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jmherbener
ParticipantEconomic calculation is using market-clearing prices to make economizing decisions about consumption, production, and exchange. Price controls, to the extent that they are enforced, supplant market-clearing prices and therefore, impair economizing. The further price controls extend across the economy, the closer it gets https://libertyclassroom.com/member-login/to eliminating economic calculation altogether.
More on price controls:
ParticipantHere’s Bob Murphy on Robert Reich:
Bob Murphy on Thomas Piketty:
https://cei.org/blog/thomas-pikettys-false-argument-expanding-government
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2543012
Gene Epstein on Joseph Stiglitz:
https://www.city-journal.org/joseph-stiglitz-venezuela-16181.html
ParticipantHere’s a brief account of claims concerning how inequality can produce inefficiency:
Here is brief account of the social benefits of inequality:
https://mises.org/library/social-function-economic-inequality
Here is Mises on subsistence wages:
https://mises.org/library/wages-and-subsistence
Here are a few pieces on the living wage:
http://www.econlib.org/library/Columns/y2015/Murphydisemployment.html
ParticipantKeynesian economics is, strictly speaking, a macroeconomic theory or model. Such models attempt to explain economics growth and business cycles. Neoclassical economics is, strictly speaking, a set of microeconomic theories or models. Such models attempt to explain the allocation of resources in society to particular needs. Roughly speaking, all policy issues except fiscal and monetary policy fall under microeconomics and can be addressed without any reference to Keynesianism, for example, the impact of agricultural price supports or the consequences of state-run schools. The material in textbooks (including Krugman’s), therefore, is divided into micro and macro sections in order to cover the entire ground of economic theory
These waters are muddied somewhat by the so-called neoclassical synthesis which attempts to ground Keynesian macro in neoclassical micro.
Here is an accessible summary of Keynesianism:
ParticipantDiminishing marginal utility refers only to equally-serviceable, additional units of a particular good that a person could possess at a moment of time. If a person has two iPhone SE instead of one, the value he places on an iPhone SE must be lower. DMU applies to money, since money is also a good that is divisible into equally-serviceable units. If a person selects the possession of $1,000 as suitable to attain an end, then having another $1,000 in his possession he would value less highly than the 1st $1,000.
There are two problems with the claim you refer to. First, money holdings are not the same phenomenon as income. DMU refers to having additional units of a good in your possession. The MU of money is not the subjective value of the goods you can purchase by spending money. It is the subjective value of holding onto money as part of your stock of goods. Second, DMU refers to an amount of a good chosen by the person as suitable to the attainment of his end. A person may consider two iPhone SE as the unit suitable for his end if he wants his aging mother to have a phone also so that the two of them can communicate with each other. Likewise, the amount of money chosen a person as suitable for attaining his end is the unit of money. It is arbitrary, therefore, to conjecture a doubling of a person’s “income” as appropriate to think out the logic of DMU.
ParticipantHere is a wiki on the Great Recession and the post-recession boom.
https://wiki.mises.org/wiki/Great_Recession
Like the Great Depression, the Great Recession was characterized by a large increase in money demand. Banks, especially, liquidated assets for cash and have been holding money ever since. That is what quantitative easing was designed to do: bailout the banks by having the Fed buy the securities they were holdings. The Fed lowered the Federal Funds interest rate to near zero during the recession (which officially ended in the summer of 2009). So, the Fed’s expansionary monetary policy, which began with QE3 in 2012 (with the economy still in recession, unofficially) could not lower short-term interest rates. Banks are still holding huge excess reserves instead of lending normally. Only in the last few years have banks begun to normalize their credit expansion. And now there are signs of another crisis.
ParticipantKeynes advanced the view that the money supply and “liquidity preference” (i.e., money demand) determine the rate of interest, not the purchasing power of money. He advanced this idea in order to demonstrate that the interest rate is not determined by saving and investing. Saving, for Keynes, does not lead to productive investment spending. Instead, saving leaks out of the stream of aggregate demand. Keynesian, then, tend to stress the impact on interest rates of expansionary monetary policy and not its effect on prices.
Here is a piece reviewing a book that addresses Keynes’s errors:
Participant1. The price of anything is determined by demand and supply. Healthcare is expensive because governments increase demand and decrease supply. They increase demand through direct payments and through the tax incentives for third-party insurance. They decrease supply by regulations such as licensing doctors, nurses, etc. and limiting the output of medical schools.
https://mises.org/library/whats-really-wrong-healthcare-industry
https://mises.org/library/how-third-party-payers-drive-medical-costs
2. Here’s a primer on Obamacare.
https://mises.org/library/economics-obamacare
3. Here’s material on free-market healthcare.
4. Before the government began to take over medical services, health care was provided to the poor by charity, either that of doctors, nurses, etc. or by churches and voluntary associations. Take a look at the book by Marvin Olasky.
https://fee.org/articles/book-review-the-tragedy-of-american-compassion-by-marvin-olasky/
5. The links above discuss the single-payer problems.
Participant1. I think AOC is proposing a 70% rate for personal income taxes.
Whether corporate or personal, if USA rates are dramatically raised loopholes will be inserted into the tax code to allow rich to avoid paying the higher rates.
2. Here is the data on effective tax rates paid by the top 1% of income earners.
3. The claim of the Laffer Curve is theoretical. The claim is that there is an “optimal” income tax rate, one which maximizes government tax revenue. It doesn’t make an empirical prediction about what the “optimum” tax rate is and so, it can’t be tested by the empirical results of tax rate changes. It’s true that Laffer himself thought the 1980s income tax rates were above the “optimal” rate, but that was just his guess.
https://mises.org/library/ten-great-economic-myths
https://mises.org/library/president-coolidge-and-laffer-curve
ParticipantThe main point is that when its know that government will offer a bailout to banks, it generates moral hazard. Banks do not face the full consequences of profligate lending and therefore, engage in speculative mania.
Furthermore, bankruptcies have the salutary effect of transferring resources from failed entrepreneurs to successful entrepreneurs. Bailouts are counterproductive to the restoration of efficient resource use. They subsidize inefficient entrepreneurs.
Bank financing makes up less than 1/4 of all capital funding in the world economy. Even a collapse of banking would hardly dry up all capital funding.
ParticipantThe liquidity trap is the claim made by J.M. Keynes to explain why private investment cannot be relied upon to restore an economy in depression, even if the central bank lowers interest rates. Keynes asserted that interest rates can fall to a level at which all investors form the expectation that they will rise in the near future, in which case investors will hold cash and wait until rates rise to invest.
There are two main points against Keynes. First, the interest rate is not merely the rate on credit. Instead, the interest rate is the rate of return on all investments of any type. There’s no reason to think that if the central bank has pushed credit rates down that investment in production cannot still command a rate of return.
https://mises.org/library/liquidity-trap-myth
Second, the reason investors hold cash during depressions is the greater uncertainty about returns on production. Financial collapses can impair entrepreneurs’ confidence in their abilities to anticipate what will be and will not be profitable. Moreover, government policy behavior can induce “regime uncertainty” among entrepreneurs, a condition in which they hold money to wait and see what the political regime will be once the unpredictable policy behavior of the government subsides.
https://mises.org/library/reformulation-austrian-business-cycle-theory-light-financial-crisis-0
http://www.independent.org/publications/tir/article.asp?id=430
ParticipantWhen the Fed buys securities from banks, it pays the banks by putting the funds into checking accounts that banks have at the Fed. These checking account balances are reserves for banks. Banks are required to hold only a fraction of reserves against the checking account balances they issue to their customers. If banks sell $3 trillion of securities to the Fed, they can issue $30 trillion more in checking account balances of their customers (which they do by extending more loans to their customers). The Fed is worried about the inflationary potential of excess reserves of banks that it created by purchasing the securities from banks. By selling the securities back to banks, the banks’ reserves will be diminished and the inflationary potential reduced.
Moreover, roughly half of the Fed’s build-up in its balance sheet was the purchase of U.S. Treasuries and the other half was the purchase of mortgage backed securities. Currently, the Fed is holding $2.2 trillion in U.S. Treasuries and $1.6 trillion in MBS. The Fed can find willing buyers for either of these. For Treasuries, the market is deep and wide. For MBS, the Fed can sell if it offers at a low enough price. Banks will be willing to take MBS for steep discounts. Of course, doing this will not shrink the excess reserves of banks as much as selling Treasuries.
https://www.federalreserve.gov/releases/h41/current/
Finally, the Fed is raising its target federal funds rate. The problem here for the Fed is that the Fed pays banks interest on bank reserves. So, the more it raises rates the more its payments to banks rise. The Fed has adopted this policy of paying interest on bank reserves to control the extent to which banks create credit by lending into customer checking accounts and thereby, reducing their excess reserves.
ParticipantA wage is the market price for a unit of a particular labor service. All market prices are determined by demand for and supply of the item. It is a law of economics a greater demand for an item, ceteris paribus, results in a higher market-clearing price. The demanders of labor services are entrepreneurs. The factors that determine the demand entrepreneurs have for a particular labor service are its contribution to the production of output (marginal physical product), the price of output it helps to produce (which combined with MPP gives marginal revenue product), and the rate of interest (which combined with MRP gives DMRP). Entrepreneurs are willing to pay more for a labor service of greater productivity because it generates more output and therefore, more revenue for the entreprise. Because labor is relatively non-specific, the competitive bidding of other entrepreneurs prevents any one of them from paying less than its DMRP.
An elite NFL quarterback commands a higher wage than an average NFL quarterback because he helps produce more wins, more division titles, more championships all of which generate more revenue for the team owners. A team’s entrepreneurs cannot pay less than his quarterback’s DMRP as long as there is a market economy in which bidding for his services can occur.
ParticipantThe MRP depends on both the demand for the output (which determines the output’s price) and the physical productivity of the capital good. While the latter might decline over time without maintenance and repair (which is omitted from the example for simplicity), it might also increase with more productive complementary factors of production, such as a more skilled worker (which is also omitted for simplicity). Demand for the output might be expected to rise with a successful business and even more so in an economy with price inflation like ours.
As you suggest, rising MRP is a not a necessary feature of all production, but merely one logical possibility.
December 5, 2018 at 11:26 am in reply to: Lec 5 question: MUs same vs leisure having higher MU #18927ParticipantThe context of Lecture 5, slide 4 is a person has different consumer goods, of which the units of each can be put to different ends. The units of each good exhibit diminishing marginal utility as a person allocate them to the highest-valued ends first (logically) and then to progressively less-valuable ends. In choosing between using one of the goods, say X, rather than the other, say Y, the person will choose to act with the good that has the highest MU (for using the 1st unit), say X. But since using more of X lowers its MU (for using the 2nd unit, and so on), acting with Y would be chosen when its MU (for using its 1st unit) exceed the MU of X for the not yet chosen unit (say the 4th unit). The greatest utility in allocating the two goods, then, comes by using their units in such a way that their MUs do not differ significantly. Otherwise, the person could reallocate units away from the lower MU unit of one good and toward the higher MU unit of the other good.
Leisure is a good and therefore subject to the same analysis. So, yes we are always engaged in action as long as we have unmet ends. But the logical requisite of explaining what particular acts of consumption a person is engaged in is differences in the MU of the units of different goods. This is what the slide is referring to when it says, “action is renewed by changes in underlying factors that regenerate differences in MUs.” It’s not a reference to action per se, but to particular acts of consumption.
Of course, consumption is only one subcategory of action. Production and trade are other subcategories. So, a person would also be choosing across acts of consumption, acts of production, and acts of trade.
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