Economics Questions

Re: Anti-Gold

Smiling Dave — Mon, 01 Apr 2013 15:34:57 GMT

We're talking about employment. Unless that article deals with the question of employment...

Dave turns around and slowy walks away.

Re: Anti-Gold

Phi est aureum — Mon, 01 Apr 2013 15:15:20 GMT

1. I don't understand how I have "failed the value free test of economics." I am not asking if B is entitled to leisure time; instead, I am surmising that question might be one asked by an economic illiterate (like yourself) in an attempt to justify protectionism or fiat currency. Further, saying someone isn't entitled to x when its also apparent that the assumption is no one is "entitled" to x or anything else doesn't imply the extraction or intrusion of value to economics.

2. I was not implying that everyone must magically become self-employed. Of course in my example, the three men are just individuals. Pretend instead that they are nations. Then to become "self-employed" is to labor to produce for your own nation, instead of to produce goods for foreign nations. Further, though, it is possible for individuals to be self-employed to some large degree. Nearly everyone COULD grow their own food, especially if it became a near necessity. Why is that a problem?

3. The point you don't understand (well, one of the points, as clearly there is a lot that has went over your head in this discussion and in your own pondering of this topic) is that a lack of money is not a root cause of unemployment unless money is a cause of employment. Can you demonstrate why employment only comes about because of money, why no one did any work until there were gold coins or government fiat circulating?

Unemployment comes about because of a misallocation of resources, often especially the resource of labor. Say Americans sell widgets to the Chinese in exchange for money. Then Americans use the money to buy Chinese gadgets. Then say the Chinese use that money to develop a machine that produces the same widgets they used to buy from Americans more efficiently (cheaper) than the Americans did. Then the Chinese produce their own widgets. It may be possible that some Americans will lose their jobs making widgets, unless someone else besides the Chinese want to buy them, or if the workers can work more efficient/for less money so as to be competitive with the Chinese machines. GET THIS STRAIGHT! The Americans did not lose their jobs because the Chinese did not spend the money back into the US. They lost their jobs because their labor was misallocation and inefficient. If the Americans produced the widgets cheaper and more efficiently than any machine could, the Chinese probably would have continued to buy the American widgets.

Unless you can demonstrate why employment only occurs because of money, or why unemployment occurs only because of less money, I don't think your position is even worth arguing against anymore. Further, you make it sound like unemployment is necessarily a bad thing. In fact, it isn't. It is the market's way of letting people know that their labor has been misallocation and not sufficiently serving the consumer and market. Unemployment isn't bad anymore than a company that commits fraud going out of business is bad; it is just the market's way of liquidating the resources so that they make be reallocated to more efficient production serving the consumer better. Unemployment is only bad on a personal level, as in, "It sucks that I'm unemployed right now," in the same way a company going out of business is only bad on a personal level, as in, "It sucks that my company didn't get away with fraud and ended up going out of business." And it is for this reason that, if one of us it likely to have failed to make the economics value free, it is you Buzz.

"To argue with a person who has renounced the use of reason is like administering medicine to the dead."

-Thomas Paine

Re: Anti-Gold

Buzz Killington — Mon, 01 Apr 2013 02:27:30 GMT

Smiling Dave: more wealth doesn't necessarily mean more employment. We're talking about employment. Unless that article deals with the question of employment...

Why would B be unemployed? Yes, B won't be employed on this day to gather coconuts for A like he was yesterday. But this just means that B won't have the leisure time he had yesterday. Is he entitled to having that leisure time? Of course not! I hope that is not your argument. B will still be self-employed (since he has to work for himself if he won't trade).

Expecting all prole workers to magically become self-employed is delusion, and you already have failed the value free test of economics by asking "is he entitled".

Does it cause unemployment or not? That is the question. Explain why it doesn't or stahp.

Re: Anti-Gold

Phi est aureum — Sun, 31 Mar 2013 18:16:06 GMT

Let us imagine a deserted and isolated island. Three men, Arnold, Brian, and Cory, become stranded on this island. They have no tools or supplies except for the clothes on their backs. The only food available to eat are the wild fish and coconuts.

Arnold can catch one fish per four hours he spends fishing. He can gather two coconuts per one hour he spends gathering coconuts.

Brian can catch one fish per two hours he spends fishing. He can gather six coconuts per one hour he spends gathering coconuts.

Cory can catch one fish per one hours he spends fishing. He can gather four coconuts per one hour he spends gathering coconuts.

As we can see, Brian is the most efficient of three men at gathering coconuts. Cory is the most efficient at fishing. Arnold is the least efficient at both tasks.

Let us now assume that the commodity traded as money is coconuts. While they do have intrinsic value (as food) they are also the most durable of the goods available as the fish will spoil much sooner than a coconut.

The men all wish to consume 4 coconuts and 2 fish per day. Without engaging in trade, A would have to work 10 hours per day to achieve this, B would have to work 4.67 hours per day to achieve this, and C would have to work 3 hours per day to achieve this.

However, let us assume that one of them has heard that the division of labor is a wonder, and the men discuss it. We will assume that C is too skeptical of the idea to think it can work, but A and B agree to give it a shot.

B agrees to trade 9 coconuts to A in exchange for A transferring 1 fish to B. Both men have benefitted from the voluntary exchange. A worked 4 hours to get a fish to B, but A received 9 coconuts in return, which if he had to do on his own would take 4.5 hours. B worked 1.5 hours to get 9 coconuts to A, but B received 1 fish in return, which if he had to do on his own would take 2 hours.

At the end of the day, to reach the 4 coconuts and 2 fish total that each man wanted, C worked 3 hours. B worked 3.83 hours (meaning he gained 1.17 hours of leisure time from his trade with A). A worked 12 hours, which is 2 more than he would have without trading, expect that he also has 5 coconuts left over as savings, which on his own would have required 2.5, not 2, extra hours of labor.

Now, being convinced of the great advantages of trade, C is ready to get in on the action. The next day, C offers to trade 1 fish to A in exchange for 5 coconuts. A happily agrees. No one chooses to trade with B.

At the end of this day, C had to work 3 hours but has 1 coconuts surplus as savings. B, because he did not engage in any voluntary exchange, worked for 4.67 hours. A worked 6 hours (meaning he gained 4 hours of leisure time that he wouldn't have had he not engaged in any trade and had no savings).

*enter Buzz Killington*

Buzz: Hey!! That was bullshit!! B traded coconuts (commodity money) to A, but then A was a dickhead and traded those coconuts to C. Now B is going to be unemployed!!

...

Why would B be unemployed? Yes, B won't be employed on this day to gather coconuts for A like he was yesterday. But this just means that B won't have the leisure time he had yesterday. Is he entitled to having that leisure time? Of course not! I hope that is not your argument. B will still be self-employed (since he has to work for himself if he won't trade). And if B wants to trade, he will have to beat A's offer to C. B might be able to offer C 8 coconuts in exchange for 1 fish. A will likely be unwilling to match or beat that price.

But then again, I think your argument is that A should have traded that money back to B, because if he doesn't, B will be unemployed. This just makes no sense to me. First, should A make the same trade to B, but in reverse? In other words, should A trade 9 coconuts to B in exchange for B transferring 1 fish to A? Now maybe this makes sense at first glance, but let us look at what would happen if this occurred to demonstrate that it truly doesn't make sense.

For A to get 9 coconuts for B, with his savings of 5 coconuts, he will have to work 2 hours. However, he will also have to work 2 hours to get 4 coconuts for himself, as well as four hours to get 1 fish (and B will trade 1 fish to him). This means A will have to work a total of 8 hours.

On the other hand, B will have to work 2 hours to get a fish for A, plus he will have to work 4 hours to get 2 fish for himself. He will end up with 5 coconuts as savings, for a total of 6 hours.

In summary, over the two days, A worked a total of 20 hours, same as he would have had he simply refrained from engaging in trade in the first place. B worked a total of 9.83 hours, 0.5 hours more than what he would have had he refrained from engaging in trade in the first place, although he does have five coconuts in savings (since it takes B 0.83 hours to gather 5 coconuts, we can see his net gain is 1 coconut or 0.17 hours).

B saw a slight gain in this exchange, but A sees none. There is no reason for A to engage in this sort of trade. That is, when the goal is just to trade money to a party in expectation for them to trade it back, it is possible (and sometimes likely depending on the efficiencies of each party) that one party will see no gain and wouldn't do that.

On the other hand, in the first scenario (where B traded money to A on day one and A traded money to C on day two), A worked a total of 18 hours over two days (meaning he gained two hours of leisure or the equivalent 4 coconuts he could gather in that time), B worked 8.5 hours (meaning he gained 0.83 hours of leisure time or the equivalent 5 coconuts he could gather in that time), and C worked 6 hours (meaning that he worked the same number of hours as he would without trade but also has 1 coconut in savings, which is equivalent to 0.25 hours). Clearly, when the individuals act in their own self-interest and engage in trade that is voluntary, everyone gains.

...

tl;dr - There is no inherent reason why nation A trading the money that originated in nation B to nation C will necessarily cause unemployment in nation B. In fact, it is far more likely that there will be an increase in the demand for labor (since they would have more labor-hours to work). The only way this (not trading nation B's money right back to them) could be viewed as a problem is because the people in nation B feel entitled to leisure time and/or higher consumption without providing any benefits to nation A. To believe what Buzz is proposing as a "problem" is to be engaging in the belief in some sort of global social contract and collectivism, or to simply misunderstand basic economics, or to shun individual liberty (to engage in trade with any party on any terms voluntarily). I don't know which Buzz is actually guilty of. Since he says he isn't trolling, I'm guessing he really hasn't fully grasped the economic character of the situation, and due to this oversight/ignorance, has embraced a protectionist policy prescription (which only serves to benefit a small few at the expense of the many) by law or economic policy.

Re: Anti-Gold

Smiling Dave — Sat, 30 Mar 2013 08:23:30 GMT

Sorry, your first comments made no sense to me. And no need to shout.

And we don't lose all our jobs to the Chinese.

You think that if we turn off all trade with the Chinese [the situation about which you wrote the above], and neither import nor export, that we will be better off, because we don't lose our jobs.

May I suggest a careful reading of this article: http://mises.org/rothbard/protectionism.asp It taught me a lot. It should answer all your questions, if read carefully and slowly.

...fiat currency ensures that if they can do something better than we can, we don't have people out of work.

No. As that article explains, if we are forced to buy inferior US stuff, that means waste of our money, and of our resources, and of our labor force. Waste means unemployment. Think about it. You have two countries, one with double the resources of the other. Which country will have more jobs?

Re: Anti-Gold

Buzz Killington — Sat, 30 Mar 2013 05:55:19 GMT

Ultimately of course in the long term we have to be exporting something valuable. With gold, the Chinese could be buying things from someone else, whom we are selling to, so the gold comes back to us eventually (so we can buy more from the Chinese). Specialization is nice.

Except that their gold is also useful to themselves, so they could basically blow all their gold in their own economy. So where is the guarantee that we will get back what we put in?

Re: Anti-Gold

Buzz Killington — Sat, 30 Mar 2013 05:50:22 GMT

Phi: you didn't even attempt to challenge my employment argument. No, I am not trolling.

Re: Anti-Gold

Buzz Killington — Sat, 30 Mar 2013 05:48:37 GMT

But the thing is, they won't HAVE to buy our stuff now either. That's my point. There are plenty of people out there hungry for Chinese goods. The Chinese don't HAVE to sell to us in the first place, and thus won't HAVE to buy our stuff.

Yes, and they WON'T buy our stuff unless

1. It's cheaper to make shit over there

2. THEY CAN USE THOSE DOLLARS TO BUY SHIT IN THE UNITED STATES, CREATING EMPLOYMENT.

The way it is now, we shoot ourselves in the foot, because we are offering the Chinese an all or nothing deal. Either sell us and be forced to buy our stuff in return, or don't sell to us at all. If they decide it's not worth the whole hassle, we get nothing. We don't get those lovely imports we want so badly, and we certainly don't sell them anything.

And we don't lose all our jobs to the Chinese.

As for jobs, if they don't want to buy what we make now, we will have to adapt and make what they do want. Just like any business. Why do you want to be clever and force them to buy crappy goods? [And they must be crappy if we have to force them to buy, right?] Do you think such a business model is sustainable? Don't you think they will find a way around it, like charging us higher prices, or not dealing with us at all?

Well actually, we're not forcing them to buy our shitty goods. If they don't want to buy our goods, they won't buy them. But fiat currency ensures that if they can do something better than we can, we don't have people out of work.

Re: Anti-Gold

Kelvin Silva — Fri, 29 Mar 2013 22:32:40 GMT

Can we then say that the money represents what you produced?

If people dont use north korean currency because they dont make shit, then we can assume that the nk currency represents their economic output.

If all the countries in the world use gold (1 currency), then north korea, making crappy products/no products, will have very little gold in its banks.

I dont know where the argument here is exactly.

But gold is a universal currency, so those assholes in a free market utopia will be able to sell us their crap without buying stuff back from us.

Why do you always need someone to buy back? Isnt the crap youre buying worth having more than the gold? If a trade agreement seems detrimental, why even trade in the first place? I dont understand your argument. The whole point of importing goods is to buy something, and then consume it, in return that consumption contributes to your living standard/enjoyment of life.

If we make garbage, all the fiat money in the world will not help us. They won't accept our fiat money in the first place, because it's useless to them. In other words, unlike what the Q assumes, the situation will be: we cannot buy Chinese stuff, they do not want ours. The US consumer will have to settle for the garbage made in the US, because no country will sell him anything good. Still no unemployment, though, because the US workers are employed supplying the US economy.

Theoretical note: Once again, we see how Say's Law is so important to understand what is going on. Products are ultimately paid for with products, even in a money economy. If our products are good, we can trade with them. If they are bad, we cannot. It's that simple, and all the monetary gimmicks in the world cannot change these basic facts.

I agree with the above.

Re: Anti-Gold

Blargg — Fri, 29 Mar 2013 00:33:13 GMT

But under a gold satndard, even if they don't buy our stuff, at least we get to buy theirs.

Ultimately of course in the long term we have to be exporting something valuable. With gold, the Chinese could be buying things from someone else, whom we are selling to, so the gold comes back to us eventually (so we can buy more from the Chinese). Specialization is nice.

Re: Anti-Gold

Phi est aureum — Fri, 29 Mar 2013 00:29:36 GMT

Are you trolling, Buzz? I honestly just cannot tell with you...

I say: under gold standard, it is possible that China gives US goods in exchange for gold and chooses not to trade that gold back to US for goods but to instead buy Chinese and German goods, resulting in higher prices in Germany and China and lower prices in US, meaning the unemployed struggle more in Germany and China than in US, as well as resulting in lower costs of production in US and higher costs in Germany and China, meaning more business will want to produce in US and hire Americans.

You say: IF THEY TAKE OUR GOLD, WE'LL BE UNEMPLOYED!!!

Seriously, are you just not thinking about what you're saying? When the FED inflates the fiat money supply, and those dollars end up in the hands of a Chinese man who exchanges them for Yuan, those dollars end up back in America bidding prices up, aka causing price inflation. This is a good thing in your eyes?

You act like it is a problem in and of itself that you might trade gold to a foreigner in exchange for a cell phone and the foreigner may decide not to give you the gold back for the wheat you grew... You wish you had a cell phone, some gold, and no wheat while the foreigner would seem to prefer no cell phone, some gold, and no wheat. This isn't a problem. The only problem is you can't seem to market your wheat very well... Lower the price or stop growing wheat and produce something that people with gold do want.

Re: Anti-Gold

Smiling Dave — Fri, 29 Mar 2013 00:26:12 GMT

But the thing is, they won't HAVE to buy our stuff. That's my point.

But the thing is, they won't HAVE to buy our stuff now either. That's my point. There are plenty of people out there hungry for Chinese goods. The Chinese don't HAVE to sell to us in the first place, and thus won't HAVE to buy our stuff.

And guess what? They are not dummies. They realize that if they sell here they HAVE to buy our stuff. It's a voluntary decision that they make before they sell us anything in the first place. It's not like we tricked them or forced them, or anything like that. They don't HAVE to do anything.

The way it is now, we shoot ourselves in the foot, because we are offering the Chinese an all or nothing deal. Either sell us and be forced to buy our stuff in return, or don't sell to us at all. If they decide it's not worth the whole hassle, we get nothing. We don't get those lovely imports we want so badly, and we certainly don't sell them anything.

But under a gold standard, even if they don't buy our stuff, at least we get to buy theirs.

Besides which, I don't understand this obsession with selling them our stuff. You make it sound like that is what trade is all about. No, trade is about importing. That's the object of the whole game, just as going shopping is the object of working for a living. If they are willing to sell to us, that's all we really care about.

As for jobs, if they don't want to buy what we make now, we will have to adapt and make what they do want. Just like any business. Why do you want to be clever and force them to buy crappy goods? [And they must be crappy if we have to force them to buy, right?] Do you think such a business model is sustainable? Don't you think they will find a way around it, like charging us higher prices, or not dealing with us at all?

Finally, even if we grant for the sake of argument that the scheme you are suggesting has some merit, the disadvantages of fiat money are so huge that they outweigh by a ton the miniscule advantage you are pointing out. It's like wanting to put poison in your food, because the color is pretty.

Re: Anti-Gold

Buzz Killington — Thu, 28 Mar 2013 22:40:21 GMT

Not to mention the low wages would be bad for workers in NJ.

Re: Anti-Gold

Buzz Killington — Thu, 28 Mar 2013 22:39:46 GMT

>>>>>>>>If dollars left New Jersey for California and there wasn't freedom of movement then this would drive New Jersey's wages down. This would make it cheaper to produce in New Jersey and production would begin to move there and people would buy shit from New Jersey even though they're all using the same currency.

_____________________|

Dollars leaving NJ just means that most stuff is being produced in CA. If production moves to CA, you could say that wages would lower in NJ, but as soon as wages would lower in NJ they'd also be able to be lowered in CA.

Re: Anti-Gold

Buzz Killington — Thu, 28 Mar 2013 22:34:34 GMT

>>>>Bottom line, if we make good stuff, we have nothing to worry about, even under a gold standard. They will use their gold to buy our stuff, because it's good. No unemployment.

But the thing is, they won't HAVE to buy our stuff. That's my point. Under the current regime dollars taken from the US go back to the US because dollars can only be spent where dollars are accepted. But gold is a universal currency, so those assholes in a free market utopia will be able to sell us their crap without buying stuff back from us.