https://www.youtube.com/watch?v=uAM6BkuFur4 Found this video to be VERY informative. TIL: interest rates mean absolutely nothing.
You want to give us a summary? I've got my doubts with this video just from its title. Edit to add: and what does TIL mean?
:/ ok, I'll start the ball rolling. At 0.18 sec and I quote: "Remember that we said that the government has to control inflation and make sure that we don't have to have large amounts of unemployment." :lol:
It's a basic college course. Starting at 10:45 was my reference about interest rates when comparing different income amounts. And TIL means Today I Learned. lol
https://www.youtube.com/watch?v=c8NMqdzSJ98 There's a few listed under the same person posting on youtube. Free college classes on economics. I'm in! lol
When I get some time I'll scan through the links. In the meantime, if you are really interested in doing an economics course for "free' (just requires books) then try this: http://forums.silverstackers.com/topic-45127-home-study-course-in-austrian-economics.html it's not university approved :lol: Some other resources: http://vforvoluntary.com/library/1/econ/articles-videos/19/economics-in-one-lesson
Economics is not my strongest point, but I'll give this a go. What you learned today is wrong. Basically, at the centre of every economic decision we make is the conflict between satisfying current desires or postponing them for the future. Low interest rates encourage us to pursue satisfying current desires as we don't see any value in postponing purchases for a future time by saving. Conversely, high interest rates do the opposite. In the Keynesian world, spending is the key to economic growth. Therefore in low spending periods or what could possibly be termed recessions, government policy decisions attempt to deflect the impact of low spending periods by discouraging savings and encouraging borrowings. The favoured tool to achieve this is manipulating the cash rate downwards. Low rates of interest encourage borrowing and the creation of cheap money which is then spent in areas it would otherwise not be if interest rates truly reflected the demand for debt and the supply of savings. This "new" money floods into these markets, heightening demand and eventually a boom develops. This artificially stimulated boom increases the wealth of those in the market, be it equity or income. This increased wealth* that these market participants have at their disposal is then spent on purchasing a variety of resources (maybe boats, holidays, shares etc etc), this spending drives up prices as more and more market participants compete for the limited resources available. Eventually prices spiral higher and higher and the government attempts to deflect the the impact of excessive spending by raising interest rates - which eventually leads to a bust as the excess capital being spent is revealed to be nothing more than the result of inflation (cheap money) as opposed to savings. There is a bit more I want to say but I am starting to confuse myself - and probably you in the process. :lol: Suffice to say that at the centre of the lecturer's example of the two income earners is the debate over utility (the preference we show for satisfying some desires over others). The Keynesian school maintains that utility decreases for every extra $ earned (cardinality), the Austrians argue that utility doesn't decrease, it's just that humans arrange them according to need or desire (ordinality). Therefore in the Keynesian world, the millionaire's millionth $ has very little value to him, so he doesn't care if he saves it or spends it, interest rates are of little "interest" to him. You may be interested in this: http://theaustrianinsider.com/wp-content/uploads/2014/09/Economics-Infographic.jpg *A great example of false wealth created by the housing boom is equity.
Interest reflects the ratio of the mutual valuation of present goods versus future goods. It is a society wide or social rate of time preference. You could think of it as the average pricing of everyone's preference for future goods versus present goods. The example in the video is flawed because (a) it assumes that people's consumption bundles are fixed (b) it is not a closed economy rather that it is the stylised circumstances of two individuals and the spending of the savings is not accounted. Keynes' liquidity theory of interest is not actually contradictory as it is automatically implied by the pure time preferences of the various individuals.
RE Gary Becker. He was a very fine economist who contributed positively to the profession in many ways. In terms of his views on normative economics, they are all "solved" if instead of assuming maximising behaviour, one treats human actions as purposeful behaviour. This is a key blind spot in so much of the 'Chicago school' group.
How do you even determine what equilibrium is in a market? What metrics do you use? It sounds like something that must be an entirely arbitrary definition and so therefore, unscientific.
Despite what many mainstream economists who have Physics Envy state, economics is not a science, so any definitions of market characteristics that are arrived at are either unable to be substantiated by mathematical equations or are justified through the analysis of human behaviour. As far as I can see, market equilibrium if achievable would only be a fleeting period of time (almost arrived at accidentally) because the market participants can not achieve a perfect balance because they do not have the foresight or all the necessary information to make decisions that could achieve equilibrium. Humans engaging in purposeful economic activity make good calls and poor calls. Explains why any attempt to manipulate the economy is fraught with dangers.
There's a bit about equilibrium on the Austrian economics forum at reddit: And then it gets a bit heavy It's a post by "theantikeyensian", about half way down, I'm going to have to read it a few times before I understand it. https://www.reddit.com/r/austrian_e..._equilibrium_necessarily_more_desirable_than/
