Economics Questions

Legalization of Marjiuana for Recreational use

Democracy for Breakfast — Fri, 20 Nov 2009 21:52:57 GMT

Well I was listening to a speech last night on The Federal War on Drugs in the class. The speaker actually presented a very good point, and he knew what he was talking about unlike most people on the subject.

He advocated ending The Federal War on Drugs, but he raised a really good point. If Marijuana were legal for recreational use and then made a taxable income, it would be financially beneficial. However, once The Government raises the tax on Marijuana we will again be in a War on Drugs, because users will retreat to The Black Market once more to get it for cheaper. I'm not sure how to refute this. Here in Connecticut there was a tax on tobacco and cigarettes and it went to hell.

The state of Rhode Island is talking of its legalization for both Recreational and Medical use. The thing is, unless its legalized on a Federal scale people from this state will travel over to RI causing massive drug trafficking between the states where its legal and where its not.

Additionally, what is a non-statist way to control recreational drug use? I mean if we legalized all the drugs(Heroine, Crack, Cocaine, ect).

Dylan Ratigan: Four-Step Bank Fix

ZeroPoint — Fri, 20 Nov 2009 20:26:09 GMT

What do you guys think of his solutions and what's the austrian view on it? Heres the link... http://www.huffingtonpost.com/dylan-ratigan/4-step-bank-fix_b_346140.html

Learning Economics

Individualist — Sun, 15 Nov 2009 02:03:08 GMT

Is it really necessary for someone, like me, who does not want to become a professional economist to make "Economics" a major part of his studies (in college or elsewhere)? It seems to me that it shouldn't take too much study to decide whether or not a free marker is truly the most efficient system.

How much study of economics do you recommend to one who is going into the profession of history/journalism? How much is needed to have a good grasp of political theory and the self-ownership proposal?

Federal Reserve Notes vs Treasury Notes

philais — Fri, 20 Nov 2009 17:52:21 GMT

Ok, I'm new.

What terrible consequence would occur with a one to one swap? Buying off all debt? The end of the world?

Legal Tender Laws

jmorris84 — Fri, 20 Nov 2009 03:23:19 GMT

Legal tender is currency that cannot legally be refused in payment of debt. The Coinage Act of 1965, specifically Section 31 U.S.C. 5103, defines legal tender as "United States coins and currency (including Federal reserve notes and circulating notes of Federal reserve banks and national banks) are legal tender for all debts, public charges, taxes, and dues."

This statute means that all United States money as identified above are a valid and legal offer of payment for debts when tendered to a creditor. There is, however, no federal statute requiring a private business, a person or an organization to accept currency or coins as for payment for goods and/or services. Private businesses may adopt their own policies on whether or not to accept cash as long it doesn't violate state law. For example, a business may refuses to accept payment in pennies or large denomination bills as a matter of policy.

I live in Pennsylvania and can find no law that states I can't accept or pay in gold or silver coins. If this is really the case, then what is stopping us from coming up with and using our own form of currency? I understand that federal reserve notes are deemed as legal currency but it doesn't seem like any other form of currency is being stopped from evolving and taking over either. If the market wants it, then what is stopping it from showing up?

Keynes on the Bancor

Jonathan M. F. Catalán — Mon, 16 Nov 2009 22:28:32 GMT

This question is directed explicitely to those who have read The General Theory. I own a copy, but have not yet read it, and I am writing a review of Stiglitz' Making Globalization Work. There are too many flaws to correct in one little review, but I will be looking to take on a number of key issues brought up. These are: patents, labor markets and wages and money (I will probably take on more than three, but these are the three I can think of right now). He pushes Keynes' idea on the "bancor".

Does anybody know the pages in Keynes' work that are more pertinent to this idea? I want to read what Keynes has to say, before I quote Keynes by way of Stiglitz (who may have misquoted Keynes). Ultimately, I will critique Stiglitz on his lack of knowledge on capital theory and the effect of fiat money on the relative price of different capital.

Super-Abundant "Goods"

Lilburne — Fri, 20 Nov 2009 04:17:26 GMT

Mises and Rothbard both characterized super-abundant useful things as "general conditions". However, there is a distinction in other words they used related to this concept.

Mises seemed to follow Menger in characterizing super-abundant useful things (like air) as non-economic goods and scarce things as economic goods. Here is the relevant passage from Human Action:

It is customary to call the end the ultimate good and the means goods. In applying this terminology economists mainly used to think as technologists and not as praxeologists. They differentiated between free goods and economic goods. They called free goods those things which, being available in superfluous abundance, do not need to be economized. Such goods are, however, not the object of any action. They are general conditions of human welfare; they are parts of the natural environment in which man lives and acts. Only the economic goods are the substratum of action. They alone are dealt with in economics.

Rothbard on the other hand denied super-abundant useful things the appellation of "means" or "goods".

From this example of action, many implications can be deduced. In the first place, all means are scarce, i.e., limited with respect to the ends that they could possibly serve. If the means are in unlimited abundance, then they need not serve as the object of at tention of any human action. For example, air in most situations is in unlimited abundance. It is therefore not a means and is not employed as a means to the fulfillment of ends. It need not be al located, as time is, to the satisfaction of the more important ends, since it is sufficiently abundant for all human requirements. Air, then, though indispensable, is not a means, but a general condi tion of human action and human welfare.

I'm integrating this concept into the first issue of Human Action Comics, and I'm torn between the two terminologies. I can see why Rothbard made his revision. Mises seems to be inconsistent when he says that non-economic goods are not the object of action, but yet still calls them goods. As he wrote elsewhere in HA, "goods... are elements of human meaning and conduct". So if suber-abundant things are not objects of action, then they are not "elements of human meaning and conduct", and therefore not goods.

But then I think, "okay, while it's true that I don't economize air (that is, try to optimize its allocation) because it is not scarce. But I CAN choose to breathe it or to hold my breath. Is not such a choice an action? And is not the air that I breathe when I choose to stop holding my breath the object of that action?

Which terminology do others here think is best and why?

Newbie Stock Market Question

Solarist — Wed, 23 Sep 2009 19:02:33 GMT

Someone presented me with a graph showing the last 3 major downturns in the stock market (I think it was mainly using the dow and s&p 500) to show how long it took after each time for the market to rebound to its previous level. The basic idea behind the graph was that it takes roughly 3 years and this particular graph was showing a prediction and used march 5th of this year as the date the recovery began.

The immediate skeptic in me said this was not of any real value becuase just becuase somethign can be represented graphically does not me you can use it as a predictive tool.

Here is my question, what about the idea that perception is reality. If enough people subscribe to the idea that the stock market is in recoverey then will it not soar like a pheonix? I suppose iI am describing a boom or bubble but what is going on with the true value of things? Can perception really become reality in this regard?

I understand many basic economic principles but I have had a hard time relating them to the stock market specifically.

How is macro-economic wealth created?

Fohaba — Thu, 12 Nov 2009 06:09:48 GMT

Hello. I’m very pleased I discovered this great forum, where people who appear to know something about the subject have discussions about economics.

Here’s something I need some insight on. My understanding is that wealth is created in an economy through manufacturing, and that manufacturing is how value is added to raw materials, making a finished product more valuable than the sum of its parts. This contributes to increasing the size of the overall economic pie, rather than continuing to divvy up and distribute one constant-sized pie. So value added through manufacturing potentially makes everyone in the society richer.

So, first question- is this hypothesis correct?

Second question- Do other sectors of the economy contribute to this macro-wealth creation? For instance: service industries, banking, advertising, hospitals- do they grow the overall economy, or just support the existing economy, which, again, grows only through manufacturing? And so these non-manufacturing sectors are simply moving money around in a constant-size wealth pie?

Third question- In this context, then, what is manufacturing? Is Microsoft a manufacturer, in regard to their software? They don’t make a physical product, but intellectual property. How about Hollywood? A lot of creative energy and intellectual property, but no tangible product. Does it create new wealth, or simply provide something of value for society to spend its existing wealth on? Are these industries contributing in the same manner as the traditional industries mentioned in Question 1?

I have only a smattering of formal education on economics, so please keep answers in somewhat layman’s terms, if possible, a la “Broken Windows”.

Thanks for any insight!

David

Debating with economics professors/majors about The Federal Reserve in real life.

Democracy for Breakfast — Thu, 19 Nov 2009 04:29:31 GMT

This is a very challenging task. I'll refer to a conversation with my friend, I don't see how he is wrong either sadly :/ as much as I would love to see Austrian Economics go into action.

Him:

"Clearly your ignorant so let me explain how inflation works since instead of educating yourself you're just making a fool of yourself. Inflation isn't simply caused by printing more money & commodity money A money unit whose value is backed by the value of another physical good such as gold or silver would cause our country to revert to the times of colonialism in order to constantly expand our economy we would need to constantly acquire more worth (Gold Silver etc), this time was known as Merchantalism and was generally bad. However Adam Smith & every economist since him has argued the wealth of a nation comes from it's output & therefore a Fiat money system would be more effective because a country could focus are more important things than continually searching for more gold/silver/etc. The most simple way to define inflation is more money pursuing the same amount of goods. If a jeweler sells his jewelery for $100 a piece & the government starts printing more money the jewelery will find there's more people willing to buy his jewelery but he hasn't (& in often cases) cannot increase his output. So he simply raises his prices so that now his jewelery is $125. That's how inflation works when you increase the money supply if pushes the prices up. If we went back to a commodity standard we would still have inflation because the majority of our money is digital. Every time some bank issues a credit card, (or any other type of loan in which they're not directly handing dollars to the borrower) the bank IS CREATING MONEY. If BofA issues 10,000 new credit cards with a credit limit of $1,000 each. Then BofA essentially just created $10,000,000 more USA $ which will lead to raises of prices of the items the customers buy & if they buy the items measured by economists to determine inflation than INFLATION WILL INCREASE WITHOUT THE FED HAVING DONE ANYTHING. Lastly I don't care how many people oppose the fed my point is you didn't give a damn until Ron Paul did."

Him:

First off you didn't even read my explanation of inflation or you would have saw that we will have inflation even without the fed or a fiat system. Having the fiat system simply allows it to be more manageable compared to like Zulu that suffers from 1000%price increases from inflation. Also inflation to some extend is necessary, think of the chaos if candy bars still cost $0.05 like they used to. Lastly you had to refute because you're wrong & you can't back your bullshit up anymore. Why don't you look at the inflation rate of other countries around the world (communist not included since they exercise price controls) & you'll see we're not so bad off & there's a lot worse problems like the fact that medicare/medicaid will be bankrupt by 2020 & S.S. will be bankrupt 10-15years after that. Or the fact that Iran is intend on building nuclear missiles & will eventually cause WWIII.

Me:

'm interested to know what "other issues" are important the acquiring gold/silver? I honestly don't care bout Ron Paul's stance on it, but it sure as hell did draw me in. I picked up his book "End The Fed" but haven't had time to look into it. I don't really care what a professor says about it just because he has a Ph.D in one kind of study of Econnomics. This document proves my point on that.

http://jim.com/econ/contents.html .

I've watched documentaries by Aaron Russo who have made points against The Federal Reserve. I don't know much about Economics yet, but I can sense that The Fed is pretty damn rotten, and when Andrew Jackson sought to have it abolished it was for VERY similar reasons to what we can see happening now.

I'd like to know if your professor has heard of 'Gresham's Law' or will say what is causing our future towards massive debt and hyperinflation.

Him:

yeah i've heard of Gresham's Law & no it's not relevant it has very little application except in certain markets like "used cars" or "computers". Secondly there is a hell of a lot wrong with the FED. I'd don't recall ever saying there wasn't. There's also a hell of a lot wrong with our national defnse & the way it's budgeted & functions but I don't want to privatize the army/navy/airforce/marines etc. The FED is doing a poor job but I assure you getting rid of it will make things worse not better.

Him:

Since you even admitted you're ignorant of economics, take a couple macro-economic based classed (central banking is a macro not a micro concept) & then get back to me on how well getting rid of the FED will help our economy. And the previous central bank was doing a horrible job so I'm with you on the president getting rid of it. But Our current one is fairly well divided up & does a better job than previous ones.

Him:

Just wanted to add that capitalism is flawed because it causes instability in prices & in employment. The government is needed to regulate these & essentially smooth out the ups & downs.

Me:

Kristof' Cox October 22 at 1:15am

Thats a helluva statement to refute. The free market creates a productive role for anyone, and encourages people to work better in the service of others. Additionally, there's always something for someone to have since people are rewarded for hte more production they make.

Also the most free market capitalist countries have the lowest employment rates. More like regulations cause instability in employment and prices through price controls and minimum wage laws.

Him:

actually you're wrong, in a perfectly competitive market(also known as ideal capitalism) there's no initiative to pay wages to unskilled workers because you can find more workers & paying less means more profits. Minimum wage is one of several ways the government helps to redistribute income because the greater the disparity between those who make the most & those who make the least, the worse resources are allocated which means waste. In a market economy demand (being willing & able to buy) is what determines supply, if too much money(i.e. market voting power) is in the hands of too few people than they influence what the markets produce. This is a major problem because the majority of the population will have to pay higher price or in some cases not even be able to buy the things they want or Need. This is way we have minimum wage, and income tax and should have an inheritance tax as well as other measures. Like i said before actually take an economics class before you try to argue with me & economics is a social science like psychology & sociology & not a hard since like chemistry or geology. Also the free market doesn't create anything without the government there to clearly define and enforce property rights but you wouldn't know that since you won't take an economics class & probably don't even go to the classes you do attend.

A question regarding interest rate

Sebastian Lundh — Thu, 19 Nov 2009 20:59:12 GMT

Hello and Hi!

I have a tiny question I hope you gentlemen, and gentlewomen, can answer me;

When the banks have little money to lend people, the intereste rate goes up, but does it go up for people who have ALREADY borrowed money (just like the intereste rate goes up due to inflation), or are new borrowers the only people who have to pay higher intereste? =/ I think the intereste rate goes up for every body (unless you have a fixed rate of course), but I'm not sure.

I hope you understand my poor english.

Thank you for your replies!

Economics terminology

Stephen Adkins — Thu, 19 Nov 2009 20:03:57 GMT

I'm sure this has a name, but I can't think of it.

What would you call the phenomenon seen in many scenarios, but perhaps most prevalently in higher education, that those who pay for a good or service themselves are more likely to appreciate it, while those who receive the good or service for free or at a reduced cost are more likely to take it for granted and waste it?

Thank you

Questions regarding the supply of money and money creation.

Sebastian Lundh — Wed, 28 Oct 2009 20:18:06 GMT

Hello!
I have a few questions that I hope that you can help me with. I made a quick search, and looked for a thread where my questions were answered, but I could not find any. I apoligize if I did'nt search hard enough. I also apologize if my english is'nt good enough (I understand english well, but I suck at expressing myself)

These are my questions;
1. If I am correct, the Fed can expand the money supply by simply writing people checks, and the Fed does this when it buys bonds. But how can this expand the money supply in the long run? Does'nt the money get destroyed when the money is paid back? Does the Fed have to buy stuff like chairs, houses, tanks and new windows if it wants to expand the money supply?

2. How are new coins and bills created and distributed?

3. If a bank creates new money thanks to the Fractional Reserve System, and if the created money is lended to a guy who does'nt pay the money back, is the money in the soceity permanently?

I might return with a few more questions regarding all this btw.

Thank you all for your answers!
Sebastian L

Debating with people in real life about the 2008 crisis

Democracy for Breakfast — Thu, 19 Nov 2009 04:22:15 GMT

I have stuck around here for awhile, and I have seriously not found a good answer for this.

Its seriously almost impossible. Everytime I get into a debate with relatives or family members, it always ends up just them arrogantly defending their claims. You can't debate the financial crisis at all with anyone, everyone seems to think the mortgage industry lent out huge loans, and expected a lot to be paid back. How the heck do you deny this? Everyone will claim that they did that because of the lack of regulation in the housing market.

Also my Grandpa talks to me about Economics a lot, he has run his own business he quoted someone the other day, and said "Free Enterprise works the best, however adult supervision is necessary". I don't know what to say to this at all, but its a really generic term that most people seem to agree with. I mean even Stock Brokers and NYSE supervisors have said there needs to be regulation. I mean, I know that we don't have a free market, but how can you deny that the mortgage and lending firms "went ape bomb?".

Then we were talking about Universal Health Care, he thinks UHC would be a good thing since the U.S ranks 37th in Adult Health Care and 38th in Child Health Care, while France ranks the best in the world, and Canada has a great system. This seems to be a general belief, I have referenced to Stossel's 20/20 episode of 'Sick In America' but he thinks that Stossel is biased since he is a Fox News reporter.

My aunt had an experience where they got a new house and mortgage brokers called them up, and offered them HUGE, and seemingly ideal deals for houses, they didn't buy into it since they knew it was shady. However, they still blame them for taking advantage of consumers.

Additionally, everyone thinks an unregulated Credit Card industry has caused chaos. Credit Card companies are issuing cards to consumers with bad credit so that they can get more money from them in interest rates. They also just raise your interest rate without warning, and aggressively market to minors since they are more vulnerable. Universal Default, is a term where credit card companies can deny you a card, or raise your interest rates based on your standing with another company you have a card with.

Resource based theory of the Firm an Austrian Critique

Lohengram — Thu, 19 Nov 2009 18:59:51 GMT

I'm wondering if someone could name for me a good article or journal giving an Austrian critique of the "resource based view of the firm" perhaps something from Peter G Klein? but I'd be interested in other writers too. I would like an up to date version though, giving the most recent views on the theory and in response to changes within that theoritical approach.

Thanks to anyone who can point me in the right direction.

How to cite (MLA) a publication of the Federal Reserve.

Cole — Thu, 19 Nov 2009 03:06:48 GMT

I apologize if this is the incorrect place to ask this question.

I am doing a simple research paper, and would like to cite from this:

http://www.federalreserve.gov/pf/pdf/pf_complete.pdf

How would I cite this in my works cited page? It's difficult to tell. Would anyone have any tips?

Thanks,

Cole

Is Peak Oil a Tragedy of the Commons?

Doug — Thu, 12 Feb 2009 01:46:02 GMT

While discussing the concept of 'Peak Oil' at work today, I offered that it made no sense to to invest in an expensive high mileage car (for example) in order to 'save oil'. Any oil you saved would just be used by someone else at today's low price and - in the meantime - you would put yourself at a competetive disadvantage by paying more for energy than you needed to.

The other person offered that this was an example of the "tragedy of the commons" since everyone was incentivized to use the oil and no one was incentivized to conserve it. Although I couldn't argue that it certainly looked the same, I always thought that the "commons" argument pointed to a problem with property rights - that common ownership was at the root of these sorts of problems. However, it doesn't look like oil supplies - in general - suffer from a common ownership problem.

So I'm confused with how to classify the whole situation, is it:

1) An example of the "commons" tragedy? But does that imply that "commons" is more than just property rights? or that oil supplies have ownership issues?

2) An example of something else with similar consequences? perhaps some sort of game theory?

3) A problem with the argument as a whole? (by assuming peak oil is true, am I putting some false constraint on the issue?)

Any help appreciated - even a link somewhere - I'm not sure if this is a "commons" issue or not.

Capitalism / free market distinction in Catholicism

TimothyTerrell — Thu, 19 Nov 2009 01:40:50 GMT

A Roman Catholic friend argues, as I understand her, that capitalism and free market are not synonymous. Catholicism is free market, but not capitalistic. Capitalism says “Produce, consume, produce, consume, more and more!” and free market just says “Produce what you need to consume.” This leaves plenty of time for leisure/a meditative life. She says capitalism is really Calvinistic (Protestant work ethic) whereas free market ideas are not so.

Is this representative of a more general distinction made by Catholics, or is this an unusual position? I would be interested in Catholic responses/discussion.

Schumpeter

ViennaSausage — Thu, 19 Nov 2009 01:25:58 GMT

Was Schumpeter an Austrian? Or just from Austria? Wikipedia suggests he is part of the Austrian School:

http://en.wikipedia.org/wiki/Joseph_Schumpeter

Also, what was Schumpeter take on capitalism? Was he the one that said it will eventually destruct?

Private Property and abuse.

Democracy for Breakfast — Mon, 21 Sep 2009 07:06:30 GMT

I completely adore the idea of Private Property. However, when I was in an argument just now where the point argued was how.

If you allow someone complete ownership of the property, mostly with corporations they will deplete all of its resources and abuse it until nothing is left of it, causing environmental damage, and for the property to be worthless.

Communism at my school

akowalsk — Mon, 09 Nov 2009 16:26:41 GMT

So this Raymond Lotta guy, of the Revolutionary Communist Party of America, is coming to my school this week to give a speech ( http://thisiscommunism.org/ ). I need some help preparing some questions/comments that will prevent anyone from buying into his nonsense. I am somewhat familiar with cost accounting argument put forth by Mises in the 20s, but I'm worried that won't be enough.

For example, yes it's true a central planner will not be able to achieve efficient allocation of resources without prices, but what if he says that's not his goal? People in the world are starving, and a central planner could figure out how many calories are required to keep people alive and produce that much. People in the world are homeless, a central planner could figure out how many houses to build based on how many people exist (and how many components of the houses based on how many houses, etc.). People are clamoring for healthcare, a central planner could set a reasonable (let say, defined by the average of a survey of the population) doctor-patient ratio, and force that many people to become doctors. Of course these won't be the best doctors, or the best houses, using the correct materials, or the tastiest bread, but that's not the goal. And of course innovation will never occur, but who cares as long as everyone is being fed. I need to be able to prove that communism won't achieve a goal that he actually has, rather than one that he might not have. I realize that communism was originally claimed to be more productive/efficient than capitalism, but we all know how easily these words get redefined in politics.

The other angle of argument is about the human nature piece and the implementation piece (you know, the millions butchered by stalin and mao, power corrupts, moral hazard, etc.), but 1. I think debunking the theory is much more powerful of an argument than saying that no one has gotten it right yet, and 2. based on looking at his website, it sounds like he considers himself a bit of an historian, and I barely know anything about history (I'm a computer engineer/MBA student).

Any help here would be appreciated.

Gold Standard

vikramranade — Tue, 17 Nov 2009 15:44:06 GMT

I have a confusion. When we have a currency backed by gold and convertible in gold on demand, are we not artificially pushing up the gold prices as the productivity increases? For example at the beginning 1 ounce of gold might be able to buy 1 ton on wheat. As the productivity gains and we are able to produce the same amount of wheat with much less effort, 1 ounce of gold might buy 2 tons of wheat. As the productivity keeps gaining, gold prices would keep gaining to a point where people may not want to pay such high price to make gold jewelery.

Firm Size

yessir — Tue, 17 Nov 2009 05:04:57 GMT

Why are firms getting bigger? Why are we seeing a lot of monopolies/oligapolies and concentration of power?

(obv you can if you disagree with this claim, i would like to see the data for it if you can)

Trying to compare austrian answers vs mainstream econ, leftist..

Why is healthcare so expensive?

jct181 — Mon, 26 Oct 2009 02:44:53 GMT

I understand why a universal healthcare plan will drive healthcare costs up. But why is American healthcare currently so expensive? What is going on in the current market that is keeping costs up?

ABCT: boom and bust before central banks

Bodia — Tue, 17 Nov 2009 23:00:45 GMT

May be, it is not new question, but please help me: why there was crisis before central banks?

Of course, there was FRB, but competition had to eliminate banks, which used FRB?

How was it possible on a free market to create busts?