I want to learn the basics of economics. Help a brother out.

Don't feel too bad. I have a Princeton Econ degree and don't find it too much more reassuring. Neither do my fellow econ buddies. I means it's almost gotten to the point where it's fictional at the macro level.

I wouldn't feel too bad about it. Remember, Alan Greenspan was viewed as genius and he over-saw what one friend of mine believes was nearly the destruction of modern day society. Once people lose faith in the system, we are in big, big trouble.

It's funny to see what was written about Greenspan as recently as 20009:

Now this is being written about him:

Everyone Is Laughing at Alan Greenspan Today -

I think if you can handle the math, everyone should take econ 101/102 but maybe that book will do the trick.

The basic concepts are fantastic. Sunk expenditure, externalities, marginal cost, utility are all great things that people may have not thought about directly.

Basically, you'll end up learning why theoretically free trade is good for all.

But at some level, it seems to me that the macro guys think they can just invent it so that everyone is rich.

Here is a question for MIT grad guy. Do advanced econ people recognize the fact though that fundamentally money/work represents time from people.

When I think of money, I think of ultimately, it lets me get things that other people built or have people do things for me.

In my mind, we can't all be rich, unless we build things that last a long time or the population reduces a ton over generations.

Let's say the fed made it so everyone in the world woke up and had $10 million in their bank account. We'd all be rich but then prices would spike really, really quickly and we wouldn't be rich.

But if one has things that last longer, then we can have more and feel richer. In Baltimore, the pipes from the 1890s are bursting thus they are spending billions to have city workers/contractors fix those. If they lasted 200 years instead of 120, then those workers could work on other things.

If I buy a car for $30,000 and it lasts 10 years, that's good. If it lasts 20 years, then that's better as I have money for other things.

It's incredibly intertwined at the macro level though as that isn't good for car makers.

Like imagine for a minute nothing ever breaks. Then what, we sit around and do what all day?

But let's say we all worked in housing and we built 1,000 ten million houses. If the population sank to 1,000, then eveyrone could live in one of these houses. But, the eonomists like population growth as it funds govt. retirement plans.

I'm getting a headache thinking about it.

True free market economic theory as represented by Mises (not Friedman) is correct. Keynesian theory and theory based on statistics are a pseudosciences.

just study, read and hangout with Richard Heinberg...

First, I'm very glad to respond to rojo, because you and your brother are kind of my heroes.

1)Macro is a big mess. After the 70s, especially after Kydland&Prescot (1983) everyone was fooled by Real Business Cycle theories. Even the Keynesian guys started using their DSGE models . See, for example the Basic New Keynesian Model: it is the same as RBC with some frictions ( e.g. menu costs, Calvo pricing etc...). But I don't want to enter in details. Even last year, two mainstream macro professors, Sargent and Sims were awarded with the Nobel.

But not everyone was fooled by that kind of models. We were talking about Paul Krugman in previous posts; he is not a macro guy, but anyway he did something in the field in the late 90s. I think he was never deceived by them. He probably doesn't know much about them, even though I think he also taught some graduate macro courses.

2)About Greenspan: why did the majority of Americans vote Bush in 2004 and then he was considered as the devil in 2008? People change their mind. I was too young in Greenspan era, but I think I would never consider him as a "maestro".

3)For the thing about money/work = time : take a basic macro model and you see that households are maximizing their utility of consumption and leisure; hence, yes! Everyone think about work/money as time!

For some reasons it could be a problem. For example you don't consider that money is not another good like the others, that it has a certain value other than its function of medium of exchange.

4) About free trade: yes it is good in theory, also in practice for advanced nations. I do not want to defend Krugman, it will be the last time I evoke him. His work in Economic Geography said practically that poor nations should be protectionist in the first stage of development. Also Dani Rodrik wrote something about. It is not exactly my field.

5)About the FED. There is no serious Economist thinking making very high inflation is good. I think,paradoxically, even the Phillips curve guys in the 60s/70s didn't consider it so good...

The point about inflation now is that, given the fact that nominal rates are stucked at zero, and that the real rate to clear the market is probably below zero, the only way to reach it is via higher inflation. i'm not very convinced about it, but famous monetary economists are starting thinking about it.

6) About population growth: there is no economist that likes pop. growth. Consider a Solow Model, that you probably encountered in your Bachelor, where an increase in pop.growth reduces both output and capital per worker.

The thing about retirement and pop.growth is true. The social security system needs a forever growing population. But I assure you that economists are not generally so positive about pop.growth.

Actually, the system could go on with fewer youths but with a GDP growth produced by them that is more than the decrease in their number.

marijuologist wrote:

True free market economic theory as represented by Mises (not Friedman) is correct. Keynesian theory and theory based on statistics are a pseudosciences.

Oh please, don't say bullshits. What do you know about Austrians that is captivating you?!

I don't blame Alan Greenspan for what happened and if you really push me, I'll assign him 10% blame.Nobody can guide an economy as large and dynamic as the US economy, it is a fool's errand. The best you can hope for is to nudge it at the margins. A.Greenspan's laissez-faire, low-interest approach is the only thing that should be done and don't think that anyone else in that position at that time would have done differently. The analogy of preventing forest fires always comes to mind when I think about state/Fed intervention. You can try to prevent forest fires all you want but all you're doing is building the fuel for a super-fire. The economy is going to have ups and downs; if you try to prevent the downs it builds up and results in a depression.If we're bashing Greenspan now, I can't imagine what we'll do to Barnacke in a decade.

rojo wrote:

I wouldn't feel too bad about it. Remember, Alan Greenspan was viewed as genius and he over-saw what one friend of mine believes was nearly the destruction of modern day society. Once people lose faith in the system, we are in big, big trouble.

It's funny to see what was written about Greenspan as recently as 20009:

PCBS wrote:

Alan Greenspan may go down as one of the best chairmen of the Federal Reserve in American history. His 18-year tenure was marked by unprecedented economic growth, budget surpluses and a booming stock market. And he was praised universally for shepherding the economy through the shock of 9/11.

http://www.cbsnews.com/8301-18560_162-3257567.html

Now this is being written about him:

Everyone Is Laughing at Alan Greenspan Today -

http://www.theatlanticwire.com/business/2011/03/everyone-laughing-alan-greenspan-morning/36212/

After you read your book or two on typical economics taught by our tradional educational system, I would recommend you pick up a book on Austrian economics. I don't know which one book would be best, but some of Ron Paul's books at least touch on the topic, and The Von Mises website could probably be a good source to check out.

I personally found it interesting that the Keynesian approach is considered gospel in the U.S., yet the philosophy of Austrian economics made much more logical sense to me. Fascinating that it wasn't even mentioned in my education, and I attended a "top-tier" MBA program.

Khan Academy

more than you think wrote:

After you read your book or two on typical economics taught by our tradional educational system, I would recommend you pick up a book on Austrian economics. I don't know which one book would be best, but some of Ron Paul's books at least touch on the topic, and The Von Mises website could probably be a good source to check out.

I personally found it interesting that the Keynesian approach is considered gospel in the U.S., yet the philosophy of Austrian economics made much more logical sense to me. Fascinating that it wasn't even mentioned in my education, and I attended a "top-tier" MBA program.

There are some serious faults in Austrian thinking. Think about gold standard. Have you ever think about the reason why money is useful? Because people like shine their gold coins?! No!

Because you can buy a pair of Nike Pegasus with money and not wish your shop will accept 2 chairs in exchange! It is so difficult to have coincidence of wants. So why should we spend our time , resources etc... to mint gold when we can just use fiat money?

Ok, you could say about increasing money supply. I don't have much time because I gotta go. But, take a look at this :

It explains well why austrians are the only ones who are able to be wrong 11 times out of 10...

trance dance turn in shawowski wrote:

A.Greenspan's laissez-faire, low-interest approach is the only thing that should be done and don't think that anyone else in that position at that time would have done differently.

Laissez-faire means the separation of government and economics. Anything that the central bank does is by definition an act of government. Greenspan's manipulation of interest rates was therefore NOT a laissez-faire approach, but the exact opposite - a massive act of government interference in the lending market. Your post exemplifies why modern economic education is such a catastrophic failure (or spectacular success at miseducating the public). People who consider themselves educated can't even apply simple definitions correctly.

marijuologist wrote:

trance dance turn in shawowski wrote:

A.Greenspan's laissez-faire, low-interest approach is the only thing that should be done and don't think that anyone else in that position at that time would have done differently.

Laissez-faire means the separation of government and economics. Anything that the central bank does is by definition an act of government. Greenspan's manipulation of interest rates was therefore NOT a laissez-faire approach, but the exact opposite - a massive act of government interference in the lending market. Your post exemplifies why modern economic education is such a catastrophic failure (or spectacular success at miseducating the public). People who consider themselves educated can't even apply simple definitions correctly.

Yes, by definition the Fed was acting in the interest rate market. With that said, given the existence of a central bank, the closest thing you can have to a laissez-faire market would be a zero/low interest rate policy. Keep the rates low and allow market participants to price the risk premium over zero/low for their particular deal.

In light of you comments, and assuming the existence of a central bank, Greenspan's actions were as close to laissez-faire as you're going to get.

MIT_graduate wrote:

There are some serious faults in Austrian thinking. Think about gold standard. Have you ever think about the reason why money is useful? Because people like shine their gold coins?! No!

Because you can buy a pair of Nike Pegasus with money and not wish your shop will accept 2 chairs in exchange! It is so difficult to have coincidence of wants. So why should we spend our time , resources etc... to mint gold when we can just use fiat money?

Ok, you could say about increasing money supply. I don't have much time because I gotta go. But, take a look at this :

http://delong.typepad.com/sdj/2012/09/paul-krugman-asks-a-question-on-the-austrian-hatred-of-fractional-reserve-banking-paper-money-etc-weblogging.html

It explains well why austrians are the only ones who are able to be wrong 11 times out of 10...

I don't claim to have all the answers, but in answer to your question "why money is useful?"... I believe it is to 1.) serve as a medium of exchange (avoid your barter scenario), and 2.) serve as a future store of value.

There is nothing magical about gold & silver in particular. It just worked for centuries better than most alternatives. It does put constraints on monetary growth, whereas our current system is not really limited. They don't even have to print new currency, just press a computer key and add a few zeros. That puts purpose #2 of money in jeopardy.

Guys like Ron Paul suggest that the market should determine the currency, and that we should have competing currencies. I see some positives and negatives to that idea, but I would rather consider the pros/cons than just swallow the Keynesian approach without even realizing that there might be a different (and possibly better) way.

These are just some ideas that the Austrian approach exposed me to, that I wasn't exposed to in my traditional economics courses. I encourage the OP to at least expose him/herself to the ideas and then weigh the merits of the ideas.

And, as for a gold standard... it certainly would have prevented some of the malinvestment we've been seeing the past 40 years, and that's not a bad thing.

MIT_graduate wrote:

Ok, you could say about increasing money supply. I don't have much time because I gotta go. But, take a look at this :

http://delong.typepad.com/sdj/2012/09/paul-krugman-asks-a-question-on-the-austrian-hatred-of-fractional-reserve-banking-paper-money-etc-weblogging.html

It explains well why austrians are the only ones who are able to be wrong 11 times out of 10...

Good grief, man.

I read some of your link, and that guy needs thought clarity.

It reminds me a lot of the doublespeak in Orwell's 1984. War is peace, man... war is peace.

Again, OP, read a book of each. Then, ask yourself which intellectually makes more common sense to you. That somebody would feel the need to attack the Austrian method in the way Krugman, MIT dude, etc. do is somewhat telling.

And, as for a gold standard... it certainly would have prevented some of the malinvestment we've been seeing the past 40 years, and that's not a bad thing.

Examples?

There is nothing magical about gold & silver in particular. It just worked for centuries better than most alternatives.

It didn't actually work so well.Before the First World War everywhere the Gold standard was used, except mainly for France where they tried silver and bimetallism. It was mainly a progression of deflation spirals, recessions, booms, inflations, deflations etc...

It's obvious that you are at the mercy of external events. In the US, under Gold standard there were about 10 financial panics...

a macro guy wrote:

Krugman is the world's worst economist, wrong 100% of the time. His intentions are bad. At best, he's a social climber who takes whatever position brings him the most prestige regardless of the truth. At worst, he is motivated by a hatred of the egoism and induvidualism inherent in capitalism, and is simply out to destroy those things. He's like witch doctor who sticks pins in the minds of his followers, or even a psychopath who murders for kicks. He's a bad, bad guy.

Pretty close. I much enjoy reading

MIT_graduate wrote:

There is nothing magical about gold & silver in particular. It just worked for centuries better than most alternatives.

It didn't actually work so well.Before the First World War everywhere the Gold standard was used, except mainly for France where they tried silver and bimetallism. It was mainly a progression of deflation spirals, recessions, booms, inflations, deflations etc...

It's obvious that you are at the mercy of external events. In the US, under Gold standard there were about 10 financial panics...

"better than most alternatives" was included for a reason. I certainly did not say perfect. It worked well enough that people continued using it up until recent history.

"Mainly a progression of deflation spirals, recessions, booms, inflations, deflations, etc..."

Wow, kind of like now? Lol.

haven't read the thread, so don't know if someone has recommended 'Basic Economics' by Dr. Thomas Sowell yet. I've read it and it's a really sound intro to economics. I highly recommend it.

Although cliche:

http://amzn.to/1567YKu

Easy to read and covers the basics, from there you will have a better idea of what you want to read next, and its pretty cheap compared to a textbook

Carless Joe Jackson wrote:

where do you attend a university where Macroeconomics and Micro are not required for a major in Math? Sheesh - take a freecking course in Economics! Seriously - please tell where you go to school!

Um - why would an econ course be required for a MATH major? I have graduate degrees in both areas, but don't really see the point.

As an example, I don't know of any great economists who didn't have a very good understanding of math; however, I imagine most great mathematicians didn't really know much about economics.