Why does anyone pay attention to people that study "economics"?

[shawshankinmate37927]

You know it is funny - this topic has gone way off topic yet I (the creator of the topic) love where it has gone!

Thanks for the great posts guys (I had actually expected to just have it turn into a topic telling me what an arrogant ass I am - which may of course still be true).

Well, if you want to go back to discussing economics I have a thought experiment you may want to consider.

Suppose you were one of seventy people stranded on an isolated island out in the middle of the Pacific Ocean and had no means of leaving or communicating with the rest of the world.  You are all going to be stuck there for a few years.  What would be the most efficient and effective way to allocate the island's resources and ensure that goods and services are fairly exchanged between the island's seventy inhabitants?

[CIYAM]

What would be the most efficient and effective way to allocate the island's resources and ensure that goods and services are fairly exchanged between the island's seventy inhabitants?

Well as you started this new twist (and that's perfectly fine) can you give us your idea for how to do that (i.e. how are you going to make the choices)?

[shawshankinmate37927]

What would be the most efficient and effective way to allocate the island's resources and ensure that goods and services are fairly exchanged between the island's seventy inhabitants?

Well as you started this new twist (and that's perfectly fine) can you give us your idea for how to do that (i.e. how are you going to make the choices)?

To start, I would propose dividing up the island into 70 equal "pie slices" and then designate each sector's owner in some random manner such as drawing numbers from a hat.

I also think that we should have a form of money/currency with a fixed supply.

I think I would propose that we all pool all of our physical fiat coins together, distribute them as evenly as possible and then use that as the island's currency.  I think fiat would work in this situation because no one has access to a mint to inflate the money supply.

For the sake of argument, let's suppose the total value of the coins on the island is $210.00 which comes out to 300 cents per person.  I would propose we start using that as the island's money.

[shawshankinmate37927]

...
Suppose you were one of seventy people stranded on an isolated island out in the middle of the Pacific Ocean and had no means of leaving or communicating with the rest of the world.  You are all going to be stuck there for a few years.  What would be the most efficient and effective way to allocate the island's resources and ensure that goods and services are fairly exchanged between the island's seventy inhabitants?

Do I get a weapon? Sorry, that's the fiat talking

For defense...or to impose your will on the unwilling? 

[CIYAM]

For the sake of argument, let's suppose the total value of the coins on the island is $210.00 which comes out to 300 cents per person.  I would propose we start using that as the island's money.

So we do that - now where does the "economics" theory take place?

[shawshankinmate37927]

For the sake of argument, let's suppose the total value of the coins on the island is $210.00 which comes out to 300 cents per person.  I would propose we start using that as the island's money.

So we do that - now where does the "economics" theory take place?

This would allow the inhabitants to exchange their goods and services with each other fairly.  Some would learn to fish, some would collect rain water, some would farm, some would build dwellings, others would collect firewood.  People on the island would be able to change their "professions" based on the supply of and the demand for the various products and services.

The biggest difference between Austrians and Keynesians is related to the supply of money.  I believe a fixed supply is the only fair way to allocate limited resources.  If the island's inhabitants were to designate a few individuals to be bankers to control the supply of money, then they would be able to create more money, allowing them to consume products and services that others produce and provide while contributing nothing of value to others on the island.

[twiifm]

For the sake of argument, let's suppose the total value of the coins on the island is $210.00 which comes out to 300 cents per person.  I would propose we start using that as the island's money.

So we do that - now where does the "economics" theory take place?

This would allow the inhabitants to exchange their goods and services with each other fairly.  Some would learn to fish, some would collect rain water, some would farm, some would build dwellings, others would collect firewood.  People on the island would be able to change their "professions" based on the supply of and the demand for the various products and services.

The biggest difference between Austrians and Keynesians is related to the supply of money.  I believe a fixed supply is the only fair way to allocate limited resources.  If the island's inhabitants were to designate a few individuals to be bankers to control the supply of money, then they would be able to create more money, allowing them to consume products and services that others produce and provide while contributing nothing of value to others on the island.

And what happens when people have kids and the population grows?

[shawshankinmate37927]

This would allow the inhabitants to exchange their goods and services with each other fairly.  Some would learn to fish, some would collect rain water, some would farm, some would build dwellings, others would collect firewood.  People on the island would be able to change their "professions" based on the supply of and the demand for the various products and services.

The biggest difference between Austrians and Keynesians is related to the supply of money.  I believe a fixed supply is the only fair way to allocate limited resources.  If the island's inhabitants were to designate a few individuals to be bankers to control the supply of money, then they would be able to create more money, allowing them to consume products and services that others produce and provide while contributing nothing of value to others on the island.

And what happens when people have kids and the population grows?

They would depend on their parents to provide for them until they became self sufficient.

[DonQuijote]

They speaks about actual and past, we are speaking about FUTURE

[twiifm]

This would allow the inhabitants to exchange their goods and services with each other fairly.  Some would learn to fish, some would collect rain water, some would farm, some would build dwellings, others would collect firewood.  People on the island would be able to change their "professions" based on the supply of and the demand for the various products and services.

The biggest difference between Austrians and Keynesians is related to the supply of money.  I believe a fixed supply is the only fair way to allocate limited resources.  If the island's inhabitants were to designate a few individuals to be bankers to control the supply of money, then they would be able to create more money, allowing them to consume products and services that others produce and provide while contributing nothing of value to others on the island.

And what happens when people have kids and the population grows?

They would depend on their parents to provide for them until they became self sufficient.

NO what happens to the fixed money supply.  Because if its not redistributed then the families that have more kids gets diluted.  This creates disincentive to have kids, and therefore danger of endangerment.  If the money gets redistributed then people have incentive to have more kids to get more money but less per person.

[dinofelis]

The entire concept is built on infinite expansion which anyone with even half a brain should now know doesn't work as our Earth has "finite" resources (and our ability to find another Earth is not going to happen before we have exhausted this one's natural resources in trying to find it).

Infinite expansion is ridiculous.  But unlimited economic growth is not impossible.  If you understand what economics really is about: satisfying needs and wants.  Economic growth is hence finding ways to improve the satisfaction of needs and wants.  A simple way of obtaining economic growth is for instance, to learn to live happily with less !  Not many economists will consider that "economic growth", but if you think about it, being happy with less is in fact economic growth: the scarcity has been reduced, which is the goal of economics: to make the best choices in the face of scarcity.  If you are perfectly happy with what you have and there's nothing else that could still please you, you've reached in fact an infinite economic growth: scarcity has then been reduced to zero.  Nirvana, or heaven, or whatever.

Just a way to look at things. 

Economic growth is not "more stuff" and certainly not "more of the same".  It is more satisfaction and less frustration.

[dinofelis]

And what happens when people have kids and the population grows?

Then the same amount of money will be able to buy more (deflation).

[oblivi]

The entire concept is built on infinite expansion which anyone with even half a brain should now know doesn't work as our Earth has "finite" resources (and our ability to find another Earth is not going to happen before we have exhausted this one's natural resources in trying to find it).

Infinite expansion is ridiculous.  But unlimited economic growth is not impossible.  If you understand what economics really is about: satisfying needs and wants.  Economic growth is hence finding ways to improve the satisfaction of needs and wants.  A simple way of obtaining economic growth is for instance, to learn to live happily with less !  Not many economists will consider that "economic growth", but if you think about it, being happy with less is in fact economic growth: the scarcity has been reduced, which is the goal of economics: to make the best choices in the face of scarcity.  If you are perfectly happy with what you have and there's nothing else that could still please you, you've reached in fact an infinite economic growth: scarcity has then been reduced to zero.  Nirvana, or heaven, or whatever.

Just a way to look at things. 

Economic growth is not "more stuff" and certainly not "more of the same".  It is more satisfaction and less frustration.

True, but this differs greatly from what the general public wants, which is more and more, or at least until you hit a certain threshold, with is on average set at about 80K a year. Apparently regarding some studies, people stop caring that much about making money at that point and are comfortable.

[shawshankinmate37927]

And what happens when people have kids and the population grows?

They would depend on their parents to provide for them until they became self sufficient.

NO what happens to the fixed money supply.  Because if its not redistributed then the families that have more kids gets diluted.  This creates disincentive to have kids, and therefore danger of endangerment.  If the money gets redistributed then people have incentive to have more kids to get more money but less per person.

Those that are more prosperous (those producing goods/providing services that are low in supply and high in demand) and can afford them will most likely be the ones having kids.

Having more kids is no justification for stealing from someone else.

[dinofelis]

For the sake of argument, let's suppose the total value of the coins on the island is $210.00 which comes out to 300 cents per person.  I would propose we start using that as the island's money.

So we do that - now where does the "economics" theory take place?

This would allow the inhabitants to exchange their goods and services with each other fairly.  Some would learn to fish, some would collect rain water, some would farm, some would build dwellings, others would collect firewood.  People on the island would be able to change their "professions" based on the supply of and the demand for the various products and services.

The biggest difference between Austrians and Keynesians is related to the supply of money.  I believe a fixed supply is the only fair way to allocate limited resources.  If the island's inhabitants were to designate a few individuals to be bankers to control the supply of money, then they would be able to create more money, allowing them to consume products and services that others produce and provide while contributing nothing of value to others on the island.

Indeed, the problem with money creation is the seigniorage.  It is btw what we are all after if we hold bitcoin :-)
Seigniorage is unfair because it is value obtained for nothing (no production, and no investment or risk-taking in any production, no saving).

If you increase the money supply, there is of course seigniorage, and that is paid for by those already holding the money, but who are not allowed to make more of it.  The creators of the money supply tax those that hold the money (and money is always held !).  

Keynes made the fundamental error in thinking that the price of MONEY is the interest rate.  In fact, interest rate is the price of *holding value*.   Keynes' basic idea was that one can get the interest rate lower by increasing the money supply.  
 If you increase the money supply, you create inflation.   It means that to hold the same amount of value, you will need to hold MORE money.  So if the demand for holding value is the same, increasing the money supply to alleviate this won't help, because the inflation will make this correspond to holding MORE money.

You can see this as follows:
Suppose the market wants to hold 1/3 of the money market cap of value Q, and that this leads to an interest rate of 15% say.
Now you want to relieve this.  You print twice as much money (inflation a factor of 2).  Point is, the market cap in VALUE is still Q, but it corresponds to twice as much money.  If the market still wants to hold 1/3 of the market cap Q, this will now correspond to twice the amount of money that was demanded before.  So you've printed twice as much, but the demand is twice as much.  Keynesian printing shouldn't affect interest rates.

In reality that doesn't happen.  Keynesian printing does lower interest rates.  In fact, what happens is that if you start printing, that those wanting to hold value ESCAPE into other assets than your inflating money.  So yes, the DEMAND for money will lower, the interest rates will lower.... and you are inflating the demand for *other* stores of value (houses, dot com stock....).  You won't see this.  You are blowing a bubble somewhere else without noticing.  This initial rising first has positive effects on many indicators.  People start thinking that the economy takes off.   And then the bubble bursts.  And Keynesians are going to print even more to try to erase the damage from the burst bubble.  To blow another one.  And so on.

In the mean time, a lot of seigniorage has been produced, and those that are profiting from it get richer and richer.

[medUSA]

I actually think it is rather funny that we have people that are awarded Nobel prizes and given high status at universities (and in governments) when their pseudo-science is really no different to a cult or a religion.

In my view, economics is about finding theories or rules about human monetary behaviour. Most of these theories do not work, do not approximate human behaviour, or only applies in specific conditions. But we do need them to give educated guesses in an economy for government budgeting and stimulating growth.

[dinofelis]

Well, if you want to go back to discussing economics I have a thought experiment you may want to consider.

Suppose you were one of seventy people stranded on an isolated island out in the middle of the Pacific Ocean and had no means of leaving or communicating with the rest of the world.  You are all going to be stuck there for a few years.  What would be the most efficient and effective way to allocate the island's resources and ensure that goods and services are fairly exchanged between the island's seventy inhabitants?

To make me their benevolent King and to have everybody worship me of course.  Utility maximized :-)

Trust me.  I know what you should do. 

 

[dinofelis]

I actually think it is rather funny that we have people that are awarded Nobel prizes and given high status at universities (and in governments) when their pseudo-science is really no different to a cult or a religion.

In my view, economics is about finding theories or rules about human monetary behaviour. Most of these theories do not work, do not approximate human behaviour, or only applies in specific conditions. But we do need them to give educated guesses in an economy for government budgeting and stimulating growth.

Human action

Fundamentally impossible to know, fundamentally impossible to predict, fundamentally impossible to model.  But we are going to "regulate" it.  Even if we know that we don't know.  What a joke, no ?

[shawshankinmate37927]

Well, if you want to go back to discussing economics I have a thought experiment you may want to consider.

Suppose you were one of seventy people stranded on an isolated island out in the middle of the Pacific Ocean and had no means of leaving or communicating with the rest of the world.  You are all going to be stuck there for a few years.  What would be the most efficient and effective way to allocate the island's resources and ensure that goods and services are fairly exchanged between the island's seventy inhabitants?

To make me their benevolent King and to have everybody worship me of course.  Utility maximized :-)

Trust me.  I know what you should do. 

 

Is that you, Obama? 

[twiifm]

And what happens when people have kids and the population grows?

They would depend on their parents to provide for them until they became self sufficient.

NO what happens to the fixed money supply.  Because if its not redistributed then the families that have more kids gets diluted.  This creates disincentive to have kids, and therefore danger of endangerment.  If the money gets redistributed then people have incentive to have more kids to get more money but less per person.

Those that are more prosperous (those producing goods/providing services that are low in supply and high in demand) and can afford them will most likely be the ones having kids.

Having more kids is no justification for stealing from someone else.

Then you have problems of monopoly