Politics and the Economy, Series II: Prices and Price Controls and Their Effects

[smockers83]

As the title eludes to, this series, the second series, is about prices and price controls that are set by governments and their effects. The section about prices themselves will be quite brief as I feel it not necessary to go too in depth on this initially, plus I want to focus on the political aspects of price controls since this is, in fact, a political forum. If we want to discuss the role of prices further, we can. Or put in an economic version of supply and demand, I as a producer feel that there isn't much demand for this information so I am unwilling to produce a lot of it. If this were the case, this info would have a low price as it isn't very valuable to you as consumers. However, if I find it to be high in demand, you as consumers will ask for more information, bidding up the price, enticing me to produce more. Since I cannot tell what you as consumers want, I must guess at first. Also, as before, in no way do I claim this to be all of my own work, but a compilation of other works organized in my words for your enjoyment.

The Role of Prices Economics, at its core, is the study of the allocation of scarce resources. Economics is all about scarce resources. The key task to any economy is the allocation of scarce resources which have alternative uses, and the question is, how does an economy do that?

There are obviously different types of economies and they all do it differently. In a feudal economy, the lord of the manor simply told people under him what to do and where he wanted resources put. Grow less barley and more wheat, more fertilizer there, more hay there, drain the swamps. It was much the same story in the 20th century Communist nations such as the Soviet Union, which organized a much more complex, modern economy in much the same way. In contrast, in a market economy coordinated by prices, there is no one at the top to issue orders to control or coordinate economic activities.

How a very complex economy can operate without central direction is baffling to many. The last President of the USSR, Gorbachev, asked British Prime Minister Margaret Thatcher, "How do you see to it that people get food?" She didn't, prices did. Moreover, the British were much better fed than the Soviets even though the British hadn't produced enough food for their own country in centuries.

The fact that no individual or set of individuals controls or coordinates all the innumerable economic activities in a market economy does not mean that these things just happen randomly or chaotically. Each consumer, producer, retailer, landlord, or worker makes individual transactions with other individuals on whatever terms are mutually agreeable. Prices convey those terms, not just to the particular individuals immediately involved but throughout the whole economic system. The fact that someone else somewhere else has a better product or a lower price for the same product gets conveyed and acted upon through prices without any planning official and indeed faster than any planners could assemble the info on which to base their orders.

After WWII, Americans could begin buying cameras from Japan, whether or not officials in Washington were even aware at the time that Japan made cameras. Given that any modern economy has millions of products, it's too much to expect the leaders of any country to even know what all those products are, much less how much each resource should be allocated to the production of those millions of products. Prices play a crucial role in determining how much of each resource gets used where and how the resulting products get transferred to millions of people.

Misconceptions of the role of prices are common. Many people see prices as obstacles to their getting the things they want. Those who like to live in a beach-front home may abandon such plans when they discover how expensive beach-front property is. But high prices are not the reason we cannot all live on the beach front. On the flip side, the reality is that there are not nearly enough beach-front homes to go around and prices simply convey that underlying reality. When many people bid for a relatively few homes, those homes become very expensive because of supply and demand. But it's not the prices that cause this scarcity because the scarcity would exist under whatever other kind of economic system or social arrangements might be used instead of prices.

Without really knowing why consumers like one set of features rather than another, producers automatically produce more of what earns a profit and less of what is losing money. That amounts to producing to what the consumers want and stopping production of what they don't want. Although producers are looking out for themselves, from the standpoint of the economy as a whole the society is using its scarce resources more efficiently because decisions are guided by prices.

Price Controls What happens when prices are not allowed to fluctuate freely according to supply and demand, but instead their fluctuations are fixed within limits set by law?

The political rationales for such laws have varied from place to place, time to time, but there is seldom a lack of rationales whenever it becomes politically expedient to hold down some peoples prices in the interest of other people whose political support seems more important.

Many countries have set limits to how low certain agricultural prices will be allowed to fall (a price floor), sometimes with the government legally obligated to buy up the farmer's output whenever free market prices go below the specified levels. This action by the government prevents prices going below the floor by keeping supply off the market. Equally widespread are minimum wage laws. Here the government seldom offers to buy up the surplus labor which the free market doesn't employ.

To understand the effects of price control, it's necessary to understand how prices rise and fall. Prices rise because the amount demanded exceeds the amount supplied at existing prices. Prices fall for the very opposite reason, the amount supplied exceeds the amount demanded at existing prices. The first case is called a shortage and the second is a surplus, but both depend on existing prices. Simple as this seems, it's often misunderstood, many times with disastrous consequences.

Price Ceilings and Shortages When there is a shortage of something, there isn't necessarily any less of it, either absolutely or relative the number of consumers. During and immediately after WWII, there was a very serious housing shortage in the US, even though the country's population and housing stock bad both increased by ~10% from their prewar levels and there was no shortage when the war began. Even though the ratio between housing and people hadn't really changed, many Americans found it very hard to find quarters, resorting to bribes, doubling up with relatives, slept in garages, or used other makeshift living arrangements. Even though there was no less housing space per person than before the war, the shortage was very real and very painful at existing prices, which were kept artificially lower than they would have been because of rent control laws.

Some people who would normally not be renting their own apartments, such as young adults still living with parents or single or widowed elderly people living with relatives, were enabled by the artificially low prices created by rent control to move out into their own apartments. These artificially low prices also caused others to seek larger apartments than they would ordinarily be living in or to live alone when they would otherwise have to share an apartment with a roommate in order to be able to afford the rent. More tenants seeking both more apartments and larger apartments created a shortage, even though there was not any greater physical scarcity of housing relative to the whole population.

When rent control ended after the war, the housing shortage quickly disappeared. As rents rose in a free market, some childless couples living in four-bedroom apartments decided they could live in a two-bedroom apartment and save the difference in rent. Late teenagers decided that they could continue living with mom and dad until their pay rose enough for them to be able to afford their own apartment now that rent wasn't artificially cheap.

Just as price fluctuations allocate scarce resources which have alternative uses, price controls which limit those fluctuations reduce the incentives for individuals to limit their own use of scarce resources desired by others. Before rent control was imposed in Sweden, less than 25% of all unmarried adults lived in their own separate housing units in 1940, but that proportion rose over the years until just over 50% did by 1975. A 2001 study of San Fransisco showed that 49% of the city's rent-controlled apartments had only a single occupant while a severe housing shortage in the city had thousands of people living considerable distances away and making long commutes to their jobs in SF. A Census report showed that 48% of all households in Manhattan, where most apartments are under some form of rent control, are occupied by only one person.

Given the crucial role of prices in this process, suppression of that process by rent control laws leaves elderly people with little incentive to vacate apartments they would normally vacate. At the same time, the chronic housing shortages which accompany rent control greatly increase the time and effort required to search for a new and smaller apartment, while reducing the financial reward for finding one. In other words, rent control reduces the rate of housing turnover. The New York Times wrote:

New York used to be like other cities, a place where tenants moved frequently and landlords competed to rent empty apartments to newcomers, but today the motto may as well be: No Immigrants Need Apply. While immigrants are crowded into bunks in illegal boarding houses in the slums, upper-middle-class locals pay low rents to live in good neighborhoods, often in large apartments they no longer need after their children move out.

Now, that is all in terms of demand of housing under rent control. Lets turn to the supply side of things (not to be confused with supply side economics).

After rent control was instituted in Santa Monica in 1979, building permits declined to less than 1/10 of what they were five years prior. The 2001 study of San Fransisco from earlier found that 75% of its rent-controlled housing was more than 50 years old and 44% of it was more than 70 years old.

Although the construction of office buildings, factories, warehouses, and other commercial and industrial buildings much of the same kind of labor and materials used to construct apartment buildings, it isn't uncommon for many new office buildings to be constructed in cities where few new apartment buildings are built. Rent control laws don't apply to industrial or commercial buildings. In 2003, a nationwide survey found the vacancy rates in buildings used by business and industry to be nearly 12% despite a severe housing shortage in New York, San Fransisco, and other cities with rent control. This is more evidence that housing shortages are a price phenomenon. High vacancy rates show that there are obviously ample resources available to construct buildings but rent control keeps those resources from being used to construct apartments and thereby diverts these resources into constructing commercial properties. Not only is the supply of new apartment construction less, even the supply of existing housing tends to decline as landlords provide less maintenance and repair under rent control, since the housing shortage makes it unnecessary for them to maintain the appearance in order to attract tenants. Thus housing tends to deteriorate faster under rent control and to have fewer replacements when it wears out.

Studies of rent control in the US, England, and France have found rent-controlled properties to be deteriorated far more than non-rent-controlled properties.

With rent control, eventually the point may be reached where the whole building becomes unprofitable that it's simply abandoned. In NYC, many buildings have been abandoned after their owners found it impossible to collect enough rent to cover the costs of services they're required by law to provide. Such owners have disappeared in order to escape the legal consequences of their abandonment, and such buildings end up vacant and boarded up, though physically sound enough to house people if they continued to be maintained and repaired.

The number of buildings taken over by the NYC government over the years runs into the thousands. It's estimated that there at least four times as many abandoned housing units (individual apartments) in NYC as there are homeless people there. Homeless isn't due to a physical scarcity of housing, but to a price-related shortage, which is painfully real. Some of them dye in the winter months due to exposure while the means of housing them already exist, but are not being used because of laws designed to make housing "affordable." This shows that the efficient/inefficient allocation of scarce resources isn't just some abstract notion of economists, but has very real consequences, which include life and death. It also tells us that the goal of a law, affordable housing, tells us nothing about its actual consequences.

The end of rent control often marks the beginning of renewed private building. A ban of rent controls in Massachusetts led to the construction of new apartment buildings in some rent-controlled areas for the first time in 25 years. Polls of economists have found virtually unanimous agreement that declines in product quantity and quality are the usual effects of price controls in general. Of course, there aren't enough economists in the country for their votes to matter very much to politicians.

That should suffice for now as it is nearing 12am. Talking points about prices can be other various forms of price controls, such as the opposite of what rent control does--price floors to keep prices artificially high. Also what could be talked about is the greed associated with prices. A hot topic in terms of greed and prices over the past few years has been oil companies.

[smockers83]

I would like to go into the greed interpretation of prices and the most recent corresponding event of such a conception, oil.

Oil prices, and more effectively gasoline prices, were not set in the past couple of years out of greed as many people say. People making the claim that greed is involved means that prices can be arbitrarily set. Prices cannot be arbitrarily set for a number of reasons in a competitive market.

Here is a good example. Lets say there's a beach that is 100 yards long and at this beach there is a market for ice cream. Two people realize this and start their own ice cream stands. The people on the beach will automatically go to the ice cream stand that is closest to them because prices are the same. The question now is, where should these two people set up their individual stands in order to maximize profit? Think about it, I'll give you the answer in a later post because I want you to think about it instead of just giving you the answer. Whoever wants to answer this question may post up their answer.

Back to the oil industry. Many people claimed that big oil was holding back supply which caused the price to rise to very high levels. Although a very plausible reason as the laws of supply and demand would allow that idea to work, however it wasn't happening. Supply and demand were growing at different rates. Demand around the world was growing so fast that supply couldn't catch up. This caused the price to go up, an increase in demand. But the idea of companies holding back supply fail right there. When a company sees prices increase in its industry, it wants to produce more in order to capture those extra profits, so in fact they would increase supply. They would continue to increase the quantity supplied as the market demanded. Now, as the price continues to rise, oil exploration companies can now begin to look for more oil in places they haven't really been able to explore. This is because at previous oil prices, it wasn't economically feasible to explore these areas, so in effect those oil supplies were either not counted or known, at previously existing prices. As prices rose and they could now invest into looking for other oil fields, the world supply of oil effectively increased as they found "new" fields such as oil sands and places in the Arctic Sea. These supplies were always there but never counted because existing prices didn't allow them to be.

Experts many times over have claimed that oil could run out in decades. All of this though takes into account existing prices. In the mid 20th century, they said the same thing we're saying now. During those times gas and oil was cheap in nominal terms compared to now, which allowed for only so much exploration in certain areas. As the prices increased, this allowed for exploration into other areas, areas that were previously too expensive to explore. As with the most recent run up in oil prices, we began to hear of these "new discoveries" of oil in tar sands in Canada and oil fields in the Arctic Ocean. Coincidence? Not one bit.

These "new discoveries" are the increases in supply that bring down prices when prices are affected by the supply side of things. These new discoveries helped the price of oil come down as well as demand worldwide decreased. Not many people in the US drove less until gas started getting $4/gallon or more. Here is where they either drove less or bought more fuel efficient cars, both decisions causing a decrease in the demand for oil.

Today, if anyone has been paying attention to the oil market, you hear about how companies have been holding oil in ships out at sea. Where is the outcry that companies are withholding supplies? Companies are withholding supplies because the supply out there doesn't meet demand, which further drives prices down. This is partially why we saw very low prices a couple of months ago and they are now rising again. Those supplies that were stored out at sea could be now entering the market and the market is coming back to equilibrium, where the supply equals demand at some market set price.

I realize that may be a complex explanation for some, but in a real sense, that is a very simple explanation.

[Armelius]

I think you left out federal reserve and how it manipulates markets, interest rates and fiat fluctuations.

[smockers83]

The Fed manipulates what market now?

And the Fed is supposed to do what it does because it is charged to implement the nation's monetary policy. It can change the money supply. That is called monetary policy. It can also change interest rates. That is called monetary policy.

What does the Fed have to do with prices and price controls anyway?

[smockers83]

And also, this would be the place to debate this statement you made in the international trade thread:

Prices are artificial to begin with. Cokes can sell for 25 cents a can to about anything someone would pay. If people are addicted to coke then they don't pay attention to prices when they go into a restaurant and order a meal.

Artificial prices. Lets start there. What say you about that? Because it sounds like you're saying that prices are arbitrary numbers picked out of the sky. But I already know where this argument is going, so I'm going to make a graph for you and save it for when the time comes.

[Armelius]

The Fed manipulates what market now?

And the Fed is supposed to do what it does because it is charged to implement the nation's monetary policy. It can change the money supply. That is called monetary policy. It can also change interest rates. That is called monetary policy.

What does the Fed have to do with prices and price controls anyway?

That explains how central banking works? From the creation of the First Bank of the United States, the destruction of the Second and now the failed policies of the Federal Reserve.'

I only have time to post something from Wikipedia.

The Second Bank of the United States was authorized for a twenty year period during James Madison's tenure in 1816. As President, Jackson worked to rescind the bank's federal charter. In Jackson's veto message (written by George Bancroft), the bank needed to be abolished because:

* It concentrated the nation's financial strength in a single institution. * It exposed the government to control by foreign interests. * It served mainly to make the rich richer. * It exercised too much control over members of Congress. * It favored northeastern states over southern and western states.

[Armelius]

And also, this would be the place to debate this statement you made in the international trade thread:

Artificial prices. Lets start there. What say you about that? Because it sounds like you're saying that prices are arbitrary numbers picked out of the sky. But I already know where this argument is going, so I'm going to make a graph for you and save it for when the time comes.

As you know that the housing market was artificially inflated with speculation, low income enticement and involvements with foreign banks.

You can tell me where 2004 housing prices will eventually settle before the market starts to go back up. You have a graph for that?

[smockers83]

So again, what market does the Fed manipulate?

You know what you're good at? Deflecting and not making a good argument.

Going with your Coke example. Just because there is a price that has been set doesn't mean everyone is going to accept that price. Some won't accept it and would only buy a Coke at a cheaper price. Others on the other hand would be more than happy to buy a Coke at a more expensive price. This is based on how much the consumer values a Coke because the consumer will pay for a Coke as long as he/she values the Coke more than the money paid for it. Here's where the graph comes in.



This is a graph of supply and demand curves with quantity plotted on the x-axis, price plotted along the y-axis. The market equilibrium where supply = demand occurs where the two curves cross. This equilibrium has a price and quantity that will be traded at. Lets say this is a graph for the market for a Coke. If the market was in equilibrium, there are still people who do not buy a Coke at this price, the people who would pay lower prices. You can see this as you follow the demand curve below the equilibrium price, the quantity demanded increases. At the same time, you can see that some consumers would buy a Coke at an even higher price than the equilibrium. Here is where the red area, the consumer surplus comes in. Consumer surplus is a marginal benefit to a consumer that pays a lower price than what he/she would have been willing to pay. For all of the people who would pay higher prices, since the price is lower, they get extra benefit from getting that Coke at a lower price.

If Coke decided to constrict supply, the supply curve would move to the left, or up the demand curve, however you want to put it. There are still going to be people who will buy a Coke, but each time you move up, you price people out of the market. So, you can see that as the price goes up, people will still demand it, but it is hardly artificial.

With all prices you have elasticities of supply and demand. This graph shows a perfectly inelastic demand curve.



What this means is that no matter what the price is, the same quantity will be demanded. The opposite is true when you have a perfectly elastic demand curve, which would be a horizontal line, that would show that no matter how much is demanded the price remains the same.

Lets assume that since you brought in that people can be addicted to Coke, that the price of Coke is inelastic. This means that the consumers will be willing to pay higher prices of Coke because they're addicted to it. Same can be said for tobacco products.

However, at the same time, the price of Coke has been a very sticky price in the past, selling for a nickle for many decades. This shows that the price of Coke is elastic. However, I would say Coke is definitely moving towards becoming more inelastic today.

Moving onto houses. Housing prices went up because interest rates went down. Mortgage rates were at their lowest in decades, providing a large influx of money into the housing industry. This spurred a lot of people to buy new homes. With more people spurred to buy new homes due to the cheaper money available to them, this bid up the price of homes due to the increase in demand. As soon as we saw interest rates going up again, home prices started to fall and the bubble popped for a couple of reasons. I already mentioned interest rates and also as soon as rates rose, people no longer wanted to buy homes and all the people who wanted to move had already done so. The housing market experienced a very quick turnover rate, higher than normal, and we as a nation bought up homes very quickly. This can be correlated with an increase in demand as well. Builders were backed up in orders, another indication of increased demand, but supply never really increased, meaning the supply curve never really shifted outwards, looking at the S&D graph above. Now as rates rose and people began to slow down again, this is where the bubble starts to pop. Another way to put the housing market is that it was built up as a castle in the sky.

Does this mean prices were artificial or arbitrary? No, not at all. An artificial/arbitrary price could have been found back in the Soviet Union.

I don't want to say that home prices are exactly like the bond market as I'm not sure what they've done in the past and it also depends on the local market, but recently, nationally the housing prices work almost like bonds. As interest rates go down, the prices go up. As interest rates go up, prices fall. This is because as rates rise, people find it more expensive to get money, therefore sellers have to lower the price of their homes to be able to sell them.

The speculation that took place in the housing market was done in mortgages. The speculation was that housing prices wouldn't fall. Banks and mortgage firms also took on high-risk investments when they decreased their lending standards, opening themselves up to a lot more risk. When there's more risk involved, there's more chances for failure, hence the higher risk and returns.

I should mention that interest rates are like the price of money.
Modified by smockers83 at 8:37 AM 2/14/2009

[Armelius]

Anyone can see it's an artificial bubble the way the Federal Reserve System works. Even back when gold was in the money they would issue paper based on how much gold is in the deposits. Now they just issue worthless debt notes, government borrowing from the Federal Reserve System (central bank) to the point that it is nothing more than a hollow bubble based on absolutely nothing.

From the time in around the late 80's credit was very tight and suddenly everything popped. Just before 90 or during 1990 credit started becoming like an unending cotton candy ballon. They couldn't find enough people to lick it all up. So they targeted people with low or no income at all. No credit was good credit. They knew it was eventually going to burst that is why the bankruptcy laws were rewritten.

[smockers83]

Anyone can see it's an artificial bubble the way the Federal Reserve System works. Even back when gold was in the money they would issue paper based on how much gold is in the deposits. Now they just issue worthless debt notes, government borrowing from the Federal Reserve System (central bank) to the point that it is nothing more than a hollow bubble based on absolutely nothing.

An artificial bubble. What is an artificial bubble? You talk about the Fed manipulating a market and this bubble. What market and bubble are you tying the Fed into?

When gold was used to back currencies, central banks didn't have control over the money supply or much of its fiscal policy. When the economy grew and gold discoveries were meager, the money supply didn't grow with the needs of the economy, dampening growth. When gold discoveries were made, particularly large ones, this resulted in a huge influx of cash, usually at a time when it wasn't needed. The gold discoveries would be the same as lowering interest rates.

Adam Smith in 1776 said that a country's real worth is not how much gold it has, its real worth is its goods and services. This means that the dollar is backed by the economy. The thing about currency is that it doesn't have to have anything backing it at all. As long as there is an established value that is accepted where the currency is traded, it's going to be used, whether it's backed in gold or manure. A fiat currency isn't anything bad really. Fiat currencies have been used across the world since the early days of man. At first it was large rocks chiseled into a wheel-type structure. Rum was used as a currency. The proof of alcoholic drinks comes from when rum was traded as a currency, they needed a way to prove how much alcohol was in the rum, and therefore how much it was worth, so we got proof, and it still sticks today. Cigarettes during WWII were traded in concentration camps as currency.

I'm still not sure why we're even talking about the Fed. All I was talking about was prices. We can get to the Fed later.

[Armelius]

An artificial bubble. What is an artificial bubble? You talk about the Fed manipulating a market and this bubble. What market and bubble are you tying the Fed into?

When gold was used to back currencies, central banks didn't have control over the money supply or much of its fiscal policy. When the economy grew and gold discoveries were meager, the money supply didn't grow with the needs of the economy, dampening growth. When gold discoveries were made, particularly large ones, this resulted in a huge influx of cash, usually at a time when it wasn't needed. The gold discoveries would be the same as lowering interest rates.

Adam Smith in 1776 said that a country's real worth is not how much gold it has, its real worth is its goods and services. This means that the dollar is backed by the economy. The thing about currency is that it doesn't have to have anything backing it at all. As long as there is an established value that is accepted where the currency is traded, it's going to be used, whether it's backed in gold or manure. A fiat currency isn't anything bad really. Fiat currencies have been used across the world since the early days of man. At first it was large rocks chiseled into a wheel-type structure. Rum was used as a currency. The proof of alcoholic drinks comes from when rum was traded as a currency, they needed a way to prove how much alcohol was in the rum, and therefore how much it was worth, so we got proof, and it still sticks today. Cigarettes during WWII were traded in concentration camps as currency.

I'm still not sure why we're even talking about the Fed. All I was talking about was prices. We can get to the Fed later.

Ah, that was very funny with Adam Smith and the definition of the dollar. Now you have me doubting you even know the definition of a dollar. Let alone where to find it.

[smockers83]

And you have me doubting you should even be alive. By the arguments you've been making, one would think you were from 1600s or 1700s because the arguments you're basing yourself on is that far out of date. It's barely even classical economics, maybe prehistoric.

But think about it. With money, any kind of money really, you can go out in the markets and buy whatever you want, goods and services. You can even buy gold, silver, platinum, diamonds, you name it. Whatever you have enough money for. Back during the gold standard, you still had to have enough money to buy gold from the government, it's not like they had a saw in the back to cut up individual amounts of gold for everyone.

If a government is sitting on tons of gold and it's economy is a POS, one of the worst economies in the world, is that country still sitting pretty? Is it even valuable? No. It may not be poor at the time, but if it's economy is a POS and they have to start importing everything, all that gold goes out to the exporting countries. Now how pretty is that country sitting? It has no money whatsoever even though it had all this gold. If that same government had a stellar economy and it's gold slowly trickled out or it liquidated it so it had no more gold, that country is still prosperous and has lots of value in it.

Or maybe, since you live in California, you're an upset gold panner from the Gold Rush.

Main Entry: dol·larPronunciation: \ˈdä-lər\ Function: noun Usage: often attributive Etymology: Dutch or Low German daler, from German Taler, short for Joachimstaler, from Sankt Joachimsthal, Bohemia, where talers were first madeDate: 1553

1: taler2: any of numerous coins patterned after the taler (as a Spanish peso)3 a: any of various basic monetary units (as in the United States and Canada) — see money table b: a coin, note, or token representing one dollar4: ringgit5: money obtained from a specific source <the tourism dollar>

fiat money: paper currency decreed by a government as legal tender but not convertible into coins or precious metal.

I can do definitions all day. You still haven't answered any of my questions. Can't answer them?

Lets put it this way. If I told you where I could find dollars, I'd get in trouble and it would be edited as I wouldn't be following the rules. Then I couldn't be here to have these lovely debates with everyone.

[Armelius]

And you have me doubting you should even be alive. By the arguments you've been making, one would think you were from 1600s or 1700s because the arguments you're basing yourself on is that far out of date. It's barely even classical economics, maybe prehistoric.

But think about it. With money, any kind of money really, you can go out in the markets and buy whatever you want, goods and services. You can even buy gold, silver, platinum, diamonds, you name it. Whatever you have enough money for. Back during the gold standard, you still had to have enough money to buy gold from the government, it's not like they had a saw in the back to cut up individual amounts of gold for everyone.

If a government is sitting on tons of gold and it's economy is a POS, one of the worst economies in the world, is that country still sitting pretty? Is it even valuable? No. It may not be poor at the time, but if it's economy is a POS and they have to start importing everything, all that gold goes out to the exporting countries. Now how pretty is that country sitting? It has no money whatsoever even though it had all this gold. If that same government had a stellar economy and it's gold slowly trickled out or it liquidated it so it had no more gold, that country is still prosperous and has lots of value in it.

Or maybe, since you live in California, you're an upset gold panner from the Gold Rush.

Main Entry: dol·larPronunciation: \ˈdä-lər\ Function: noun Usage: often attributive Etymology: Dutch or Low German daler, from German Taler, short for Joachimstaler, from Sankt Joachimsthal, Bohemia, where talers were first madeDate: 1553

1: taler2: any of numerous coins patterned after the taler (as a Spanish peso)3 a: any of various basic monetary units (as in the United States and Canada) — see money table b: a coin, note, or token representing one dollar4: ringgit5: money obtained from a specific source <the tourism dollar>

fiat money: paper currency decreed by a government as legal tender but not convertible into coins or precious metal.

I can do definitions all day. You still haven't answered any of my questions. Can't answer them?

Lets put it this way. If I told you where I could find dollars, I'd get in trouble and it would be edited as I wouldn't be following the rules. Then I couldn't be here to have these lovely debates with everyone.

All I can say it's the most important question you could ever have. You should not be answering it. But I do find humor in your answer. I am laughing so thing are good.

[Jacko3]

Smockers:

You have very excellent classical economic posts. I love them. No one can touch them. Well done!

[breadbox]

It sucks how our system is set up. Not to mention, people listen to statistics from our government but never think about them. I saw a great video on the exponential function. Once understood scares the crap out of me what our government tells us.

[smockers83]

Umm, what?

Statistics from the government can't always be taken at face value. As with any form of collection of data, there are methods for that collection, computation, and analysis. Those methods change over time and can change.

For example, employment 50 years ago wasn't calculated the same way it is now. So can we directly compare employment statistics from then and now? Not really. However, we can go back and try to apply today's methods to yesterday's data and reinterpret it.

The exponential function is used for thousands of things and I could probably find several videos on it.

[Armelius]

Smockers:

You have very excellent classical economic posts. I love them. No one can touch them. Well done!

I am still waiting for him to define the dollar. What is the difference from a debt note and lawful tender. Yeah, I can do definitions all day.

[smockers83]

Those are the two most simple definitions in the world of money and banking.

I'll define those two after you tell us what market the Fed manipulates and what artificial bubble you're talking about, because I've been asking you to tell us about that for quite awhile now. We've been waiting much longer for that.

If you were still waiting for me to define the dollar, which I did already, why didn't you say so before? There was no indication you were waiting for anything.

[Looneybomber]

I've not read much of this thread, so if it's gone off-topic, which it kind of looks like it has, then sorry.

Something that's not yet mentioned, which maybe smocker will get to, is how taxes effect the free market and the loss of total surplus due to a "tax wedge"The area from the 0 qty to the equalibrium qty (Q*) and in between the supply and demand curves gives you the total surplus as shown in that other picture by smocker.

When the govt. applies a tax, it raises the price of the good to the consumer and lowers the revenue to the supplier. This reduces the qty sold from Q* to Qt. Because of that reduction in goods sold, the area in gray is now a "dead weight loss". It's a surplus that could have been had if the price of the good was at the equalibrium price, but because the govt. wants their money, everyone misses out on that surplus.

The govt. then takes away from the total surplus the area from Ps, Pc to A,B. That leaves the area below line B as a provider/supplier surplus and the area above line A as the consumer surplus.

Has there been any talk about price ceilings (ie housing maximums) and price floors (ie minimum wage)? How about international trade, absolute and relative advantages, externalities, public goods, and the Tragedy of the Commons?

[smockers83]

Has there been any talk about price ceilings (ie housing maximums) and price floors (ie minimum wage)? How about international trade, absolute and relative advantages, externalities, public goods, and the Tragedy of the Commons?

There's a whole section about price controls in the first post, in which I almost exclusively deal with rent control laws.

International trade is another thread in of it's own, which you will now find on the first page of Politics.

Thanks for the additions, but we're starting to get a little ahead of ourselves in terms of taxes and public goods. I'm trying to deal strictly with prices, the other stuff will come later in a different series.

[Armelius]

Those are the two most simple definitions in the world of money and banking.

I'll define those two after you tell us what market the Fed manipulates and what artificial bubble you're talking about, because I've been asking you to tell us about that for quite awhile now. We've been waiting much longer for that.

If you were still waiting for me to define the dollar, which I did already, why didn't you say so before? There was no indication you were waiting for anything.

Sure it's simple.

Fed manipulates many markets by adjusting interest rates up and down.

Artificial bubbles is just like any ponzi scheme. Want me to define that for you?

Tell you what, to simplify your task of defining the dollar just give me a one word definition.

[Looneybomber]

There's a whole section about price controls in the first post, in which I almost exclusively deal with rent control laws.

International trade is another thread in of it's own, which you will now find on the first page of Politics.

Thanks for the additions, but we're starting to get a little ahead of ourselves in terms of taxes and public goods. I'm trying to deal strictly with prices, the other stuff will come later in a different series.

Oops, that's what happens when I come late to the party.

[smockers83]

Sure it's simple.

Fed manipulates many markets by adjusting interest rates up and down.

Artificial bubbles is just like any ponzi scheme. Want me to define that for you?

Tell you what, to simplify your task of defining the dollar just give me a one word definition.

Well the Fed does that in order to adjust the money supply as needed. But that's a whole different series. The whole economy is affected by the money supply, and therefore the Fed.

A bubble is like a ponzi scheme? How so? No need for definitions, but explain your rationale.

I didn't ask you to simplify my task, I was just trying to get an answer out of you by making it conditional. But if you want one word definitions, I can do that, although one will be an acronym.

debt note: IOUdollar: currency

A debt note is paper saying person X owes person Y Z amount of money. There are many types of debts and debt instruments. The dollar, as legal tender, is used to pay the debt note.

There are three functions of money. It serves as a medium of exchange, a unit of account, and a store of value.

[Armelius]

Well the Fed does that in order to adjust the money supply as needed. But that's a whole different series. The whole economy is affected by the money supply, and therefore the Fed.

A bubble is like a ponzi scheme? How so? No need for definitions, but explain your rationale.

I didn't ask you to simplify my task, I was just trying to get an answer out of you by making it conditional. But if you want one word definitions, I can do that, although one will be an acronym.

debt note: IOUdollar: currency

A debt note is paper saying person X owes person Y Z amount of money. There are many types of debts and debt instruments. The dollar, as legal tender, is used to pay the debt note.

There are three functions of money. It serves as a medium of exchange, a unit of account, and a store of value.

Dollar is currency? Hmmm, well that doesn't explain anything does it. How about gold? Is that currency too? It looks to me that your definition is overly vague. Sort of like saying pint is milk or water.

One word definition of dollar is unit. That simple.

How is a bubble like a ponzi scheme? Well, I guess if you have early investors getting paid while the value goes up bringing in newer investors until an appropriate time where people start seeing that the whole thing is a sham then the bubble bursts because people want out or want to get paid while the getting is good or until their value reaches zero.

Who says a dollar is legal tender?

[smockers83]

Yes, a dollar is a unit just like an inch, an ounce, and a gallon. However, the word unit doesn't define a dollar in the way it is used. A dollar is a unit of account, store of value, and medium of exchange. All of that in one word is currency or money.

Gold is a form of money, too, as it is used as a unit of account, store of value, and medium of exchange. The definition of money is very vague because rocks, gold, rum, cigarettes, and paper have been used over time as such.

A price bubble is not a ponzi scheme. Look up what a ponzi scheme is and what a price bubble is.

[Armelius]

Yes, a dollar is a unit just like an inch, an ounce, and a gallon. However, the word unit doesn't define a dollar in the way it is used. A dollar is a unit of account, store of value, and medium of exchange. All of that in one word is currency or money.

Gold is a form of money, too, as it is used as a unit of account, store of value, and medium of exchange. The definition of money is very vague because rocks, gold, rum, cigarettes, and paper have been used over time as such.

A price bubble is not a ponzi scheme. Look up what a ponzi scheme is and what a price bubble is.

I will do that right after you look up the dollar in the US Constitution or tell me where it says what is money.

[smockers83]

Try and look in the Constitution and find the CAFE standards.

Article I, Section 8.

Powers of the Congress

One of those powers is to coin money. So whatever the Congress determines is money is money. The Congress determined the dollar will be the nation's currency and money.

Back to my first statement, the Constitution doesn't define everything in our nation and government. What it defines is what the government can and cannot do along with certain restrictions and qualifications.

Moving onto ponzi schemes. A ponzi scheme is paying investors with other investors' money rather than profits. The first investors are paid from the money invested by new investors.

A price bubble can occur in different ways. It can occur due to a spike in demand, speculation, a fall in supply, or because of the psychological state of the market. A price bubble can occur in any market from assets to zucchini.

P.S. Don't pull the Constitution card again because I'll defeat it every time.

[Armelius]

Try and look in the Constitution and find the CAFE standards.

Article I, Section 8.

Powers of the Congress

One of those powers is to coin money. So whatever the Congress determines is money is money. The Congress determined the dollar will be the nation's currency and money.

Back to my first statement, the Constitution doesn't define everything in our nation and government. What it defines is what the government can and cannot do along with certain restrictions and qualifications.

Moving onto ponzi schemes. A ponzi scheme is paying investors with other investors' money rather than profits. The first investors are paid from the money invested by new investors.

A price bubble can occur in different ways. It can occur due to a spike in demand, speculation, a fall in supply, or because of the psychological state of the market. A price bubble can occur in any market from assets to zucchini.

P.S. Don't pull the Constitution card again because I'll defeat it every time.

Art. 1 Sec. 10

No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts; pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts, or grant any Title of Nobility.

No State shall, without the Consent of the Congress, lay any Imposts or Duties on Imports or Exports, except what may be absolutely necessary for executing it's inspection Laws: and the net Produce of all Duties and Imposts, laid by any State on Imports or Exports, shall be for the Use of the Treasury of the United States; and all such Laws shall be subject to the Revision and Controul of the Congress.

No State shall, without the Consent of Congress, lay any duty of Tonnage, keep Troops, or Ships of War in time of Peace, enter into any Agreement or Compact with another State, or with a foreign Power, or engage in War, unless actually invaded, or in such imminent Danger as will not admit of delay.

Be my guest.

[smockers83]

This is you ->

I seriously cannot believe you're trying to do this. You have lost all merit you had left, if you had any to lose.

Any person who took high school government, which is a requirement in most, if not all states, would know that State refers to individual states within the Union.

Could a mod clean this up please? I want more intelligent people to want to read this and learn from it and discuss it as I have found out people are being turned away due to this nonsense. Any person in Politics should be more educated to know what Article 1, Section 10 defines if they're going to use it in their argument. If it's cleaned up, I'll edit my posts accordingly so that it flows and makes sense.

I am now convinced this is Bob trying to sneak back in.

[Armelius]

This is you ->

I seriously cannot believe you're trying to do this. You have lost all merit you had left, if you had any to lose.

Any person who took high school government, which is a requirement in most, if not all states, would know that State refers to individual states within the Union.

Could a mod clean this up please? I want more intelligent people to want to read this and learn from it and discuss it as I have found out people are being turned away due to this nonsense. Any person in Politics should be more educated to know what Article 1, Section 10 defines if they're going to use it in their argument. If it's cleaned up, I'll edit my posts accordingly so that it flows and makes sense.

I am now convinced this is Bob trying to sneak back in.

Merit? Is that some cigarette you smoke? I think you are trying to blow some up my arse if so. Please tell me how your elite education handles Art. 1 Sec. 10. I will forgive you for whatever "Bob" you are talking about. Do you want me to call you names too? I have a few names after traitor if so.