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A Keynesian Fantasy - A Fiscal Nightmare
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Topic Started: Dec 6 2008, 01:32 PM (593 Views)
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Minuet
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Dec 8 2008, 12:58 PM
Post #46
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Fleet Admiral Assistant wRench, Chief Supper Officer
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- whitestar
- Dec 8 2008, 12:14 PM
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But would it not be simply to base wage of experience and performance, rather than age. That way you don't have to assume that with age comes better performance and experience. Both performance and experience are easy to measure in an employ; there is no need to use a third measure (age) to approximate the previous two. Age than becomes meaningless
From experience as an employer I can state that in general the adult is a safer bet to employ when it comes to attendance and attitude to work. In the case of two adults I will choose the family man for the same reason. They are firmly entrenched in the rat race and have good incentive to get outta of bed at 5am and stick around for overtime when needed and do it daily, weekly, year in year out. In other words they are in general more reliable. - Quote:
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Also; assuming that with age comes experience; than one must also assume that an adult ought not to be in the same position as a child; because their experience should afford them a better position. There fore it is no off to assume that the adult working behind the counter at a fast food joint, either doesn’t have experience or performs badly; other wise he would have a better job than the child. There for the reasons to give him a better wage are no longer true.
Maybe, maybe not.. could be a multitude of reasons.. a burnt out General Manager may enjoy the relative freedom from a more responsibile laden job, someone maybe looking for part-time work as well as their main employment, an injured construction worker looking for a new path of employment, on and on. Add to that list a parent reentering the workforce after raising children. I chose to take a job with lower wages and less responsibility then I previously had so that I could still be around for the kids.
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Dandandat
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Dec 8 2008, 01:10 PM
Post #47
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Time to put something here
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- whitestar
- Dec 8 2008, 12:14 PM
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Also; assuming that with age comes experience; than one must also assume that an adult ought not to be in the same position as a child; because their experience should afford them a better position. There fore it is no off to assume that the adult working behind the counter at a fast food joint, either doesn’t have experience or performs badly; other wise he would have a better job than the child. There for the reasons to give him a better wage are no longer true.
Maybe, maybe not.. could be a multitude of reasons.. a burnt out General Manager may enjoy the relative freedom from a more responsibile laden job, someone maybe looking for part-time work as well as their main employment, an injured construction worker looking for a new path of employment, on and on. And in all those examples the person assumes the role of the inexperienced worker for other life related gains.
The GM who now flips burgers should not expect a higher bugger flipper salary because he was once a GM as compared to all the other bugger flippers. The experience the GM had as a GM is no longer related to his job, as a bugger flipper he has just as much experience as the rest of the crew.
Besides that his age (which is what we are discussing) is still not the primary indicator of why he deserves more money.
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From experience as an employer I can state that in general the adult is a safer bet to employ when it comes to attendance and attitude to work. In the case of two adults I will choose the family man for the same reason. They are firmly entrenched in the rat race and have good incentive to get outta of bed at 5am and stick around for overtime when needed and do it daily, weekly, year in year out. In other words they are in general more reliable.
Reliability is a good influence on wage; but that still does not introduce the need for the distinction between a child wage and an adult wage. Between a reliable wage vs an unreadable wage I can understand a distinction being made; but reliability can be measured by many more things than just age (as your family man example shows); their for it seems odd to make childhood to adulthood a special indicator in wage determination.
On a side note; there is a school of thought that the "family man" is less reliable as an employ than the "non-family man". For example where you say the family man is more likely to stick around for overtime; they would say the family man is less likely to stick around for over time because he has presures to spend time with his family.
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Dandandat
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Dec 8 2008, 01:16 PM
Post #48
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Time to put something here
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An interesting article I read that relates to the threads topic.
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I have been reading about monetarism around the web lately and find the topic interesting. Most of the writings I have seen look to money supply measures as an indicator of whether we should expect inflation and discuss the monetary aggregates, M1 and M2. Some commentators are stressing that M3 and MZM are better indicators of the true money supply as they include institutional money market funds ("IMMFs"). I agree with this position, but I think it misses some issues of the current economic situation. I think of it this way: Under the traditional model of monetary expansion the Federal Reserve injects reserves into the banking system which then uses the reserves to make a loan. The proceeds of the loan are then deposited into a bank and this is new money! The bank receiving the deposit can use a portion of this new deposit to make a loan, and the proceeds of that loan will be deposited into another bank – more new money. This process continues expanding the money supply and debt, limited by the portion of each new deposit that must be kept in reserve rather than loaned out and the fact that in order to make a new loan, banks need capital. But what if debt could expand without expansion of the money supply or bank capital? There would be a decoupling of the relationship between the money supply and debt creation. This decoupling has happened as debt that is originated by banks is often removed from the balance sheets of the banks through securitization, and this process converts the money supply from M2 to M3 or even out of M3 completely. To see how this happens requires a rather lengthy diversion into an example, so here goes:  To see how an everyday transaction ends up converting M2 to M3, I have drawn the diagram above. Beginning with the asterisk in Bank Reserves and assuming the Fed has injected $100 in new reserves, the Bank would want to make a loan for $100. Assume the Bank makes a loan of $100 to Home Buyer to purchase a house from Home Builder. Home Buyer takes out the loan and the cash goes to Home Builder. Home Builder now takes the cash and deposits it into the Bank. (These transactions are the black lines.) This is a new deposit and it represents growth in all the monetary aggregates. But in today’s financial markets (at least before the current meltdown) the Bank is likely to sell the loan to remove it from its balance sheet. If it does so by selling the loan (either directly or through a securitization first) to a commercial paper conduit, then the blue lines would represent the transfer of the loan in exchange for cash. But where did this cash come from? Let’s assume Investor took $100 out of its account at the Bank to purchase a share in IMMF (institutional money market fund) (the red lines). IMMF used this new cash to purchase commercial paper from the Conduit, which is where the Conduit got the cash to purchase the loan (the green lines). At the end of this series of transactions, there has been no net change in bank deposits because $100 went in from Home Builder and $100 came out from Investor (no change in M1 or M2). The original $100 of reserves injected into the bank by the Fed has been replaced by the proceeds from the $100 loan purchase by the Conduit. The money supply has grown, but it is what used to be M3 that increased through an increase in IMMF balances. The Bank is now free to lend the entire $100 again, effectively eliminating the reserve requirement and bank capital as a limitation on money supply (M3) growth from the initial reserves. Because of this off-balance sheet financing of loans by banks it can be M3 that increases as loans are made and sold rather than M1 or M2. Also note that this financing structure is speculative, funding long-term assets with short-term debt. Since the funding source (commercial paper) is not generally guaranteed (as are bank deposits) it is prone to a run. If the bank simply securitized the loans and sold them directly to investors without a commercial paper conduit we could diagram the same result with respect to M2 without an increase in M3 or MZM, but it would not necessarily be speculative. In any event, we have already created the money underlying the loan, but we have converted it to something that is not measured by M2 and sometimes not measured by M3. Because of these conversions of money from one form to another the traditional concepts of money supply and monetary expansion have been altered. As debt creation escapes the bounds of the monetary system around which traditional debt expansion occurred we should monitor debt outside banks as well as M2 or M3.  To see the change in the relationship between deposit expansion and debt creation I compared M2 to non-federal-government debt (“NFGD”) using the first graph above. (NFGD is all debt less federal government debt.) NFGD has increased from a multiple of approximately two times M2 in 1980 to over 3.2 times in 2007. Historically, as debt increased through the banking system there would be a concurrent increase in M2 as the fractional reserve system of banking would multiply the monetary base through deposit expansion. Today, however, deposit expansion and debt expansion have become decoupled as banks sell loans to third parties. In addition to decoupling deposit expansion from debt expansion, the latter is no longer constrained by bank capital since the banks are no longer accumulating loans that require capital. This can create a monetary base outside of the traditional measures of money.  We have also seen a decoupling of the relationship between incomes and debt creation. In its simplest form this is the relationship between debt and GDP. The second graph shows NFGD as a percent of GDP and M2 as a percent of GDP. The divergence is striking, and I think gets to the heart of our economic crisis – the breakdown of the relationships between money supply and debt and between debt and income. With debt ballooning to new highs relative to income, the cash flow implication for consumers is less consumption and more saving – a recession. But what supports this balloon of debt in the first place? In part it is like any other bubble - the rising prices of the assets being financed by the debt provides collateral for more debt. The difference with this bubble, however, is that we have gone from a game where the ultimate size of the monetary bubble is regulated by the Fed through banking reserves, deposit multipliers, and bank capital to a system where any bubble can create its own monetary supply to support itself using securitization to multiply bank reserves in a virtually unlimited manner. At the same time we should be monitoring broader measures of monetary expansion because of financial innovation the Fed has stopped publishing M3 in the belief that it adds nothing to what M2 tells us. So, other than restructuring how we monitor the financial system for the future, what should be done? Lets start by recognizing that doing nothing is unacceptable as the risk of a deflationary spiral is too great and the results too dire to chance. Once consumers are overburdened with debt service we should expect a recession because not only will consumers save to pay down debt, they will stop borrowing while they do so which will further reduce consumption. Reduced consumption could lead to falling incomes and prices, in which case relative debt burden increases making things worse. Assuming savings also decline through falling asset prices (stocks, home values, etc.) there would be no reason to expect an increase in consumption (save the increase in the value of cash net of the value of liquidity, if any, in such circumstances) or investment, and we could get stuck in a long-term underemployment of great proportions. If the true driver of the current financial crisis is the creation of too much consumer debt, then the only way we exit the crisis is by reducing the burden of the debt on consumers through some proactive means. There are several ways to go about reducing the burden of debt-service on consumers (other than simply using public funds to repay private debt). (1) We can try to inflate our way out of the impending cycle of deflation and recession by adding reserves to the banking system, but this assumes more reserves will result in more borrowing, investment, and consumption. Will companies borrow to invest when the economic outlook is dreadful because consumers are overburdened with debt? Will consumers borrow to consume when they are already overburdened with debt? In short, will traditional efforts to expand the money supply expand the money supply? The evidence is not in yet on this front. (2) We can make every effort to lower interest rates thereby supporting asset prices and reducing debt service payments. This would help to reduce the debt-service in the debt-service/income ratio and provide more income for consumption. The Fed’s efforts to reduce both short and long term interest rates should have some positive impact on reducing the debt burden by lowering rates and, therefore, debt-service payments and should, in turn, support asset prices. Note this is related to the inflation scenario in that monetary policy easing means lowering interest rates on the short end. The Fed has now gone to purchasing long-term securities in an effort to reduce long-term rates that have not responded to the short-term rate reductions. We can also attempt to restructure debt obligations so as to reduce the current payment obligations of consumers by, for example, extending the term of a loan. (3) We can have a major fiscal stimulus that creates employment to increase incomes relative to legacy debt-service. By increasing incomes the debt-service/income ratio would decline. The stimulus would, in effect, replace private debt with public debt, freeing up income for consumption. Based on recent reports, a major fiscal stimulus plan is probably in the works by the new administration. While we wait to see if our efforts are successful, we can utilize the Fed and Treasury to (i) pump public money into bank capital so the banks have enough capital to make new loans when they hold excess reserves, and (ii) lend to ever increasing elements of the financial system to prevent major systemic collapse as speculative financing evaporates. None of this is news. http://polecolaw.blogspot.com/2008/12/money-supply-and-credit-crisis.html
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whitestar
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Dec 8 2008, 06:56 PM
Post #49
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Captain
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And in all those examples the person assumes the role of the inexperienced worker for other life related gains.
The GM who now flips burgers should not expect a higher bugger flipper salary because he was once a GM as compared to all the other bugger flippers. The experience the GM had as a GM is no longer related to his job, as a bugger flipper he has just as much experience as the rest of the crew.
Besides that his age (which is what we are discussing) is still not the primary indicator of why he deserves more money. your right, age does not mean more deserving of the correct monetary reward, the youth wage is about incentive for employers to forgo the biased towards adult workers, giving the child a more even playing field when hunting for employment.- Quote:
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On a side note; there is a school of thought that the "family man" is less reliable as an employ than the "non-family man". For example where you say the family man is more likely to stick around for overtime; they would say the family man is less likely to stick around for over time because he has presures to spend time with his family. the trouble with "schools of thought" is, they seldom tally with reality though there is truth to it. I find the best solution is to not overtax the willingness of workers, moderation of overtime.. if it becomes to much it is then time to consider employing a casual worker to take up the slack. Though I have found when overtime dries up, the family man is the first to complain
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whitestar
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Dec 8 2008, 07:02 PM
Post #50
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Captain
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- Dandandat
- Dec 8 2008, 01:16 PM
An interesting article I read that relates to the threads topic. - Quote:
-
I have been reading about monetarism around the web lately and find the topic interesting. Most of the writings I have seen look to money supply measures as an indicator of whether we should expect inflation and discuss the monetary aggregates, M1 and M2. Some commentators are stressing that M3 and MZM are better indicators of the true money supply as they include institutional money market funds ("IMMFs"). I agree with this position, but I think it misses some issues of the current economic situation. I think of it this way: Under the traditional model of monetary expansion the Federal Reserve injects reserves into the banking system which then uses the reserves to make a loan. The proceeds of the loan are then deposited into a bank and this is new money! The bank receiving the deposit can use a portion of this new deposit to make a loan, and the proceeds of that loan will be deposited into another bank – more new money. This process continues expanding the money supply and debt, limited by the portion of each new deposit that must be kept in reserve rather than loaned out and the fact that in order to make a new loan, banks need capital. But what if debt could expand without expansion of the money supply or bank capital? There would be a decoupling of the relationship between the money supply and debt creation. This decoupling has happened as debt that is originated by banks is often removed from the balance sheets of the banks through securitization, and this process converts the money supply from M2 to M3 or even out of M3 completely. To see how this happens requires a rather lengthy diversion into an example, so here goes:  To see how an everyday transaction ends up converting M2 to M3, I have drawn the diagram above. Beginning with the asterisk in Bank Reserves and assuming the Fed has injected $100 in new reserves, the Bank would want to make a loan for $100. Assume the Bank makes a loan of $100 to Home Buyer to purchase a house from Home Builder. Home Buyer takes out the loan and the cash goes to Home Builder. Home Builder now takes the cash and deposits it into the Bank. (These transactions are the black lines.) This is a new deposit and it represents growth in all the monetary aggregates. But in today’s financial markets (at least before the current meltdown) the Bank is likely to sell the loan to remove it from its balance sheet. If it does so by selling the loan (either directly or through a securitization first) to a commercial paper conduit, then the blue lines would represent the transfer of the loan in exchange for cash. But where did this cash come from? Let’s assume Investor took $100 out of its account at the Bank to purchase a share in IMMF (institutional money market fund) (the red lines). IMMF used this new cash to purchase commercial paper from the Conduit, which is where the Conduit got the cash to purchase the loan (the green lines). At the end of this series of transactions, there has been no net change in bank deposits because $100 went in from Home Builder and $100 came out from Investor (no change in M1 or M2). The original $100 of reserves injected into the bank by the Fed has been replaced by the proceeds from the $100 loan purchase by the Conduit. The money supply has grown, but it is what used to be M3 that increased through an increase in IMMF balances. The Bank is now free to lend the entire $100 again, effectively eliminating the reserve requirement and bank capital as a limitation on money supply (M3) growth from the initial reserves. Because of this off-balance sheet financing of loans by banks it can be M3 that increases as loans are made and sold rather than M1 or M2. Also note that this financing structure is speculative, funding long-term assets with short-term debt. Since the funding source (commercial paper) is not generally guaranteed (as are bank deposits) it is prone to a run. If the bank simply securitized the loans and sold them directly to investors without a commercial paper conduit we could diagram the same result with respect to M2 without an increase in M3 or MZM, but it would not necessarily be speculative. In any event, we have already created the money underlying the loan, but we have converted it to something that is not measured by M2 and sometimes not measured by M3. Because of these conversions of money from one form to another the traditional concepts of money supply and monetary expansion have been altered. As debt creation escapes the bounds of the monetary system around which traditional debt expansion occurred we should monitor debt outside banks as well as M2 or M3.  To see the change in the relationship between deposit expansion and debt creation I compared M2 to non-federal-government debt (“NFGD”) using the first graph above. (NFGD is all debt less federal government debt.) NFGD has increased from a multiple of approximately two times M2 in 1980 to over 3.2 times in 2007. Historically, as debt increased through the banking system there would be a concurrent increase in M2 as the fractional reserve system of banking would multiply the monetary base through deposit expansion. Today, however, deposit expansion and debt expansion have become decoupled as banks sell loans to third parties. In addition to decoupling deposit expansion from debt expansion, the latter is no longer constrained by bank capital since the banks are no longer accumulating loans that require capital. This can create a monetary base outside of the traditional measures of money.  We have also seen a decoupling of the relationship between incomes and debt creation. In its simplest form this is the relationship between debt and GDP. The second graph shows NFGD as a percent of GDP and M2 as a percent of GDP. The divergence is striking, and I think gets to the heart of our economic crisis – the breakdown of the relationships between money supply and debt and between debt and income. With debt ballooning to new highs relative to income, the cash flow implication for consumers is less consumption and more saving – a recession. But what supports this balloon of debt in the first place? In part it is like any other bubble - the rising prices of the assets being financed by the debt provides collateral for more debt. The difference with this bubble, however, is that we have gone from a game where the ultimate size of the monetary bubble is regulated by the Fed through banking reserves, deposit multipliers, and bank capital to a system where any bubble can create its own monetary supply to support itself using securitization to multiply bank reserves in a virtually unlimited manner. At the same time we should be monitoring broader measures of monetary expansion because of financial innovation the Fed has stopped publishing M3 in the belief that it adds nothing to what M2 tells us. So, other than restructuring how we monitor the financial system for the future, what should be done? Lets start by recognizing that doing nothing is unacceptable as the risk of a deflationary spiral is too great and the results too dire to chance. Once consumers are overburdened with debt service we should expect a recession because not only will consumers save to pay down debt, they will stop borrowing while they do so which will further reduce consumption. Reduced consumption could lead to falling incomes and prices, in which case relative debt burden increases making things worse. Assuming savings also decline through falling asset prices (stocks, home values, etc.) there would be no reason to expect an increase in consumption (save the increase in the value of cash net of the value of liquidity, if any, in such circumstances) or investment, and we could get stuck in a long-term underemployment of great proportions. If the true driver of the current financial crisis is the creation of too much consumer debt, then the only way we exit the crisis is by reducing the burden of the debt on consumers through some proactive means. There are several ways to go about reducing the burden of debt-service on consumers (other than simply using public funds to repay private debt). (1) We can try to inflate our way out of the impending cycle of deflation and recession by adding reserves to the banking system, but this assumes more reserves will result in more borrowing, investment, and consumption. Will companies borrow to invest when the economic outlook is dreadful because consumers are overburdened with debt? Will consumers borrow to consume when they are already overburdened with debt? In short, will traditional efforts to expand the money supply expand the money supply? The evidence is not in yet on this front. (2) We can make every effort to lower interest rates thereby supporting asset prices and reducing debt service payments. This would help to reduce the debt-service in the debt-service/income ratio and provide more income for consumption. The Fed’s efforts to reduce both short and long term interest rates should have some positive impact on reducing the debt burden by lowering rates and, therefore, debt-service payments and should, in turn, support asset prices. Note this is related to the inflation scenario in that monetary policy easing means lowering interest rates on the short end. The Fed has now gone to purchasing long-term securities in an effort to reduce long-term rates that have not responded to the short-term rate reductions. We can also attempt to restructure debt obligations so as to reduce the current payment obligations of consumers by, for example, extending the term of a loan. (3) We can have a major fiscal stimulus that creates employment to increase incomes relative to legacy debt-service. By increasing incomes the debt-service/income ratio would decline. The stimulus would, in effect, replace private debt with public debt, freeing up income for consumption. Based on recent reports, a major fiscal stimulus plan is probably in the works by the new administration. While we wait to see if our efforts are successful, we can utilize the Fed and Treasury to (i) pump public money into bank capital so the banks have enough capital to make new loans when they hold excess reserves, and (ii) lend to ever increasing elements of the financial system to prevent major systemic collapse as speculative financing evaporates. None of this is news.http://polecolaw.blogspot.com/2008/12/money-supply-and-credit-crisis.html
I tried reading through this but got a headace, way outta my league
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Dwayne
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Dec 8 2008, 07:11 PM
Post #51
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Profanity deleted by Hoss
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^^^ it would help if you'd correctly link to the diagrams referenced in the article.
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ds9074
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Dec 9 2008, 05:12 AM
Post #52
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Admiral
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- Dwayne
- Dec 8 2008, 11:11 AM
Two words of warning: British Leyland
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Dandandat
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Dec 9 2008, 08:35 AM
Post #53
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Time to put something here
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- Dwayne
- Dec 8 2008, 07:11 PM
^^^ it would help if you'd correctly link to the diagrams referenced in the article. Corrected
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Dwayne
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Dec 9 2008, 08:54 AM
Post #54
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Profanity deleted by Hoss
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^^^ Actually, I still don't see them.
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Dwayne
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Dec 9 2008, 08:57 AM
Post #55
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Profanity deleted by Hoss
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- ds9074
- Dec 9 2008, 05:12 AM
Well, Nancy Pelosi is totally convinced that her and the other democrats are going to create, in her words not mine, a viable automobile industry by March 31st.
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Admiralbill_gomec
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Dec 9 2008, 10:37 AM
Post #56
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UberAdmiral
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- Dwayne
- Dec 9 2008, 08:57 AM
- ds9074
- Dec 9 2008, 05:12 AM
Well, Nancy Pelosi is totally convinced that her and the other democrats are going to create, in her words not mine, a viable automobile industry by March 31st. You see, we really care, and all we need is just one more chance... and we'll make it right!! We promise!! If not, the next time!
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