Saturday, July 8, 2017

Macroeconomics

International trade, globalisation, exchange rates, comparative advantage and tariffs.

Keynes' view on the economy (AS/AD and relationship with other economic issues - inflation, employment and the effect of economic intervention policies - fiscal and monetary, on these issues.

Economic cycles.

These are all Macroeconomic issues a student in Economics should be familiar with.

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Monday, July 3, 2017

The fallacy

Workers get paid less. Capital gets remunerated more. This leads to workers not having the purchase power to purchase goods and services. Factories close because of a lack of demand. The economy falters and we have a depression. Oh woe is me…

This is the narrative being bandied around by Socialists that do not understand the basic economic principles.

This story is applied in many derivatives – the one you will hear lately is that machines, robots and artificial intelligence is taking over the jobs and therefore - workers not having the purchase power to purchase goods and services. Factories close because of a lack of demand. The economy falters and we have a depression…

We heard it when jobs were being exported to China, we heard it during the Industrial Revolution when machines “took over” the menial tasks, we heard it in the mid 20th century with the advent of computerization. But never ever has this story of doom and gloom actually made the human race worse off – the drive to cost reduction has always led to an increase in living standards.

Schumpeter, when he coined the phrase “creative destruction”, realized too that there will be short term disruptions and that whole industries would vanish in this march towards progress, but that we would emerge wealthier at the end.

The buggy whip maker lost his job when cars became the predominant mode of transport. The chimney sweep had no more work when electric heating became fashionable and whale hunting was relegated to the Japanese when the oil wasn’t needed for lighting anymore.

So how should society respond to these happenings – with tariffs, restrictions, limitations? The Luddites broke the frames – the SA Metered Taxi Drivers riot in the streets, New York bans Uber…

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Sunday, July 2, 2017

Ayn Rand being vilified...

... the author clearly does not fully grasp self-interest. Free individuals will collaborate to achieve common goals if it is in their interest to do so and consent and not the force of some overarching power is all that is required for men to cooperate in a free market environment. But here is the article: https://evonomics.com/what-happens-when-you-believe-in-ayn-rand-and-modern-economic-theory/

...and it it is not believing in Ayn Rand, but simply agreeing that what Ayn Rand says because it is what makes sense when looking at the human condition.

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There is no "Crony" in Capitalism.

Since when should any government subsidise any industry? http://www.investors.com/politics/commentary/how-boeing-works-against-consumer-choice/

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Saturday, July 1, 2017

The Socialist argument

https://www.youtube.com/watch?v=6P97r9Ci5Kg

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http://sadirectory.azurewebsites.net/ The Capitalist argument is clear - Since when should any government subsidise any industry? As soon as the government is involved you are moving towards Socialism. There is no "crony" in Capialism.

Monday, June 19, 2017

UNEDITED: In other words the nonsense has not been edited out yet!

What is 'Wage-Price Spiral'

The wage-price spiral is a macroeconomic theory used to explain the cause-and-effect relationship between rising wages and rising prices, or inflation. The wage-price spiral suggests that rising wages increases disposable income, thus raising the demand for goods and causing prices to rise. Rising prices cause demand for higher wages, which leads to higher production costs and further upward pressure on prices, creating a conceptual spiral.

BREAKING DOWN 'Wage-Price Spiral'

Wage-price spiral is an economic term that describes how prices increase when wages increase. It's a phenomenon that occasionally occurs when the general prices for goods and services increase, causing workers to demand a wage hike. The wage increase effectively increases general business expenses that are passed on to the consumer in the form of higher prices. It's essentially a loop or cycle that perpetuates itself by consistent prices increases.

The wage-price spiral deals with the causes and consequences of inflation, and it is therefore most popular in Keynesian economic theory. It is also known as the "cost-push" origin of inflation. Another cause of inflation is known as "demand-pull" inflation, which monetary theorists believe originates with the money supply.

How a Wage-Price Spiral Begins

A wage-price spiral is a simple matter of the effect of supply and demand on aggregate prices. People who make income above their cost of living usually decide on an allocation mix between savings and consumer spending. As wages increase, so too does a consumer's propensity to both save and consume.

If the minimum wage of an economy increased, for example, it would cause consumers within the economy to purchase more product, increasing demand. The lift in aggregate demand and the increased wage burden causes businesses to increase the prices of products and services. Even though wages are higher, the increase in prices causes workers to naturally demand even higher wages.

If the higher wages are granted, it will start a spiral where prices subsequently increase, repeating the cycle until wage levels can no longer be supported.

Stopping a Wage-Price Spiral

Governments and economies like to have stable inflation — or price increases. A wage-price spiral often makes inflation increase higher than is ideal. Governments have the option of stopping this inflationary environment through the actions of the Federal Reserve or central bank. A country's central bank can use monetary policy, by way of the interest rate, reserve requirements or open market operations, to curb the wage-price spiral.

However, the United States has done this in the past and actually caused a recession. The 1970s was a time of oil price increases by OPEC that resulted in increased domestic inflation. The Fed responded by raising interest rates to control inflation, stopping the spiral in the short-term but acting as the catalyst for a recession in the early 1980s.

Read more: Wage-Price Spiral http://www.investopedia.com/terms/w/wage-price-spiral.asp#ixzz4kSS03AIZ

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243. Only one price can exist on a market (operating under perfect market conditions) at any one time.

What is the 'Law Of One Price'

The law of one price is the economic theory that the price of a given security, commodity or asset has the same price when exchange rates are taken into consideration. The law of one price is another way of stating the concept of purchasing power parity. The law of one price exists because of the arbitrage opportunities that must be present and available.

BREAKING DOWN 'Law Of One Price'

If the price of a security, commodity or asset is different in two different markets, then an arbitrageur will purchases the asset in the cheaper market and sells it where prices are higher. Arbitrage profits will persist until the price converges across markets.

The law of one price eliminates the possibility of investors from taking advantage of a price disparity between markets because of the actions of arbitrageurs. If a particular security is available for $10 in Market A but is selling for the equivalent of $20 in Market B, investors could purchase the security on Market A and immediately sell it for $20 on Market B, netting a profit without any true risk or shifting of the markets. If the do so they will be acting as arbitrageurs and it is this very act that will drive prices up in Market A and drive prices down in market B. So, as securities bought from Market A are sold on Market B, prices on both markets shift in accordance with the changes in supply and demand. Over time, this would lead to a balancing of the two markets, returning the security to the state held by the law of one price.

In efficient markets, the occurrence of arbitrage opportunities are low, most often caused by an event causing a sudden shift occurring in one market before the other markets are effected. In these days of electronic trading - arbitrage trading, whilst still large, are trading on thinner and thinner margins.

Law of One Price and Commodities

When dealing in commodities, the cost to transport the goods must be included, resulting in different prices when commodities from two different locations are examined. If the difference is goes beyond the transportation costs, this can be a sign of a shortage or excess within a particular region.

Purchasing Power Parity

Purchasing power parity describes the effects controlled by the theory of the law of one price. It relates to a formula that can be applied to compare securities across markets that trade in different currencies. As exchange rates can shift frequently, the formula must be recalculated on a regular basis to ensure equality across the different international markets. The Law of One Expected Return

A continuation of the law of one price is the law of one expected return. This governs the idea that securities with similar asset prices and similar risks would be expected to generate similar returns.

Read more: Law Of One Price http://www.investopedia.com/terms/l/law-one-price.asp#ixzz4kSNmY3 For a free directory entry go to:For your free directory entry.

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