3 ms·

Can you give an example?

by tspike 11y ago

nostrademons 11y ago
I wasn't sure if I wanted to embarrass the people involved, but they're public figures anyway. For people: Marc Andreesen, Peter Thiel, Ray Dalio, Warren Buffett. Interestingly, neo-Schumpeterianism (as championed by Perez/Andreesen) seems to be making a comeback. For important phenomena that mainstream academic macro-economics has no explanation for: - How do you measure the "substitution effect" of greater quality at lower prices? Most standard economics metrics assume that value = price; GDP is the total value of all goods manufactured within a company. That means that when the price of a computer falls from $2000 to $200, GDP falls. When Google gives away web search, it counts for nothing; when they reduce the number of organic results to show more ads, it increases GDP. When open-source Linux replaces proprietary Windows, GDP falls. - Inflation is not uniform. Inflation in classical macroeconomics is treated as the measured price of a basket of goods, and caused by an increase in the money supply. But when the money supply increases, that increase does not filter down to all goods equally. It tends to collect at goods with high bargaining power and few substitutes (Warren Buffett was the first person I know of to note this effect). So we have seen massive inflation in the valuation of unicorns, and in the price of San Francisco real estate. We've seen high inflation in health care and the price of a college degree. We've seen steady inflation in home prices elsewhere. We've seen severe deflation in competitive consumer goods markets, and in non-unionized wages. The basket of goods used to calculate CPI is largely commodities, and so by definition tends to understate inflation. That's why the Fed is continuing to step on the gas even though the price of education, or health care, or homeownership is rapidly moving beyond the reach of average Americans. - Competition and capitalism are to some degree antonyms (this is the Peter Thiel thesis). The first goal of most companies is to build a monopoly and keep competitors out. This is covered in depth in microeconomics, but is largely ignored in macroeconomics. But monopolies behave very differently from competitive businesses when it comes to the macroeconomics fundamentals of employment, output, and wages. Monopolies tend to employ people because they have money and want to eliminate competition, not because they need output; this explains a lot of crazy economics results like why people can work 2 hours/day for six-figure salaries while others work 16 hours/day for minimum wage, or why companies buy startups and then immediately kill their products, or why companies would rather sit on cash than hire more people. All of these are mentioned as footnotes in economics textbooks, but they're mentioned to say "Yes, we know this is a problem with the model, but nobody has yet found a better way to account for these phenomena." Policy response is still very much dependent upon mainstream macroeconomics models, even though the observed effect of that policy response isn't working.
- crdoconnor 11y ago
  Spot on. Unfortunately, academic economists are incentivized to produce models that justify existing power structures which leads many to go off the deep end reality-wise. That's how stupid assumptions like "natural rate of unemployment" or "perfect competition" in particular get baked in. Those assumptions are concealing sources of profit. Which is a feature, not a bug.
- TeMPOraL 11y ago
  > Competition and capitalism are to some degree antonyms (this is the Peter Thiel thesis). The first goal of most companies is to build a monopoly and keep competitors out. This is covered in depth in microeconomics, but is largely ignored in macroeconomics. I sometimes wonder how much people delude themselves. For instance this observation about capitalism, competition and monopoly is something that should be obvious to anyone who thinks about the issue for more than 30 seconds. It's the fundamental mechanic. And yet people don't notice. I've noticed, observing various people I know who are very vocal about politics and economy, that educated people are at bigger risk - many end up papering their concerns over with sophisticated explanations of their favourite ideology.

Can you give an example?

by tspike 11y ago

Can you give an example?

I wasn't sure if I wanted to embarrass the people involved, but they're public figures anyway. For people: Marc Andreesen, Peter Thiel, Ray Dalio, Warren Buffett. Interestingly, neo-Schumpeterianism (as championed by Perez/Andreesen) seems to be making a comeback. For important phenomena that mainstream academic macro-economics has no explanation for: - How do you measure the "substitution effect" of greater quality at lower prices? Most standard economics metrics assume that value = price; GDP is the total value of all goods manufactured within a company. That means that when the price of a computer falls from $2000 to $200, GDP falls. When Google gives away web search, it counts for nothing; when they reduce the number of organic results to show more ads, it increases GDP. When open-source Linux replaces proprietary Windows, GDP falls. - Inflation is not uniform. Inflation in classical macroeconomics is treated as the measured price of a basket of goods, and caused by an increase in the money supply. But when the money supply increases, that increase does not filter down to all goods equally. It tends to collect at goods with high bargaining power and few substitutes (Warren Buffett was the first person I know of to note this effect). So we have seen massive inflation in the valuation of unicorns, and in the price of San Francisco real estate. We've seen high inflation in health care and the price of a college degree. We've seen steady inflation in home prices elsewhere. We've seen severe deflation in competitive consumer goods markets, and in non-unionized wages. The basket of goods used to calculate CPI is largely commodities, and so by definition tends to understate inflation. That's why the Fed is continuing to step on the gas even though the price of education, or health care, or homeownership is rapidly moving beyond the reach of average Americans. - Competition and capitalism are to some degree antonyms (this is the Peter Thiel thesis). The first goal of most companies is to build a monopoly and keep competitors out. This is covered in depth in microeconomics, but is largely ignored in macroeconomics. But monopolies behave very differently from competitive businesses when it comes to the macroeconomics fundamentals of employment, output, and wages. Monopolies tend to employ people because they have money and want to eliminate competition, not because they need output; this explains a lot of crazy economics results like why people can work 2 hours/day for six-figure salaries while others work 16 hours/day for minimum wage, or why companies buy startups and then immediately kill their products, or why companies would rather sit on cash than hire more people. All of these are mentioned as footnotes in economics textbooks, but they're mentioned to say "Yes, we know this is a problem with the model, but nobody has yet found a better way to account for these phenomena." Policy response is still very much dependent upon mainstream macroeconomics models, even though the observed effect of that policy response isn't working.

crdoconnor 11y ago
Spot on. Unfortunately, academic economists are incentivized to produce models that justify existing power structures which leads many to go off the deep end reality-wise. That's how stupid assumptions like "natural rate of unemployment" or "perfect competition" in particular get baked in. Those assumptions are concealing sources of profit. Which is a feature, not a bug.
TeMPOraL 11y ago
> Competition and capitalism are to some degree antonyms (this is the Peter Thiel thesis). The first goal of most companies is to build a monopoly and keep competitors out. This is covered in depth in microeconomics, but is largely ignored in macroeconomics. I sometimes wonder how much people delude themselves. For instance this observation about capitalism, competition and monopoly is something that should be obvious to anyone who thinks about the issue for more than 30 seconds. It's the fundamental mechanic. And yet people don't notice. I've noticed, observing various people I know who are very vocal about politics and economy, that educated people are at bigger risk - many end up papering their concerns over with sophisticated explanations of their favourite ideology.