The relationship between Money and Economic Growth

OttoPilot

KomradeBishop wrote: »

Yea but the real economy isn't a two-person system. The real economy depends on debt, because it has banks and a monetary system built upon debt.
The way this system is run, creates a real and significant burden on household incomes, due to how it depends upon the growth of debt.

Your 'lets assume a two-person economy' is a 'lets assume a tin-opener' statement.

It's silly the way so many people who have studied economics, mistake oversimplified models as representative of reality.

Who do you think owns the banks and receives their profits on interest? People!

And the economy is just a grouping of trillions of two person transactions.

Nobody who supports this perpetual debt system can explain their position. You just say the economy depends on debt because banks depend on debt. We could function perfectly fine without banks creating debt but that would slow down innovation due to lack of capital.

If someone can explain why the real economy cannot grow without debt (even though it has done in the past and continues to do so today) I will accept I'm wrong.

andrew

Mod Note: Please adhere to the standards of this forum when posting - posters in this forum in general and this thread specifically should be able to back up arguments with academic literature.

andrew

You're right. In the long run, Money is Neutral and, as the Solow model illustrates, improvements in productivity are what drive economic growth in the long term.

ezra_pound

I think this is the first time I have ever agreed with kyuss.

KomradeBishop

OttoPilot wrote: »

Who do you think owns the banks and receives their profits on interest? People!

And the economy is just a grouping of trillions of two person transactions.

Nobody who supports this perpetual debt system can explain their position. You just say the economy depends on debt because banks depend on debt. We could function perfectly fine without banks creating debt but that would slow down innovation due to lack of capital.

If someone can explain why the real economy cannot grow without debt (even though it has done in the past and continues to do so today) I will accept I'm wrong.

Actually - and this time I'm using Steve Keen to debunk my point, not to make it - I've had a mistaken view of this, where I've been mixing up the stock of money/debt, and the flow of interest, which this article explains well (albeit in a slightly hard to grok way):
http://web.archive.org/web/20150402064537/http://www.forbes.com/sites/stevekeen/2015/03/30/the-principal-and-interest-on-debt-myth-2/

Previously I had missed how the interest on debt can recirculate in the economy, and so I thought it would have a compounding effect on the amount of debt in the overall economy - this is wrong though, since the interest recirculates.


So I'd agree that the economy doesn't have to be based on perpetual debt (which is what the debate is primarily over) - it is still based on debt, insofar as money is sourced from loans/debt, though I'm not sure if your posts disagreed with that.

I do think however, that more complicated factors can make the economy tend towards excessive/compounding debt costs - e.g. banks hoarding rather than recirculating interest, economic conditions making debt servicing more difficult/untenable - but I'd need to think about that a lot more; it's definitely not as simple as how I'd previously viewed it though.

KomradeBishop

ezra_pound wrote: »

I think this is the first time I have ever agreed with kyuss.

A pity, as this is one of the rare times that Kyuss disagrees with Kyuss

OttoPilot

KomradeBishop wrote: »

So I'd agree that the economy doesn't have to be based on perpetual debt (which is what the debate is primarily over) - it is still based on debt, insofar as money is sourced from loans/debt, though I'm not sure if your posts disagreed with that.

I do think however, that more complicated factors can make the economy tend towards excessive/compounding debt costs - e.g. banks hoarding rather than recirculating interest, economic conditions making debt servicing more difficult/untenable - but I'd need to think about that a lot more; it's definitely not as simple as how I'd previously viewed it though.

I agree debt can grow the economy, just as a contraction in lending can contract it.

I think a lot of the problems managing debt are social/psychological ones, for example the herd mentality. If all your friends are buying houses then you feel like you should be doing that too. It's the same with bankers. They will engage in more profitable (and therefore riskier) practices if they see their competitors doing the same and will try to keep outperforming each other. People can also be overly optimistic of their future economic prospects more often than not leading to poor decisions (on both sides of a loan).

ezra_pound

andrew wrote: »

You're right. In the long run, Money is Neutral and, as the Solow model illustrates, improvements in productivity are what drive economic growth in the long term.

You're imagining a world without debt but with the economic relations which debt allows as your starting point. You're also presuming that all the enterprises which debt has created exist.

For example the first problem is how an industrial middle class can emerge from a feudal agrarian economy, for instance, without debt. Of course Irish cottage industry, like weaving etc. could provide this change, without capital transferring from the upper class it is hard to see how much industry could be formed without debt.

Secondly you seem to presume that in a modern capitalist economy companies like Facebook, Sony, and other big employers, and even many of our SMEs would be around without debt. They just wouldn't. And those that would be created would be a lot more likely to go bust and not exist even if they were started up.

OttoPilot

ezra_pound wrote: »

You're imagining a world without debt but with the economic relations which debt allows as your starting point. You're also presuming that all the enterprises which debt has created exist.

For example the first problem is how an industrial middle class can emerge from a feudal agrarian economy, for instance, without debt. Of course Irish cottage industry, like weaving etc. could provide this change, without capital transferring from the upper class it is hard to see how much industry could be formed without debt.

Secondly you seem to presume that in a modern capitalist economy companies like Facebook, Sony, and other big employers, and even many of our SMEs would be around without debt. They just wouldn't. And those that would be created would be a lot more likely to go bust and not exist even if they were started up.

Debt has definitely sped up the rate of development over the past 5,000 years (Author David Graeber says it was invented in 3500 BC in Sumer). However, it is not the only form of capital. Equity is also used. It's ironic you mention Facebook because that is a huge enterprise funded almost entirely by private equity from the beginning (>95%) and to this day has very low debt levels compared to its size.

My question is this: Why would we not progress beyond a feudal agrarian economy using equity capital alone? People are always willing to invest in good ideas, especially if they think it will make them better off. I think progress would be much slower because of the lack of leverage which multiplies returns but I still think it would be possible.

andrew

ezra_pound wrote: »

You're imagining a world without debt but with the economic relations which debt allows as your starting point. You're also presuming that all the enterprises which debt has created exist.

For example the first problem is how an industrial middle class can emerge from a feudal agrarian economy, for instance, without debt. Of course Irish cottage industry, like weaving etc. could provide this change, without capital transferring from the upper class it is hard to see how much industry could be formed without debt.

Secondly you seem to presume that in a modern capitalist economy companies like Facebook, Sony, and other big employers, and even many of our SMEs would be around without debt. They just wouldn't. And those that would be created would be a lot more likely to go bust and not exist even if they were started up.

My point is a bit more general - it's that if you want to understand the determinants of long run economic growth, then the monetary system only comes into it to the extent that financial innovations are themselves improvements in productivity. My understanding is that the level of debt or the amount of money in the economy doesn't affect long run growth, nor is it the case (as some people, not you claim) that the monetary system would collapse in the absence of economic growth or something along those lines.

regi3457

OttoPilot wrote: »

I've studied economics, I've never met a professor who believes that debt must increase perpetually to create growth. I agree that debt increases growth, but in the absence of debt the economy will still grow, just not as quickly.

I am not sure about your economics professor but this is not something that you believe in economics. It is a fact. Perhaps this video will be of interest to you as it explains what I said in very simple terms. Then, being an economist yourself, you can shed some light on why it is incorrect and I will have learned something new today? I know many economists who do not and cannot dispute this as it is common knowledge to those that wish to know it.

https://www.youtube.com/watch?v=I_x626joik0

regi3457

OttoPilot wrote: »

Who do you think owns the banks and receives their profits on interest? People!

And the economy is just a grouping of trillions of two person transactions.

Nobody who supports this perpetual debt system can explain their position. You just say the economy depends on debt because banks depend on debt. We could function perfectly fine without banks creating debt but that would slow down innovation due to lack of capital.

If someone can explain why the real economy cannot grow without debt (even though it has done in the past and continues to do so today) I will accept I'm wrong.

Banks are private institutions. I don't understand why you say the people would beneift?

It is not about supporting it... It is the way it works. Why do you say I cannot explain my position. You have not expained your position but simply deny it.

here, I posted this in the other forum, it explains it as many other people and sources will and can explain it. The question is: do you want to learn it?

https://www.youtube.com/watch?v=I_x626joik0

regi3457

andrew wrote: »

My understanding is that the level of debt or the amount of money in the economy doesn't affect long run growth, nor is it the case (as some people, not you claim) that the monetary system would collapse in the absence of economic growth or something along those lines.

They have a word for when not enough debt is pumped into the system. Recession. When no debt is pumped into the system, then there would be an economic collapse.

Harika

regi3457 wrote: »

They have a word for when not enough debt is pumped into the system. Recession. When no debt is pumped into the system, then there would be an economic collapse.

Recession is in short when the economy stops growing, this is a problem as while the economy gets more efficient and needs less workers, the population doesn't shrink accordingly. e.g. a steel factory needed 50 years ago 5000 workers, today they need 500 and have an output that is 10 times as much. Those 4500 workers need jobs, when the economy is growing, new jobs are created for those people. If they don't get jobs, this will cause the state to spend more for welfare.
Anyway, if the state stops pumping money in the economy this causes the economic growth to dwindle, cause public projects, won't be worked on and no workers are hired. Cause which company will in reality finance a motorway from Galway to Cork? Those 4500 people from above would be really happy to work here. In theory the state in a recession should put money in the system and when the recession is over raise taxes and reduce spending again. In reality, as soon as the state starts raising taxes, the economy, that was bailed out will start to complain that they need the tax breaks and stimuli to keep adding workers.
Also debt is often seen as bad, while in reality you have to differ. What is this debt for and what return of invest will it bring? Scholarships and reduced education fees return the state far more money than invested while the winter Olympics in Socchi are disaster for the state, as all the buildings are now ruins that are rotting away. Short term it might be good but long term it doesn't pay back. Only the friends of Putin profited from it. (cannot think of an example in Ireland)
Also pension funds, like to invest in states as they can be quite sure to get their money back. So if you have a private pension, you might be creditor of the Irish state. If the Irish state would completely eradicate its debt, your pension fund might look for something similar safe, that might not be as safe as we thought, see credit default swaps that played part in the 2008 economic crisis.

@Andrew I think 90% of the GDB is the magical border, after this, in theory the economy suffers as paying back the debt takes too much of the resources.

P.S: And I would always worry about the content of youtube videos that claim to know the truth. Especially as there are several economic theories, backed by economists, that are conflicting.

KomradeBishop

OttoPilot wrote: »

Debt has definitely sped up the rate of development over the past 5,000 years (Author David Graeber says it was invented in 3500 BC in Sumer). However, it is not the only form of capital. Equity is also used. It's ironic you mention Facebook because that is a huge enterprise funded almost entirely by private equity from the beginning (>95%) and to this day has very low debt levels compared to its size.

My question is this: Why would we not progress beyond a feudal agrarian economy using equity capital alone? People are always willing to invest in good ideas, especially if they think it will make them better off. I think progress would be much slower because of the lack of leverage which multiplies returns but I still think it would be possible.

I think this is something that's only a theoretical possibility though - a bit like most economic models - because you can't actually stop people creating debt at an individual level, all it requires is trust between two people.

Ever lend a family member some money, and write down the balance owed? You just created an IOU, a form of debt.

If such a theoretical system no-debt were possible to put into practice, it would likely be plagued with deflationary problems as well - which has severe political repercussions, which would likely reinforce the existing wealth/power of the feudal elite, rather than reduce it.

You haven't explained the form of money which would exist in such a model either - and this is the problem with most economic models:
Arguably it is invalid to model any economy (ones applicable to the real world that is), without first modelling how money works within it (which typically involves modelling an intertwined monetary/banking system).

KomradeBishop

andrew wrote: »

My point is a bit more general - it's that if you want to understand the determinants of long run economic growth, then the monetary system only comes into it to the extent that financial innovations are themselves improvements in productivity. My understanding is that the level of debt or the amount of money in the economy doesn't affect long run growth, nor is it the case (as some people, not you claim) that the monetary system would collapse in the absence of economic growth or something along those lines.

Depends what the financial innovation is - a lot of 'financial innovations' led to financial instruments, that have/are being used, to loot the productivity of the real economy, for the benefit of the financial economy (such as the instruments used during the housing bubble).


The concept of money neutrality to me, seems to be an extremely confused one - it concedes that money is not neutral in the short-run, but then claims that it is neutral in the long run - but the 'long run' is just a sequence of short-run events, and any long-term trend is a consequence of those short-run events.

This is a view Kalecki held: (sourced in link at bottom)

In fact, the long run trend is but a slowly changing component of a chain of short run situations; it has no independent entity

Or as Joan Robinson would put it:

In the long run, we are in another short run.

Or of course, Keynes (but in full context...):

The long run is a misleading guide to current affairs. In the long run we are all dead. Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is past the ocean is flat again.

The idea of long-run money neutrality, seems to be used, to imply that you can model economies without modelling money, banks and debt - but if modelling these is required, to model short-run trends in the economy, it follows that it's required to model long-run trends as well.

So it may be true that there is a long-run trend, but it is driven by short-run dynamics which depend on money non-neutrality - which means money/debt helps drive growth in the short-run, which by-extension long-run growth is attributable to as well - so you can't escape having to model money, the monetary system, banks and debt.

This is one reason why I'm very suspicious of 'in the long run' and 'ceteris paribus' type statements, as usually being misleading. Another good quote, from Kalecki: (in the link, sourced from a peer reviewed journal)

In sum, in neoclassical economics the “long run” cannot be a temporal concept. It does not refer to any real world process of evolution or change. Even notional processes are shown to be difficult to conceive. “Long run,” by definition, refers to a situation in which no mistakes are made and all the (theoretically expected) adjustments are achieved. It is not in time, it is not even a secular trend. It is just an aprioristic statement of what the world would look like should the theory be correct (emphasis in the original).

There are good arguments here about this, but it's a bit verbose:
http://bilbo.economicoutlook.net/blog/?p=12473

KomradeBishop

regi3457 wrote: »

Banks are private institutions. I don't understand why you say the people would beneift?

It is not about supporting it... It is the way it works. Why do you say I cannot explain my position. You have not expained your position but simply deny it.

here, I posted this in the other forum, it explains it as many other people and sources will and can explain it. The question is: do you want to learn it?

https://www.youtube.com/watch?v=I_x626joik0

It's a long video though, it's not really fair to expect others to watch it. Better to put the arguments in your own words.

If that video refers to debt being perpetual, due to the interest to be paid on debt, worth looking at my first post in the thread - I used to think the same, but I just realized I was confusing stocks and flows (interest payments on debt are just a 'flow', which the bank returns to the real economy - it's potentially possible for them to hoard this money though, which could bring instability).

Labarbapostiza

OttoPilot wrote: »

Debt has definitely sped up the rate of development over the past 5,000 years (Author David Graeber says it was invented in 3500 BC in Sumer).

Yes, but it has a complicated history. It happened many times, but the general order was, rapid economic growth, and just as rapid economic collapse. And this is why there have been so many historical proscriptions of debt. The form we have now comes from a time where European Jews were the only people allowed to handle debt. Jews were heavily restricted in the fields of employment they could undertake. Jewelry, very literally gets it's name from shops that sold precious metals and minerals, and importantly safely stored them. People would get Jewels or metals by hook or by crook, they would store them at the Jewelry shop, then use the dockets as money.

Debt (or you can call it capitalism...but so many people have such distorted ideas of what capitalism is, you know, like the landlord who cheats his tenants thinks it's an act of capitalism, when it's really just the act of a gobshoit, and in a world without capitalism, he'd still be as much a sneaky gobshoit), it isn't responsible for creating all the things the boosters boost of. It just speeds things up. When the Europeans arrived in the Americas in 1492. The Europeans were not in fact that much more technically advanced than the Americans. And in fact they had a higher standard of living than the Europeans, this being their downfall. They didn't live in cramped filthy conditions like the Europeans, with pigs in the parlor, etc. European diseases wiped them out.

Debt has far more downsides than the boosters let on. Potatoes were quite good to the Irish before the famine. An Irish potato farmer, and their family would do a little digging, plant a crop large enough to feed a family for a year, and have enough to brew and distill for enough poteen to spend a large part of the year drunk, and sleeping the drink off. For a labour to calorie ratio the potato is second to none. Look at the modern Irish, capitalism has freed us from the prison of leisure.

andrew

KomradeBishop wrote: »

Depends what the financial innovation is - a lot of 'financial innovations' led to financial instruments, that have/are being used, to loot the productivity of the real economy, for the benefit of the financial economy (such as the instruments used during the housing bubble).


The concept of money neutrality to me, seems to be an extremely confused one - it concedes that money is not neutral in the short-run, but then claims that it is neutral in the long run - but the 'long run' is just a sequence of short-run events, and any long-term trend is a consequence of those short-run events.

This is a view Kalecki held: (sourced in link at bottom)

In fact, the long run trend is but a slowly changing component of a chain of short run situations; it has no independent entity

Or as Joan Robinson would put it:

In the long run, we are in another short run.

Or of course, Keynes (but in full context...):

The long run is a misleading guide to current affairs. In the long run we are all dead. Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is past the ocean is flat again.

The idea of long-run money neutrality, seems to be used, to imply that you can model economies without modelling money, banks and debt - but if modelling these is required, to model short-run trends in the economy, it follows that it's required to model long-run trends as well.

So it may be true that there is a long-run trend, but it is driven by short-run dynamics which depend on money non-neutrality - which means money/debt helps drive growth in the short-run, which by-extension long-run growth is attributable to as well - so you can't escape having to model money, the monetary system, banks and debt.

This is one reason why I'm very suspicious of 'in the long run' and 'ceteris paribus' type statements, as usually being misleading. Another good quote, from Kalecki: (in the link, sourced from a peer reviewed journal)

In sum, in neoclassical economics the “long run” cannot be a temporal concept. It does not refer to any real world process of evolution or change. Even notional processes are shown to be difficult to conceive. “Long run,” by definition, refers to a situation in which no mistakes are made and all the (theoretically expected) adjustments are achieved. It is not in time, it is not even a secular trend. It is just an aprioristic statement of what the world would look like should the theory be correct (emphasis in the original).

There are good arguments here about this, but it's a bit verbose:
http://bilbo.economicoutlook.net/blog/?p=12473

The first few quotes you've put there are a bit out of context. They don't dispute the existence of a long and a short run. Rather, their point is that, even if in the long run the economy will find some sort of equilibrium in which everything is grand, we should still try to use fiscal and monetary tools in order to smooth out fluctuations around a long term trend.

I'm not just implying that you can model economies without money - I'm saying that there exist models of Economic growth, which don't include money, which explain well many long term trends which we see in practice, such as conditional convergence (see the Solow Model). And the long run neutrality of money isn't just some sort of theoretical concept - it's an empirical fact: over a 30 year period, there's no relationship between the amount of money in the economy and the rate of economic growth. Quotes from people asserting that the long run doesn't exist don't hold up well against models and evidence which show that it does, and which show that it's a useful concept that can be used to explain lots of phenomena.

Furthermore, it's pretty clear how it is that there can be both a long and a short run: the definition of long and short run is pretty clear and intuitive. In the short run, certain quantities are fixed. Prices, a firm's capital, a firm's technology, a firm's plant and equipment, a person's educational level etc. In the short run, other quantities are not fixed - in particular, for firms, how many people they employ, and for a person, how many hours they work. In the long run, it's simply the case that all of these things are flexible.

andrew

regi3457 wrote: »

I am not sure about your economics professor but this is not something that you believe in economics. It is a fact. Perhaps this video will be of interest to you as it explains what I said in very simple terms. Then, being an economist yourself, you can shed some light on why it is incorrect and I will have learned something new today? I know many economists who do not and cannot dispute this as it is common knowledge to those that wish to know it.

https://www.youtube.com/watch?v=I_x626joik0

As my post earlier in the thread implies, Youtube videos aren't an acceptable source material on this forum. You should be able to back your argument with academic references.

I'd also note that that that video would take a very long time to both watch and unpack, far longer than would be reasonable. I short, I'd advise that it's very misleading and in many places completely wrong

regi3457

Harika wrote: »

P.S: And I would always worry about the content of youtube videos that claim to know the truth. Especially as there are several economic theories, backed by economists, that are conflicting.

If you are referring to the video I posted, then you may wish to know that there are multiple sources for monetary theory as explained by that one that will all tell you the same thing.

regi3457

andrew wrote: »

As my post earlier in the thread implies, Youtube videos aren't an acceptable source material on this forum. You should be able to back your argument with academic references.

I'd also note that that that video would take a very long time to both watch and unpack, far longer than would be reasonable. I short, I'd advise that it's very misleading and in many places completely wrong

sorry but this is ridiculous, I will see you all later in another thread, enjoy! bye bye

OttoPilot

KomradeBishop wrote: »

I think this is something that's only a theoretical possibility though - a bit like most economic models - because you can't actually stop people creating debt at an individual level, all it requires is trust between two people.

Ever lend a family member some money, and write down the balance owed? You just created an IOU, a form of debt.

If such a theoretical system no-debt were possible to put into practice, it would likely be plagued with deflationary problems as well - which has severe political repercussions, which would likely reinforce the existing wealth/power of the feudal elite, rather than reduce it.

You haven't explained the form of money which would exist in such a model either - and this is the problem with most economic models:
Arguably it is invalid to model any economy (ones applicable to the real world that is), without first modelling how money works within it (which typically involves modelling an intertwined monetary/banking system).

I would not include debts between family members in this discussion because they are sometimes forgivable and usually don't involve interest, unlike debts between unconnected parties.

A currency could be asset backed such as the gold standard, but I agree it would be plagued with problems, as we have learned from Bretton-Woods.

To be clear, my argument is that growth can exist without debt, whereas the original argument was debt must always be increasing to experience economic growth. The two are linked but it's not a perfect relationship, in my opinion. Overall, I think debt is a good thing for the economy (In terms of growth), however it may not be good for economic equality, which is I think a lot of people's problem with it.

OttoPilot

Labarbapostiza wrote: »

Debt has far more downsides than the boosters let on. Potatoes were quite good to the Irish before the famine. An Irish potato farmer, and their family would do a little digging, plant a crop large enough to feed a family for a year, and have enough to brew and distill for enough poteen to spend a large part of the year drunk, and sleeping the drink off. For a labour to calorie ratio the potato is second to none. Look at the modern Irish, capitalism has freed us from the prison of leisure.

But the Irish potato farmers standard of living is way lower than the modern Irish person's. He not only has less goods to his name, he has less choice of goods. I can eat practically anything for dinner tonight. He has to live on potatoes forever and hope a blight doesn't come. He doesn't even know what electricity is, I can talk to someone in China over the internet.

I would question whether it really was as easy being a potato farmer in the 17/1800s as you seem to make out, but either way, there is a reason most (if not all) farmers in this country choose not to live a subsistence lifestyle like the one you describe. They must value the extra consumption over the extra leisure time.

Labarbapostiza

OttoPilot wrote: »

To be clear, my argument is that growth can exist without debt, whereas the original argument was debt must always be increasing to experience economic growth.

There's many misunderstandings in economics. One is mistaking changes in GDP as reflecting economic growth. GDP is an indicator. The ECB program of QE, 2 trillion euro, or 4,000 euro from your pocket and mine, the purpose is to raise the GDP indicator as to fool some god or other, by inflating "assets". This will result in a economic growth by the measure of GDP. But if you were to use some other measure, popular before the use of GDP, like gauging economic growth through steel, coal, etc, production figures, the ECB program would not show growth as a result.

Debt needs the growth of debt, or it completely collapses.

The two are linked but it's not a perfect relationship, in my opinion. Overall, I think debt is a good thing for the economy (In terms of growth), however it may not be good for economic equality, which is I think a lot of people's problem with it.

If you consider the US, average incomes have never been higher, but the median income is back where it was in the mid 90s.

KomradeBishop

andrew wrote: »

The first few quotes you've put there are a bit out of context. They don't dispute the existence of a long and a short run. Rather, their point is that, even if in the long run the economy will find some sort of equilibrium in which everything is grand, we should still try to use fiscal and monetary tools in order to smooth out fluctuations around a long term trend.

I'm not just implying that you can model economies without money - I'm saying that there exist models of Economic growth, which don't include money, which explain well many long term trends which we see in practice, such as conditional convergence (see the Solow Model). And the long run neutrality of money isn't just some sort of theoretical concept - it's an empirical fact: over a 30 year period, there's no relationship between the amount of money in the economy and the rate of economic growth. Quotes from people asserting that the long run doesn't exist don't hold up well against models and evidence which show that it does, and which show that it's a useful concept that can be used to explain lots of phenomena.

Furthermore, it's pretty clear how it is that there can be both a long and a short run: the definition of long and short run is pretty clear and intuitive. In the short run, certain quantities are fixed. Prices, a firm's capital, a firm's technology, a firm's plant and equipment, a person's educational level etc. In the short run, other quantities are not fixed - in particular, for firms, how many people they employ, and for a person, how many hours they work. In the long run, it's simply the case that all of these things are flexible.

You haven't shown that the quotes are taken out of context, or that the authors agree with the concept of equilibrium.
The quotes definitely do dispute the concept of the long-run. They say nothing to support equilibrium (in fact, many of those economists believe economies can become stuck in states of dis-equilibrium).

I don't get why sometimes people say something is taken out of context, and then don't back that up with either sources or an argument - people said that about the Bank of England document when I first started posting it (claiming banks didn't create money when they make loans), before later conceding that it was correct - it seems like hand-waving away the quotations provided.

The very concept of long run neutrality of money is ill defined, and any long-run trends, can not be separated from the short-run dynamics that the 'long run' is based upon - this is what those authors were saying.

The evidence people use to try and prove long-run neutrality of money, does show a trend, but the very concept of long-run neutrality of money is theoretically flawed enough, that it can't be used as an explanation of that evidence - it doesn't even get that far, conceptually.
The evidence is real, but the idea that the theory of long term money neutrality explains it, is dubious.


Also, consider the real value of debts - inflation reduces and deflation increases the real value of debts - having a real (not nominal) effect on the economy (through the effects of e.g. debt deflation, as well as the effects this can have on peoples lifetime spending); this is contrary to the theory of money neutrality.

Suryavarman

Labarbapostiza wrote: »

There's many misunderstandings in economics. One is mistaking changes in GDP as reflecting economic growth. GDP is an indicator. The ECB program of QE, 2 trillion euro, or 4,000 euro from your pocket and mine, the purpose is to raise the GDP indicator as to fool some god or other, by inflating "assets". This will result in a economic growth by the measure of GDP. But if you were to use some other measure, popular before the use of GDP, like gauging economic growth through steel, coal, etc, production figures, the ECB program would not show growth as a result.

Debt needs the growth of debt, or it completely collapses.



If you consider the US, average incomes have never been higher, but the median income is back where it was in the mid 90s.

The ECB isn't taking anything from your pockets when they engage in QE. When the ECB engages in QE it purchases bonds from the banks so that the banks can create loans thereby fostering economic growth. When the economy is back to normal the ECB can then sell those bonds again and tighten monetary policy.

Why would we use anything other than GDP/GNP growth to measure economic growth? Why use a proxy statistic to measure something that can be measured directly? If we were to use coal production as a measure of economic growth then the EU would appear to be in a 26 year long recession at least. We use GDP instead because GDP is deemed to be the best measure of GDP growth.


Median household income might be the same now in the US as it was in the mid 90s but median individual incomes have grown a great deal since then as shown in Where has all the Income Gone?

Labarbapostiza

OttoPilot wrote: »

But the Irish potato farmers standard of living is way lower than the modern Irish person's. He not only has less goods to his name, he has less choice of goods. I can eat practically anything for dinner tonight. He has to live on potatoes forever and hope a blight doesn't come. He doesn't even know what electricity is, I can talk to someone in China over the internet.

Advances in technology, are not due to us working longer, than in the agrarian age. Most employment is pointless. It seems as and when technology eliminates jobs, we go out of our way to create non jobs to save us from the void of leisure. We've degenerated as a lot of this employment, especially for the upper-middleclass, consists of nothing more than social grooming; they're like monkeys.

I would question whether it really was as easy being a potato farmer in the 17/1800s as you seem to make out, but either way, there is a reason most (if not all) farmers in this country choose not to live a subsistence lifestyle like the one you describe. They must value the extra consumption over the extra leisure time.

I've seen a break down of what they ate. It was high calorie even by today's standards. It wasn't just potatoes, they'd have milk and bits of the pig the Brits didn't want. People in the towns had a much more monotonous diet, less healthy, lower calorie, consisting mostly of bread and tae.

They valued the extra consumption so they abandoned their lives of largely idleness to accumulate more consumables. Me hole, they did.

If you look at the enclosure acts of England. A greater element of their purpose was to force poorer peasants from the land and into the dark satanic mills of the industrial era. Long hours, few holidays, and much poorer diets, made these people several inches smaller than their rural ancestors.

KomradeBishop

Suryavarman wrote: »

The ECB isn't taking anything from your pockets when they engage in QE. When the ECB engages in QE it purchases bonds from the banks so that the banks can create loans thereby fostering economic growth. When the economy is back to normal the ECB can then sell those bonds again and tighten monetary policy.

Why would we use anything other than GDP/GNP growth to measure economic growth? Why use a proxy statistic to measure something that can be measured directly? If we were to use coal production as a measure of economic growth then the EU would appear to be in a 26 year long recession at least. We use GDP instead because GDP is deemed to be the best measure of GDP growth.


Median household income might be the same now in the US as it was in the mid 90s but median individual incomes have grown a great deal since then as shown in Where has all the Income Gone?

Except QE has failed to push more loans out in significant numbers, and has instead spilled over into asset/commodity prices, increasing the cost of living for people - taking money from their pockets (towards those who can capitalize on the boosted prices) - and causing a massive upward redistribution of wealth.

GDP growth includes figures of growth from the financial industry - where a lot of the 'income' can derive from non-productive extraction of money from the Real Economy to the Financial Economy - which is not really a good thing to count as 'growth'.

KomradeBishop

Labarbapostiza wrote: »

Advances in technology, are not due to us working longer, than in the agrarian age. Most employment is pointless. It seems as and when technology eliminates jobs, we go out of our way to create non jobs to save us from the void of leisure. We've degenerated as a lot of this employment, especially for the upper-middleclass, consists of nothing more than social grooming; they're like monkeys.

This is something I've heard elsewhere before, and it's an interesting concept, but one thing that I've seen as lacking with it, is are there good examples of jobs like this?

Labarbapostiza

Suryavarman wrote: »

The ECB isn't taking anything from your pockets when they engage in QE. When the ECB engages in QE it purchases bonds from the banks so that the banks can create loans thereby fostering economic growth. When the economy is back to normal the ECB can then sell those bonds again and tighten monetary policy.

No, you don't understand how QE works. What the central bank does is borrow the repayment from the future, that's handed to whoever they're buying the bond from. Then as they receive payments on the bond, those payments, the cash, is literally torn up. If they sold the bonds they'd still have to tear up the cash they'd receive

It does work like as if every man, woman and child, has been taxed four grand. But the beauty of the scheme from the perspective of the bastages who dreamt it, is so few people understand how it actually works, and this includes many cretinous politicians, they can get away with it.

And this is something that drives to drink.

Why would we use anything other than GDP/GNP growth to measure economic growth? Why use a proxy statistic to measure something that can be measured directly? If we were to use coal production as a measure of economic growth then the EU would appear to be in a 26 year long recession at least. We use GDP instead because GDP is deemed to be the best measure of GDP growth.

The problem with the GDP/GNP indices is they can be gamed, and governments are often under pressure to game them. The old indices still exist. Some governments take them seriously others don't. Which is why England has a million estate agents, and Germany has a strong industrial base.

Median household income might be the same now in the US as it was in the mid 90s but median individual incomes have grown a great deal since then as shown in Where has all the Income Gone?

That report is from 2008, using 2006 figures. Needn't I say, we're in a much different world now.

andrew

KomradeBishop wrote: »

You haven't shown that the quotes are taken out of context, or that the authors agree with the concept of equilibrium.
The quotes definitely do dispute the concept of the long-run. They say nothing to support equilibrium (in fact, many of those economists believe economies can become stuck in states of dis-equilibrium).

I don't get why sometimes people say something is taken out of context, and then don't back that up with either sources or an argument - people said that about the Bank of England document when I first started posting it (claiming banks didn't create money when they make loans), before later conceding that it was correct - it seems like hand-waving away the quotations provided.

Keynes quote, on a literal reading, doesn't dispute the concept of equilibrium or a long run, he's just making the point that the long run isn't what government policy should focus on, especially when you can end up in a bad equilibrium. I'm now sure how you want me to 'show' this, it's clear from his quote, it's clear from blogs posts people have written about the quote, I'm fairly sure there's other context there.

The very concept of long run neutrality of money is ill defined, and any long-run trends, can not be separated from the short-run dynamics that the 'long run' is based upon - this is what those authors were saying.

It's not ill defined though. Hence the large number of academic papers which examine it. You're completely asserting that. I've just given you a definition and you completely ignored it.

The evidence people use to try and prove long-run neutrality of money, does show a trend, but the very concept of long-run neutrality of money is theoretically flawed enough, that it can't be used as an explanation of that evidence - it doesn't even get that far, conceptually.
The evidence is real, but the idea that the theory of long term money neutrality explains it, is dubious.

So we agree that a) there is a trend and b) that trend is consistent with the long run neutrality of money.

You disagree, then, with the theory of the long run neutrality of money, since it seems implausible?

Aren't you then making exactly the same kind of error which you claim Economists make all the time in relation to money? You have a model in your head regarding money neutrality, reality doesn't fit with that model, and so you ignore reality and insist that something else is going on that in practice leads to what we see in the data - actually, How do you explain the data then? What empirical evidence is there that money is not neutral in the long run?

Also, consider the real value of debts - inflation reduces and deflation increases the real value of debts - having a real (not nominal) effect on the economy (through the effects of e.g. debt deflation, as well as the effects this can have on peoples lifetime spending); this is contrary to the theory of money neutrality.

Money is neutral in the long run. In the short run nobody disputes that money isn't neutral, that's partly why Central Banks exist.

Labarbapostiza wrote: »

No, you don't understand how QE works. What the central bank does is borrow the repayment from the future, that's handed to whoever they're buying the bond from. Then as they receive payments on the bond, those payments, the cash, is literally torn up. If they sold the bonds they'd still have to tear up the cash they'd receive

It does work like as if every man, woman and child, has been taxed four grand. But the beauty of the scheme from the perspective of the bastages who dreamt it, is so few people understand how it actually works, and this includes many cretinous politicians, they can get away with it.

And this is something that drives to drink.

Here's a leaflet explaining how QE works. It really isn't similar in any way to taxation.

Suryavarman

KomradeBishop wrote: »

Except QE has failed to push more loans out in significant numbers, and has instead spilled over into asset/commodity prices, increasing the cost of living for people - taking money from their pockets (towards those who can capitalize on the boosted prices) - and causing a massive upward redistribution of wealth.

GDP growth includes figures of growth from the financial industry - where a lot of the 'income' can derive from non-productive extraction of money from the Real Economy to the Financial Economy - which is not really a good thing to count as 'growth'.

QE has stabilised the financial system and by extension the economy as a whole.

The cost of living has barely increased over the last few years. The ECB has continuously failed to meet inflation to meet inflation targets. The IMF's commodity price index is lower now than it has been since 2005. There has been no "massive upward redistribution of wealth".

How does one define what is or isn't productive exactly?

Suryavarman

Labarbapostiza wrote: »

No, you don't understand how QE works. What the central bank does is borrow the repayment from the future, that's handed to whoever they're buying the bond from. Then as they receive payments on the bond, those payments, the cash, is literally torn up. If they sold the bonds they'd still have to tear up the cash they'd receive

It does work like as if every man, woman and child, has been taxed four grand. But the beauty of the scheme from the perspective of the bastages who dreamt it, is so few people understand how it actually works, and this includes many cretinous politicians, they can get away with it.

And this is something that drives to drink.

How exactly have average people been taxed €4,000?

The problem with the GDP/GNP indices is they can be gamed, and governments are often under pressure to game them. The old indices still exist. Some governments take them seriously others don't. Which is why England has a million estate agents, and Germany has a strong industrial base.

How can they be gamed?

That report is from 2008, using 2006 figures. Needn't I say, we're in a much different world now.

Can you then show average individual incomes have now declined to below what they were in the mid 90s?

Labarbapostiza

KomradeBishop wrote: »

This is something I've heard elsewhere before, and it's an interesting concept, but one thing that I've seen as lacking with it, is are there good examples of jobs like this?

The first time I worked for a large software company, I thought I had landed in a uniquely mad madhouse. Later on in life I discovered even madder madhouses. There is an ideology in it, but it has more to do with cargo cults than anything that sounds sane.

KomradeBishop

andrew wrote: »

Keynes quote, on a literal reading, doesn't dispute the concept of equilibrium or a long run, he's just making the point that the long run isn't what government policy should focus on, especially when you can end up in a bad equilibrium. I'm now sure how you want me to 'show' this, it's clear from his quote, it's clear from blogs posts people have written about the quote, I'm fairly sure there's other context there.

Ok, I'll accept Keyne's quote is out of context - but the other quotes are not.

andrew wrote: »

It's not ill defined though. Hence the large number of academic papers which examine it. You're completely asserting that. I've just given you a definition and you completely ignored it.

Sorry, I'd somehow missed the last paragraph of your post - here it is again

andrew wrote:

Furthermore, it's pretty clear how it is that there can be both a long and a short run: the definition of long and short run is pretty clear and intuitive. In the short run, certain quantities are fixed. Prices, a firm's capital, a firm's technology, a firm's plant and equipment, a person's educational level etc. In the short run, other quantities are not fixed - in particular, for firms, how many people they employ, and for a person, how many hours they work. In the long run, it's simply the case that all of these things are flexible.

So is this 1 year? 5 years? 30 years? - How long does it take something to be 'long run'? Why 30 years and not 1? - that's still a fairly woolly definition.

When you take shorter time periods, the evidence in favour of long-term neutrality becomes dubious - so it's extremely important to be able to delineate, in a quantified way, between what is short and long term here.

Otherwise, you risk engaging in statistical fallacies which amount to cherry-picking - a good discussion on it here:
https://fixingtheeconomists.wordpress.com/2014/08/05/what-is-a-long-run-trend/

There is a discussion in comments here as well, where this Irish economist shows a 5-year lack of correlation between CPI and M3 for the US - then later on a 20 year lack of correlation - does that count as 'long term'?
https://fixingtheeconomists.wordpress.com/2014/08/04/inflation-is-not-always-and-everywhere-a-monetary-phenomenon/#comment-6887
https://fixingtheeconomists.wordpress.com/2014/08/04/inflation-is-not-always-and-everywhere-a-monetary-phenomenon/#comment-6900

andrew wrote: »

So we agree that a) there is a trend and b) that trend is consistent with the long run neutrality of money.

You disagree, then, with the theory of the long run neutrality of money, since it seems implausible?

Aren't you then making exactly the same kind of error which you claim Economists make all the time in relation to money? You have a model in your head regarding money neutrality, reality doesn't fit with that model, and so you ignore reality and insist that something else is going on that in practice leads to what we see in the data - actually, How do you explain the data then? What empirical evidence is there that money is not neutral in the long run?

I think (a) highly depends on what kind of time period you're talking about (a specific numerically quantified time period), and on (b) I don't think the very concept of long run neutrality is solid enough to make that claim.

I actually haven't presented a model to try and explain the evidence, I've just deconstructed the theory of long term money neutrality, in order to show that the idea of that explaining the evidence, is highly dubious.
A theory has to be well defined and have internal consistency, before you can actually apply it to reality.

andrew wrote: »

KomradeBishop wrote:

Also, consider the real value of debts - inflation reduces and deflation increases the real value of debts - having a real (not nominal) effect on the economy (through the effects of e.g. debt deflation, as well as the effects this can have on peoples lifetime spending); this is contrary to the theory of money neutrality.

Money is neutral in the long run. In the short run nobody disputes that money isn't neutral, that's partly why Central Banks exist.

Debt is long-run too. You cited figures going back 30 years earlier if I recall correctly - mortgages/debt can last that long too.

So, as I explained in that quote, the changing real value of debts conflict with both short and long term definitions of money neutrality, do they not?



Here is a paper casting doubt on the long-term neutrality of money, in terms of interest rates - and it specifically mentions the issue with frequency of data, that I bring up - I've only skimmed it though:
http://www.stefancollignon.de/PDF/IMK%20non-neutrality%20of%20money_2_.pdf

KomradeBishop

Suryavarman wrote: »

QE has stabilised the financial system and by extension the economy as a whole.

The cost of living has barely increased over the last few years. The ECB has continuously failed to meet inflation to meet inflation targets. The IMF's commodity price index is lower now than it has been since 2005. There has been no "massive upward redistribution of wealth".

How does one define what is or isn't productive exactly?

QE only delayed future instability - we are heading into deflation now, and that instability will be returning before too long.

QE is reported to be pushing the various housing bubbles within Europe, which by extension would affect rents as well - both effectively raising the cost of living and the price of certain assets.

Labarbapostiza

andrew wrote: »

Here's a leaflet explaining how QE works. It really isn't similar in any way to taxation.

It really is a form of taxation. Bank of England documents, which I do read, tend to be fuzzy on details they're not keen on people understanding clearly. The ECB are in fact worse. The 2% inflation rate aspiration at the start of the BoE document is one of the fudges. In reality, they want mad "asset" inflation rates, for property flipping to be a profitable venture, the inflation rate on houses has to be a good few points ahead of the lending rate. The 2% target is really about shafting the losers; young people who don't have rich daddies to buy them houses.

There are so many steps to QE functioning as taxation, that it's not that readily apparent that it is taxation, and worse; taxation that merely functions to transfer money/wealth from the poor to the rich.

Take a young working person in England. They want to buy a house. They save, their wages don't go up, or when you breakdown any aggregate increase it's at the 2% mark. Meanwhile, the BoE, does some QE, to give cash to the banks to lend to "investors", snaffling up property, with the precise purpose of causing inflation in that particular asset class. If the QE causes a 10% inflation in the cost of a house the young person is purchasing. Then the that 10% is in fact a tax, which has been gifted to the "investor" and the bastages at the bank. That's how it functions, and that is how it is meant to function. The Bank of England don't illustrate this reality in their explanatory document. Why? I suppose it's because they don't want to be dragged down the street and savagely beaten to death by a mob of angry young people.

Labarbapostiza

Suryavarman wrote: »

QE has stabilised the financial system and by extension the economy as a whole.

No it hasn't.

The cost of living has barely increased over the last few years. The ECB has continuously failed to meet inflation to meet inflation targets. The IMF's commodity price index is lower now than it has been since 2005. There has been no "massive upward redistribution of wealth".

I'm not going to drag up the graphs, but the FED's 5 trillion dollar QE resulted in the US stock market giving over a 100% return from the beginning of the program.

Luxury goods have seen inflation rates as much as 400% for certain kinds of handbags. Meanwhile inflation on bread and butter indices are largely flat, because.....

How does one define what is or isn't productive exactly?

Rate of return on cash invested in labour is one way, GDP per capita another, actual metrics of production another. It can be misleading, like many people being misled into believing the Greeks are lazy. In a poor country with low wages, it's harder to produce as much money through labour, as you could with the same effort in a richer country.

KomradeBishop

I've been reading more on the concept of long-run neutrality of money, and here is a good paper attacking the idea, based on the effect of changes in the money supply on relative prices:
http://journals.plos.org/plosone/article?id=10.1371/journal.pone.0145710

Furthermore, the concept of path dependence also gives a useful method of attacking the idea, by pointing out how short-term decisions can lock-in long-term trends, and that the short-term effects of the non-neutrality of money (such as recessions and people losing their jobs), can cause long-term structural issues in the economy (such as long-term structural unemployment, causing a real and potentially permanent reduction in the rate of employment), thus having real permanent effects on the long-term economy.

There seem to be ample ways that the 'short term' effects of money non-neutrality, can cause long-term changes in real variables in the economy - the more you think about the different ways that can happen (e.g. money/debt being used to inflate asset or housing bubbles, enriching certain sections of the economy, increasing inequality, and possibly tipping the future political makeup of the economy in that groups favour, with ample opportunity for effects on 'real' economic variables), the more obvious that seems.

Labarbapostiza

Suryavarman wrote: »

How exactly have average people been taxed €4,000?

The ECB QE program is set to run to 2 trillion Euros, dived that among the 500 million EU citizens, you get 4 grand a head.

How can they be gamed?

Since the markets are hypersensitive to the GDP indices, and excessively punishing, governments are often under pressure to gee up the figure. They end up borrowing and spending when they shouldn't. It distorts the real economy.

Also, the state statistics offices have a habit of pulling on the Green or whatever nationality jumper and fudging the figures. The English have been caught doing this a few times.

Can you then show average individual incomes have now declined to below what they were in the mid 90s?

https://upload.wikimedia.org/wikipedia/en/archive/e/e2/20151222181253!US_GDP_per_capita_vs_median_household_income.png

KomradeBishop

Some more reading on Long Run Neutrality of Money again today, and Cantillon Effects (named after an Irish economist - no better source than a Lib wiki offhand) also provides some good arguments that dispute the long-run neutrality of money.

Also mentioned there, is emigration due to changes in the money stock - that provides a real and often permanent change to the future long-run state of an economy.

I think that it's safe to say after finding these ample counterarguments, that whatever facts people cite as evidence of long run neutrality of money, can not be explained by that theory, as there is ample evidence showing changes in economies real variables (as opposed to nominal variables), in the long run - emigration due to changes in the money supply and thus the state of the economy, being an excellent example - which falsify that theory.

It is very clear, with many easy to find examples, that changes in the money supply do affect real variables in the long run - not just nominal ones. This completely debunks the entire concept of money neutrality, both short and long run.

Suryavarman

Labarbapostiza wrote: »

No it hasn't.

Can you offer any evidence to support your position? From what I can see there are no widespread banking failures occurring. And while the EU economy isn't exactly booming, it isn't in recession either.

I'm not going to drag up the graphs, but the FED's 5 trillion dollar QE resulted in the US stock market giving over a 100% return from the beginning of the program.

Luxury goods have seen inflation rates as much as 400% for certain kinds of handbags. Meanwhile inflation on bread and butter indices are largely flat, because.....

You could argue that that's a sign the rich have gotten richer. That isn't a redistribution of wealth as it hasn't come at the expense of lower income people.

Rate of return on cash invested in labour is one way, GDP per capita another, actual metrics of production another. It can be misleading, like many people being misled into believing the Greeks are lazy. In a poor country with low wages, it's harder to produce as much money through labour, as you could with the same effort in a richer country.

So if financial activities earn a positive rate of return you would agree that they are productive then yes?

Labarbapostiza wrote: »

The ECB QE program is set to run to 2 trillion Euros, dived that among the 500 million EU citizens, you get 4 grand a head.

I didn't ask you that. I asked you how have they been taxed? What you've described is not a tax.

Since the markets are hypersensitive to the GDP indices, and excessively punishing, governments are often under pressure to gee up the figure. They end up borrowing and spending when they shouldn't. It distorts the real economy.

Also, the state statistics offices have a habit of pulling on the Green or whatever nationality jumper and fudging the figures. The English have been caught doing this a few times.

How does one decide when to borrow and spend then? How does it distort the real economy?

https://upload.wikimedia.org/wikipedia/en/archive/e/e2/20151222181253!US_GDP_per_capita_vs_median_household_income.png

I asked you for evidence that average individual incomes have fallen, not household incomes. Household incomes aren't a good measure because the size of households have been shrinking.

Labarbapostiza

Suryavarman wrote: »

Can you offer any evidence to support your position? From what I can see there are no widespread banking failures occurring. And while the EU economy isn't exactly booming, it isn't in recession either.

In terms of GDP, the Eurozone is not in recession. But the QE just serves to inflate assets, and the asset transactions are counted in the GDP indice.

It's like this, Johnny "dirty knickers" Ronan, has recently being making big purchases in Dublin with borrowed money. I did calculated an approximation of how much his purchases were contributing to our GDP, I'm not doing it again, but it was significant. Are we any better off, either in the long or short run. We're not. In the long run, we'll have to pay for those buildings. Either through some cute hoor arrangement where the government leases these grossly overpriced properties, and the tax payer will pay for it. Or, there's another collapse, in that there is no genuine market for these buildings, the public will have to foot the bill

You could argue that that's a sign the rich have gotten richer. That isn't a redistribution of wealth as it hasn't come at the expense of lower income people.

The rich have got richer. They had a very good long recession. They have grossly increased their share of the wealth. But no real new wealth has been created.... How it was at the expense of the poor was by lowering living standards; higher taxes, wages below the rate of inflation. When no new wealth is created, it can only be transferred. You've seen from my explanation of English QE, how it's a tax on the poor to gift to the rich. The young guy or girl buying a house do not realise or even have any idea that they've been taxed by QE. And this is precisely by design, and not some unfortunate unintended consequence.

So if financial activities earn a positive rate of return you would agree that they are productive then yes?

It depends what you mean by productive. The term itself causes great confusion. Take prostitutes. A poor illiterate woman working the docks in the Congo, might have 50 clients in a day, but might only earn 50 pence a go, and in a day only earn 25 quid. But if you take a certain kind of young "lady", who lives in Ireland, and makes the society pages of the Sindo. She might give Johnny Ronan a few rides over time. She'll get a car, and few wads of our hard earned cash. The woman in Africa is more productive in the number of rides she gives, than the Sindo "beauty", but her productivity in terms of terms of yield of cash, is very poor. If you owned her, you'd only get 25 quid a day at most, and she'll probably clap out an die due to multiple untreated sexually transmitted diseases and the returns on the asset will fall to nothing. On the other hand, if your asset was one of the Dublin fishwives the developers fancy a flutter on, your productivity in cash will be several orders of magnitude greater than the poor woman working her gusset to death in Africa, in productivity in terms of number of rides will be low.

I didn't ask you that. I asked you how have they been taxed? What you've described is not a tax.

Go watch Milton Friedman's talks on Youtube, where he discusses inflation as a form of tax. If you won't take it from Milton, I have no hope in convincing you.

How does one decide when to borrow and spend then? How does it distort the real economy?

Ideally borrowing should be for capital formation. The difference is borrowing to go on the piss or borrowing to create or extend a viable commercial enterprise. How state borrowing can distort and damage the real economy is by causing inflation in labour and materials, the effect on the private sector is in opportunity costs; it becomes less viable or unviable to employ labour and materials for capital formation. The money is borrowed, pissed away, and there isn't an asset to yield the needed repayment. This is the long term issue with Greece, and Ireland has had similar historical experiences. Pissing money away on brutal civil engineering projects in Kerry, with the sole intention of filling the pockets of cute hoor families like the Healy Raes, who have seats on Kerry county council, while having a plant hire business, the council hires plant from.

[QUOTEhttps://upload.wikimedia.org/wikipedia/en/archive/e/e2/20151222181253!US_GDP_per_capita_vs_median_household_income.png

I asked you for evidence that average individual incomes have fallen, not household incomes. Household incomes aren't a good measure because the size of households have been shrinking.
[/QUOTE]

Do your own research. I know I'm worse off, and I don't need a weatherman to know which way the window blows.

andrew

Labarbapostiza wrote: »

In terms of GDP, the Eurozone is not in recession. But the QE just serves to inflate assets, and the asset transactions are counted in the GDP indice.

It's like this, Johnny "dirty knickers" Ronan, has recently being making big purchases in Dublin with borrowed money. I did calculated an approximation of how much his purchases were contributing to our GDP, I'm not doing it again, but it was significant. Are we any better off, either in the long or short run. We're not. In the long run, we'll have to pay for those buildings. Either through some cute hoor arrangement where the government leases these grossly overpriced properties, and the tax payer will pay for it. Or, there's another collapse, in that there is no genuine market for these buildings, the public will have to foot the bill



The rich have got richer. They had a very good long recession. They have grossly increased their share of the wealth. But no real new wealth has been created.... How it was at the expense of the poor was by lowering living standards; higher taxes, wages below the rate of inflation. When no new wealth is created, it can only be transferred. You've seen from my explanation of English QE, how it's a tax on the poor to gift to the rich. The young guy or girl buying a house do not realise or even have any idea that they've been taxed by QE. And this is precisely by design, and not some unfortunate unintended consequence.




It depends what you mean by productive. The term itself causes great confusion. Take prostitutes. A poor illiterate woman working the docks in the Congo, might have 50 clients in a day, but might only earn 50 pence a go, and in a day only earn 25 quid. But if you take a certain kind of young "lady", who lives in Ireland, and makes the society pages of the Sindo. She might give Johnny Ronan a few rides over time. She'll get a car, and few wads of our hard earned cash. The woman in Africa is more productive in the number of rides she gives, than the Sindo "beauty", but her productivity in terms of terms of yield of cash, is very poor. If you owned her, you'd only get 25 quid a day at most, and she'll probably clap out an die due to multiple untreated sexually transmitted diseases and the returns on the asset will fall to nothing. On the other hand, if your asset was one of the Dublin fishwives the developers fancy a flutter on, your productivity in cash will be several orders of magnitude greater than the poor woman working her gusset to death in Africa, in productivity in terms of number of rides will be low.





Go watch Milton Friedman's talks on Youtube, where he discusses inflation as a form of tax. If you won't take it from Milton, I have no hope in convincing you.



Ideally borrowing should be for capital formation. The difference is borrowing to go on the piss or borrowing to create or extend a viable commercial enterprise. How state borrowing can distort and damage the real economy is by causing inflation in labour and materials, the effect on the private sector is in opportunity costs; it becomes less viable or unviable to employ labour and materials for capital formation. The money is borrowed, pissed away, and there isn't an asset to yield the needed repayment. This is the long term issue with Greece, and Ireland has had similar historical experiences. Pissing money away on brutal civil engineering projects in Kerry, with the sole intention of filling the pockets of cute hoor families like the Healy Raes, who have seats on Kerry county council, while having a plant hire business, the council hires plant from.



I asked you for evidence that average individual incomes have fallen, not household incomes. Household incomes aren't a good measure because the size of households have been shrinking.


Do your own research. I know I'm worse off, and I don't need a weatherman to know which way the window blows.

As noted in the mod warning in the first post, you need to be able to provide evidence backing up your claims when asked. If you can't do so, stop posting.

More generally, this isn't a forum for general low quality speculation, ranting, or dubious analogies. Posts of a similar quality will be deleted.

andrew

KomradeBishop wrote: »

Some more reading on Long Run Neutrality of Money again today, and Cantillon Effects (named after an Irish economist - no better source than a Lib wiki offhand) also provides some good arguments that dispute the long-run neutrality of money.

Also mentioned there, is emigration due to changes in the money stock - that provides a real and often permanent change to the future long-run state of an economy.

I think that it's safe to say after finding these ample counterarguments, that whatever facts people cite as evidence of long run neutrality of money, can not be explained by that theory, as there is ample evidence showing changes in economies real variables (as opposed to nominal variables), in the long run - emigration due to changes in the money supply and thus the state of the economy, being an excellent example - which falsify that theory.

It is very clear, with many easy to find examples, that changes in the money supply do affect real variables in the long run - not just nominal ones. This completely debunks the entire concept of money neutrality, both short and long run.

So exactly what are your examples and what are the real variables that are affected in the long run? I see two (not peer reviewed?) articles which find some evidence that the level or growth rate of the money supply has, at most, highly persistent effects, maybe, on some variables, and that's it. Contrast this to the vast literature affirming the long run neutrality of money on a theoretical and empirical basis, and you can see why I'm sceptical.

I also don't think we're even on the same page regarding what is meant by the long run neutrality of money. If lots of people were to suddenly emigrate and output were to fall, that's an argument for the non neutrality of labour - a real factor, not money. And if you're going to say things have a 'permanent' effect, you need to realise that this means permanent. Forever.

KomradeBishop

andrew wrote: »

So exactly what are your examples and what are the real variables that are affected in the long run? I see two (not peer reviewed?) articles which find some evidence that the level or growth rate of the money supply has, at most, highly persistent effects, maybe, on some variables, and that's it. Contrast this to the vast literature affirming the long run neutrality of money on a theoretical and empirical basis, and you can see why I'm sceptical.

I also don't think we're even on the same page regarding what is meant by the long run neutrality of money. If lots of people were to suddenly emigrate and output were to fall, that's an argument for the non neutrality of labour - a real factor, not money. And if you're going to say things have a 'permanent' effect, you need to realise that this means permanent. Forever.

I gave loads of examples...long-term effects on employment rates (structural unemployment), emigration, debt, among more...you seem to have just skipped past almost everything stated in my posts - that's not 'skepticism', a skeptic deals with the arguments/examples.


The long run neutrality of money simply states that changes in the money supply do not affect real economic variables in the long run - and I've provided plenty of counterexamples, where real economic variables are affected.

The definition of long run neutrality doesn't limit the scope of 'real' variables that it covers - emigrated labour is a valid example of a changed real value - which also has a negative impact on real GDP, as the potential output from these workers is permanently lost.

Again, you are mistaking studies which claim to identify evidence of a trend, with that being evidence of support for long-run money neutrality - money neutrality is only one possible explanation for such data - it can still be false, and appears to be debunked by fairly easily found counterexamples.


How do you explain e.g. debt and 30 year mortgages - and how changes in the money supply definitely affect the real value of that debt? That's one of the more hard to deny counterexamples of long run money neutrality.

OttoPilot

Labarbapostiza wrote: »

Advances in technology, are not due to us working longer, than in the agrarian age. Most employment is pointless. It seems as and when technology eliminates jobs, we go out of our way to create non jobs to save us from the void of leisure. We've degenerated as a lot of this employment, especially for the upper-middleclass, consists of nothing more than social grooming; they're like monkeys.



I've seen a break down of what they ate. It was high calorie even by today's standards. It wasn't just potatoes, they'd have milk and bits of the pig the Brits didn't want. People in the towns had a much more monotonous diet, less healthy, lower calorie, consisting mostly of bread and tae.

They valued the extra consumption so they abandoned their lives of largely idleness to accumulate more consumables. Me hole, they did.

If you look at the enclosure acts of England. A greater element of their purpose was to force poorer peasants from the land and into the dark satanic mills of the industrial era. Long hours, few holidays, and much poorer diets, made these people several inches smaller than their rural ancestors.

Why don't more people nowadays live a subsistence lifestyle and abandon modern technology? Economics is all about choice, and the choices people make everyday tell me they prefer the present way of doing things. The only group I can think of who do it voluntarily is the Amish, and that's because their religion demands it.

Labarbapostiza

OttoPilot wrote: »

Why don't more people nowadays live a subsistence lifestyle and abandon modern technology?

They do, they're called poor people. The poorer you are the less technology you have access to. I'm poor so I know all about this. I don't have a car, not because that is my choice, it's because I cannot afford the technology. I would very much like a car, but I cannot have one. What rations of modern technology I have, I must use sparingly.

And it's not my choice to be poor either. I have multiple health problems I did not chose. They greatly effect my ability to work or to be chosen for work. Our society has a gross inequity in choice. But even wealthy people have a lack of choice. If they refuse to socially conform to the demands of their peers, they get punished too. Under the law, we in theory have a lot of choice, in reality we live in a social police state. I have friends who are afraid to post on facebook because how it might effect their employment prospects.

Economics is all about choice, and the choices people make everyday tell me they prefer the present way of doing things. The only group I can think of who do it voluntarily is the Amish, and that's because their religion demands it.

No, My grand uncle was a farmer who eschewed modern technology. Most of his life he lived very close to how the Amish live. He was quite self sufficient. He grew his own vegetables, cured his own bacon, and even churned his own butter. He wouldn't have plumbed water or electricity in his house until the very near the end of his life. He's only dead a little over 20 years. I think there might be more of these guys left than you might imagine.

OttoPilot

Labarbapostiza wrote: »

They do, they're called poor people. The poorer you are the less technology you have access to. I'm poor so I know all about this. I don't have a car, not because that is my choice, it's because I cannot afford the technology. I would very much like a car, but I cannot have one. What rations of modern technology I have, I must use sparingly.

And it's not my choice to be poor either. I have multiple health problems I did not chose. They greatly effect my ability to work or to be chosen for work. Our society has a gross inequity in choice. But even wealthy people have a lack of choice. If they refuse to socially conform to the demands of their peers, they get punished too. Under the law, we in theory have a lot of choice, in reality we live in a social police state. I have friends who are afraid to post on facebook because how it might effect their employment prospects.



No, My grand uncle was a farmer who eschewed modern technology. Most of his life he lived very close to how the Amish live. He was quite self sufficient. He grew his own vegetables, cured his own bacon, and even churned his own butter. He wouldn't have plumbed water or electricity in his house until the very near the end of his life. He's only dead a little over 20 years. I think there might be more of these guys left than you might imagine.

You're making my point, nobody chooses to live like we did hundreds of years ago now because it was a worse life.

A person unable to work in the times of potato farmers would have to rely on charity or starve, how fair is that?

You're getting off the point with facebook too. If you say something on facebook that will affect your employment prospects, then chances are you shouldn't be saying it in public either, same principle applies to speaking publically, facebook is just a different medium for communication.

I'm not going to reply anymore because you seem to have a chip on your shoulder against the world. Yes life isn't fair but even the poorest people in this country are luckier than those in the developing world.

Labarbapostiza

OttoPilot wrote: »

You're making my point, nobody chooses to live like we did hundreds of years ago now because it was a worse life.

The life wasn't as bad as it's made out to be. The famine was a great catastrophe, but the standards of living were much higher in Ireland than in the Mediterranean. When the Europeans arrived in the Americas they were surprised to find no prisons.

A person unable to work in the times of potato farmers would have to rely on charity or starve, how fair is that?

You had more familial structures in that way of life. A partially disabled person might not be able to dig potatoes with as much gusto as those young and fitter, but they might do something else. But even today you have octogenarian coffin dodgers still farming....they just do it a lot slower.

You're getting off the point with facebook too. If you say something on facebook that will affect your employment prospects, then chances are you shouldn't be saying it in public either, same principle applies to speaking publically, facebook is just a different medium for communication.

No. Incredible as it sounds, there are employers today demanding passwords and access to all electronic communications of employees. One of my friends her employer has full access to her facebook account as a requirement of her job. Her employer posts things to facebook as part of their business promotion. There was an Irish court case last year, over a guy's right to his own name after he'd left an employer. The court found in his favour, but his former employer did believe they had enough of a case to pursue it through the courts.

I'm not going to reply anymore because you seem to have a chip on your shoulder against the world. Yes life isn't fair but even the poorest people in this country are luckier than those in the developing world.

Oh right chip on my shoulder. I'll be dead soon enough, and you can come dance and spit on my grave.