Someone stole the lines between my parapgraphs! I want them back :(

(reposted for visual convenience ;) )

When democracies, great and small, go forth to choose their new set of scapegoats, the economy is often trumpeted as one of the most vital factors that decides who gets picked. Sure, there are other factors. The Greeks look for the man who can most convincingly throw his hands up in disbelief whilst saying “it wasn’t me”, and in America very little goes down as well as a man who can make a sincere sounding “we did it for the greater good” speech.

But all of us are united in considering the economy important. The obvious flaw being that the vast majority of us wouldn’t recognise a viable economic strategy if it stripped naked in front of us and danced the cancan. We can just about judge whether the situation we find ourselves in at any given time is good or bad (well... some struggle with even that), but when tasked with trying to decide whether we should support the Party that makes vital cuts, or the one that insists we can spend our way out of a crisis we a painfully ill equipped. Even worse when the media is full of commentators claiming that, truth be told, both parties have the exact same plan but with different marketing. Even those few with a strong background in economics seem to be at loggerheads over what should be done. For the rest of us plebs, the choice is impossible.

So it may be the economy, stupid, but by God it shouldn’t be. Why don’t we limit the factors we use to those we understand? Dare I say it, but when it comes down to it is personality really more important? At least with that we can make a decent stab at a judgement.

I think the key is, as you pointed out, most of us can tell when the economy is bad, so somebody who comes in and has a different idea, even though we don't understand it, can do the economy dance and get our votes because it can't get worse and his plan has to be better than the status quo. Of course, in reality it can always get worse and his plan could fuck things up so bad the country becomes the next Greece and we all report to the bosses in Tokyo.

But it doesn't help intelligibility. What are you trying to say?

Who? Me or Oct?

Octavious, a lot of people are lazy and don't want to learn economics. A lot of them ran businesses I competed with and they aren't in business, at least my business, any more.

A lot of people don't want to work hard to get what they want either.

Octavious. I can't understand that at all.

He's trying to say we should dumb down our politics to be even less about the issues and more about personality than it already is. Citizens are too dumb to make judgments about complicated policies.

I have a feeling that isn't quite it, but if it is then that's a dreadful idea. Obsession about personality is a big part of what made Mitch Daniels not run for president...

@ Putin

Don't be silly. I'm trying to say there shouldn't be as much focus on things that we do not and can not understand, not because we're lacking in intellect, but because to come close to understanding them would take a lifetime. Better to focus on matters like morale judgements in where taxes and benefits should be focused, or removed if your that way inclined. We currently seem to get an endless stream of political talk from our Parties that goes along the lines of "only our economic plan can save us from doom. Don't vote for the others because these people (there then follows a list of celebrities and random economists) say it's wrong". The ability to make a reasoned choice is being denied to us because the thing we are told is most important none of us understand.

"I'm trying to say there shouldn't be as much focus on things that we do not and can not understand"

Octavious, the economy is in shambles for a very simple reason: The Fed issues all public currency as an interest-bearing loan.

End the Fed and the economy will be restored almost overnight.

Yes. It is that simple. Everything else you hear is pure blather.

"the thing we are told is most important none of us understand."

It's designed to make your head swim so that you cannot question it.

Understanding business (this is what economics is) doesn't take a lifetime.
What a silly idea.

Tettleton will make an excellent example. Being something of a business leader he has a far greater understanding of the economy than most, especially those parts of it he is exposed to on a daily basis. Yet, if asked to formulate what he believes would be a sound economic policy (please don't, Tettle ;) ) there will doubtless spring up a multitude of people claiming to be more qualified who will insist he's wrong and leading us to disaster.

What hope then for those of us who are purely armchair economists? What hope for those voters with no talent for economics at all?

I disagree Darwyn. The EU is in shambles because it doesn't have a central bank that has the ability to coordinate monetary policy.

But explain to me - how will ending the Fed restore the economy overnight? How will ending it make consumers want to spend more, or businesses to invest more? It is well known that the actions of the Fed with selling bonds can only marginally effect what happens in the economy.

Why did my business have revenue over 1 million last year? Because I'm brilliant? Nope. Because I'm born into money and had a better start than anyone else? Nope. Actually raised in poverty by my mom. Because I get favored treatment from the government? Nope. Because we have slaves for employees. Nope. You couldn't hire one of our employees away with double the salary I don't think.

My business produced that revenue stream because we delivered a product that our customers thought was worth their hard earned money.

The business survived on that revenue stream because we kept costs far below revenue and turned a nice profit.

That's economics, the micro variety (and the only real economics).
Macroeconomics is for total morons like Marx, University Professors who couldn't make money selling condoms in a brothel, and talking heads on business channels.

One of the most famous quotes that shows microeconomics really exists and macroeconomics is total fiction, "Countries don't trade with countries, people and companies trade with other people and other countries."

There is only one economic policy Octavious.
Do not allow government to favor one party over another.
Expand the courts to handle business disputes.
Make the only regulation that which demands transparency from business.
Leave government to protect workplace safety and environmental protections based on "science" not religion.

You do that and you won't have to worry about the economy.
Does this mean everyone will be happy? Nope.
Will many more be happy than today, irrefutably yes.

Darwyn, have you ever wondered why there were so many banking panics (coming hand in hand with securities' market crashes and triggering pretty nasty economic recessions) in the National Banking Era in the US when England, France and Germany had remarkably stable financial systems during the same period? Why, after the crisis of 1907, one European banker declared the US "a great financial nuisance"? Yes, it was because the US lacked a central bank to ensure financial stability.

And issuing money as a loan? That's mainly the job of commercial banks. Central bank provides them with liquidity necessary for offering loans to private sector. Of course it doesn't do it for fun but to keep financial sector running seamlessly and also to influence the monetary policy and therefore the whole economy. By manipulation with the discount rate and the reserve requirements, it can provide incentives and disincentives for the commercial banks to offer loans. The discount rate used by central bank serves as a benchmark for commercial banks, because, to mention the easy case, the money they borrow from it has to be lent out at higher rate to ensure profits. In recent years, commercial banks have the liquidity almost for free since the rates charged by central banks in the West are almost negligible. In reality, discount rate is not that important, repo rate is, since central banks control the amount of currency mostly through open market repurchase agreements that affect monetary base. All in all, while FED earns interest through repo trades, it can't earn money that way, that would require constant monetary expansion - essentially an inflation Ponzi scheme. Which, if you look at the development of inflationduring past decades, is not the case.

goldfinger, monetary policy of EU is stellar in comparison to its fiscal policy, which is virtually uncoordinated and ultimately causes the biggest trouble since it undermines the base of the currency union. If there was a fiscal coordination, the differences in economic fundamentals between the member states could be mitigated, which would stabilize the whole structure. Since there is no such thing, monetary policy has to suck because there can't be no monetary policy that would accomodate all the differently performing economies that together form EU.

And TC would be probably surprised how massively rooted in microeconomics are modern macroeconomic theories because yes, microfoundations are necessary for reasonable description of economic reality.

I muted TC, but how can he not know that? That's why almost everywhere you go you take Micro before you take Macro. Micro gives you the fundamental knowledge which you can build upon in macro. Heck, it explains why supply and demand graphs (and pretty much all graphs) are the way we model them.

Alright, my bad ulytau. I didn't realize the monetary problems were that tied to the fiscal problems. But still, it is very hard to coordinate 17 different economies under one currency.

Yes, keeping the currency union intact is very hard when huge differences among the economies exist, especially since they can pursue their own goals by tailoring the fiscal policy to their own needs, that may be detrimental to the welfare of the whole supranational entity - think tax dumping that serves to attract FDI. Another reason why I blame fiscal policy more is it's much more discretionary nature. In Europe at least, we regard an independent central bank as a best solution for handling monetary policy, FED is not as independent for instance. Politicians have come to terms with the fact that they surrendered their power to influence it, leaving the job to the experts working for the central bank who usually perform well. That's actually a remarkable development given the history when sovereigns holding political power always controlled monetary policy and misused it to their own needs through debasement or seignorage while hurting the economy in the process. With fiscal policy, it's completely different story. While I have faith that the folks at ECB will pursue policy that favours the whole Eurozone, politicians from individual countries are rightly concerned mostly about their compatriots who elect them, the whole currency union be damned. That's why I'm a eurofederalist, hoping that tighter integration will make people think about the whole Union as us and not them and act accordingly.

As a sidenote, it would be an interesting case study to track the damage in different countries if Euro failed. I would guess that it would be actually worst for countries like Kosovo (unilaterally adopted Euro) and various West African countries that have currencies pegged to it than actual Eurozone members like the Netherlands. The fragility of their economies would pose a greater problem than the establishment of a new currency.