percent of portfolio remaining over time for people who retired in 1/1/2000, comparing different withdrawal rates. First graph is 100% S&P 500; second is 60/40 split S&P/ 10-year treasury bonds * [Table](https://imgur.com/a/0dui9hS) of percent of portfolio remaining for people who retired on Jan 1 of the years around 2000, comparing different withdrawal rates. First chart is 100% S&P 500; second is 60/40 split S&P/ 10-year treasury bonds Note: These charts assume dividends/distributions are reinvested, and monthly returns net out monthly inflation (using CPI). I get asked this every year. Yes, it accounts for inflation and dividends! ​ **Results** If you retired in 2000 with 100% S&P500 and stuck to a fixed 4% SWR, you were scared out of your mind only 9 years later with 23% of your portfolio remaining. But if you were super irrational and stayed the course, the next decade+ of returns were so good that you still have exactly 23% of your portfolio remaining as of 3 days ago! I thought these guys would have run out of money long ago, but they keep proving me wrong! Bonds during this time had a very good performance. So, if you instead had a 60/40 stock/bond split, then you were sweating a little less in 2009 than people who were 100% stocks. While they had 23% of their portfolio left, you had 47% of your portfolio remaining. And if you stayed the course, then you'd still have 75% of your portfolio remaining. Great shape for surviving the standard 30-year retirement window! If you were looking for a longer retirement window than 30 years, or if you wanted to preserve a significant portion of your portfolio value, it looks like the year-2000 retiree (who is 100% stocks) would have needed a much lower WR of 2.5-3%.. But there are 2 pieces of good new. First, incorporating just a bit of bonds into your portfolio would have greatly offset the poor performance of stocks, leaving you pretty comfortable with a 3.5-4% SWR. Secondly, retiring just a few years before or after the worst retirement year in generations would mean you've actually seen your portfolio grow! Though, people do disproportionately [retire at the worst possible times](https://earlyretirementnow.com/2017/12/13/the-ultimate-guide-to-safe-withdrawal-rates-part-22-endogenous-retirement-timing/) :( Anyone nearing their FIRE goals should read [ERN's SWR series](https://earlyretirementnow.com/safe-withdrawal-rate-series/). I learned a lot from it. And while I don't necessarily agree with all of his conclusions or assumptions, it's the best SWR analysis out there and better than anything I'd be able to put together. ​ **Source** ERN's data that I used: [https://earlyretirementnow.com/2018/08/29/google-sheet-updates-swr-series-part-28/](https://earlyretirementnow.com/2018/08/29/google-sheet-updates-swr-series-part-28/) . You can use this to look at different asset allocations and to adjust other assumptions. If you don't want to work with the raw data directly, he has some tools in the spreadsheet that will do the analysis for you when you adjust assumptions. Here is the extra sheet I added to ERN's workbook, in case you want to play around with it: [https://docs.google.com/spreadsheets/d/1JcSRDrGv9YxQmR8E8dAmLELRgtqiCFtw8lcdSRUyAVc/edit?usp=sharing](https://docs.google.com/spreadsheets/d/1JcSRDrGv9YxQmR8E8dAmLELRgtqiCFtw8lcdSRUyAVc/edit?usp=sharing)

financialindependence

So, just for context: 1) Assuming someone retired with 1M in 2000 at age 65, and was withdrawing $40k (4%) 2) Today they'd be 86 years old 3) Withdrawing $65k/ year if they kept increasing that by inflation 4) Currently have between $230k left/ 28% withdrawal rate (100% SP500) or $750k left/9% withdrawal rate (60/40 allocation) Basically, they're old enough that they've made it (particularly with a bond allocation + SS/pensions helping out). *However*, for like early retirees who were high percentage stocks (and less likely to have SS/ pensions/ etc as supplemental income), they're in trouble

ocze71

Yesterday I tipped 100 moons to the moonless and 2 things became apparent...

I was tipped my first moon a couple of months ago and it felt awesome! So yesterday I figured I would tip out moons to people that didn't have any. Two things became apparent #1 about half the people commenting did not know what a moon even was #2 a lot of the people commenting did not know they had to unlock their vault. If you just comment "what are moons" a bot will give you a link to a detailed description of what a moon is and how to set up your vault (which is an eth wallet). I will actually comment below and spawn the bot for those who want to learn about moons/vault. A few people activated their vault just to discover they already had some moons. I hope this helps a few people.

CryptoCurrency

I never expect moons or upvotes for anything. I'm new and generally just ask questions I can't say I'm much of a contributor yet. My questions generally garner -5 in down votes which I've been told are most likely from bots but whatever. I'm here to learn more about everything crypto so I can make sound investing decisions.

unbllt

FYI: NS&I 'can't verify Chase accounts' if you're moving a large amount of money (i.e. premium bond -> Chase), use a different account and move it to Chase after

Disclaimer - this is just what I have been told. After my withdrawal request not going through and my winnings for this month not being transferred either, had to call NS&I. There was a security stop on the account. Despite me last last month doing a £50 test withdrawal to my Chase account, asking for everything else to be withdrawn after May draw flagged up security check. But didn't notify me. During the check I asked what the problem was and was told that at the moment they 'cannot very Chase accounts' and I asked what they meant by verify - bit vague but talked about a system generating a 'score'... So to avoid wasting time move your money to a different account first (from the way she talked the account you used when initially opening the account seems to be favourite) and then move it to Chase. BTW another good win this put my premium bonds at about 1.2% for the year on £46-50k

UKPersonalFinance

For everyone transferring from NS&I to Chase please remember: If you are a higher rate tax payer; any interest earned past £500 is taxable at 40%, this means you should be putting a maximum £33,350 into chase at 1.5% if you want to be tax efficient.

qqz41z

Paypal dispute claim: Buyer scammed me with $1700+ how to win

Buyer ordered $1700 worth of apple products which she paid via paypal, she asked me to have it delivered to her assistant (since she was on vacation) to which I did. disclaimer: \- she ordered under a different name vs her name on Paypal (but paypal email is the same as the one i am conversing with). Billing address is under a different name, Shipping address is under her assistant's name. I have all complete evidences via email stating that her assistant is to be the one to receive the package, she sent me the complete details (name, address, number). I sent the assistant text messages regarding the delivery and messaged her again to confirm if it was already received to which she clearly said yes. 5 days after, customer disputed unauthorized transaction, i sent evidences to Paypal, and days after she made another dispute saying items were not received (from unauthorized transaction to not received?). Paypal has not returned to me yet but im so scared that money may be refunded back to the buyer. I had the number traced and turns out this number belongs to a group of syndicate/scammers online but pretty sure that's illegal to even disclose to Paypal. How do i win this? :(

personalfinance

Never, ever, ever ship to an address that is not the listed address on the PayPal, Amazon or other account after the order is placed. Cancel the order and use 'buyer requested address change' as the reason.

sykghn

This post is for the snake award guy

I love you. 🙂 And to the rest of SuperStonk; You all are seriously amazing! I can't wait to change the world with you guys! Message to the mods; 🙌🙌 thank you for keeping this sub alive and thriving- this dream would not even be a possibility without the work that you guys put in. #To the moon with every last one of you 💚

Superstonk

Sorry bud but this is super retarded and not in a good way. Sneks were originally bought about to help people identify shilly posts. Now shills are flooding the sub with them and diluting their representation. The fact that people have hopped on the bandwagon and are encouraging it goes against the interests of all the genuine users of this sub. I know I sound like the fun police but this is the biggest thing in tbe world right now and it pisses me off to see our user-base fall for such a lazy trick.

j3y1s6

Just moved to UK, can't open a bank account...

Greetings UK Redditors! I'm an EU citizen that just moved to UK. I'm an engineer in a niche field so I got a good job easily. The problem I encountered is that it seems that I can’t open a bank account… Let me explain: HMRC is not assigning new National Insurance Numbers since April. None at all. When I call them there is an automated message saying that they stopped assigning those and there is no timeframe when they’ll restart the process. My employer made me fill that “Starter Pack Form” which they say is enough for now. My EU ID and passport apparently are fine as proof of identity but any bank requires a letter or payslip with my NIN confirmation in addition to any proof of address. It got even more ridiculous as most of the agreements that could be the above mentioned proof of address, with my UK address on it, (like tenancy agreement) have digital signatures, because no one is doing anything now face to face (doh… covid) and they all really want wet signatures. Sooo, is it even possible to open a bank account in the UK now for new residents? Thanks in advance for any help! Cheers! **Edit:** Thank you SO SO much everyone. Lots of really helpful comments here, I very much appreciate all of them, you are all amazing. I'm posting this edit for everyone who might need it in the future. While I couldn't open the account in any of the traditional banks, and somehow Monzo immediately rejected me (which was explained in more detail below), I managed to open with Starling. It did, in fact, require a proof of address but they accepted digital tenancy agreement and a letter confirming my employement with my address on it. Therefore I call it a success. Thanks everyone!

UKPersonalFinance

Listen, what you need to get is a registration letter from a GP. That might be difficult, but it's possible to get. Just call a GP locally and say you need to register, etc. Also, a Letter from HMRC will be good, call HMRC and see if you can apply for a National Insurance number. 0800 141 2075 https://www.gov.uk/apply-national-insurance-number

8quol5

Whole Foods CEO John Mackey says he stands his ground against Amazon

[https://www.cnbc.com/2018/06/13/whole\-foods\-ceo\-john\-mackey\-says\-he\-stands\-his\-ground\-against\-amazon.html](https://www.cnbc.com/2018/06/13/whole-foods-ceo-john-mackey-says-he-stands-his-ground-against-amazon.html)

investing

lol "Does that mean I love absolutely everything about Amazon? No. I don't," he said. "I don't love absolutely everything about my wife, either, but on balance, I love like 98 percent. That's a pretty good ratio based on my previous relationships."

4xa4yg

FIRE article on front page of Washington Post (online). As usual the comments are mostly toxic

Just read this linked from the front page of WaPo: https://www.washingtonpost.com/lifestyle/magazine/13-kids-13-college-educations-not-rich-retiring-early/2016/08/08/3abe7cec-38b4-11e6-a254-2b336e293a3c_story.html Though not the way I would do it, pretty impressive for a family of 13. Also reading through the comments there makes me appreciate how great this community is, even when we disagree on the exact methods used to achieve FIRE.

financialindependence

I liked this quote: > In 1789, George Washington wrote to Marquis de Lafayette, the French military officer who fought for the American Revolution: “Nothing but harmony, honesty, industry and frugality are necessary to make us a great and happy people.”