The Economics Thread

Its not all about money though.

Most people who enter politics want to server. Of course many stray from that call.

As for care providers. Doctors and Nurses. They want to give the best health care they can. The stress these people are in is staggering. Long hours and on top of everything having to deal with the greedy health Insurance companies who are only interested in profits.
 
finneh said:
It's very difficult to emulate the kind of incentives that come from private business. How do you emulate being able to pass on to your children a multi-million pound company you've built up over 40 years? You can't in the sphere of public sector work.
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Such a strange comment. You realise most big corporations aren’t privately owned? The “private sector” doesn’t mean we’re talking about family businesses!

As for CEO pay, there are incentives for jobs in the public sector which go beyond salary. Job security, pension etc. This applies to CEO’s as much as people lower down the chain.
 
The IMF has corrected Chile growth projection in 2018 from the original 3.0% to 4.0%.

That sounds great, but in reality it's just the income inequality growing more and more. All that growth goes straight to the pockets of the 1%.

Red Dreams said:
Its not all about money though.

Most people who enter politics want to server. Of course many stray from that call.

As for care providers. Doctors and Nurses. They want to give the best health care they can. The stress these people are in is staggering. Long hours and on top of everything having to deal with the greedy health Insurance companies who are only interested in profits.
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That's why in Chile, politicians are paid handsomely. (senators and deputy's make 15 thousand USD per month, vs the 50% of the workforce who makes minimum wage of 450 USD monthly, so over 33.3 times)

Plenty politicians who comes from lefty parties for example, once in that kind of money, they kinda forget their origins hahaha and stop thinking in helping people, but instead they just want to enjoy their money and make more more more.

Same with CEOs. I was reading today that CEOs in Chile are the best paid in the region, and its pretty much the same concept. They get paid a lot, because being a CEO in a neoliberal economy, means you have to be a cnut. Fire old people and replace them with cheap immigrants, cover up contamination of beautiful places because your shareholder wants to win more, etc etc.

In Chile, salary, more than a justified compensation for work, is used to buy people and consciousness. SAD.
 
George Owen said:
The IMF has corrected Chile growth projection in 2018 from the original 3.0% to 4.0%.

That sounds great, but in reality it's just the income inequality growing more and more. All that growth goes straight to the pockets of the 1%.



That's why in Chile, politicians are paid handsomely. (senators and deputy's make 15 thousand USD per month, vs the 50% of the workforce who makes minimum wage of 450 USD monthly, so over 33.3 times)

Plenty politicians who comes from lefty parties for example, once in that kind of money, they kinda forget their origins hahaha and stop thinking in helping people, but instead they just want to enjoy their money and make more more more.

Same with CEOs. I was reading today that CEOs in Chile are the best paid in the region, and its pretty much the same concept. They get paid a lot, because being a CEO in a neoliberal economy, means you have to be a cnut. Fire old people and replace them with cheap immigrants, cover up contamination of beautiful places because your shareholder wants to win more, etc etc.

In Chile, salary, more than a justified compensation for work, is used to buy people and consciousness. SAD.
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cheers George for the insight of what is happening in Chile.
 
Next POTUS needs to seriously look at how to reverse this.

mxgfizY.jpg
 
finneh said:
It's very difficult to emulate the kind of incentives that come from private business. How do you emulate being able to pass on to your children a multi-million pound company you've built up over 40 years? You can't in the sphere of public sector work.

No public sector body even in an incentivised form would ever offer a competitive salary that the public would stomach. The second the innovative founder and CEO of a leading group of UK hospitals was reported to be earning £25m a year (over 150 times the PM!)... The public outcry against what could be instead spent on the "underpaid, overworked nurses" would make his position untenable.

You then have to set the parameters involved in success, which is far more difficult to set with a public sector "budget" system. The history of public sector budget surpluses is that they're a signal that they're been given too much cash. Incentives wouldn't change this philosophy. The "use it or lose it" mantra at the end of the fiscal year wouldn't change and with it you'd lose the surpluses required to drive real innovation.

Finally even if you could recreate all these things in the form of some impossible healthcare incentive... It would still be open to the winds of political change. If the Tories or Labour set up such a system... The last decade of my hard work would disintegrate when the opposite party took to office and decided that my success did not deserve my deserving but expensive monthly pay cheque.

The fact that our Prime Minister is paid a laughable and derisory £150k a year (and other MP's £75k) in comparison to the importance of their jobs is testament to the inability for public sector to be able to incentivise.

We have the inept politicians we deserve because of our own twisted and contradictory morale compasses.
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Few quick thoughts on this.

First, there is a fundamental incentive problem with privatized healthcare along with other industries like private prisons and education which is why I personally strongly support the public sector in those utilities.

The goal of a health care system to provide the most efficient, effective health care to all the citizens. For-profit HMO/pharmaceutical entities have a fiduciary duty to maximize profit for shareholders. This automatically creates a disconnect of incentives in many circumstances. There are inevitably going to be decision points where the profit incentive goes against what is actually the most efficient healthy solution. In every industry there is the danger of planned obsolescence when the focus is too heavily on maximizing profit but in health care planned obsolescence can really have some negative consequences that go directly against the goal of efficient health care systems.
This classic article is a great example of many of the misaligned incentive problems that happen with the current US privatized HMO system:
https://www.theatlantic.com/magazin...american-health-care-killed-my-father/307617/

Second, the wealth of research from dozens of behavioral economics researchers over the last 3 decades shows that neo-classical economics assumptions about motivation, decision making and behavior are not as reducible to the profit motive as early classical economists assumed. A lot of good exprriments on intrinsic vs extrinsic motivation. Good overview here:

"Contrary to what you would expect based on a standard introductory text in microeconomics, if you pay a person more for doing a task, she might be less willing to work on it, she might be less productive given her efforts, and she may enjoy the task less. If you start charging a fee for something, more people might start doing it. If you want your employees to save more for retirement, you may want to give them fewer investment options. If you want them to engage more in a task, you might want to offer them an additional alternative to that task. Moreover, to induce particular actions, you might have to think not only about the underlying incentives, but also about"
 
finneh said:
It's very difficult to emulate the kind of incentives that come from private business. How do you emulate being able to pass on to your children a multi-million pound company you've built up over 40 years? You can't in the sphere of public sector work.

No public sector body even in an incentivised form would ever offer a competitive salary that the public would stomach. The second the innovative founder and CEO of a leading group of UK hospitals was reported to be earning £25m a year (over 150 times the PM!)... The public outcry against what could be instead spent on the "underpaid, overworked nurses" would make his position untenable.

You then have to set the parameters involved in success, which is far more difficult to set with a public sector "budget" system. The history of public sector budget surpluses is that they're a signal that they're been given too much cash. Incentives wouldn't change this philosophy. The "use it or lose it" mantra at the end of the fiscal year wouldn't change and with it you'd lose the surpluses required to drive real innovation.

Finally even if you could recreate all these things in the form of some impossible healthcare incentive... It would still be open to the winds of political change. If the Tories or Labour set up such a system... The last decade of my hard work would disintegrate when the opposite party took to office and decided that my success did not deserve my deserving but expensive monthly pay cheque.

The fact that our Prime Minister is paid a laughable and derisory £150k a year (and other MP's £75k) in comparison to the importance of their jobs is testament to the inability for public sector to be able to incentivise.

We have the inept politicians we deserve because of our own twisted and contradictory morale compasses.
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After careful analysis, you could give a public sector dept a budget based upon what you estimate to be their needs to get their function done and then offer a commission on top of their basic salary based upon how efficient they were able to make the dept. Lets say they make it 20 percent more efficient. They get 10 percent of this to be shared amongst themselves using a pre-determined structure and the other 10 percent goes back to the govt to be reallocated. That might be a solution to your 'use it or lose it' problem?
 
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Pogue Mahone said:
Such a strange comment. You realise most big corporations aren’t privately owned? The “private sector” doesn’t mean we’re talking about family businesses!

As for CEO pay, there are incentives for jobs in the public sector which go beyond salary. Job security, pension etc. This applies to CEO’s as much as people lower down the chain.
Click to expand...

Private companies tend to have share options for their CEO's (and other key staff) makes them stakeholders, which is what I alluded to. A part of the company they can keep which financially benefits themselves which can be passed down.

Again it's shown that the public sector cannot emulate the incentives of the private sector. As much as it's easy to say, it's not possible to enact.

MP's getting a pay increase a few years ago illustrates this. Everyone was up in arms that their pay increased from a modest salary to a fractionally less modest one.

It simply isn't possible in our political climate to pay or incentivise public sector workers to any kind of level that would make a real difference. This is before even talking about the interests that would have to be destroyed to get rid of the "pay band" systems that corrupts the entirety of the public sector "you have x years experience, your job title is x, therefore your salary is x". Rarely is the focus on actual ability in said role.

oneniltothearsenal said:
Few quick thoughts on this.

First, there is a fundamental incentive problem with privatized healthcare along with other industries like private prisons and education which is why I personally strongly support the public sector in those utilities.

The goal of a health care system to provide the most efficient, effective health care to all the citizens. For-profit HMO/pharmaceutical entities have a fiduciary duty to maximize profit for shareholders. This automatically creates a disconnect of incentives in many circumstances. There are inevitably going to be decision points where the profit incentive goes against what is actually the most efficient healthy solution. In every industry there is the danger of planned obsolescence when the focus is too heavily on maximizing profit but in health care planned obsolescence can really have some negative consequences that go directly against the goal of efficient health care systems.
This classic article is a great example of many of the misaligned incentive problems that happen with the current US privatized HMO system:
https://www.theatlantic.com/magazin...american-health-care-killed-my-father/307617/

Second, the wealth of research from dozens of behavioral economics researchers over the last 3 decades shows that neo-classical economics assumptions about motivation, decision making and behavior are not as reducible to the profit motive as early classical economists assumed. A lot of good exprriments on intrinsic vs extrinsic motivation. Good overview here:

"Contrary to what you would expect based on a standard introductory text in microeconomics, if you pay a person more for doing a task, she might be less willing to work on it, she might be less productive given her efforts, and she may enjoy the task less. If you start charging a fee for something, more people might start doing it. If you want your employees to save more for retirement, you may want to give them fewer investment options. If you want them to engage more in a task, you might want to offer them an additional alternative to that task. Moreover, to induce particular actions, you might have to think not only about the underlying incentives, but also about"
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I don't disagree in terms of a fully privatised and poorly or unregulated environment. I would be looking to some of the best healthcare systems in the world that combine the single payer benefits of "public healthcare", with the efficiency benefits of private healthcare. A simplistic version of this would be UK dental care. If you don't like your dentist... You move. If the dentist is good, he gets more patients. If he's bad his practice declines and eventually closes. However it has to be within the confines of a well regulated system whereby as you state you'd need to avoid the disconnect of incentives that you speak about.

I also bellieve we currently have a disconnect of incentives anyway. The recent issues with "The Liverpool Pathway" and various other scandals involving essentially the euthanasia of the elderly show this in our current system. These public organisations see the drain on resources of some elderly patients and look to reduce this drain where possible; unpalatable though it is. I'd like to think you could avoid this within the private sector by the financial allocation being such that good healthcare and profit go hand-in-hand. You'd have the benefit of choice straight away... Patients stop going to bad hospitals with poor healthcare that then close down, more patients go to good hospitals which grow. Naturally our current system forces people to use terrible hospitals and continues to prop said hospitals up with perpetual increases in funding.

I'd love to provide a much more thorough reply regarding the economics involved with incentives as it fascinates me, but I only have access to my phone for the next several days. Let's just say though that I'm more of a Friedman traditionalist.

Danny_ said:
After careful analysis, you could give a public sector dept a budge based upon what you estimate to be their needs to get their function done and then offer a commission on top of their basic salary based upon how efficient they were able to make the dept. Lets say they make it 20 percent more efficient. They get 10 percent of this to be shared amongst themselves using a pre-determined structure and the other 10 percent goes back to the govt to be reallocated. That might be a solution to your 'use it or lose it' problem?
Click to expand...

I think if there were solution that the public would accept it would have been implemented over the last few decades... The truth is it would be political suicide to offer the kind of incentives within the public sector that would sufficiently motivate. You've seen the headlines created by "how many headteachers earn more than the PM" with people named and shamed.

Since we're on a United forum let's say that the Football league were Nationalised back when players were earning a modest salary. It's obvious what would follow... Pay bands for footballers dependant on position, appearances and squad status. These pay bands would be in line with the kind of salaries we see paid to doctors, teachers and nurses.

You'd see dozens of layers of managers and bureaucrats creaming off the money that clubs were making and the players would be paid modestly. It would resemble our NHS and likewise very quickly all the best players (or doctors) would leave and either move abroad or join a private league where the pay is in line with their talents, rather than an arbitrary banding set by central government.
 
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berbatrick said:
The UK, running a fully-public model, spends less than France, Germany, and Switzerland, all of which have increasingly higher healthcare spending - and increasingly higher levels of private players in healthcare.
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berbatrick said:
In comparisons with other western European countries, which all have universal healthcare but via various methods (Switzerland has a prominent role for pvt insurance for example), the UK spending per capita is fairly low (and Switzerland is the highest).

600px-OECD_health_expenditure_per_capita_by_country.svg.png



What this says to me is that NHS problems (like waiting time) can probably be addressed by spending.

In more detail: http://ec.europa.eu/eurostat/statistics-explained/images/b/be/Current_healthcare_expenditure,_2015_FP18b.png
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Homebrew analysis of the govt healthcare stuff (I'm not an economist so I might be messing this up):

Complete data for the large countries of Western Europe* is available, latest from 2014.
Taken from: http://appsso.eurostat.ec.europa.eu/nui/submitViewTableAction.do

I looked for the correlation between the ratio of govt contribution to total expenditure, and the total expenditure. Since I don't know economics, I downloaded the data as both Euros per capita and as a percentage of GDP.

Result:
There is a dramatic difference between measurements made using %age GDP and per capita expenditure. There was no *significant* trend for any correlations involving per-capita expenditure. There was a strongly significant negative correlation using %age GDP - as the share of govt spending rose, the overall spending declined.
Both facts hold regardless of which ratio was used: percentage of govt spending in total healthcare spending, or percentage of govt spending in total compulsory spending. I think the second one is more relevant in deciding if a NHS or Swiss (or ACA)-type system is more cost-efficient, but I could be wrong.

I'm attaching the strongest and weakest correlations
Strongest (negative) correlation:
(All healthcare spending as percentage of GDP vs ratio of govt spending to total compuslory purchases)
mhPsshd.png

r=-0.7, p<0.005

Weakest (no) correlation:
(Total expenditure in Euros per capita vs ratio of govt spending to total health spending)
WU5mCdS.png


r=-0.1, p=0.7




Conclusion -
At the very least, the degree of govt involvement in healthcare has no effect on cost. At most, it is dramatically associated with lower expenditure.

* UK, Ireland, France, Belgium, Netherlands, Germany, Sweden, Denmark, Norway, Switzerland, Italy, Portugal Spain, Austria.
 
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LuisNaniencia said:
https://nypost.com/2018/09/22/next-crash-will-be-worse-than-the-great-depression-experts/

When do we think the next recession will hit? This article predicts a bad on in approximately 2020.
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There are four leading indicators that have each had a historical ~80% accuracy rate of predicting recessions with a 12 month lag. If you combine the trajectory of all four then you can get a pretty good idea of when the next recession is going to be. So far three of the four show economic expansion and increased GDP over the next year and the fourth is relatively flat, so all things said and excepting some sort of exogenous shock, the odds of a recession over the next few months seems relatively low. What happens in 2020 is another matter since its too far out for leading indicators to assess in the present.
 
Raoul said:
There are four leading indicators that have each had a historical ~80% accuracy rate of predicting recessions with a 12 month lag. If you combine the trajectory of all four then you can get a pretty good idea of when the next recession is going to be. So far three of the four show economic expansion and increased GDP over the next year and the fourth is relatively flat, so all things said and excepting some sort of exogenous shock, the odds of a recession over the next few months seems relatively low. What happens in 2020 is another matter since its too far out for leading indicators to assess in the present.
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Am I right in thinking we are entering the longest period of expansion next year? Not that this means it's 100% inevitable.
 
LuisNaniencia said:
Am I right in thinking we are entering the longest period of expansion next year? Not that this means it's 100% inevitable.
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It’s certainly one of the longest. Trump coming into office also changed the calculus in terms of monetary policy which may be delaying the inevitable garden variety recession at some point.
 
https://www.richmondfed.org/publications/research/econ_focus/2018/q2/interview?cc_view=mobile

Productivity growth drives economic growth, and for about the last 15 years, the United States and much of the world has experienced a significant productivity slowdown. The causes remain a puzzle to economists, and the predictions about when — or if — the United States will emerge from this slowdown vary widely.

Chad Syverson, an economist at the University of Chicago’s Booth School of Business, has spent much of his career researching issues related to productivity at both the macro and micro levels. His research has shed light on why some firms are significantly more productive than others within the same industry, a long-standing question among economists working in the field of industrial organization. His work has also helped us better understand the process of learning by doing, why some firms have vertical ownership structures (and why those might not be very different from horizontal ownership structures), and the value of carefully done industry case studies. He recently has started researching the economics of artificial intelligence and what future developments in that area may mean for productivity growth.
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good interview, where he presents various findings related to productivity, automation/technical progress and aspects of ownership/production.
 
https://www.city-journal.org/joseph-stiglitz-venezuela-16181.html

Continually Mistaken, Chronically Admired
The work of Nobel Prize-winning economist Joseph Stiglitz is a study in elite myopia.
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I think its an essay worth reading especially for those who like Stiglitz. Its boarderline to a
character assassination and doesn't even try to be meassured/fair. Nontheless it raises many points that are valid/correct, that can't and shouldn't be disregarded. I guess those who want to disregard all of it, will have an easy way out by attacking the author, while ignoring the content.


In his open letter, Rogoff recalls a story from the late 1980s. Stiglitz was asking Rogoff and another colleague whether Paul Volcker merited his vote for a tenured appointment at Princeton. “At one point,” Rogoff wrote, addressing Stiglitz, “you turned to me and said, ‘Ken, you used to work for Volcker at the Fed. Tell me, is he really smart?’ I responded something to the effect of ‘Well, he was arguably the greatest Federal Reserve Chairman of the twentieth century.’ To which you replied, ‘But is he smart like us?’ ” Rogoff tells Stiglitz that the story is “emblematic of the supreme self-confidence you brought with you to Washington, where you were confronted with policy problems just a little bit more difficult than anything in our mathematical models.” Rogoff’s letter continues: “Throughout your book, you betray an unrelenting belief in the pervasiveness of market failures, and a staunch conviction that governments can and will make things better. You call us ‘market fundamentalists.’ We do not believe that markets are always perfect, as you accuse. But we do believe there are many instances of government failure as well and that, on the whole, government failure is a far bigger problem than market failure in the developing world.”
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Trump is not going g to be happy when he sees the price of Brent.
 
PedroMendez said:
https://www.project-syndicate.org/c...ts-interest-rates-by-hans-werner-sinn-2018-09
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Thanks Pedro. As he says, US right-wingers think Reagan did a wonderful job, so maybe when Trump's time is up they'll think the same of him, who knows.

Would I be right in thinking one of the biggest differences between then and now is the trillions of quantitative easing that's gone into the US economy? If gone into is the right phrase. Not that I understand it at all, I'm just wondering if anyone else does.
 
711 said:
Thanks Pedro. As he says, US right-wingers think Reagan did a wonderful job, so maybe when Trump's time is up they'll think the same of him, who knows.

Would I be right in thinking one of the biggest differences between then and now is the trillions of quantitative easing that's gone into the US economy? If gone into is the right phrase. Not that I understand it at all, I'm just wondering if anyone else does.
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I am at the point where I am about as confused about the effects of QE as anyone else. There so many conflicting views about the impact of it, that I can't make much sense of it. It might matter a lot or not at all. I don't think it has much to do with Trump's tax cuts or the move of the FED towards a normalization of the monetary policy.
Overall the US will be fine despite Trump increasing the mountain of debt for one-time economic effects, that he & GOP are surely going to celebrate as monumental success. It was also inevitable, that EMs have to face the consequences of rising US interest rates with or without Trump. It was just a matter of time.
 
The UK will be particularly vulnerable to interest rate rises because housing forms such a large part of it's economy. I think everyone here has forgotten what higher interest rates can mean, it will be interesting.
 
711 said:
The UK will be particularly vulnerable to interest rate rises because housing forms such a large part of it's economy. I think everyone here has forgotten what higher interest rates can mean, it will be interesting.
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Yes, that's worrying and a bigger problem for Europe than it is for the US. Nowadays these very low interest rates are taken for granted despite being originally seen as emergency short-term meassure. A transition back towards higher rates could be quite painful, while keeping them close to zero forever creates problems as well.
At least my expectation is that italy and a few other countries would crash and burn if the EZB starts to hike interest rates for an extended period of time (if there is no fiscal transfer regime in place to compensate). That said I don't have much confidence in my own predications.
 
Russia and USA still not even close to Chile (OECD country too). They need to work harder!!

Chile: Top 1% share is 35% and top 0.1% share is 25%)
 
Lots of selling going on atm. Probably a bit of a slight correction.
 
Don Alfredo said:
Caan you explain what it means please and why this is groundbraking?
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https://www.cgdev.org/blog/everything-you-know-about-cross-country-convergence-now-wrong

(...)
The conclusion of the empirical growth literature in the 1990s was that convergence was conditional on poor countries achieving the level of human capital and governance in rich countries—economists’ standard “all else equal” fudge. But as Dowrick and Delong (2003) noted, this was an absurd thought experiment. Bangladesh can’t become Belgium overnight. Thankfully it didn’t have to. Instead, developing countries have managed to grow faster without such radical changes in their endowments or institutions.
(...)

(...)
We see clearly that convergence in the recent period is a consequence of both improving per capita GDP growth in poor countries and declining growth in rich countries. So, the latter is not the cause of convergence. In fact, it’s both.
(...)


(...)
But at the country-level at least, we should shed the idea of no convergence. It’s not “just” China and India, home to a third of the world’s population on their own: developing countries on average are outpacing the developed world. We can afford to succumb to the mild optimism that since about the fall of the Berlin Wall, the world witnessed unconditional convergence with a vengeance. As India’s Economic Survey identified last year, today’s lower-middle-income countries face at least four headwinds that could easily stall their growth: the backlash against globalization in rich countries, catastrophic climate change, the disappearance of light manufacturing as a growth ladder, and much lower human capital than their predecessors at an equivalent level of development. Whether the last quarter century of convergence will survive the current civilizational tumult remains to be seen.
(...)
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Apparently, US companies have started moving from China to Vietnam due to the trade war and setting up their new supply chains there. And some of you thought it couldn't happen. Globalization at work - they move to another poor country where they can pay slave labor wages. The rich get richer, the poor get a little bit better off - you make a penny, I make 100,000 is the new world order. We need to just put an automatic tariff of 15 percent on any company that employs more than 50 percent of its work force in another country. If they want to exploit these people like this, let them pay.
 
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