/sci/ - Science & Math

>applying economic theory to real world problems

on /sci/ now that /new/ is gone


errytyme is econfag tyme

>nuka cola making a economics thread
>it's not terrible
whaaa?

i've never heard this

>>3547429
>Implying there is an arbitrary dichotomy between "real world" and "theoretical" problems
>laughingphilosophers.jpg

>>3547423
>kaynsean

well, you tried

>>3547541
oh
whops

Ive heard keynesians claim that according to their models the government needs to spend a lot more money than they did in the stimulus.

However, that would require more debt. And as far as I can tell, the amount of debt we have right now has already doomed america.

I feel like there is an economics bubble of American Loans. Where people are loaning the government money because there is this massive imaginary confidence that people will get their money back. But sooner or later, they wont. Right now Its 14 trillion of debt. If the government busts and that money evaporates, it would be a depression unlike anything before.

Anyway Ive been freaking myself out about this.

>>3547845
problem is, most of that debt is for projects or services which don't really feed back into the economy all that much, at least that's what i'm getting

>>3547968

Yeah I mostly agree. Especially when it comes to stimulus stuff.

>>3547845
>debt doomed america
its really not that big of a problem, if we increase revenues, redesign Great Society programs, cut-'defense' spending, and remove silly pro-corporate subsidies, it would shrink dramatically.

Republicans are just using this as another excuse to cut everything, and since corporations now have complete freedom to invest as much money as they want into political ads and the like, the american population is believing it.

This isn't a problem solvable by just economics, its also a sociological/political science problem as well.

>>3548048
> if we increase revenues, redesign Great Society programs, cut-'defense' spending, and remove silly pro-corporate subsidies, it would shrink dramatically.

No, stop, we won't do that, period. There is nothing that can make the US government to implement such changes. They would rather risk a civil war than do that.

>china actually employed it as of last year, and it worked! they are officially no longer in a recession.
Indeed, they're instead in the process of continuing to blow up an economic bubble that makes the housing bubble in the USA look like nothing.

The answer from keynesians when their policies just make things worse is always the totally unfalsifiable "but it wasn't big enough".

>>3548048

The DBET is 14 trillion dollars. Our budget is like 2 trillion a year. defense, medicare, and social security are like half the budget. If we cut those things thats 1 trillion approximately. That means it would take 14 years to pay it off.

My math is all very loose.

Cutting those things isnt feasible to begin with. And even if it was, I dont think politicians would do it.

>>3548086
>If we cut those things thats 1 trillion approximately. That means it would take 14 years to pay it off.
With a $1 trillion + deficit a cut of that size would be necessary simply to get rid of the deficit, let alone pay down debt.

>>3548086
Again, i didn't only say cuts. This is the problem with republican strategy.

If we also increase government revenue, specifically removing the bush tax cuts and closing tax loopholes, that amount of time could be cut in half.

>>3548081
i'm not much of a keynesian fan either, but something strange struck me about the person putting forth this theory i'm talking about

he actually supported reaganomics, which for anyone even near keynesian economics, is like giving satan a blowjob.
He posits that the reagan situation was a supply side problem, and thus a supply side solution solved it.

unfortunately this is a demand side problem, and again he argues that the government (in this case the "Borrower of last resort") needs to take out an enormous loan on this pile of money that isn't going anywhere, and stick it directly back into the demand side of the economy.

also, isn't china blowing a massive bubble less a problem with the method so much as china being fucking stupid?

>>3548133
>>3548094

Well how do you know that time could be cut in half?

When I said 14 years, it was an idealized reality where there arent riots when they find out their retirement checks have been stolen from them, or that the government has left the elderly without health care.

It was also ideal in that politicians somehow become responsible and cut everything and maintain the taxes that existed before. Which is never going to happen.

How much were the bush tax cuts? Like 6%? Thats nothing, especially when you include the fact that people are encouraged to cheat, and hide wealth, or not generate revenue once their taxes are increase (Hauser's law)

>>3548141
The economic problem is one of supply. The first thing anyone who takes an economics course will learn is that the economic problem is how to satisfy our unlimited wants (or demand) with limited resources (supply).

The current problem is that you have a heap of resources that are either unemployed or employed in places they shouldn't be, propped up by government attempts at "stimulus". How do you fix this by pumping even more money into efforts to stop the economy from readjusting?

And when you have massively inflationary monetary policy and fiscal policy pointed directly at assisting the growth of the bubble and postponing its bursting, you are going to cause a bubble. There is no "smart" way to go about this other than by changing the method and not doing it, in much the same way that there is no "smart" way to go about shooting yourself in the face short of not doing so.

Im going to bed. But I was just thinking. Currently 8% of our budget is going toward just paying off the interest on the loans we already have. If we did something reasonable, like cut 20% of the budget. We would be in a circumstance where it would take perhaps 50 years to pay off the debt.

This estimate is incredibly rough. Im figuring we would be saving 400 billion dollars a year, (200 billion is currently just paying off interest approximately). I dont think we would have to pay 200 billion on interest forever. But if we had 200 billion every year paying off 14 trillion it would take 70 years. I lessened it by taking into account the fact that the economy grows.

50 years? What kind of policy can the government possibly establish that would last 50 years? Everything can change with a new president. Besides politicians are just so irresponsible. I can begin to describe this. There is just no way in hell our government will ever get together and start behaving reasonably.

This is just a colossally bad circumstance. If investors start thinking they wont get their 14 trillion dollars back (like they honestly should) this country will collapse. The current recession was caused by approximately 900 billion dollars worth of bad loans (I think, I could be wrong). Thats 6% of GDP, resulting in a recession of a 7% drop in GDP. If 14 trillion dollars worth of loans to the government, or even a fraction of those loans went bad. It would be significantly larger. Like perhaps a depression 5 to 10 times worse than our current situation. Worse than the great depression which left half the population unemployed (25% unemployment, but for those who dont know, that doesnt reflect the amount of people without jobs)

>>3548187

I agree, but the problem wasnt caused by misallocation of resources. It was caused by an inappropriately large increase in the money supply, which manifested itself in the housing bubble.

>>3548219
>I agree, but the problem wasnt caused by misallocation of resources. It was caused by an inappropriately large increase in the money supply, which manifested itself in the housing bubble.
And the housing bubble was a misallocation of resources.

> the government is perfect if you simply do more of it
> we didn't spend enough

Democrats actually believe this.

>>3548544
Which was spurred on by an increase in the money supply in the form of cheap credit.

>>3548566

Actually.. Democrats are just populists, and will say or do anything to be elected... including exactly what the Majority of people want. I know this because Rush Limbaugh said so.

>>3548615

> democrats do what the majority of people want

Democrats actually believe this.

>>3548623
Didn't see
>I know this because Rush Limbaugh said so.

Nobodies is doing Keynesianism correctly, anyway.
Spending massively in recession after a burst bubble is only half the deal, the other half is to increase taxes and revenue in boom times, to get back all that money and stop the next bubble from getting too big.
Most of the past administrations, even including Reagen, did that actually better, raising taxes during booms, the Bush administration was the only one that kept taxes (and interests, somewhat) very low during a boom, causing a much larger than normal bubble and at the same time a way larger deficit.

i think a big problem is the MASSIVE DEFICIT of an understanding of economics. people hear deficit and debt and think it has an influence on their credit cards and mortgages or some retard level logic. the billionaries and their harvard think tanks are aware of this and created the tea party. their goal is simply to reduce the middle class to serfs. with no other job opportunities and ridiculous debts they'll eventually work for 2$ an hour. they dont care if the economy goes to shit for 10 or even 20 years. the end game is a corporate aristocracy and an uneducated populace working for slave wages.

>>3548644

> the deficit is completely irrelevant

Democrats actually believe this.

>>3548650

economists actually believe this. stop letting the fear mongering news get to you.

>>3547423
this is paul krugmans reasoning too

>>3548669

> economist
> keynesian

Pick only one.

>>3547845
debt does not 'doom' governments; rate of long-term debt growth does
as long as they pay off all dues including interest, they're fine
the government could have reduced long-term debt growth while also raising short-term debt to return this economy to a stronger path of economic growth. it didn't. instead, it decided to choke the economy and make moderate debt reductions.

the current debt is in fact NOT relevant
lack of growth is

>>3548738

> world war spending and loans to other countries is the same as right now

Democrats actually believe this.

>>3548747
mfw

>>3548634
this is true
democrats want to increase spending and taxes
republicans want to cut spending and taxes
at all times
they're always half right

>>3548780

Decrease taxes and eliminate spending is correct.

>>3548805
nope

>>3548824

nope

lets apply some friedman style free market shock therapy
it will surely help

>>3548606
Exactly. They both occured and the monetary policy caused the misallocations, with the fiscal policy helping it along/propping it up.

>>3548903

I know this is very after the fact.

But the housing bubble wasnt a misallocation. That money should never have existed. If the money was spent some where else, it would also be a problem.

>>3547423
>Obama's stimulus of the past few years was actually far too small

Yes, many top economists have been saying this all along. i.e Joseph Stiglitz.

His book Civilization and its Discontents goes into it and talks about the asian crisis, etc.

Stimulus should've been bigger.
Conditions should have been stricter when they bailed out the banks. And obvious better regulations should have been put in place, higher capital requirements etc.

But instead they did a paltry stimulus and no regulation.

meh

What caused the asset boom in the first place that put us here?

>That same keynsian solution to the .com bubble bursting!!!

Keynsianism does not work. It just fucks up the business cycle and allows us to make bigger booms followed up by bigger busts. But with resources being misallocated.

>>3550381

>It just fucks up the business cycle

chicken and egg...

the business cycle is inherently chaotic and random, with big ups and big downs.

Historically these booms have happened HUNDREDS OF YEARS before keynes was even alive.

Keynes is a response to the busts, and the busts can be catastrophic (great depression)...

Does it add fuel to the fire? Depends how you execute it. It's not black or white, its how you use it.

>>3550393

If I understand it ists not inherently chaotic or random. It should be a straight line progressing upwards. However sometimes it progresses too fast because of poor fiscal policy, and it eventually corrects itself in a collapse.

Picture related. Its not totally random. But the economy dances around a trend line which would be the ideal world.

>>3550381

Exactly. The boom was the disease and the recession is the cure. Many people find this impossible to grasp.

>>3550418
The biggest gap in that graph is the great depression which was caused by various factors, none of which were Keynes stimulus--in fact Japan got out depression quicker because they used a sooner and bigger Keynesian stimulus.

The trend normalizes after Keynesian stimulus becomes a world-wide method of stabilization.

Past bubbles:
*Tulip bubble 1600s
*railway bubble 1800s
*real estate bubble 1920s

Bubbles happen naturally. Which lead to busts. How do we deal with them properly? That's the question. They aren't all the same, sometimes stimulus can work, sometimes it can be a waste...

>>3550425

>implying the boom had one simple cause

dumber than wood.

>>3550477

Well, the great depression is what happens when the keynsian guys fail to pull the trigger. We allowed for the quantity if money to shrink by 1/3 in a couple years. It was deflation that couldn't happen if we had stuck to gold standard and not created the fed. Ben bernanke has admitted that the great depression happened because of mismanagement of the fed and that "we won't do it again".

>>3550477

I wish I had a better graph than that one. I used to have a really detailed one. The one in my picture isnt really accurate. When the New Deal was implemented the economy subsequently crashed again.

Im not convinced bubbles are nature phenomenon. The idea with the business cycle is that if the money supply accurately matched with the value of the economy all the dollars would be accounted for (if that makes sense), but when there is poor policy, and investors dont know those dollars represent nothing those dollars end up somewhere.

Also what railway bubbles? I thought a lot of the recessions in the late 1800s were from bank runs.

>>3550523
>It was deflation that couldn't happen if we had stuck to gold standard and not created the fed.

It's not so simple. They had to give up gold standard because of WW1. After WW1 countries tried the gold standard again until they realized it just wouldn't work. Countries that stayed on gold experienced an average output decline of 15% in 1932.The U.S. abandoned gold in 1933, after which its dramatic recovery immediately began.

A gold standard only works when everybody believes in the overall fiscal and monetary responsibility of the major world governments and the relative price of gold is fairly stable.

It's susceptible to speculative attacks just like anything else, nothing has inherent value.

>>3550528

http://en.wikipedia.org/wiki/Railway_Mania#Results

Business cycles, economic cycles, and the stock market are all susceptible to irrational speculative attacks. It's a function of human nature more than a function of the "money supply".

Hence, why booms and busts happened many years prior to any sort of monetary stimulus programs.

>>3550523
Wasn't Ben Bernanke stealing from the fed reserve?

oh, also, the primary motivation for this kind of super stimulus would be to give the economy a temporary electric shock to get funds moving again very rapidly, such that businesses would be able to pay off their respective debts and go back into the classical economic profit seeking mode, and thus grow, produce more jobs, ect.

>the solution? the government (or possibly a large aggregate of businesses) become the "borrowers of last resort", borrowing from this enormous pile of stale cash, giving the entire economy a huge slap in the face and a wakeup call.
They are called US bonds and treasuries. The US borrows $80B/month.