jcd11235 0
Are the rich really the engine of the economy? Surprising datas from a new study.
By
ShcShc11, in Speakers Corner
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quade 4
QuoteTo the unwashed masses, who have to take off their shoes and socks to count over ten, Economists appear to be real whiz kids. Your average Economist, however, would be lost trying to wade through the kind of advanced math that is fundamental to any kind of hard science/engineering curriculum.
But it took an out of work physicist to create the concept of credit default swaps.
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billvon 2,990
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>I'm from an engineering/process controls background and when we would have a
>process upset the source was fixed and the process was allowed to correct itself and
>settle out. Jacking the controls around trying to get things back in line quicker was
>never successful and caused more problems than it fixed.
Good comparison - but that assumes that the economy is currently a stable system. From my experience it's not; it's significantly underdamped. Thus many schemes to "dampen" it (i.e. Keynesian economics, stock market circuit breakers, margin limits) have been tried with varying degrees of success.
However, physical processes are relatively simple compared to economics. The basics of economics are quite simple - labor and goods are exchanged at rates set by their perceived value, which in turn is determined by the supply of both and the demands for both. However, unlike a physical system, in economics the driving forces behind the process itself (investors, consumers, bankers etc) actively try to thwart the damping systems and control coefficients, leading to unpredictable behavior.
(Imagine how hard it would be to design a flight control system if the air could say "damn, they added speed brakes - I better become more compressible!")
>process upset the source was fixed and the process was allowed to correct itself and
>settle out. Jacking the controls around trying to get things back in line quicker was
>never successful and caused more problems than it fixed.
Good comparison - but that assumes that the economy is currently a stable system. From my experience it's not; it's significantly underdamped. Thus many schemes to "dampen" it (i.e. Keynesian economics, stock market circuit breakers, margin limits) have been tried with varying degrees of success.
However, physical processes are relatively simple compared to economics. The basics of economics are quite simple - labor and goods are exchanged at rates set by their perceived value, which in turn is determined by the supply of both and the demands for both. However, unlike a physical system, in economics the driving forces behind the process itself (investors, consumers, bankers etc) actively try to thwart the damping systems and control coefficients, leading to unpredictable behavior.
(Imagine how hard it would be to design a flight control system if the air could say "damn, they added speed brakes - I better become more compressible!")
jcd11235 0
QuoteBut it took an out of work physicist to create the concept of credit default swaps.
As I understand it, Blythe Masters, whose background is in economics, "invented" credit default swaps. To whom are you referring?
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ShcShc11 0
QuoteI'd love to read it but 800 pages of economics is a little beyond my attention span. Any chance there's an abridged version?
And based on your experience and education in economics would you say all periods of economic contraction are bad? I could see a 'correction' every five to seven years as being beneficial as over heated areas come back in line, weaker companies go out of business and workers retrain for new careers with better prospects.
It all depends how and why there is an economic contraction in the first place. Having a controlled economic contraction of an overheating economy is not a bad thing. “Controlled” meaning the Fed is raising Interest Rates and/or sucking the money supply out of the economy in order to cool down the economy.
If U.S unemployment was only at 2-3%, then that might be clear sign that U.S economy is overheating (full-employment is considered usually 4-5%). It basically means companies have a hard time finding suitable labour for their company AND they have to pay more to keep the workforce they have now. This would translate into higher inflations in the line 4-5% (which nobody really wants).
The current recession (some call it a Depression) started in 2008 with the housing bubble crisis. Housing prices went down and the Private Sector (the average Joe) accumulated unforeseen debts. They have no choice, but to pay them down. Because Average Joe is paying down debt, they are not paying for commodities and thus sucking money supply out of the economy. They rather keep money in a Savings Account instead of buying / investing them anywhere.
Because they are saving instead of buying, demand is low and companies have to shed employees. A lot of good potential labour are now unemployed or underemployed due to LOW DEMAND. The economy is not functioning at its fullest potential and we are living a very sub-standard quality of life.
Job scarcity means less revenue for the Gov (meaning less revenue to pay debt), more social government program for the poor gets activated (as less people are making money), less investments (education is cut) and many Grads are losing their potential because they are working in fields that have nothing to do with what they studied.
Too many people are saving their money and not enough is spending it in the economy. So we have to bring measures to de-incentive people from saving or hoarding their money.
This can be in the form of:
-lowering interests (but the Feds already brought interest rates nearly to zero)
-raise inflation target (this is more for emergency cases such as the present moment when interest rates can’t be further lowered).
-Government Spending (if the Private Sector is unwilling to bring demand up, then the Public should).
Etc…
…
About Adam Tooze’s book. I’m sure there is no abridge version of it. If I can find some interesting links about it, Il be sure to post them. Tooze’s book is probably the only real one that talks in-depth about Nazi economy (unfortunately
).
Cheers!
Shc
shaark 0
Two other books relevant to the Nazi economy:
By James Pool
"Who Financed Hitler."
"Hitler and his Secret Partners."
Well researched, and well worth reading.
By James Pool
"Who Financed Hitler."
"Hitler and his Secret Partners."
Well researched, and well worth reading.
quade 4
QuoteQuoteBut it took an out of work physicist to create the concept of credit default swaps.
As I understand it, Blythe Masters, whose background is in economics, "invented" credit default swaps. To whom are you referring?
No. She was only responsible at J.P Morgan, but the concept of derivatives existed well before she ever came on the scene. In fact, people like Frank Partnoy were warning about them as far back as 1994, just about the time Masters was gaining power and designed the one with Exxon. But, like I said, they existed several years before that.
My understanding is financial institutions hired out of work physicists (people particularly good with differential equations), to invent the derivatives that directly lead to the creation of CDOs.
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The World's Most Boring Skydiver
Monko760 0
Quote>I figure we'll default on our loans first. Good thing we have a strong military.
The reason we have a strong military is that we have a strong economy. (How long you think our military will run without oil?)
China comes knocking, asking for its money, kindly ask them to step off your porch with a couple of nuclear powered(no oil needed) aircraft carriers.
Don't worry the nukes will be able to power the planes by way of laser beam soon enough. http://www.popsci.com/technology/article/2012-07/ground-air-laser-power-system-keeps-stalker-uas-aloft-two-straight-days
I fly and stuff, its fun!
jcd11235 0
QuoteQuoteQuoteBut it took an out of work physicist to create the concept of credit default swaps.
As I understand it, Blythe Masters, whose background is in economics, "invented" credit default swaps. To whom are you referring?
No. She was only responsible at J.P Morgan, but the concept of derivatives existed well before she ever came on the scene. In fact, people like Frank Partnoy were warning about them as far back as 1994, just about the time Masters was gaining power and designed the one with Exxon. But, like I said, they existed several years before that.
My understanding is financial institutions hired out of work physicists (people particularly good with differential equations), to invent the derivatives that directly lead to the creation of CDOs.
Interesting. I'm trying (unsuccessfully) to find a reference to a credit default swap (not CDO) sold before the late 1990's. Can you point me in the right direction?
Math tutoring available. Only $6! per hour! First lesson: Factorials!
nanook 1
QuoteQuoteQuoteQuoteBut it took an out of work physicist to create the concept of credit default swaps.
As I understand it, Blythe Masters, whose background is in economics, "invented" credit default swaps. To whom are you referring?
No. She was only responsible at J.P Morgan, but the concept of derivatives existed well before she ever came on the scene. In fact, people like Frank Partnoy were warning about them as far back as 1994, just about the time Masters was gaining power and designed the one with Exxon. But, like I said, they existed several years before that.
My understanding is financial institutions hired out of work physicists (people particularly good with differential equations), to invent the derivatives that directly lead to the creation of CDOs.
Interesting. I'm trying (unsuccessfully) to find a reference to a credit default swap (not CDO) sold before the late 1990's. Can you point me in the right direction?
Arrgh. The fustration. I want to say that CDS predated the eighties. Now, I'm going to have to search myself.
(edit)
Nope. Confusing the ISDA and Mark Brikell's work with defeating derivatives regulation. CDS's appeared to come popular in the early ninties.
_____________________________
"The trouble with quotes on the internet is that you can never know if they are genuine" - Abraham Lincoln
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quade 4
QuoteQuoteQuoteQuoteQuoteBut it took an out of work physicist to create the concept of credit default swaps.
As I understand it, Blythe Masters, whose background is in economics, "invented" credit default swaps. To whom are you referring?
No. She was only responsible at J.P Morgan, but the concept of derivatives existed well before she ever came on the scene. In fact, people like Frank Partnoy were warning about them as far back as 1994, just about the time Masters was gaining power and designed the one with Exxon. But, like I said, they existed several years before that.
My understanding is financial institutions hired out of work physicists (people particularly good with differential equations), to invent the derivatives that directly lead to the creation of CDOs.
Interesting. I'm trying (unsuccessfully) to find a reference to a credit default swap (not CDO) sold before the late 1990's. Can you point me in the right direction?
Arrgh. The fustration. I want to say that CDS predated the eighties. Now, I'm going to have to search myself.
Yeah the real problem is one of scale and terminology. He's right that the term "credit default swap" doesn't really enter the lexicon until the Exxon deal, but I could swear deals like that had been made previously. Sort of a rose by any other name issue though.
quade -
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jcd11235 0
QuoteSort of a rose by any other name issue though.
To be fair, credit default swaps are essentially insurance policies, but without all of the regulation, which, among other things, meant that they can be purchased by parties without an insurable interest and sold by parties who may not have has sufficient assets to pay the "benefit".
Math tutoring available. Only $6! per hour! First lesson: Factorials!
nanook 1
QuoteQuoteQuoteQuoteQuoteQuoteBut it took an out of work physicist to create the concept of credit default swaps.
As I understand it, Blythe Masters, whose background is in economics, "invented" credit default swaps. To whom are you referring?
No. She was only responsible at J.P Morgan, but the concept of derivatives existed well before she ever came on the scene. In fact, people like Frank Partnoy were warning about them as far back as 1994, just about the time Masters was gaining power and designed the one with Exxon. But, like I said, they existed several years before that.
My understanding is financial institutions hired out of work physicists (people particularly good with differential equations), to invent the derivatives that directly lead to the creation of CDOs.
Interesting. I'm trying (unsuccessfully) to find a reference to a credit default swap (not CDO) sold before the late 1990's. Can you point me in the right direction?
Arrgh. The fustration. I want to say that CDS predated the eighties. Now, I'm going to have to search myself.
Yeah the real problem is one of scale and terminology. He's right that the term "credit default swap" doesn't really enter the lexicon until the Exxon deal, but I could swear deals like that had been made previously. Sort of a rose by any other name issue though.
According to online sources, Exxon deals reflected modern CDS's. However, Banker's Trust was trading earlier, approximately 1991 or so.
_____________________________
"The trouble with quotes on the internet is that you can never know if they are genuine" - Abraham Lincoln
"The trouble with quotes on the internet is that you can never know if they are genuine" - Abraham Lincoln
nanook 1
QuoteQuoteSort of a rose by any other name issue though.
To be fair, credit default swaps are essentially insurance policies, but without all of the regulation, which, among other things, meant that they can be purchased by parties without an insurable interest and sold by parties who may not have has sufficient assets to pay the "benefit".
Yup. And worse, they can and were used in the packaging of synthetic CDO's.
_____________________________
"The trouble with quotes on the internet is that you can never know if they are genuine" - Abraham Lincoln
"The trouble with quotes on the internet is that you can never know if they are genuine" - Abraham Lincoln
QuoteQuoteQuoteBut it took an out of work physicist to create the concept of credit default swaps.
As I understand it, Blythe Masters, whose background is in economics, "invented" credit default swaps. To whom are you referring?
No. She was only responsible at J.P Morgan, but the concept of derivatives existed well before she ever came on the scene. In fact, people like Frank Partnoy were warning about them as far back as 1994, just about the time Masters was gaining power and designed the one with Exxon. But, like I said, they existed several years before that.
My understanding is financial institutions hired out of work physicists (people particularly good with differential equations), to invent the derivatives that directly lead to the creation of CDOs.
you went from an (single) out of work physicist to multiple, unnamed, out of work physicists at some unnamed part in time?
OTOH, it can explain the spectacular mess this sub species of Quants got us all into. Treating human behavior as simple, if complex, mathematics is hardly better than the mathless economics practiced by others. And then you look at the ongoing religion of technical analysis....
Nothing more dangerous than smart guys who think they actually understand the big picture and are willing to gamble trillions on their theses.
Quote
However, physical processes are relatively simple compared to economics. The basics of economics are quite simple - labor and goods are exchanged at rates set by their perceived value, which in turn is determined by the supply of both and the demands for both. However, unlike a physical system, in economics the driving forces behind the process itself (investors, consumers, bankers etc) actively try to thwart the damping systems and control coefficients, leading to unpredictable behavior.
microeconomics - individual actions - are fairly simple and easy to build models around. But the big picture where all the little models interacts, not so simple. (sort of like the climate science). Economics has well pedigreed people in complete disagreement with each other, leading to a fair conclusion that this is more social science than science.
Quote
Most of the "economic theories" put forth so proudly by various schools of thought are reduced parameter models, linearized about a point of interest. The nonlinearities that arise when perturbations exceed their defined range, or when parameters that were not part of the model prevail, routinely leave economists scratching their heads.
To the unwashed masses, who have to take off their shoes and socks to count over ten, Economists appear to be real whiz kids. Your average Economist, however, would be lost trying to wade through the kind of advanced math that is fundamental to any kind of hard science/engineering curriculum.
+1
IMO, most liberal mathematicians really don't seem to understand inverse responses, except when they're arguing for more Keynesian spending.
We are all engines of karma
Quote
Housing prices went down and the Private Sector (the average Joe) accumulated unforeseen debts. They have no choice, but to pay them down. Because Average Joe is paying down debt, they are not paying for commodities and thus sucking money supply out of the economy. They rather keep money in a Savings Account instead of buying / investing them anywhere.
You seem to be contradicting yourself here...
Paying down debt is still spending money.
Saving it is not paying down debt.
We are all engines of karma
An economist without a strong mathematics background is merely a politician.
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