The most wasteful economic activity?

asdasd

What is it?

I say buying a second hand house.

gerry87

asdasd wrote: »

What is it?

I say buying a second hand house.

What do you mean wasteful? I don't get the question.

asdasd

As in nothing is created in the buying of a second hand house. No real jobs created etc.

A thought experiment: imagine there is a country with a surplus of second hand houses. The country enters a boom, for whatever reason, and the population increases, but no new houses are built ( by order of the mad king). House prices double. The boom ends. People leave. House prices half.

So we are back to where we were in terms of house prices. But there is no new public or private capital created just lots of debt.

asdasd

Em ok so suppose there was no resale market for houses. Prices plummet. People can no longer get houses built because it costs more to build them than people will pay. No new jobs created.

i am not suggesting that that should, could, or would happen. In terms of how economic activity is generated, and how money flows through the economy, and the potential multipler effect buying a second hand house is probably less of an economic benefit than getting one built.

Anyway I dont mean to start a didactic thread on how buying second hand houses is bad, I was wondering if I am correct, or not.

gerry87

I know you're talking more macro, but from a micro point buying a second hand home re-directs resources more efficiently. Say an old couple in a big house and a young couple in a small house. Eventually the old couple may want to buy a smaller house and the younger couple a bigger house. These two would be better off just swapping their houses, but instead use estate agents and solicitors to buy/sell. This pays big chunks to estate agents and solicitors, who then buy lots of stuff spreading money around. So buying the second hand house took two houses and almost withdrew money from them into the economy.

Of course you could say that that money was actually taken from the people's bank accounts, but if so, same net result.

The only wasteful economic activity I can really think of is investing your money under your mattress.

silverharp

asdasd wrote: »

As in nothing is created in the buying of a second hand house. No real jobs created etc.

A thought experiment: imagine there is a country with a surplus of second hand houses. The country enters a boom, for whatever reason, and the population increases, but no new houses are built ( by order of the mad king). House prices double. The boom ends. People leave. House prices half.

So we are back to where we were in terms of house prices. But there is no new public or private capital created just lots of debt.

Not quite sure your exact query, as buying a second hand house is no different to buying a second hand car. However if you are trying to say that the housing market is a consumption activity as opposed to an investment activity then the conclusions are obvious as to what the housing market is and what it isnt.

cavedave

Warren Buffett:

Gold gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head...

silverharp

cavedave wrote: »

Warren Buffett:

What has that got to do with this thread?

Thomas_S_Hunterson

silverharp wrote: »

What has that got to do with this thread?

errr read the title

cavedave

silverharp
What has that got to do with this thread?

I am suggesting that hoarding gold is a wasteful economic activity.

asdasd

It could be that the existence of gold generates economic activity where people value it as currency, or a valuable. if taking it out of the ground in A to store in B is economically wasteful it does not explain the reaction in Europe to South American gold.

the Spanish got rich, spent the new gold across Europe, and this created more economic activity in other places ( particularly the Netherlands). There was an overall increase in trade and manufacturing.

The gold itself probably dropped in value per ounce, so what really happened was an in crease in liquidity in what was then a universal currency.

that may answer my question about whether or not buying second hand houses is economically destructive, it may encourage economic growth and entrepeneuralism based on the desire to live better, in nice surroundings.

cavedave

I am ball hopping here to an extent i don't think digging and hoarding gold is the most wasteful activity and i don't even know how to define and measure what the most wasteful is. The rest of this comment is an argument for not hoarding gold as a store of value as i believe it is economically inefficient.

Money is anything people will accept in payment so it can be sea shells cigs, bits of paper with famous people on them or gold. Now if you think fiat money is a bad idea* you need money that has an actual (physicalish) backing. Many people think gold is a good backing but i believe what backs the currency should also increase peoples standard of living. So if you mine and store gold you have a load of gold and are not much better off. If wealth is measured in something useful at least you are storing something useful for when you need it.

One possibility is to have the kilowatt hour as the unit of value.
At least a kilowatt hour of electricity can be used to do useful stuff.

Is it really a good idea to back all money with gold? Won't this lead to a massive increase in the price of gold so that people cannot afford jewelery and they cannot afford to use gold in electronics and such.

Do people with this much of a horn for gold not remind you of Scrooge McDuck swimming in his cold coins crossed with Humprey Bogart in "Terror in the Sierra Madre"?

* AFAIK most non Austrian school economists (using the Mundell-Fleming model etc) think that tying a currency to gold (or anything nonfiat) is a deflationary risk during a recession.

silverharp

cavedave wrote: »

I am suggesting that hoarding gold is a wasteful economic activity.

my bad, the op's opener was a bit vague, I thought he was just talking about the current economic/property scene


ok here is mine, I'd class it as wasteful not the most but Bio ethenol , as it consumes more energy to produce then the output. Others that come to mind, The automobile as it is a very inefficient from of transport

asdasd

AFAIK most non Austrian school economists (using the Mundell-Fleming model etc) think that tying a currency to gold (or anything nonfiat) is a deflationary risk during a recession.

I think that is probably true. The increase in productivity in Europe after the discovery of El Dorado in South America is proably a once off massive increase in the availabilty of gold - i.e. an increase in liquidity.

what about a nation that saves too much. Is excessive saving economically damaging.

Time Magazine

asdasd wrote: »

what about a nation that saves too much. Is excessive saving economically damaging.

Possibly, but the consensus is that almost no nation saves enough, not too much.

Oh and looking at it from a very, very long point-of-view, imho the most wasteful economic activity has been war.

More recently: marketing?

cavedave

mho the most wasteful economic activity has been war.

More recently: marketing?

Orsen Wells

In Italy for 30 years under the Borgias they had warfare, terror, murder, and bloodshed, but they produced Michelangelo, Leonardo da Vinci, and the Renaissance. In Switzerland they had brotherly love - they had 500 years of democracy and peace, and what did that produce? The cuckoo clock.

The only thing worse than marketing is the alternative. If people could not provide information on prducts consumer choice might be less efficient.


How about things whose cost is actual much more then what you pay for it? Smoking should be about 30 times the price it is.

Time Magazine

cavedave wrote: »

Orsen Wells

Post-war Europe and America seem to have done a few things to increase the level of TFP experienced in the world, no? Maybe the Swiss are just crap :pac:

The only thing worse than marketing is the alternative. If people could not provide information on prducts consumer choice might be less efficient.

That's not the sort of thing I'm talking about though. Simply because marketing provides an important function does not mean it's not wasteful. Certainly a basic level of marketing provides important information to the consumer, and marketing also oils the wheels of product improvement.

However that doesn't justify Pepsi hiring a team of twenty marketing executives to decide the new design of the label. (That's an entirely made-up figure, btw.) There's probably an interesting paper to be written (in fact, probably already written) on how heavy marketing is a Nash equilibrium, but not a social optimum. If Pepsi fail to hire these people, they'll lose market share to Coke, and vice versa. However if both could co-operate and lowered their budget by e.g. 80%, every consumer would still recognise their brands and society could put those well-educated, talented marketing executives to better use. Children are starving, after all.

How about things whose cost is actual much more then what you pay for it? Smoking should be about 30 times the price it is.

Can we count it as an economic activity, though?

pauldiv

The Economist wrote: »

Possibly, but the consensus is that almost no nation saves enough, not too much.

Oh and looking at it from a very, very long point-of-view, imho the most wasteful economic activity has been war.

More recently: marketing?

There is lot of evidence to support the point about war because the USA, even though their idea of capitalism is dead and buried for moral as well as practical reasons, continues to find astronomical sums of cash to fund operations against people and governments around the world while their own people cannot afford basic medical insurance. The US will continue it's decline and become less influential but they will still find plenty of money for fighting wars. They have to because there are other nations that would take great delight in helping sink them even further politically and economically.

Economic theories have been around for centuries while at the same time the majority of humanity has suffered at the hands of the few.

Real economic decisions are carried by people who have wealth and power while the useless education system and the media tries it's hardest to to convince the masses that our system is beyond reproach.

Have you been having impure thoughts and uttered the 'R' word yet? - even that fine upstanding Son of the Manse Gordon Brown has said it. All that stuff in the news about who had actually uttered the 'R' word just shows the level of stupidity that has replaced common sense and honest talking. It's all about the psychology - if we dont mention it then it does not exist officially.

Everyone is floundering and looking for the safety of a bandwagon that will give refuge and comfort to the mess that has been made of their self images.
All of a sudden the world is not the nice safe haven people believed it to be.

Meanwhile Irish middle class dinner parties are becoming the melting pot for huge leaps in human imagination that will formulate and give birth to economic solutions that will ensure that Celtic tiger 3 is going to the greatest yet. Dream on.

Regarding the housing situation in Ireland there are places here that look like ghost towns at night because the houses are all empty. In Bundoran there are more brand new empty houses than there are inhabited dwellings. It is a grey place with no soul and it is totally devoid of character. We dont need more homes on the West Coast - we need people to come and live in them and contribute to the local economy.

This is a waste because Bertie and his government made it easy for rich people and wannabe rich people to fund second homes at the seaside. Now the chickens are coming home and they have roosted. There is a lot of debt and misery out there and there are also some seriously wealthy people losing their shirts also.

Dont you think there is something fundamentally wrong with this situation? or do you think we should just give the typical Irish reaction and shrug and say fair play to those that made their pile of cash?

There is a now a soup kitchen in Sligo for homeless people in what is turning out to be a very cold winter. For various reasons these people have no homes and our system cannot come up with a way to help them. Cancer facilities are being closed and the government will continue the squeeze every time is has the chance to do so. All this is not necessary.

Economics theory has been somewhat discredited and it is now hard to take seriously the words of those who discuss economic matters. The theories may seem sound enough on paper but they do not consider the human capacity for greed and skullduggery. The language used in the profession is distant from the average person, highbrow and gives the impression that you need an economics degree to contribute anything worthwhile to forums such as this one.

Is David McWilliams and the little guy from Cork the only Economists in this country who have not had a sense of humour bypass? I would imagine that such funny and gregarious characters would be able to invent a new system that would better serve the Irish people than the one we have at present. Then again, they are not really allowed to because we have to answer economically and politically to masters in Brussels and Elsewhere.

If Intel and others went home what theory could we pull out of the textbooks that would to save our sorry bacons then? Some people espouse the idea that we could become a knowledge based economy because we are all so damn smart. That is another lie because the majority of the population do not have the ability to do so and just want an ordinary job with a decent wage every Friday. To them Gold is something that helps them look nice when they are out on a Saturday enjoying a few drinks with their friends.


The most wasteful ecomonic activity?
How about sitting around all day thinking about ways to make money when we could be doing something more productive - like doing some voluntary work to help others with problems so that we can forget about our own for a few hours each week.

asdasd

How about sitting around all day thinking about ways to make money when we could be doing something more productive - like doing some voluntary work to help others with problems so that we can forget about our own for a few hours each week.

Why is creating wealth not productive? you may have problems with the distribution of it, but entrpeneurs who make wealth, who create products are the only reason humanity has the shirt on our collective backs.

the silly left is on the rampage again, but your inability to understand the difference between the zero-sum game of property bubbles, and the non-zero sum game of real entrepeneurialism makes your commentary redundant.

Meanwhile Irish middle class dinner parties are becoming the melting pot for huge leaps in human imagination that will formulate and give birth to economic solutions that will ensure that Celtic tiger 3 is going to the greatest yet. Dream on.

Why not? isnt that why silicon valley is rich, are we inferior? And it may not be middle class dinner parties but working class tea, our working class is quite entrepreneurial in fact.

Were it not for people creating wealth, products and new ideas there wouldn't be any relative poverty because we would all be equally poor, and there would be no resources for the poor, the old, and cancer patient because all of that depends on people of people not thinking of ways to make money, but doing it. And in that creation of wealth the Irish State takes it share, it 40%, and pays for the poor, the old, the cancer patient. The best we can do for them is work.

Économiste Monétaire

pauldiv wrote: »

Real economic decisions are carried by people who have wealth and power while the useless education system and the media tries it's hardest to to convince the masses that our system is beyond reproach.

Conspiracy Theory forum is here. :rolleyes: You might have better luck there.

pauldiv wrote: »

Have you been having impure thoughts and uttered the 'R' word yet? - even that fine upstanding Son of the Manse Gordon Brown has said it. All that stuff in the news about who had actually uttered the 'R' word just shows the level of stupidity that has replaced common sense and honest talking. It's all about the psychology - if we dont mention it then it does not exist officially.

Confidence is a huge factor in markets. The measurement of what a technical recession is--is that what you’re arguing against?

pauldiv wrote: »

Meanwhile Irish middle class dinner parties are becoming the melting pot for huge leaps in human imagination that will formulate and give birth to economic solutions that will ensure that Celtic tiger 3 is going to the greatest yet. Dream on.

What?

pauldiv wrote: »

We dont need more homes on the West Coast - we need people to come and live in them and contribute to the local economy.

What does the area have to offer people? What is the West coast’s niche for business?

pauldiv wrote: »

This is a waste because Bertie and his government made it easy for rich people and wannabe rich people to fund second homes at the seaside

Which of the government’s policies are you referring to? The National Spatial Strategy? Tax policies?

pauldiv wrote: »

Economics theory has been somewhat discredited and it is now hard to take seriously the words of those who discuss economic matters. The theories may seem sound enough on paper but they do not consider the human capacity for greed and skullduggery. The language used in the profession is distant from the average person, highbrow and gives the impression that you need an economics degree to contribute anything worthwhile to forums such as this one.

What economic theory are you referring to? There is no one, universal, economic theory... Also, the ‘human capacity for greed’ is something called self-interest.

Do you expect dumbed down language for the masses? Jargon is used by people in all industries. That’s a fact of life--if you’re so interested in the field why not learn more about it? That’s far more beneficial than basking in ignorance with comments like that which you’re making. It’s not an economist’s job to communicate to the masses; that’s for politicians and economists working directly in public policy.

pauldiv wrote: »

Is David McWilliams and the little guy from Cork the only Economists in this country who have not had a sense of humour bypass? I would imagine that such funny and gregarious characters would be able to invent a new system that would better serve the Irish people than the one we have at present. Then again, they are not really allowed to because we have to answer economically and politically to masters in Brussels and Elsewhere.

Yes, David McWilliams could/should design an entirely new economics paradigm... :rolleyes: What system are you referring to? What European economic initiative are you referring too?

MortgageBroker

building any house tends to provide some jobs, but at the same time (particularly in Ireland) much of the money goes overseas because we don't make all of the materials here, then the debt which is raised doesn't go towards other economic activity, it is tied into the property, so property transactions in general is not a great economic activity.

At the same time we need a stock of buildings for people to live in which is the balance that is totally out of whack in Ireland, we didn't have enough and now we have WAY too much!

I would wager that buying property for landbanking is worse than a second hand house, in this case the land sits idle and the money tied up in the investment of it doesn't create any economic activity at all, the buyer is merely hoping for a capital gain.

A second hand house might not create activity of itself but it may help distribute people more efficiently than a new house which would likely be further from desirable areas, and it stops oversupply from happening as well, it was the focus on new build that mean we have 40,000 unsold new houses in this country.

anyway, there are bound to be worse activities than a second hand home!

asdasd

I would wager that buying property for landbanking is worse than a second hand house, in this case the land sits idle and the money tied up in the investment of it doesn't create any economic activity at all, the buyer is merely hoping for a capital gain.

I think you may have won the argument on this one. Buying a land bank creates no wealth, no products, or services and instead hopes that other people producing the services and products will be more productive ( or there will be more of them) pushing up the price of your land. Clearly that is a zero sum game, and taxing it could be an increase in economic activity.

MortgageBroker

asdasd wrote: »

I think you may have won the argument on this one. Buying a land bank creates no wealth, no products, or services and instead hopes that other people producing the services and products will be more productive ( or there will be more of them) pushing up the price of your land. Clearly that is a zero sum game, and taxing it could be an increase in economic activity.

i get lynched every time i say it but a sensible property tax would actually create better long term economic stability, it would stop people from landbanking or holding vacant property for speculation, it would also ensure that taxpayers don't pay for speculators capital gains, if you look at landbankers around the M50, taxpayers paid for the infrastructure but they made the gain due to that infrastructure, obviously its not an option to not make improvements but property taxation - if done right would stop that from happening and stop the systemic rent taking that is so prevalent in Ireland

babytooth

asdasd wrote: »

What is it?

I say buying a second hand house.

from a pure economics view, trade tariffs....

silverharp

The fx market and the bond market:D

MortgageBroker

silverharp wrote: »

The fx market and the bond market:D

Actually bonds are vital to most of the workings of developed economies, take for example a municipal bond that will fund infrastructure projects, without the bond market this would not happen, the action of itself (investing in fixed income) may not be productive but it is a catalyst for so much other activity that it is arguably where much of the economy begins! It is also not speculative or capital gain based, bonds are fairly steady products - for the most part (2007-2009 not inclusive!).

Rent seeking

MortgageBroker

Deleted User wrote: »

Rent seeking

land is the original form of rent seeking, ricardo's law in essence. all things are produced by land and rent taking is the most meaningless activity, with oil you seek rent by the contrast between the cost of getting oil out of the land and the selling price, with property and land banking its the same - although this time in search of a capital gain. with slavery it was rent taking on the land of africa in the form of human lives which were viewed as a commodity (exceptionally sick and misguided but nonetheless the case).

rent seeking is indeed the most pointless activity, but there are varying degrees of it and in Ireland I would argue that it is manifest in land banking