Ask MetaFilter questions tagged with Money and economics

Economics' greatest hits? ... or... Where's the science in economics?

zaebiz — Tue, 23 Jun 2009 12:54:37 -0800

As a former scientist, help me gain some faith in economics. What were the great successes of economics as a tool for making better decisions in the last 100 years? The Queen of England said it best for me : Why did none of the big shot economists see this crisis coming?

Having been scientifically trained, I have always had this belief that economics is a mostly mathematical rationalisation of events after-the-fact with the same predictive capabilities as astrology and whose validity decreases as more people believe in it. Why am I wrong? what demonstrable uses has it had? Also interested in any books or papers discussing either side of this debate.

How can the Fed Destroy Money It Created?

Pastabagel — Thu, 19 Mar 2009 07:41:35 -0800

[MonetaryPolicyFilter] In relation to the Fed's huge injection of money yesterday, please explain to me how, if at all, the Federal Reserve can destroy money on its balance sheet in a way that offsets the inflation that normally would result. The Fed's announcement yesterday that is it going to flood the economy with dollars would, in normal circumstances, be horrifically inflationary. But these are not normal normal circumstances. My questions are:

1) Why isn't this inflationary? To what extent have deflationary factors stemming from the credit crisis not yet worked their way into the economy such that they will offset what inflation results?

2) Explain Federal Reserve accounting to me. I sort of understand that the Fed can create this $1 trillion from basically thin air, but can it destroy money just as easily as it creates it?

3) Because the Fed is buying debt and debt-related instruments, can the Fed take the principal and interest payments it receives from these debtors (e.g. the U.S Treasury), and destroy that money just as easily as it created that money? In other words, when Treasury makes interest payments to the Fed on the bonds the Fed bought, can the Fed simply take that money and strike or "disappear" it from it's balance sheet forever?

4) If the Fed can do what is described in (3), is that the mechanism the Fed intends to use to avoid inflation that would normally result from such a huge injection of money? Has the Fed said anything about what it intends to do with the interest payments it receives?

5) Any resources related to Federal Reserve accounting or explanations of how its balance sheet works would be greatly appreciated.

I'm looking for accurate financial answers here, not lunacy or chatfilter. Thanks in advance for your help.

Help a Drywallhanger understand money

nola — Thu, 19 Feb 2009 09:29:00 -0800

First let me say I'am ignorant when it comes to economics, but I'd like to have a better understand of it. With that in mind this clip makes sense to me but I also understand it flys in the face of everything held to be sensible about modern economics. Help me understand. Thanks.

Is our money system broken?

symbollocks — Thu, 11 Dec 2008 11:01:56 -0800

[EconomistFilter] Are interest based money systems fundamentally broken? Here's the logic: You might have heard the thought experiment where we're all on an island using a fixed number of coconuts for money, and if we start lending coconuts at interest, we create imaginary coconuts so it's impossible for all the debts to be repaid. To make the simplest possible example, if there's only one coconut, and I lend it to you on the condition that you pay me back two, we now have two imaginary coconuts and only one real coconut. You can't pay me back two, so instead you pay me back one and become my slave.

So, are interest based money systems fundamentally broken? And how does this idea relate to our economy today (how does it translate into reality)?

Level-up, Economics.

dead_ — Fri, 14 Nov 2008 13:28:09 -0800

I'm looking for a good, intermediate economics textbook. I would like to get a few recommendations on intermediate/advanced economics textbooks that are well suited to self-study. I am particularly interested in macroeconomics and development economics. What are the standard books typically assigned in college courses? Which books have been particularly helpful in moving you from a beginner to intermediate understanding of macroeconomics? Also, books that have associated online content (quizzes, tests) are a plus.

US income tax history and theory for dummies?

p3t3 — Fri, 17 Oct 2008 18:14:41 -0800

With all the bickering over taxes in the election campaign, I'm trying to get a broader picture of US income tax history, theories behind past policies, and analysis of how they worked (in idiot friendly language). I found this income tax rate history chart, and was surprised to see that 50 years ago, the wealthiest brackets were paying 70-90% taxes on income.

Then I found this tax history fact sheet, which is sort of what I'm looking for, but either with a little better explanation, or in simpler language. For instance, I'd like more explanation on passages like this:
Over the 22 year period from 1964 to 1986 the top individual tax rate was reduced from 91 to 28 percent. However, because upper-income taxpayers increasingly chose to receive their income in taxable form, and because of the broadening of the tax base, the progressivity of the tax system actually rose during this period.

All links, explanations, articles, anecdotes appreciated!

Credible returns on investment in virtual world finance?

vizsla — Tue, 12 Aug 2008 21:30:37 -0800

Anybody have experience in investing in virtual world banks/businesses/markets (such as those in SecondLife.com etc)? Do they provide a serious way of making a sensible risk/reward on five or six figure investments? I have found discussion of investing in virtual worlds in this article for example which concludes its very high risk but maybe someone has heard of a viable diversification strategy out there?

Monetary Policy and the Fed, when do we raise and lower rates and why?

idledebonair — Tue, 22 Apr 2008 13:38:21 -0800

Economics Filter: Monetary Policy and the Fed, when do we raise and lower rates and why? What are some possible reasons the Fed would raise or lower rates and why would they do so?

What's the safest possible thing that I can do with my money?

Afroblanco — Thu, 20 Mar 2008 12:18:24 -0800

What's the safest possible thing that I can do with my money? Anyone who's seen me around the finance threads knows that I take bearishness to an extreme. Having witnessed the 2000 tech crash, I have no faith in the stock market or the US economy. I keep all of my money (USD) in a savings account. However, with the recent financial turmoil, I have a few questions :

1) Is it conceivable for the FDIC to fail?
2) If so, is there a place where I can put my money that will be safer than a savings account?
3) What's the safest, most risk-free way for me to save money and not get killed by inflation and the tanking US dollar?
4) If there is a safe way for me to save money and not be punished by inflation and the depreciating dollar, is there a way that I can do this without having to stress out and micromanage my finances? I don't want to be checking the finance page and making adjustments every day.

One thing that I must ask of you all - please do not turn this into a political debate. I know that issues of economics are often politically charged, but I ask you to please not address that aspect of the situation. Also, please take it easy on me. Even though I follow finance news, I've never done any investing or money management other than socking money away in my savings account. I'm a n00b, I admit it, so please don't talk down to me.

Any links to relevant articles or informational resources - especially those readable to the layman - will be appreciated.

Thank you.

Is the economy fake?

Effigy2000 — Sat, 02 Feb 2008 01:41:05 -0800

Bill Hicks said, in one of his acts, and I quote "It's gonna fuck up the economy... the economy thats fake anyway!" Is the economy fake? While acknowledging that Bill was talking about drugs and how great they were for altering your perception of reality in this very same act in which he says the economy does not exist, I have started to consider what he meant by that, exactly. He never really went into any further detail on the topic as far as I'm aware.

I have always taken this observation of his to mean that the economy is not real because there is no tangible thing one can touch or see that is called 'The Economy'. To extrapolate, while there is money that one can touch and use to pay for goods and services, money and its value to the economy is only a human construct that does not necessarily need to exist to allow people access to goods and services or for people to live life harmoniously.

Mind you, I'm no economist, so what would I know?

Is this likely what Bill meant? Or is there a different (or deeper) meaning than the one I have construed? And how would an economist refute (or even relate to) Bill's argument?

I ask this question because of a book which I'm writing. As I said, I'm no economist and while I plan to research economics and maybe even interview a few economists to further my work, I'd be interested in hearing the hive minds views (especially from those well versed in economics) to help me find the direction my research should take.

How does new value created by industry and economy become cash?

SlyBevel — Fri, 28 Dec 2007 21:47:15 -0800

(Possibly Advanced) Economics Filter: How does new value created by industry and economy become money? This question is NOT: "How are freshly-minted dollars sent into circulation?"

It IS: When the industry of a country (we'll use the US here) produces more valuable good and services than there is physical currency to satisfy demand, how does that country's mint get the currency into the hands of those who are entitled to it?

I'm sorry that I'm having a hard time wording this question well. Here's where my confusion comes from:

The US constantly produces more currency. Much of that replaces currency that is removed from circulation due to wear or obsoletion, but in aggregate, I'm assuming that there are more $100 bills in circulation today than there were in, say, 2002. It's granted that the Federal Reserve banks send currency to your local bank so that you can withdraw cash, but that money was already in your hands in another form. Your employer/customer had it stored until you were to be payed, so it didn't come directly from the Treasury.

So how do NEW dollars...ones that are generated by the economy, not yet backed by currency, and then demanded in currency...get distributed?

Dollars to donuts

doctorcurly — Thu, 20 Sep 2007 05:42:04 -0800

Should I be worried about an impending collapse of the US dollar? There's been a lot in the news lately to suggest that the US dollar is headed for even deeper trouble than it's been, starting with various oil-producing countries moving away from the dollar standard, and China's threatening to off-load its stash of dollar reserves.

Any economists out there care to comment?
This question was asked also about a year ago, but the times, they are a-changin'...

Ripping up money to make money worth more?

takeyourmedicine — Tue, 14 Aug 2007 10:39:16 -0800

Why would ripping up money make money more valuable? Would it? The question comes from an article about giving money to the homeless, and it is to be found here: the Freakonomics blog @ NYT.

"A third option, only implied in the question, is to simply rip up the money. This will make the currency of others worth proportionately more and spread the gains very broadly. Since many dollar bills are held by poor foreigners (most of all in Latin America), the gains would go to those who are able to save in terms of dollars. This would include many hard-working poor people, a group I regard as worthy recipients."

The obvious answer is "because there's less of it, it's worth more" but if I were to stage a stunt like burning £1,000,000 and didn't tell anyone, how would money become worth more? Please elaborate on how this all works.

How much (was) that doggy in the window?

serazin — Fri, 04 May 2007 21:32:22 -0800

How do I find out the value of a dollar in a given year? I read a lot of history books. For example, right now I'm reading a book on the Gold Rush. The author gives many examples of how much 49ers paid for their passages onboard ships to California, but I have no idea how much $600 was worth at that time. I was fantasizing about finding a chart with every year of US history on one axis, and the prices of staples or common expenses on the other. If that particular chart doesn't exist, can you recommend something that will give me the same basic info?

How do you figure the value of a blog?

mrgreyisyelling — Sun, 03 Dec 2006 17:22:28 -0800

How do you value the content of a blog, or any media company, whose content isn't made up of physical assets? Myself and I are debating this: How would one figure out the worth of a company who's assets are primarily non-physical?

The example I'm trying to work out is if two people incorporate to create a blog to generate income. It will be a standard blog where an article a day is written. And after doing this for 5 years, Person B wants to buy a house and wants to sell his stake in the company to Person A. How do you value the assets of this company, so that you know what 50% of the company means? It can't be just the physical assets, like computers and office space, because the income from the articles is the actual asset. Is it the value of the projected income from these articles over a certain amount of time? Is it just what ever the person is willing to pay?

I'm essentially looking for a semi-logical method to estimate this value. Thank you.

Earning income from stocks

daksya — Mon, 09 May 2005 19:44:16 -0800

How do shareholders of Berkshire Hathaway earn income? It seems that dividends haven't been issued since 1967. Short of selling the stock, isn't the investment "tied up"? On a broader note, how does one earn money from stocks?

I can think of 2 ways:

1)Dividends.
2)Sell it off for a profit.

..and maybe, earn interest off it (if so, how?).

Living normally on the cheap

Jaybo — Mon, 11 Oct 2004 01:18:23 -0800

What is the cheapest you could live and still maintain a fairly normal lifestyle? Somehow when thinking about (Canadian) Thanksgiving and both the gorging on food that would ensue and also about those who are less fortunate, a friend and I began comptemplating the cheapest we could live and still maintain a fairly normal lifestyle. Here's what we came up with for monthly expenses...

Rent - $300 for a VERY inexpensive bachelor apartment
Utilities - $200 for gas, power, water
No TV and only use Internet at library or possibly $20 for dial-up
We debated whether we could survive with no phone and in the end decided it was possible.
Food - $10 per day should provide 3 basic but healthy meals
Transit Pass - $50/month
Clothing - $20 per month
Entertainment - library books, people watching

I may be missing some stuff but adding it all up, we figured that a person could probably survive on $40 per day.

Does this sound reasonable to you? (I know there are a LOT of assumptions in my question about what a "normal" lifestyle is, what a "cheap" apartment is, etc.)

PS - Sorry to post two questions so close together!

Help me understand the global monetary system.

Pretty_Generic — Thu, 06 May 2004 15:06:44 -0800

Money confuses and scares me. [further within] Is there a fixed amount of money in the world today, or is it variable? If I find a new gold deposit and sell it for cash, am I creating new money or just spreading the old stuff around? If I put my money in a bank account and they lend it to someone else, isn't that doubling the amount? Do countries have to destroy old banknotes before they can print new ones? What's to stop a nefarious foreign government from printing shedloads of new banknotes and spending it all on Hawk jets before anyone notices? If money in the West used to be based on precious metals, but is now based on securities and services, how did they manage the changeover, given that comparing the two seems entirely based on instantaneous and transitory sentiment?