1 As Walter Williams says, money is evidence that you've done something for someone else.

2 DOOM 101

3 Government's role in a free market should only be to assure that fraud is punished and contracts are honored.

IOW government's role is to prevent the looters from holding sway.

4 Is there going to be a test?

5 Is this thread a response to the staggering economic illiteracy that was ridiculed in the Bammy Wants to Raise Taxes on the Rich thread yesterday.  I lolled a lot more than usual at the beatdown.

6 A note about barter: it's been around forever, actually. It didn't suddenly appear during a specific age. In fact, many economists say that agriculture and animal husbandry drove the advent of "money" into common usage because barter was so inefficient. But as a practical matter, economics was driven by barter for a long time even after the concept of money came about. A good example of how this line got rather muddied was the use of commodies like salt as wages. Roman soldiers at one time were paid in rations of salt (hence our word salary). Salt could either be used directly, or traded for other goods -- it was both a barter transaction *and* a monetary transaction, depending on how the payout was used. Salt could be used as money, but it was also a commodity good with alternate uses in and of itself. The same thing was true of other payment schemes in the ancient world: grain, cotton, cloth, etc.

7 Cool. Thanks Monty.

8 Monty, Can you please add something to the post about the role of Photosynthesis in creating Money?

9 Economics at AoSHQ FU: Part 1 - The EconomySince this is a Financial University may I suggest this change to the title.

10 A good example of how this line got rather muddied was the use of commodies like salt as wages. Roman soldiers at one time were paid in rations of salt (hence our word salary). Salt could either be used directly, or traded for other goods -- it was both a barter transaction *and* a monetary transaction, depending on how the payout was used. Salt could be used as money, but it was also a commodity good with alternate uses in and of itself.

The same thing was true of other payment schemes in the ancient world: grain, cotton, cloth, etc.

Posted by: Monty

 

It also was a sneaky way to overcome a chronic shortage of coin, which many economies have faced.

11
4 Is there going to be a test?

Deer lord, I hope not. Otherwise, I'll joining the Loyal Order of the Perptually Boned.

12 very efficient mechanism for allocating scarce goods

I just eat them.

13 Is there going to be a test?

Deer lord, I hope not. Otherwise, I'll joining the Loyal Order of the Perptually Boned.

Posted by: I R A Darth Aggie ©

 

I once took a macroeconomics class. At 0800 in the morning (only time available). A can of jolt cola and a packet of pop tarts and I was ready to go.

14 Would have been more attentive had this lecture been delivered by a hot chick in geeky glasses.

15 The first unit of barter was probably a shekel of grain, which is where the actual shekel coin came from.

16

It also was a sneaky way to overcome a chronic shortage of coin, which many economies have faced.

Or a surplus of coin. Emperor Diocletian faced MASSIVE inflation, and first tried to deal with it by issuing new coins with higher precious metal content. Unfortunately, he didn't recall enough of the old coins, so the new coins just made inflation worse.

So he instituted a tax system based on direct payment in goods and services. The imperial bureaucracy totalled up what it would take to run the army and the bureaucracy, divided it by the population, then made "equivalents". You could pay in cloth, or cheese, or wine, or miles of shipping, or maybe even free tumbles with a prostitute. It was "barter" but also, arguably, fiat currency.

17 It was "barter" but also, arguably, fiat currency. The line between "barter" goods and actual "money" is a lot thinner than a lot of economists make it sound. I'm going to do my "money" post tomorrow where I explain this in more detail.

18 Great article!

I just wanted to add something about your comment on how the advent of money facilitated new concepts like investment and saving. I don't think that's quite accurate, as one can apply both of those concepts even in a money-less economy. If you are a fisherman and you salt some of your fish or store them for the winter, that is just as much saving as when someone puts 50 dollars into their bank account for a rainy day. It allows innovation (or leisure time) because the person doesn't have to fish every day, and can skip a day or two and eat his saved food and work on something else (a project that makes his fishing more efficient, or whatever). The same would hold true for investment; if your friend had a wonderful idea that required a lot of time to implement, you could agree to feed him while he works on that in return for some share of the future proceeds, whether there is money involved or not. Money certainly makes these transactions a lot more efficient, but the concepts existed (and were just as important) even before there was such a thing as money.

19 WRONG!!!!!!

Rich people have a huge mountain of cash and they are keeping it from the poor and the working class.

20

 A can of jolt cola and a packet of pop tarts and I was ready to go.

 

The breakfast of champions!  That was the way I started my day in college too (only the soda was diet coke).

21 You lost me at (This.

22 Monty, please talk to Ace about setting up a hard sticky link to this important post on the side like his numerous other links about "Greatest Hit Jobs" and other moronic shit.  This is important enough to do that.


A note about barter: it's been around forever, actually.

No shit.  As soon as a Caveman found out he could tap as many Cavewomen ass with some animals skins, it was on!!!

23 Where is the part that says "from each according to his ability, to each according to his needs."?

24 Good refresher, Monty. I appreciate it. Thanks.

25

Wrong!!

All you need to run a giant economy of 300 million people is a few dozen czars. We're smart. I won. Get over it.

26 Speaking of barter, I got lead. Ladies?

27

What we have now in health care in America is the worst of all worlds.  Almost all health care costs are paid for with someone else's money - either taxpayers' money via Medicare or Medicaid, or an insurer's money.  And most insurance premiums are paid partially with other people's money as well - the employers' money, with some tax subsidies thrown in.

Is it any wonder that we have no effective controls of health care spending?  There are no price signals that can work when you are not spending your own money on the product.  You cannot discover the true price of anything.  This leads to massive overconsumption, overpricing, overproduction, and eventual bankruptcy of the people who actually pay the bills.  Insurers in this country are profitable only because they have government-protected monopolies at the state level.  And even with that, they are enforcing rationing and extreme cost-cutting on patients and providers, which are not sustainable.

We are at a crossroads in this country on health care.   We can't hope to get out of our fiscal morass until we stop throwing half of the budget into Medicare and Medicaid.  ObamaCare marginally moves us more toward a single-payer system but doesn't take everyone there, so it is only going to further distort the market, leading to eventual massive rationing and government price controls, and worse health outcomes, and a pissed off population.

The only long term solution is to transition back to a system where prices can be discovered and people have to spend more of their own money on health care.  We have to end the tax deduction for employers and tell everyone they have to purchase their own health insurance that goes with them from job to job.  We have to create a true national market for health insurance,  and allow very cheap basic plans as well as expensive Cadillac plans for people who are risk-averse or poor savers.  We have to increase the use of Health Savings Accounts so people can essentially self-insure against minor costs and then buy an inexpensive insurance policy for catastrophic disease or injury.

28 After monetary system you forgot about the part where the middle class is crushed between high inflation and high taxes, thus leading the way to government by the proletariat. Well enlightened few of the proletariat, not all animals being that equal.

29

How sad we live in a nation where political hacks like Paul Krugman are given awards and acknowledgements.

 

Paul Krugman is our de-facto leader.  He's in charge.

 

30 Is there going to be a test?

Yes, this November 8th.

31 A decade or two ago I read an essay by a Fed Chairman on the history of money. 'splained about barter, warehouse receipts, asset backed currency and up to the current fiat currency. A good and persuasive explanation on how our current fiat currency is acceptable. But I've never been able to find that essay again to check if there's something shaky about it (with my now better understanding of economics). Maybe somebody here has a link?

32 Oh happy 'Equal Pay Day' btw.

Think this will be the year in which the feministas actually shirk away from that absurd 77% myth? Of course not. It's their pathetic battle cry. Great opinion in the WSJ on just that. It's a good read.

We *should* make today for women "Happy to have a job because men, white and black, are unemployed at a disproportionate rate Day'.

But that's just me.

33 dammit, actually, it's November 6th of next year.



FML

34 I saw a comment in the Dilbert comments a few days ago: If you throw a log into rapids, it will go through the biggest flow of water and completely miss the rocks. The log, of course, doesnÂ’t know that it is supposed to avoid the rocks. If you want a log to get stuck on the rocks you have to put a guide on it and tell him to miss the rocks. The commenter wasnÂ’t talking about regulators, but might as well have been.

35 High speed rail!

36 I'm arguing with a Lib, he says high tax rate have positive effect on GDP, True, False??
Why? and how?

37

Drudge  linked an article from the NY Post about how imaginary job numbers put out by the gubamint are going to have nasty consequences in the long run:

Take, for instance, the Labor Department's annual springtime boost in the faux jobs market. While it's nice that the government thinks there is an employment boom coming, this won't be a good development if that boom turns out to be imaginary yet still causes the Federal Reserve to prematurely tighten credit conditions.

Let's start from the beginning.

Early this month Labor reported that 216,000 new jobs were created in March. It was better than Wall Street expected.

But the figure included 117,000 jobs that the department thinks, but can't prove, were created by newly formed companies that might not even exist. In fact, the department is getting so optimistic about the labor market that it increased this imaginary job count from just 81,000 in March, 2010.

As I've been telling you for months, the spring always causes the Labor Department to goose its job-creation numbers. And maybe sometime in the future this process will be warranted. But during 2009 and 2010 these springtime assumptions -- which are officially called the Birth/Death Model by Labor -- led to major errors in the annual job count.

The next three months should be doozies. In April 2010, the Labor Department guessed that 188,000 jobs were created by these newly formed, maybe nonexistent companies; last May's total job number was jacked up by a 215,000 guess, and June got an artificial boost of 147,000 jobs.

This year, Labor will likely be inserting even bigger faux job totals for each of those three months.

In other words, you still might not be able to get a job in the real world, but there should be plenty of fake jobs for the newspapers to write about and the politicians to brag about in speeches."

 

38 19 WRONG!!!!!!

Rich people have a huge mountain of cash and they are keeping it from the poor and the working class.

Posted by: Lemmiwinks at April 12, 2011 10:19 AM (pdRb1)

And this woman agrees with you

39 Widgets. I need widgets.

40

N.B. = Nota Bene = note well.

I looked it up.

41 I just dropped a Krugman that required 2 flushes on the lo-flo. Toby, the test is actually Nov 8th 2012.

42 36 Yeah look at Europe! Their GDP is boooooming. Tell your friend not to forget high speed rail and high taxes. Snarf snarf

43 I'm arguing with a Lib, he says high tax rate have positive effect on GDP, True, False?? We need to define our terms. What's a "high" tax rate? How is he calculating GDP? What specific taxes is he speaking of? You can point him to the Laffer Curve for why excessive rates of taxation are a drag on any economy, but this is common sense, really. It's very hard to find that equilibrium point between taxing too much and taxing too little; taxing indiscriminately and taxing too narrowly. Historically, the US has never been able to maintain an aggregate tax rate of above 20% or so of net GDP.

44 That's alright, Monty.  I'm not an economist either.  They wouldn't let me.  Something about my IQ being too high.

I don't know how Sowell managed it, but you'll note that they really don't like him being around.

45
Oh thank goodness, no DOOM-kitteh this morning.

46 36 I'm arguing with a Lib, he says high tax rate have positive effect on GDP, True, False??
Why? and how?

Posted by: The Sixth Stooge, Ackmed at April 12, 2011 10:30 AM (MWXXs)

watch Peter Schiff

47

Great post, Monty.  A simple, clear, and informative discussion of complex topics.  I'm looking forward to the rest of your articles in this series.

I don't think it's simple enough for brain dead leftys to understand, but it's hard to describe the economy at a low enough level that they would be able to comprehend it.

48 We *should* make today for women "Happy to have a job because men, white and black, are unemployed at a disproportionate rate Day'.

Posted by: laceyunderalls at April 12, 2011 10:29 AM (pLTLS)

Statistics don't matter.  We hear endlessness regarding "womens' health".

Men die first.

49 I'm arguing with a Lib, he says high tax rate have positive effect on GDP, True, False??
Why? and how?

Just ask him to describe the mechanism by which high taxes increase GDP.  When he can't, laugh.

50 Donna Braziale, the hominid face of raw, unpolluted stupidity. She is such a rarity, stupid in it's purest form. 99.999% pure. She must be a product of the Suprime Being, as man cannot distill to such purity. Her stupidity is like anti matter, destroying everything it touches, save for the magnetically shielded interior of her lead lined skull. Which is 12 feet thick. I hate that bitch.

51 A small caveat - that prices increase/decrease according to the supply:demand ratio (and the converse proposition that a change in price changes the demand) assumes that demand for the good in question is elastic. There are goods and circumstances that combine to form inelastic demand curves, where the quantity purchased won't vary very much regardless of a change in price.

There's also an important component that you're leaving out, what Rothbard calls "psychic value", that is, the subjective value of any given transaction according to the parties involved. There are lots of non-monetary components to whether someone believes they've profited or lost from a given exchange. Non-Austrians will often try to label that subjective evaluation as "utility value", but that's a fundamentally broken idea, as everyone's subjective desires constantly change.

52 I'm arguing with a Lib, he says high tax rate have positive effect on GDP

Even Obama's hero Keynes understood that higher taxes were a drag on an economy.

Nor should the argument seem strange that taxation may be so high as to defeat its object, and that, given sufficient time to gather the fruits, a reduction of taxation will run a better chance than an increase of balancing the budget. For to take the opposite view today is to resemble a manufacturer who, running at a loss, decides to raise his price, and when his declining sales increase the loss, wrapping himself in the rectitude of plain arithmetic, decides that prudence requires him to raise the price still more--and who, when at last his account is balanced with nought on both sides, is still found righteously declaring that it would have been the act of a gambler to reduce the price when you were already making a loss.

Cut from this article by Arthur Laffer.

53 Posted by: AmishDude at April 12, 2011 10:38 AM (T0NGe)

My friend's dad is out of work.  He lost his job of 25 years.  My friend is all upset cause he read something about "if you are a man over 50, who has lost his job, then forget about ever being employed again" .   I'm trying to pull out of him where he heard or saw or read this, he's pretty upset.

54

"I'm arguing with a Lib, he says high tax rate have positive effect on GDP, True, False??
Why? and how?"

Simple - high tax rates mean that the rich have to work harder to afford their private jets, islands and mistresses, which boosts the economy. Also, higher taxes mean that the government has more money to buy more businesses and run them more efficiently (see GM) and provide extra services to the taxpayers so that they can work harder because all their worries are eliminated.  And on and on.  Econ 101 my friend, don't be a lunkhead.

55 So the lib says high taxes = high GDP. Gross domestic product is the total of goods and services produced in an economy. This number is arrived at by tallying up either what everyone makes, or by what everyone spends. So if everyones taxes are high they have less to spend = less GDP. Well unless you count cowboy poetry and medicare fraud. Oh and straight up subsistence handouts to people to buy votes. I like your friends style!

56

I don't know how Sowell managed it, but you'll note that they really don't like him being around.

 

Oh, he's the worst of the worst.  He's a traitor to his race.  A conservative black man.  I'm sure they view him as some kind of Uncle Tom Lawn Jockey who sold out to rich whitey. 

57 So why is bartering inefficient? I know some people are trying it because they don't have enough cash.

58 I just keep all my cash in a hole guarded by King Cobras, who pay me money not to eat them. Nice little scam I have going ...

59

My friend's dad is out of work.  He lost his job of 25 years.  My friend is all upset cause he read something about "if you are a man over 50, who has lost his job, then forget about ever being employed again"

 

What kind of work did he do?

60 @49 - Actually, increased government spending almost definitionally increases GDP, which is one of the many reasons that GDP is a bullshit calculation. G (government spending) is an independent positive factor in the GDP formula, and since all GDP measures is the sum of transactions within an economy, almost any time the government steals money from taxpayers, you're going to get an uptick in the total, since there's no penalty applied to G for the effect that it has on C or I.

61

What kind of work did he do?

Posted by: runningrn at April 12, 2011 10:42 AM (ihSHD)

he was the guy at the desk in the small bank.

62
But the figure included 117,000 jobs that the department thinks, but can't prove, were created by newly formed companies that might not even exist.

Deer lord, how hard is it to count new W-2s? Ok, it is harder than it looks, but still...

63 but this is common sense, really.

That's the problem. Most social scientists wouldn't believe the sky is blue without conducting a study involving statistics they don't understand.

64

Statistics don't matter.  We hear endlessness regarding "womens' health".

Men die first.

 

and their widows live forever--and happier too according to a lot of studies.  When the woman actually kicks off first, their spouses often die shortly after, if they don't remarry within that year. 

Men really are the weaker sex.  (Ducks flying objects)

65 curious, Clayton Cramer is talking about the same thing on his blog. He's over 50; lost his job a while back. He's now working at a government job and teaching as well, because he can't make enough at the government job. He has been told to cut the first 10 years or so of job experience off of his resume.

66 1 As Walter Williams Barack Obama says, money is evidence that you've done something for someone else. gotten your welfare check. Besides I prefer the economic theories of Paul Krugman.

67

I found a glarting error only two paragraphs in.

>> DISCLAIMER: I am not a Nobel Prize-winning economist who works at the New York Times.

If I may ...

CREDENTIALS: I am not a Nobel Prize-winning economist who works at the New York Times.

(You're welcome.)

 

68 @63 - Even when they do understand the statistics, which many of them do, they're using an invalid toolset. Statistical modeling of the economy for predictive effect is a fucking fool's game, which is why the Austrians win every time.

69 More details of Obama's new deficit proposal emerge

He's going to promote the savings in ObamaCare while targeting wasteful spending and fraud. In addition to the already-released tax increase proposal, he will also offer several plans on entitlements while spinning against the "cruel reality" privatization. An aide admits that the goal is to "start dealing with the entitlement crisis and get credit for doing so". So he wants to be a hero but he's going to be careful so as not to alienate his base. Moderation, revenues, the rich, privatization is an ugly word, etc.

Plus this spin: "White House aides say Obama genuinely cares about the deficit: 'The president, through his actions both in the first two years in officeÂ… has shown that he is committed to deficit reduction.'"

Color me unimpressed.

70 BOOOOORING!!! Cliffs? How about some cleavage shots, or adorable kitty pics? Jeez, no wonder the libs are always winning. So, anyway, I heard on the radio that Obama is all about cutting spending, and he's giving us all free health care, and besides, there isn't any problem. So we are good, right? Plus: PAWLENTY!!

71 Could you please put it in an outline format, or at least bold the topic sentence of each paragraph?

Thank you.

72

(And I know, when I point out glaring errors, my own comment shouldn't glart the way it did -- whatever that means.)

73

I'm arguing with a Lib, he says high tax rate have positive effect on GDP, True, False??

High enough corporate tax rates (the US has a high rate) make companies like GE hide billions overseas, reducing GDP and paying no corporate tax.  When the top individual rate was 90% the wealthiest rarely paid it.

Somewhere between 10 and 30% is optimal if you want big government and have economic growth you don't want to kill.  Once the rates get high enough, who wants to work more for the government?  So people either shelter it or don't earn it.   

Obviously the tax rate is just one part of the overall business climate.  If you want to use your offshore drilling rig, Brazil or Africa beats the GOMEX for reasons unrelated to taxation.  Coal plants are economically brilliant but under assault from the EPA with new regs.  

It is a strange state of affairs that you have to actually make the point that high taxes hurt the economy, so deeply up their hind quarters their craniums have been lodged. 

The Left is the party of "La, la, la, la, la, la" (fingers shoved firmly in ears)    

74
57 So why is bartering inefficient?

So, how much is that cow worth? a flock of chickens? half a flock of chickens, a goat, three hogs, a peacock and six geese?

Currency normalizes the exchange, and allows one to compare bushels of apples to apples, not to half bushels of oranges.

75

#53

I'm an old honey badger and recently got a new job at 52 ... I hate those general, hyperbole laced remarks designed to scare the hell out of people.

76 No person or group of people is smart enough to make the innumerable small decisions that make a market economy function; itÂ’s impossible to see the entire picture, or know how all the various pieces fit together.

This cannot be said loudly or often enough. This concept, which Hayek called the "knowledge problem", is the core of the Austrian school of economics.

Government intervention in the economy short-circuits this process to give you such wonderful things as the Chevy Volt, health insurance instead of health care and countless other things that erode our wealth.

77
Also, have you tried carrying half a bushel of oranges in your wallet?

78 "65 curious, Clayton Cramer is talking about the same thing on his blog. He's over 50; lost his job a while back. He's now working at a government job and teaching as well, because he can't make enough at the government job. He has been told to cut the first 10 years or so of job experience off of his resume.

Posted by: Barb the Evil Genius at April 12, 2011 10:45 AM (MyByM)"

thank you, I will pass it along.  I think that some people do fine with jarring stuff like this and figure out what to do and just do it.  Others I think wait, thinking things will get better and they will have a job again.  I think the waiters are realizing that this may not be so and I think my friend's dad is in the mourning period for his old job.  But, my friends dad has always been so positive and a fighter so my friend is all upset to see his dad kind destroyed by all of this. 

79 DMXRoid: Your points are well-taken (especially the elastic/inelastic argument) but I'm trying to keep things simple. Once you start delving into economics lingo and special cases, a short post would balloon into a book. This is why economics profs hate "Crusoe economics" models (i.e., "toy" models) -- but I find that the basic principles in simple models still hold true for the most part in more complex ones.

80 Unless the government borrows money from foreigners, any money they spend must be wrung from domestic producers.  And unless you posit that the government has superior knowledge and information than the cumulative mass of independent actors, as well as superior efficiency, government spend must hurt the GDP overall.

Information density causes all command-type economic actions to be inherently flawed.  Like a mass of marbles trying to go through a single hole verses multiple holes.

81

Great idea, Monty.  I wonder if you have followed Jude Wanniski's writings online?  Wanniski was present at the creation, so to speak, in 1974 when Art Laffer first explained his ideas to Robert Bartley, Dick Cheney and Donald Rumsfeld.  He posted regularly on his website, Polyconomics.com, and created what he called Supply-Side University in order to explain his ideas on how they contrasted with other schools of economic thought.  (I tried to post a direct link to SSU but my post was rejected - I guess due to the weblink).

Any free thinkers who are interested in understanding supply-side & how it differs from the demand-driven theories of the Keynsians & neo-Keynsians should check it out.  NOTE: I tried going directly to Wanniski dot Com -- DO NOT GO TO THAT LINK.  Some "well-intentioned" individual appears to have hijacked the link and has placed malicious scripts on the page (typical). 

82 Thanks for the plug.

83 and I see that while I was typing Andy brought up the knowledge problem.

84 75

#53

I'm an old honey badger and recently got a new job at 52 ... I hate those general, hyperbole laced remarks designed to scare the hell out of people.

Posted by: Honey Badger at April 12, 2011 10:48 AM (GvYeG)

I'm just an outsider looking in but I told my friend they are an enabler family.  They are getting upset and depressed with him instead of saying positive stuff and encouraging him no matter what.

85

he was the guy at the desk in the small bank.

 

Well, I don't think it will be likely he will be able to secure the same kind of job now.  The Frank/Dodd bill is going to put the rest of the small banks that are still out there, pretty much out of business.  He will probably have to take some classes and update his skills.  And yeah, it's a lot more competitive out there.  He may have a really hard time finding something.

My husband's company recently had to pay a bunch of money to a guy who was in his late 50's.  He applied for a job there, but his skill set didn't match what they were looking for.  They didn't send him any notification that they weren't going to give him an interview.  He sued claiming age discrimination.  The company just decided to settle.  After he got several hundred thousand dollars, they found out that he has done this very same thing to other companies in Seattle. 

86 Even when they do understand the statistics, which many of them do,

OK, 'Roid.  Here's a question: In the US, they've found that if they survey approximately 1000 adults, they can predict national sentiment to within a plus or minus 3 percent margin of error.

(a) China has approximately 4 times the adult population.  How many people do they need to survey to get the same result?
(b) What does a 3 percent margin of error mean?

There's a reason why one goes into "social" science. Let's just say that "social" is an adjective intended to indicate irony:

social science, social disease, social security, social promotion, etc.

87 So why is bartering inefficient? For the simple reason that I have to find specific counterparties to do my trade, and that takes time and effort ("opportunity cost", in econ lingo). If I grow cotton and want to trade my cotton for beef, I have to find a beef-owning-cotton-wanting counterparty to do my trade. It may be that there are many owners of beef, but none who want cotton -- there is a supply, in other words, but none that can meet my bartering needs. I either have to find a middleman who can convert my cotton into some good the beef-owners will accept -- at an increased price to myself and a dilution of my purchasing power -- or just do without beef altogether. With "money", these problems go away. A generic unit of exchange allows me to trade my cotton for dollars (or ducats, or whatever) and use those units of exchange to buy beef.

88 In other news, anyone read the summary of what the actual cuts we got are?

Two Obamacare programs and four czars among the wreckage.  Guess it wasn't a total loss...

89 Anybody got some buggy whips? Where can I buy me some buggy whips?

90

When the woman actually kicks off first, their spouses often die shortly after, if they don't remarry within that year. 

I'm afraid the strain shock of life without someone nagging you or listing your faults on a daily basis was too much for him to bear.

 

91 89 In other news, anyone read the summary of what the actual cuts we got are?

Two Obamacare programs and four czars among the wreckage.  Guess it wasn't a total loss...

Posted by: AoSHQ's worst commenter, DarkLord© at April 12, 2011 10:53 AM (GBXon)

all the czars have to go.  They aren't approved by congress as the cabinet positions are and they have enormous power.

92 Okay, Darth Aggie. I think I am mostly looking at from the point of view of people who already know each other doing some bartering because the bad economy has resulted in serious lack of coin, or because their chosen lifestyle (stay-at-home, homeschooling) does not leave them with a lot of money. I can see that sort of thing increasing as the economy worsens.

93 Curious ... I hear you. Anybody would be in a bit of shock after something like that, but if he is a fighter, he will work through that and begin to apply his energies into proving the "they say" crowd wrong. It may take a little time.

94

If I grow cotton

easy, there...

95 Thanks, Monty.  Good post.

While I am sorry for being unbearably poopy in the comments yesterday, your post tends to reinforce my contention that government diddling in the economy never works out well.  Be it tax policy, regulation or whatever.  The more the government sticks its nose into the economy, the more subsidies it throws at certain economic activities, the worse things get.

One need look no further than the housing bubble - a clusterfuck of regulatory, policy and tax interference by the federal government.

96

He's going to promote the savings in ObamaCare while targeting wasteful spending and fraud

 

Another tired, old Obama apocryphal cannard wrapped in a piece of poo.  I hate this jackass. 

97 Anybody got some buggy whips? Where can I buy me some buggy whips?

Posted by: Ed Anger at April 12, 2011 10:54 AM (7+pP9)

Eco-friendly turbo boost for our new long-range green cars?

 

98 76 No person or group of people is smart enough to make the innumerable small decisions that make a market economy function; itÂ’s impossible to see the entire picture, or know how all the various pieces fit together.

This cannot be said loudly or often enough. This concept, which Hayek called the "knowledge problem", is the core of the Austrian school of economics.

And the exact opposite of modern socialism.

The "dictatorship of the proletariat" is all dictatorship and no proletariat.  It happened very quickly, of course.  The Bolsheviks realized very quickly that their plans could not be implemented by the common working class. They needed smart people to rule over them.

But the smart people were never smart enough, were they? And that goes without even addressing the truly corrupt as opposed to the true believers who only benefited marginally from the corruption.

So today socialism is all about getting the super smarties to manage everything for us (and take a nice cut for themselves).  But even if they weren't corrupt (they are) and even if they were truly brilliant (they aren't), they can't ever be smart enough.  Ever.

99

all the czars have to go.  They aren't approved by congress as the cabinet positions are and they have enormous power.

 

Yeah, it was the healthcare czar, the climate change czar, urban affairs czar and the car czar.  It almost sounds like a joke:  4 czars walk into a bar and...

100 92:  Most happily granted--I'm just mildly pleased that the process seems to have finally started.  Maybe we can trash some more in the next round of negotiations threats and posturing...

101 90 Anybody got some buggy whips? Where can I buy me some buggy whips?

Posted by: Ed Anger at April 12, 2011 10:54 AM (7+pP9)

Gotcha covered.

102

I enjoy bartering ... I was just telling a cobra the other day ... "you do my lawn and I won't eat you" ... fabulous!

103

Anybody got some buggy whips? Where can I buy me some buggy whips?

 

If you like your buggy whips, you can keep your buggy whips...

104 Posted by: Andy at April 12, 2011 10:48 AM (5Rurq)

The knowledge problem can be solved, or at least minimized in certain narrowly defined activities. For instance, the internet has made it possible to find pricing information that was unavailable just a few years ago. What has that done? Well, how much do books cost now compared to before the internet?

This isn't a rejection of the Austrian school ( i love them!), but it needs to be taken into account. I would argue that more pricing information has improved the economy. BArnes & Noble used to make a killing on books. Now they have to fight tootah and nail with Amazon and 20 other book sellers just to stay afloat. That's good for innovation, and good for us as consumers.

105 One need look no further than the housing bubble - a clusterfuck of regulatory, policy and tax interference by the federal government.

Posted by: Chi-Town Jerry at April 12, 2011 10:56 AM (f9c2L)

If the thing was allowed to collapse, foreclosures wrapped up, the resulting deep discounts on real estate would cause a rush to invest and things would get moving again.  Their approach is to tear the bandaid off slowly, savoring each hair as it goes by. 

106 @Monty - Actually, I'm a big fan of Crusoe economics as a starting point. Rothbard's lectures on basic micro, as well as his books, all really hammer the point home that you can't figure out what's going on in a large economy without starting from the lowest possible level of economic interaction, and it's an important part of the Austrian tradition. I only mentioned price elasticity because I think it's relevant even in the Crusoe model. For example, if Crusoe fishes and Friday weaves baskets, even if Crusoe starts demanding 50 baskets per pound of fish, Friday is sort of fucked unless he wants to start fishing himself (or gathering berries or whatever). He'll pay Crusoe's price (in terms of baskets) because he needs those fish, and he's not a good fisherman. It's only at very extreme levels of basket-costs that he'll decide to either abandon basket making altogether, or engage in entrepreneurship and learn to fish (or gather some other food source) for himself.

That said, this is a pretty good post-length explanation of basic economic principles. Like you said, Tom Sowell's "Basic Economics" is a great read on this, as is Rothbard's "Man, Economy, and State", but those are both fucking TOMES to slog through if you don't have a giant hardon for economics.

107 94 Curious ... I hear you. Anybody would be in a bit of shock after something like that, but if he is a fighter, he will work through that and begin to apply his energies into proving the "they say" crowd wrong. It may take a little time.

Posted by: Honey Badger at April 12, 2011 10:55 AM (GvYeG)

I actually think my friend's dad is mourning the loss of the small community bank where you know everyone and you see the difference you are making. 

My friend is very very successful on WS in a part of WS where being a success is hard hard work everyday.  I finally got across to him that he isn't a success because of business school but because that man was his role model and because of the things that man taught him.  It's very nice that his dad taught him to "always do the right thing by everyone , no matter what, so that when you lay your head on the pillow at night, you sleep soundly". 

I just told him that he should help his dad start a small community bank.  I don't think anyone had thought about that until I said it.

108

 No person or group of people is smart enough to make the innumerable small decisions that make a market economy function; itÂ’s impossible to see the entire picture, or know how all the various pieces fit together. Freer markets are more efficient markets, and freer markets tend to have the best outcomes for the people who participate in them.

I'm glad you made this point, because often people argue against socialism on the grounds that human nature makes it impossible because people will try to game the system, be corrupted, not have incentives, etc. All true, but even with angels it fails as no one could predict and calculate all the prices in as rational a maner as the free market.

109 My friend is a dentist.  He just did some dental work for a gardener and got a newly sodded lawn.  I was amazed.

110 FYI, czars used to be approved by the Senate.  The drug czar certainly was.

111 Posted by: runningrn at April 12, 2011 10:56 AM (ihSHD)

You know, if he were just a jackass he would be tolerable. But he has delusions of divinity.

"I said it, therefore it is!" "Behold me and bow."

112 @106 - The internet doesn't solve the knowledge problem in any way at all, it just allows for prices to more quickly reach the equilibrium point, which they tend to do anyway. That the internet gives us fast, accurate pricing information doesn't tell us anything about how people will react to that info. The knowledge problem isn't predicated on a lack of understanding of the appropriate prices at any given point in time, but the absolute impossibility of knowing how people's subjective purchasing decisions will reflect on prices in an hour, a day, a week, etc..., and how those changes in pricing signals will further affect the behavior of consumers and producers.

113 The so-called "knowledge problem" is why price controls inevitable fail. (It's why Communism never worked, and why socialism will never work.) Thomas Sowell uses the examples of rent control and the price-controls on oil back in the 1970's as examples of why price-controls never have their intended effect, but other examples abound. During the Civil War in the South, the government tried to enforce price-controls on food and other necessities. But instead of making food more affordable for people, food simply became unobtainable at any price once existing stocks were exhausted. Producers could not go on indefinitely producing a good at a loss; rather than labor for no remuneration, they quit producing. Such is the fate of any attempt at price-control. If you warp the pricing mechanism of the market to allocate goods, you interrupt the flow of goods at the source.

114

Yeah, it was the healthcare czar, the climate change czar, urban affairs czar and the car czar.  It almost sounds like a joke:  4 czars walk into a bar and...

Posted by: runningrn

 

...the bartender looks at them and says, hey; weren't there ten of you?" And the First czar says, "yes, the others keep roamin'-off".

 

How much salt do I get for this little gem?

115

 the resulting deep discounts on real estate would cause a rush to invest

Please elaborate.  How can allowing the housing market ground out result in us building High Speed Rail that distributes Welfare Checks?

116 112 FYI, czars used to be approved by the Senate.  The drug czar certainly was.

Posted by: AmishDude at April 12, 2011 11:02 AM (T0NGe)

hahah was talking to my dad and he just said "well be careful cause we have had czars in other administrations who were approved by Congress" and then you post this.   So how come BO's czars aren't subject to the process.

117 The knowledge problem can be solved, or at least minimized in certain narrowly defined activities. For instance, the internet has made it possible to find pricing information that was unavailable just a few years ago.

You could say the same thing about the innovation of the farmers' market in the Middle ages.  Knowledge improves but just because you see prices for finished goods doesn't mean that you can make decisions about the entire market.

What about the paper from which the books were made?  Ink?  Are the royalty contracts efficient?

118 I do believe I covered this, whippersnapper.

119 #108 Sounds like you're talking about monopolies. That's a whole 'nuther economic discussion.

120

Bwhahaha!  Suck it bitchez!  From WaPoo:

Obama will not blaze a fresh path when he delivers a much-anticipated speech Wednesday afternoon at George Washington University. Instead, he is expected to offer support for the commissionÂ’s work and a related effort underway in the Senate to develop a strategy for curbing borrowing. Obama will frame the approach as a responsible alternative to the 2012 plan unveiled last week by House Republicans, according to people briefed by the White House.

Letting others take the lead on complex problems has become a hallmark of the Obama presidency. On health care, last yearÂ’s tax deal and the recent battle over 2011 spending cuts, Obama has repeatedly waited as others set the parameters of the debate, swooping in late to cut a deal. The tactic has produced significant victories but exposed Obama to criticism that he has shown a lack of leadership.

The deuce, you say!  Who would have seen that coming?

Present!!!1111!!

   

121 Good post, Monty!

122 89 In other news, anyone read the summary of what the actual cuts we got are?

Two Obamacare programs and four czars among the wreckage.  Guess it wasn't a total loss...

AP and Fox are both spinning for the great savior Obama without demonstrating that they're making a comparison between the full H.R. 1 bill and this one. Only Politico and The Hill aren't in outright Obama-loving mode, which is a bit surprising. Also, the vote for this has been postponed until Thursday, which either means they might postpone work on the 2012 budget until Friday.

123

...the bartender looks at them and says, hey; weren't there ten of you?" And the First czar says, "yes, the others keep roamin'-off".

 

How much salt do I get for this little gem?

 

Heh!   I'd give you 4 packets.  Don't use them all in one place.

124 @121 - Not really. I mean, the Crusoe scenario is sort of inherently monopolistic, since we're only talking about one or two participants in the economy, but because all either party is producing is first or second order goods (either things directly collected from nature, or made directly from the products of nature), there's no monopoly concept in the same way that there is in a larger economy.

125 The Republican 2012 Budget:

Original
As amended (through Budget Comm. mark-up)

126 I think the Internet improves price discovery (and maybe makes the equilibrium point arrive faster), but I actually think it exacerbates the "knowledge problem" because it increases both inputs and outputs. Example: a local bookseller has a local marketplace; in pre-internet days, the customer-base was local and the competition was local. The "knowledge problem" was constrained to the local economy, pretty much. But now? Every podunk shop is de facto a global enterprise, with a vastly larger potential customer-base and range of competitors. Local mores, customs, tastes, and trends still apply; but now your business may serve many such localities, leaving you with a choice: narrow your business to serve only your local community and use your specialized knowledge as your "value add"; or target your business widely and compete on price, performance, or niche appeal.

127

How much salt do I get for this little gem?

 Heh!   I'd give you 4 packets.  Don't use them all in one place.

Posted by: runningrn

 

Pay day!

128 @121 - Also, in the Crusoe model, there's no state to impose monopoly benefits on either producer, which is an absolutely necessary component of monopoly. Without state intervention, competition naturally prevents monopolies from forming. Friday can always go and become a fisherman or a berry picker himself, since Crusoe can't restrict his access to the ocean or to bushes, it just doesn't make sense for him to within a wide range of prices (in terms of baskets) demanded by Crusoe in exchange for fish.

129 Thanks Monty.  I know several people who could benefit from this post and it was a nice refresher for me as well.  You really explain things so people understand it without getting a headache.

130 Thanks Monty, et al. I gave up arguing with the Lib.

Hopeless.

Where's Barry playing stick this afternoon???

131 Representative Jim Jordan of OH found his balls.

132 One way we could reduce the cost of things is to reduce the number of demand units. It worked in the Soviet Union so it must be hallowed ground to the WON. How much does it cost to run a gulag?

133 I took Macro and Micro Econ in High School as an AP class to avoid taking a social science class in college (for obvious political reasons- this before I found out that the econ department was a tiny, tiny bastion of conservative and libertarian thought at my college). What was funny was seeing kids argue with the teacher about the concept of "opportunity costs" and "price fixing". The teacher was very obviously libertarian, but his profession pretty much willed that- it is hard for you to be an actual economist (and not a fraud like Dull Slugman at the NYT) and be a marxist.

134

The Indonesian has always taken the lead

We've been bamboozled.

He has run amok. 

135 Monty, are you Milo Minderbinder's smarter brother when it comes to bartering?

136

Posted by: Monty at April 12, 2011 10:49 AM (4Pleu)

Keeping it simple is correct. Once you delve deeply into economics, it becomes Sociology, in other words, buzzwords and bullshit. Nobody understands economics past the basics, or government run economies wouldn't be suck a clusterfuck.

137

I really am trying to buy a "buggy whip" -- an old fashioned 4:3 (not wide screen) 19" LCD monitor.

I've checked out Tiger Direct and Amazon and the pickings are mighty slim.

138 122 ...From WaPoo: Obama will not blaze a fresh path when he delivers a much-anticipated speech Wednesday afternoon at George Washington University. Instead, he is expected to offer support for the commissionÂ’s work and a related effort underway in the Senate to develop a strategy for curbing borrowing...

The deuce, you say!  Who would have seen that coming?

Present!!!1111!!

It's so nice to know that Dear Leader lets everyone else do the heavy lifting for his reelection campaign before he pretends to be Superman by way of endorsing something he earlier rejected. But hey, the American Idol crowd will never notice the shift and will instead be called to boo and hiss at the "extreme" Republican budget.

139 In a free market... What government must do: (1) Punish fraud, theft and abuse; (2) Enforce contracts; and (3) Defend property rights. What the government must not do: (1) Set prices of goods and services -- and that includes the price of labor (e.g., minimum wage) and the price of money (e.g., interest); (2) Bailouts; (3) Subsidies. Of course, in a better world there wouldn't be fiat money, central banks, fractional-reserve lending, deficit spending, and income taxes...

140

His overall approval rating fell to 48/50 from 51/47 three weeks ago, the first time Obama has sunk below 50% in the CNN poll since mid-December and the first time heÂ’s been underwater since the midterm election. Despite getting a 54/45 on handling the budget talks, Obama is still sinking even in the most sympathetic sampling possible.

 

Glug, glug.  Glug glug...

141
When do you cover the economics of government controls on plentiful commodities?

142 @138 - Really? Show me one monopoly that has ever existed without direct state intervention. Go ahead, I'll wait. You won't find one. Without the state to grant privilege to a company, there's no way to keep competitors out. The whole "the monopoly could just engage in predatory pricing" argument was exposed as a fallacy like 60 years ago, but gets repeated ad nauseum by every interventionist looking to justify their meddling in economic matters.

143

Posted by: CAC at April 12, 2011 11:14 AM (JEVge)

I'm interested in bartering for some of your work.  

I can give you three handprint turkey paintings for one of your bewb art prints.

144 @ 75 I think a lot of it has to do with presentation and attitude. Some 50+ look like they could easily be in their 60s. Some look no more than early 40s. Some have a can-do attitude, others a 'the world owes me' attitude.

My hubby(53) is on his last few weeks of a 30 yr job. He already has some possible job opportunities(people approaching him), because he is known to be a hard worker, is fit and can read, write and do math. He doesn't have an 'entitled' attitude.

That being said, I think he plans to have a month off before deciding on anything. Rest, refresh: funemployment!

We actually would not even be going ON funemployment, but we have to to get our severance package from the company(they make up the difference between unemployment & salary for a year or so; if he gets a job, he gets his full pay for a year or so in addition to his new salary, but we HAVE to sign up for the unemployment at first).

We have enough set aside to live on for several years without funemployment. We live cheap, and it def has paid off in this situation. But sign up we must.

At any rate, for older workers, it's a lot about presentation and attitude. You present yourself as a broken-down, depressed older person, expect to have a tough time. You present as can-do, fit, wise and experienced person, your odds increase greatly.

145

 So why is bartering inefficient?

So, how much is that cow worth? a flock of chickens? half a flock of chickens, a goat, three hogs, a peacock and six geese?

Economies are local. I determine (control) what a cow is worth by how much I need a cow and what I have to trade for it. Currency value is out of my control.

146 How many barrels of beer is your church worth?

147 #137 I thought only we ran amok ... I am aghast!

148

"Keeping it simple is correct. Once you delve deeply into economics, it becomes Sociology, in other words, buzzwords and bullshit."

 

You are right and wrong at the same time. If you want a thriving economy your first requirement is an honest hard working people (read culture) that stigmatizes envy and applauds gratitdue. If you have this fundamental, then your economy will flourish. Absent this one ingredient nothing other than massive threats of bodily harm and death will get you a functioning economy. If you don't believe me, just ask Stalin and Mao.

149 competition naturally prevents monopolies from forming It's still possible to have monopoly control absent government intervention, though. Economics is ultimately a local phenomenon. Let's say that I and my henchmen own the only known salt-mine within a day's ride in any direction. There may be other deposits, but no one knows for sure. It would require a huge investment of capital to do the prospecting and mining to open a new salt-mine, and the current price of salt may not support that kind of investment. There are some areas and times in economies when "natural monopolies" develop. This usually comes about by accident, though, not as a deliberate plan on the part of the business-owner or the economy at large. In my salt scenario, the salt monopoly could be broken if a) an alternative salt-mine was found by accident, without requiring a capital investment; or b) if transportation were improved to the point that importing salt from distant sources was cheaper than procuring it from the local monopoly.

150 That "The rent is too damned high" guy doesn't know what he's talking about.

151 @149 - No you don't. You determine how much you're willing to pay for a cow, not how much that cow is actually worth. If the rest of the participants in the economy value a cow more than you do, you're shit out of luck if you want to buy a cow at the price you value it. IF the rest of the participants in the economy value a cow less than you do, you stand to make a psychic gain from the transaction, as you've given up less than you would've ultimately been willing to in exchange for the cow. None of these determinations sets a "value" on a cow, just a price. The concept of "value" is one that's made economists come up with really really stupid ideas throughout history, as there is no one "value" for a commodity, even if there is a single price at any given point in time for that commodity throughout the entire economy.

152 I barter baked goods all the time. Good fun. IF I can get a sake o'taters out of a loaf of my whole wheat bread, it seems pretty efficient to me. No digging!

153 Great post, and I agree with those who say it ought to have a place in the permanent side-bar.  Maybe there should be a whole new section for things like this, "Edumacation" or something.

154 It would require a huge investment of capital to do the prospecting and mining to open a new salt-mine, and the current price of salt may not support that kind of investment.

I'll take "Barriers to Entry" for $200 please, Alex.

155 Bartering today usually has an offsetting efficiency vs Monty's general economics explanation --most people barter 'under the table' and don't give uncle Sam any cut. --this is not strictly legal BTW --the IRS wants their cut from the value of the barter and they have gone after organized barter groups, of course they have no way of knowing if neighbors exchange lawn care for sewing or something like that.

156 134 Representative Jim Jordan of OH found his balls.

Rep. Jordan said that long before there was a deal. He's also driving a split in the conference-- it's his M.O.-- and he has his heart set on being Speaker.

157 The misspelling "ad nauseum" is used ad nauseam on this blog.

158

The knowledge problem can be solved, or at least minimized in certain narrowly defined activities. For instance, the internet has made it possible to find pricing information that was unavailable just a few years ago. What has that done? Well, how much do books cost now compared to before the internet?

But that's because you have more people interacting in the market, not smarter, better people directing it!

(My italics are screwy...)

159 59 Bartering today usually has an offsetting efficiency vs Monty's general economics explanation --most people barter 'under the table' and don't give uncle Sam any cut. --this is not strictly legal BTW --the IRS wants their cut from the value of the barter and they have gone after organized barter groups, of course they have no way of knowing if neighbors exchange lawn care for sewing or something like that.

Posted by: palerider at April 12, 2011 11:27 AM (vL0Nv)

True, and for a simple proof, set up a whiskey still and go into business, see who comes looking for you. And what they are upset about.

160 @153 - If the current price of salt doesn't justify the capital investment to find a new mine, then there's no negative impact to the monopoly, and there's no monopoly powers attached to the current providers of salt, they're just the only game in town at that point in time. If they jack up the price of salt to the point where investors see a potential gain to be made by finding a salt mine and working it, then competition solves the problem. So, there's either no problem, just a single provider, or there is a problem that gets fixed naturally by the profit motive. Plus, that model assumes that demand for salt is constant across all prices, which it isn't. People can, and would, find alternative goods to purchase instead of salt. Perhaps they buy less meat that requires curing, or whatever. Maybe some enterprising individual would come up with a process for curing meat that didn't involve salt, or whatever. There are innumerable solutions to the problem in a free economy, but none of those solutions exist in the face of state intervention in favor of a particular firm.

161 don't you love the posited questions:  "maybe it's time to get nervous"

162 160 134 ETA: I should add that it's his right to vote however he wants; my main point is just that he was never going to vote for this anyway, for a number of reasons.

163

I think you need to take one more step back.

An Economy is a mechanism used to take Raw Materials, make them useable (manufacturing, transportation) and then consumed.  Its the Goods Creation to Goods destruction (consumption) which creates the need for an economy....

Somthing this administration, and many economists, fail to grasp... because if you hinder the creation of goods by limiting Raw resouces (water for food production, mining, DRILLING)... and then put artificial costs on manufacturing and transportation... your economy will eventualy be beet out by systems which do not have those artificial 'frictions'.

164

Too wordy for our lib friends.  Use pictures they can color with any of the wonderful products in the Crayola line.  Include lots of unicorns, rainbows, and skittles.

165 I don't understand any of this.  Why can't people just give each other stuff?  I got thru life so far by being given everything.

166 A note about "worth" and "value" of a good: remember what I said in my post. t’s important not to lose sight of the fact that a good or service’s “worth” or “value” is still relative to other goods and services, not to the unit of exchange itself. Don't fall into the trap of thinking of a good in terms of how much exchange units you can buy or sell it for. The "worth" of a good is more accurately measured relative to other goods and services. What is my cow "worth"? Broadly, it's worth what other people are willing to pay for it, not what I want to get for it. If demand is high, I have some leeway on what I can charge for my cow, but my leeway is not unlimited even then -- if prices for beef go too high, my customers may switch to pork or chicken.

167

I don't think it's simple enough for brain dead leftys to understand, but it's hard to describe the economy at a low enough level that they would be able to comprehend it.

I'll repeat myself: Dims cannot count. They seem to have some type of brain defect that's genetic that prevents them from grasping the fundamental, underlying concept of anything. As a result, they rely upon their feelings, which always leads them to the wrong conclusion.

Always.

Thanks Monty, for putting me to some more knowledge. It's always nice to know not only how things work, but why. You mention a few things that I know, but can't explain. Principles, I think they're called.

It'd be nice to send this post to everyone in Washington, except for the aforementioned problem with Dims. You could explain it to them all day in the simplest of terms, and only recieve a blank stare in return.

And some drool.

168 I can name a hundred differen drugs that have a monopoly on the market place. The only reason that they would not remain a monopoly is that the government allows others to steal the product.

169

169 I don't understand any of this.  Why can't people just give each other stuff?  I got thru life so far by being given everything.
Posted by: B. Obama at April 12, 2011 11:33 AM (Z1jiu)

 

I'd be more than pleased to give you some of this stuff.

170 I really am trying to buy a "buggy whip" -- an old fashioned 4:3 (not wide screen) 19" LCD monitor.

I've checked out Tiger Direct and Amazon and the pickings are mighty slim.
Posted by: Ed Anger
-------------
Ed - Try this link at Tiger Direct.


http://tli.tl/mtSnnp

When you get there, try clicking the "Widescreen: No" on the left. 

They seem to still have more than Fry's or BestBuy.

Quite frankly, I'm surprised there's that many!  I too prefer a taller screen, but hard to come by.  At work I use 2 24" Samsung LCD's.  Almost holds all the windows I have open!

171 @172 - Well, that gets into a whole different discussion of whether or not intellectual property is a concept invented and sustained by the state. I tend to think that, generally it is, although I see advantages to maintaining IP. That said, how is it stealing something to figure out how it works? If I buy a pill, and I analyze the chemicals in that pill, why shouldn't I be able to reproduce it? There's no theft involved there, I'm not taking anything from anyone, I'm using knowledge to produce a product.

You're also ignoring the role that the government plays in influencing the R&D process. Various regulations make the cost of new drug development extraordinarily high, such that it's very very very difficult to become a new player in that market. That's something government does a lot - raise the cost of entry in order to protect its friends. You see it all over the financial sector, for example. Someone was talking in an earlier comment about starting up a community bank. Do you know how fucking crazy expensive it is to start up a bank? And how much of those costs are merely regulatory overhead imposed by the state to make sure that nobody that doesn't already have a fleet of lawyers and such on hand can play?

172 My husband's company recently had to pay a bunch of money to a guy who was in his late 50's.  He applied for a job there, but his skill set didn't match what they were looking for.  They didn't send him any notification that they weren't going to give him an interview.  He sued claiming age discrimination.  The company just decided to settle.  After he got several hundred thousand dollars, they found out that he has done this very same thing to other companies in Seattle.

Hot damn! I'm 54. I'm obviously in the wrong line of work. This shit is even more lucrative than getting a public employee pension.

173 >> If I buy a pill, and I analyze the chemicals in that pill, why shouldn't I be able to reproduce it?

That works right up until the point that there's no incentive to produce an original for you to reverse-engineer.

I know this is, like, 100 years old or something, but there's a reason that Congress has the enumerated power: "To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries;"

174 Generic drugs are only sometimes created by reverse engineering. You do know that patents are on file right?

175 Thank you for this post. I read Henry Hazlitt's Time Will Run Back a while ago. Could have just waited for your post.

176
Thanks, Barry.  Gas is now $4.24 at the nearest station.

177

 If I buy a pill, and I analyze the chemicals in that pill, why shouldn't I be able to reproduce it?

 

Well, it depends.  Is it the red pill or the blue pill?

178 It is scarcity that drives the supply/demand dynamic, with competition among both producers and consumers being the defining characteristic. “Economy” is simply a descriptive term for how the supply/demand dynamic plays out.

You failed Econ, dude. In your first paragraph.

179 The "knowledge problem" isn't why communism and socialism will never work. It is why government control of economic system will never work, no matter what kind of system it is.

Socialism and communism will never work because that economic system ignores basic human reactions. People will ALWAYS want to take the easy way out in supplying their wants and desires. if it is easier to take the work of someone else than it is to do your own work, then they will take someone else's work.

So when a number of people are supposed to work and share the output, there will always be the ones who will sit on their ass and do nothing but still want to share the output. As more and more people do this you reach the tipping point where there are more non-producers than producers and the system collapses.

We have reached that point here in out country now in the relatively short period of time since the 1930s when we moved into socialism in a big way.

180 I just thought of another "natural monopoly" scenario. Let's say that I live near a place where a natural hot-spring is located. I decide to buy the land and build a spa on that site. I now have a natural monopoly over the "hot-spring spa" market because while competitors may build all the spas they like, only I have access to the hot spring on my property. My competitors could try to find another hot spring many miles distant, and draw the local citizens there, but the opportunity costs of travel would likely offset any lower costs my competitors could offer.

181 I love posts about bricks.  I have recently started a collection.  My favorite one so far came from an old hotel that was demolished in St. Louis.

182 Natural monopolies exist all the time and yes they can be eliminated by the market eventually. The issue is how long is eventually? Monty's salt mine may not have it's monopoly broken for twenty years. According to DMXroid, don't worry Mr. I need this salt to live, it will be affordable in twenty years.

183 @184 - That's not a natural monopoly, again, that's just the only provider in a particular area. People could set up non-hot spring spas, spend their relaxation dollars on massage or blowjobs, or, like you said, go somewhere else. Yes, the luxury of having the spa close by might be a competitive benefit over the spa in the village down the road, and yes, that might allow you to increase your prices, but then, that would only appeal to people directly near me, as spa prices in other places would be lower.

Taken to the logical end, your argument would apply to a farmer and his next door neighbor. The farmer has a bunch of land that he produces food on, and while maybe his neighbor could go to the market to get food, there's an opportunity cost involved in going down the street, so the farmer could conceivably charge him higher prices and get him to pay them. The way you phrase your example, that'd be a "natural monopoly", instead of just a normal market arrangement where there's a convenience premium paid by some people.

184 @186 - Almost as soon as there's a profit incentive to do so, as seen by investors. Even in the scenario of a necessity, like salt, I can do all sorts of things to bring my salt consumption way down. I can find other sources for it. I can produce synthetic salt. I can extract it from seaweed, or whatever. The point is, the moment that the price of salt as set by the salt mine owner goes above what I'm willing to pay for my current level of salt consumption, something will change, and that salt miner's power goes away. Even if it's a good that I need, he still has to convince me to buy it of my own free will, and not seek alternatives.

185

(And I know, when I point out glaring errors, my own comment shouldn't glart the way it did -- whatever that means.)

I think you should use barter and trade that word to Monty. I think it would be an excellent way to describe the ecomomy, or things the president says about the economy.

186 So let me get this straight you believe in pure laissez faire with no regulation of the creation of monopolistic businesses because it will all work out in the end?

187 Even in the scenario of a necessity, like salt, I can do all sorts of things to bring my salt consumption way down. Well, sure, you can. But in a "natural monopoly" situation, consumers weigh the costs and benefits and continue to buy and consume salt. They don't object, a priori, to the *existence* of the monopoly -- the only object when price gets out of control or quality suffers. In the salt scenario, consumers only care about the commodity (salt), not the producer. As long as the good is produced at a reasonable cost and maintains a reasonable quality, they will not seek out alternative sources because the effort is not worth the opportunity cost. (Economic benefit, like evolution, does not look to the long term in most cases. It is a short-term and local phenomenon.) I think we may be using slightly different definitions of the word "monopoly", also. I'd consider a town that only has a single doctor to have a natural monopoly on the healthcare market in that town, even if a relatively nearby town has a doctor as well. (Or a single blacksmith, or hairstylist, or cordwainer, or whatever.)

188 @190 - And also because I think that the cost of allowing government to intervene in the economy isn't worth the benefit. I mean, government has no particular expertise when it comes to preventing monopoly formation, and a lot of experience in creating it, and that's without all the additional shit that government would have to be empowered to do to implement its anti-monopoly policies.

Again, show me one monopoly in the history of mankind that has not been created and supported by government in the first place, and then maybe we can have the discussion about what government needs to do to protect us from the market.

189

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190 @Monty - I think you're right that we're using "monopoly" in two different ways. Using your definition, sure, you're absolutely right, but those are monopolies only in the de facto sense: they are the only providers of a good or service in a particular area. When I use it, I mean that a firm is the only provider of a good or service among all possible participants in the economy, and that there is some control over an essential factor of production that prevents all other participants from competing (which, as I think I've made clear, is a situation that I don't think can actually exist). Even in your scenarios, the local providers still have to be price competitive with outside providers, their cost:quality ratio still has to be better than that of outside providers after factoring in transport costs. I'd call what you're describing just a cost factor, not an element of monopoly, but that's mostly a terminology quibble.

191 Posted by: DMXRoid at April 12, 2011 11:04 AM (vd872)

Incorrect. The knowledge problem is a big term that describes lots of things. I carefully defined one part of it as pricing information. And with essentially perfect pricing information it is much easier to predict market behavior. Satisfying the demand at a specific and constantly changing price is much more difficult, and that is the part of the problem that is probably intractable. The part that is manageable is for the purchasers of those goods.

192 Posted by: Monty at April 12, 2011 11:11 AM (4Pleu)

As the focus shrinks, the rules that govern behavior break down (this also follows your bartering point). That's why economics can't predict individual behavior. It can sometimes forecast trends of large numbers of participants. The point I was trying to make with the internet pricing information is that it has expanded the economy to what is essentially world-wide. That local economy has pricing inefficiencies that the global one has eliminated.

193 That local economy has pricing inefficiencies that the global one has eliminated. Only in cases where goods are truly homogeneous. You can only make Wisconsin Cheese in Wisconsin. Somehow a wedge of cheddar from the Xia Liu People's Cheese Factory #33 doesn't carry the same piquant tartness.

194 Historical footnote - among the largest barter economies ever was the Mexica (Aztec) civilization. The had a large empire, massive cities, extensive trade and large, diverse markets - but no currency, everything was traded product-for-product.

They simply never developed the idea of currency. They had huge amounts of gold, but it was considered sacred and hoarded by the priests and kings.

They also had roads but no wheels.

195

Monty,

We needed this postyesterday.  Some of the comments were epically ignorant especially about anyone making more that $250K and capital gains.

196 Monty: "Feedback and corrections cheerfully ignored accepted."

Ignore this, if you dare. Since these are educational posts and not DOOM posts, perhaps a picture of a cute puppy rather than a dour kitty could accompany your lecture.

Or a honey badger who gives a shit. There has to one somewhere.

197

<i>@175 If I buy a pill, and I analyze the chemicals in that pill, why shouldn't I be able to reproduce it?

</i>

And if you buy a movie on DVD, and figure out how to crack the DRM, why shouldn't you be able to reproduce that too?

 

Answer: because most the value is in the intellectual process to make the product, not the physical embodiment of the product itself.

 

<i>@178 Generic drugs are only sometimes created by reverse engineering.</i>

 

Not true. Ever. The structure of any and all drugs is public information, and is included in the drug package insert, all of which are compiled in the Physicians' Desk Reference. Only an idiot would resort to reverse engineering.

 

<i>You do know that patents are on file right?</i>

 

Patents are the least of it. The FDA has to approve of the manufacturing process of every manufacturer. A hopeful generic manufacturer can file a Paragraph IV certification, so the patent owner knows only too well that someone is proposing to horn in. Paragraph IV certifications are typically what triggers pharmaceutical patent infringement suits.

 

So knowing the composition of a drug is not the point. That's trivial. Everyone knows the structure of the drug, and how to make it. Doing so without being sued is another matter.

198 Way, way, way back in college, at the beginning of Econ 100A, the TA led off with the question: "What is Economics?"

This led to an immense amount of avoidance behavior, wild-guesses, and other classroom antics, but things eventually came around to, "Economics is a social science." -- and the TA took this and ran with it.

"So, what is a social science? Social sciences are fields of study that fit the pattern: 'Human behavior can be explained (and predicted) by _________.' Fill in the blank, and that tells you the social science."

"If you fill the blank with 'what they've always done', you get history; 'the interaction of innate drives with self-knowledge and consciousness', psychology; 'the dynamics of mob behavior', sociology; 'culture', anthropology. And so you come to economics, the one social science that actually has significant predictive ability and has an associated technical side -- econometrics -- to measure it.....and that one says: 'human behavior can be explained (and predicted) by GREED.'"

199 A few things. An economy is simply the sum of all transactions for goods and services by individuals. It does not necessarily require scarce goods or services. Economics describe the goal of rational individuals as maximizing their utility rather than meeting their needs. Utility can be thought of more as satisfaction. So rational individuals seek to maximize their individual satisfaction. Gains from trade Gains from trade is the primary reason for trade and specialization of labor to occur. Basically, rather than trade resulting in a "winner" and a "loser", gains from trade means that trading results in both parties being "winners". This is directly related to comparative advantage. Comparative advantage means that some countries/groups/individuals are more efficient in producing a good or service compared to other goods or services. This does not mean they are the best, but rather they produce better in comparison to what they could otherwise produce. By 2 parties specializing in their respective comparative advantages and then trading the results that have been produced, they become better off than had they each attempted to produce each good/service by themselves. Elasticity Elasticity came up in one of the comments earlier so I'll touch on that as well. Elasticity of supply or demand basically reflects the ability of producers or consumers to vary their supply or demand of a good or service. One common example is gas. In the short-term, the demand for gasoline is very inelastic. Each car requires a certain amount of gas and each individual usually drives a certain distance each day. If prices go up or down this means demand is relatively unchanged for the time being. Over a long enough time frame, however, demand will shift as people buy new cars with different fuel efficiencies, people relocate or change jobs, etc. If the supply of a good is perfectly inelastic the price of the good will vary based completely on the demand for it (assuming the market is not a monopoly). Likewise a perfectly inelastic demand (ie demand for air or water) means price will vary completely on supply of the good (eg air is cheap beacuse it's plentiful, water is expensive in areas it's scarce). Externalities Externalities are the result of costs or benefits that result from the exchange of a good or service, but are not taken into account in the exchange itself. A common example is pollution. Since no one owns the air above a coal power plant, the power plant's production does not reflect the cost to the area in terms of decreased air quality and radioactivity. It sells the power it produces to customers without taking into account the additional costs that pollution has incurred. Power is sold for less because those costs aren't included in the interaction with it's customers. This is one of the classic cases presented for government intervention in an economy. The government has the power to force the coal plant to "internalize the externality". In effect the government is in a position to force the coal plant to bear the true costs of it's production and can thereby increase the efficiency of the market. Before government intervention, the coal plant had a hidden subsidy to its power production that made it more competitive in comparison to alternate forms of power generation. This would result in excessive amounts of coal power compared to other sources and large amounts of pollution. Just thought I would try to clarify a few of the things I saw brought up.

200 Comrade Monty,

Your economic theory is crude and primitive.  Communist model is much advanced:  Chairman and fellow comrades in arms gather all goods to collective.  Dear Leader determines who gets how much of what.

Your systems requires the masses to make too many complex choices.  Best for them that Dear Leader makes choices for them.  Much easier for all.

Your system is unfair.  One comrade may not know how to make or lay bricks!  Should this good comrade starve because your brick maker will not share from his bounty?  From each according to his ability, to each according to his need.

Everyone benefits when you spread the wealth around.

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