What are some flaws in economic theories taught in the HSC (1 Viewer)

[nousernameleft]

It is a lot better then the fallacies preached to us at school.

check out the austrian school of economics:

The Case Against the Fed by Murray N. Rothbard

The Case for a 100 Percent Gold Dollar - Murray N. Rothbard - Mises Institute

How the Business Cycle Happens - Mises Institute

Did Capitalism Cause the Great Depression? by Murray N. Rothbard

Economic Depressions: TheirCauseandCure by Murray N. Rothbard


I find that blaming inflation on consumers and labor unions is ludicrous.

Inflation is an increase in the money supply. The RBA is the

only institution that can cause inflation.

Any older dictionary will tell you that. Politicians changed its definition over time.

Counting government spending as part of GDP is stupid because you don't take

into account the fact that government's tax.

Seeing the trade deficit as a problem is dumb.

Nobody frets over NSW's trade deficit with Queensland.

You have a trade deficit with Mcdonald's.

 

[Riet]

as sexy as the phillips curve is in HSC economics, devestatingly in your first few macroeconomic lectures you soon discover that it is purely theoretical and in most circumstances its inept.

Just like with everything?

@OP, in the great depression how come the countries who came off the gold standard recovered quicker than those who didn't?

 

[Serius]

Is it ever a good idea to invest in gold? it has very little inherent worth and its prices seem to fluctiate wildly and unpredictably....

it just seems like some people think gold is a really great idea because it holds its worth or some crap, but alot of the time the price of gold hasnt grown at all, when you take into account inflation its basically losing worth, you would have been better off letting your money sit in a bank account.

I didnt even do HSC economics so i am a total economy noob here, so if someone could explain the deal with gold that would be cool.

 

[Riet]

Is it ever a good idea to invest in gold? it has very little inherent worth and its prices seem to fluctiate wildly and unpredictably....

it just seems like some people think gold is a really great idea because it holds its worth or some crap, but alot of the time the price of gold hasnt grown at all, when you take into account inflation its basically losing worth, you would have been better off letting your money sit in a bank account.

I didnt even do HSC economics so i am a total economy noob here, so if someone could explain the deal with gold that would be cool.

Well gold has only lost its value due to inflation, because currency is no longer gold backed. The problems with money supply are still the same though, except that rather than the market/central bank determining its worth it has to be physically mined, which is ridiculous.

 

[nousernameleft]

Is it ever a good idea to invest in gold? it has very little inherent worth and its prices seem to fluctiate wildly and unpredictably....

it just seems like some people think gold is a really great idea because it holds its worth or some crap, but alot of the time the price of gold hasnt grown at all, when you take into account inflation its basically losing worth, you would have been better off letting your money sit in a bank account.

I didnt even do HSC economics so i am a total economy noob here, so if someone could explain the deal with gold that would be cool.

hold os the best money in th world

it's great benefit is that it cannot be created out of thin air

don't listen to those who say a growing population needs a growing money supply

that is a fallacy
people like gold because it does not wear and tear and has a stable value

paper money can be worthless overnight if the central bank injects too much

 

[volition]

Well gold has only lost its value due to inflation,

Gold typically gains value when inflation (expansion in the money supply) happens. It is often used as a hedge versus inflation.

 

[Ben Netanyahu]

people like gold because it does not wear and tear and has a stable value

Yeah it does. And a fair bit of waste gold is tossed around in industry, I bet.

They'd be better off using DIAMOND.

 

[Riet]

Gold typically gains value when inflation (expansion in the money supply) happens. It is often used as a hedge versus inflation.

That's because the currency isn't tied to it though.

 

[Ben Netanyahu]

excuse me guyz

but i don't get it

 

[Riet]

Because gold isn't tied to a currency it can be used as a store of wealth since its value changes as people invest on it speculatively. If $1000 = 1 ounce of gold, by definition, it couldn't change its real value unless more gold was mined.

 

[Omium]

Yeah it does. And a fair bit of waste gold is tossed around in industry, I bet.

They'd be better off using DIAMOND.

In a few billion years time, All the diamond in the world will "turn" to graphite.

We need a better longer term solution

 

[ComingUpForAir]

it just seems like some people think gold is a really great idea because it holds its worth or some crap, but alot of the time the price of gold hasnt grown at all, when you take into account inflation its basically losing worth, you would have been better off letting your money sit in a bank account.

whoah....non sequitur alert
If the US dollar was depreciating (i.e due to inflation), each USD would be purchasing a smaller amount of gold, hence gold (in terms of US dollars) would increase in value (also, when future inflation expectations are high, people tend to convert their currencies into commodoties like gold, and higher demand puts an upward pressure on prices)
The actual data clearly shows that the USD (which is what gold is usually priced in) has depreciated over the years, i.e 1 USD today would buy far less gold than 1 USD 100 years ago. Hence if you kept one oz of gold from one hundred years ago, it would have a far greater purchasing power than the orginal amount of USD it was purchased for. (your point about putting money in a bank account depends on the interest rate/compounding frequency/term, but inflation would obviously decrease the purchasing power of these savings)

Allthough I do agree with the notion that gold has no intrinsic value, history clearly demonstrates that humans have a somewhat predisposed/inate lust for it, giving it a seemingly objective 'worth'

 

[iMAN2]

Counting government spending as part of GDP is stupid because you don't take

into account the fact that government's tax.

Aggregate Supply= C + S + T [where T=tax]

Aggregade Demand= C + I + G + (X-M) [where g=govt. expenditure].

In the circular flow of income government tax is accounted for, and government spending is not likely to equate to its taxation. Therefore as they don't balance each other out its counted as a part of GDP, as government expenditure is still an injection into aggregate demand.

 

[Gerald10]

Look, there seems to Libertarians running riot so I might take this opportunity to explain why the theory has no philosophical basis.

Libertarians believe that any taxation represents theft. Robert Nozick was perhaps the best proponent of this theory (see Anarchy, State and Utopia 1974). He argued that if someone acquired something justly or had it transferred to him justly (ie by consentual transactions) then nobody else had any right to disrupt the free open exchange between consenting individuals. He argues this point quite compellingly. However it fails because he does not provide an adequate justification for acquisition of property when it is unowned. Since libertarians cannot describe how property goes from being unowned to an individual having 100% property rights, the theory falls apart.

Onto the economics of it. There are two broad reasons why inflation might occur - an increase in the money supply or an increase in aggregate demand relative to aggregate supply. The RBA knows that printing more money is inflationary (ask Germany and Argentina), and it is obvious enough anyway - a larger amount of money chasing after the same amount of goods. So yes, increasing money supply is one cause of inflation - increasing demand also causes inflation because more money is willing to be spent on the same amout of goods. It just so happens that targeting aggregate demand is a lot easier than targeting the money supply.

As to why people invest in gold. If someone thinks that they can get greater returns in gold than other investments or they think it will get moderate returns at low risk they will invest in it. Its value fluctuates but it holds value because it has a finitie supply (though this does increase because although it doesnt appear out of thin air but it still comes out of the ground) and because of the demand for it. Expectations are everything - if everyone wants to buy gold because they believe the price will go up, presto, the price will go up. Markets can be a self-fulfilling prophecy sometimes. The answer is that gold has value because people want it- and people want it because it has value.

 

[eriito]

I'm glad I dropped Economics.

 

[ComingUpForAir]

Look, there seems to Libertarians running riot so I might take this opportunity to explain why the theory has no philosophical basis.

Libertarians believe that any taxation represents theft. Robert Nozick was perhaps the best proponent of this theory (see Anarchy, State and Utopia 1974). He argued that if someone acquired something justly or had it transferred to him justly (ie by consentual transactions) then nobody else had any right to disrupt the free open exchange between consenting individuals. He argues this point quite compellingly. However it fails because he does not provide an adequate justification for acquisition of property when it is unowned. Since libertarians cannot describe how property goes from being unowned to an individual having 100% property rights, the theory falls apart.

Onto the economics of it. There are two broad reasons why inflation might occur - an increase in the money supply or an increase in aggregate demand relative to aggregate supply. The RBA knows that printing more money is inflationary (ask Germany and Argentina), and it is obvious enough anyway - a larger amount of money chasing after the same amount of goods. So yes, increasing money supply is one cause of inflation - increasing demand also causes inflation because more money is willing to be spent on the same amout of goods. It just so happens that targeting aggregate demand is a lot easier than targeting the money supply.

As to why people invest in gold. If someone thinks that they can get greater returns in gold than other investments or they think it will get moderate returns at low risk they will invest in it. Its value fluctuates but it holds value because it has a finitie supply (though this does increase because although it doesnt appear out of thin air but it still comes out of the ground) and because of the demand for it. Expectations are everything - if everyone wants to buy gold because they believe the price will go up, presto, the price will go up. Markets can be a self-fulfilling prophecy sometimes. The answer is that gold has value because people want it- and people want it because it has value.

I myself annex no particular political worldview, but your rather incoherant arguements only manage to point out a few (percieved) flaws.
An increase in demand does not necesitate price 'inflation', yes prices will increase (assuming supply constant), but one can only call it price 'inflation' if the increase in demand was cause precisely by an increase in the money supply. i.e The two reasons for inflation u provide are actually the same thing.
Your first point about land rights is logically sound, but in reality it isnt really a problem, as almost no 'unowned' land (habitable) exists today.
I think 'libertarianism' should be dismissed/embraced on the grounds of its outcomes compared to other political systems, rather than whether or not it has a perfect 'philosophical basis'.

 

[Riet]

whoah....non sequitur alert
If the US dollar was depreciating (i.e due to inflation), each USD would be purchasing a smaller amount of gold, hence gold (in terms of US dollars) would increase in value (also, when future inflation expectations are high, people tend to convert their currencies into commodoties like gold, and higher demand puts an upward pressure on prices)
The actual data clearly shows that the USD (which is what gold is usually priced in) has depreciated over the years, i.e 1 USD today would buy far less gold than 1 USD 100 years ago. Hence if you kept one oz of gold from one hundred years ago, it would have a far greater purchasing power than the orginal amount of USD it was purchased for. (your point about putting money in a bank account depends on the interest rate/compounding frequency/term, but inflation would obviously decrease the purchasing power of these savings)

Allthough I do agree with the notion that gold has no intrinsic value, history clearly demonstrates that humans have a somewhat predisposed/inate lust for it, giving it a seemingly objective 'worth'

This is only possible due to it NOT backing the currency though.

 

[Gerald10]

I myself annex no particular political worldview, but your rather incoherant arguements only manage to point out a few (percieved) flaws.
An increase in demand does not necesitate price 'inflation', yes prices will increase (assuming supply constant), but one can only call it price 'inflation' if the increase in demand was cause precisely by an increase in the money supply. i.e The two reasons for inflation u provide are actually the same thing.
Your first point about land rights is logically sound, but in reality it isnt really a problem, as almost no 'unowned' land (habitable) exists today.
I think 'libertarianism' should be dismissed/embraced on the grounds of its outcomes compared to other political systems, rather than whether or not it has a perfect 'philosophical basis'.

On the first point, that is a semantic disagreement. But look I only dabble in economics, I'm a politics student.

On the second I will explain myself more clearly.

Systems must be judged on outcomes - but what is a desireable outcome?
The outcomes of libertarianism are obvious - if you were lucky enough to be rich would not be compelled to pay taxes, if you weren't rich and couldn't provide for yourself you would rely on the goodwill of the rich to sustain your existence. The question is whether this outcome is just. The argument is that since the process is just then the resulting outcome is just. Since (as I explained) the process is flawed the outcome is not just.

You've raised far too many questions about the nature of justice and how that justice is achieved, for me to possibly contend with in a single post.

 

[ComingUpForAir]

Systems must be judged on outcomes - but what is a desireable outcome?
The outcomes of libertarianism are obvious - if you were lucky enough to be rich would not be compelled to pay taxes, if you weren't rich and couldn't provide for yourself you would rely on the goodwill of the rich to sustain your existence. The question is whether this outcome is just. The argument is that since the process is just then the resulting outcome is just. Since (as I explained) the process is flawed the outcome is not just.

What is this muddled whitenoise?

You state that a the 'justness' of systems 'outcome' is depended on the 'justness' of its proccess. But surely your your logic is acting in the reverse, that is, you percieve an outcome as unjust, and hence deem the distribution system as unjust...
One must also inquire in to the criteria you use to deem an 'outcome' as unjust, or a 'process' as flawed.
The clarity of ur thought proccesses concern me