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US Politics Mega-thread - Page 114

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Read the rules in the OP before posting, please.

In order to ensure that this thread continues to meet TL standards and follows the proper guidelines, we will be enforcing the rules in the OP more strictly. Be sure to give them a re-read to refresh your memory! The vast majority of you are contributing in a healthy way, keep it up!

NOTE: When providing a source, explain why you feel it is relevant and what purpose it adds to the discussion if it's not obvious.
Also take note that unsubstantiated tweets/posts meant only to rekindle old arguments can result in a mod action.
sam!zdat
Profile Blog Joined October 2010
United States5559 Posts
Last Edited: 2013-02-18 02:20:45
February 18 2013 02:19 GMT
#2261
On February 18 2013 11:16 JonnyBNoHo wrote:
Show nested quote +
On February 18 2013 11:06 sam!zdat wrote:
how can entrepreneurs be fooled? I thought entrepreneurs were rational actors in an efficient market, who process all information perfectly and instantaneously?

I don't think it is assumed that entrepreneurs have perfect information. Otherwise there wouldn't be a point to adjusting for risk.


Isn't that what the efficient markets hypothesis is? Of course entrepreneurs have all the information. It's right there in the efficient market!

And how do you adjust for risk? Risk is, by definition, that which you don't know about in order to adjust for. this idea that it is possible to "adjust for risk" is at the heart of the problem
shikata ga nai
acker
Profile Joined September 2010
United States2958 Posts
Last Edited: 2013-02-18 02:29:26
February 18 2013 02:21 GMT
#2262
On February 18 2013 11:12 JonnyBNoHo wrote:
The story still doesn't work for the poor shopkeep though. Getting $1,000 in sales later on does little for his income. Assuming a generous 10% net profit margin the shopkeep would need to see a sales increase of $10,000 before he's made whole. That won't happen and so the shopkeep will need to cut some other expense to make up for it (either a business expense to raise up his income or cut into his personal consumption).

Relative to what?

Replacing a broken window is a fixed cost, not a variable one*. It's very possible that dipping into savings to replace such a window could easily pay for itself, depending on the interest rate on his savings.

There's absolutely no reason why the shopkeeper must dip into his personal consumption. It's all relative to what he can get money for.

*Well, in the long run, even his shop will turn into dust, so I guess it's variable. Not relevant.

Even taking the example at face value, replacing the broken window could be $10,000 more profitable than NOT replacing the window. Assume that the broken window lowers sales by 10% and the shopkeeper normally makes 50k a year. But why would you arbitrarily add numbers to a theoretical discussion? Makes no sense.
TerribleNoobling
Profile Joined July 2010
Azerbaijan179 Posts
February 18 2013 02:27 GMT
#2263
i feel like my economy is a little sluggish, brb i'm going to do some heroic vandalism
TotalBalanceSC2
Profile Joined February 2011
Canada475 Posts
February 18 2013 02:30 GMT
#2264
On February 18 2013 11:27 TerribleNoobling wrote:
i feel like my economy is a little sluggish, brb i'm going to do some heroic vandalism


I think you are taking this broken window analogy a little too seriously.
TerribleNoobling
Profile Joined July 2010
Azerbaijan179 Posts
February 18 2013 02:35 GMT
#2265
hey man... just doing my part to stimulate the economy
TotalBalanceSC2
Profile Joined February 2011
Canada475 Posts
Last Edited: 2013-02-18 02:39:21
February 18 2013 02:38 GMT
#2266
On February 18 2013 11:21 acker wrote:
Show nested quote +
On February 18 2013 11:12 JonnyBNoHo wrote:
The story still doesn't work for the poor shopkeep though. Getting $1,000 in sales later on does little for his income. Assuming a generous 10% net profit margin the shopkeep would need to see a sales increase of $10,000 before he's made whole. That won't happen and so the shopkeep will need to cut some other expense to make up for it (either a business expense to raise up his income or cut into his personal consumption).

Relative to what?

Replacing a broken window is a fixed cost, not a variable one*. It's very possible that dipping into savings to replace such a window could easily pay for itself, depending on the interest rate on his savings.

There's absolutely no reason why the shopkeeper must dip into his personal consumption. It's all relative to what he can get money for.

*Well, in the long run, even his shop will turn into dust, so I guess it's variable. Not relevant.

Even taking the example at face value, replacing the broken window could be $10,000 more profitable than NOT replacing the window. Assume that the broken window lowers sales by 10% and the shopkeeper normally makes 50k a year. But why would you arbitrarily add numbers to a theoretical discussion? Makes no sense.


What I was trying to get across anyway is that the broken window acts as a spark that causes overall growth in spending which makes everyone richer. Manufacturing made so much money in WWII that when they decided to start spending, everyone else had more money which allowed roaring growth in the economy. If it wasn't for this "broken window" the companies never would of had enough demand for their manufactured goods and would never have made all the money that allowed them to then spend and reinvest that led to general economic growth and more people continuing to buy their manufactured goods. Albeit now people were buying cars not tanks.
acker
Profile Joined September 2010
United States2958 Posts
February 18 2013 02:41 GMT
#2267
Yes, I know, the absolutist version of the broken window fallacy is dead as a doornail in economics. Everyone agrees that it broadly applies under most circumstances, though.
sam!zdat
Profile Blog Joined October 2010
United States5559 Posts
February 18 2013 02:41 GMT
#2268
^This does not, however, strike one as an absurdity? why do you have to waste things in order to get rich?
shikata ga nai
TotalBalanceSC2
Profile Joined February 2011
Canada475 Posts
February 18 2013 02:43 GMT
#2269
On February 18 2013 11:41 sam!zdat wrote:
^This does not, however, strike one as an absurdity? why do you have to waste things in order to get rich?


I wouldn't call it wasting things. I am sure you have heard the phrase 'You've gotta spend money to make money".
sam!zdat
Profile Blog Joined October 2010
United States5559 Posts
February 18 2013 02:45 GMT
#2270
Why can't you just do the things, and not break the windows, though? Then you can give somebody a free window.
shikata ga nai
TotalBalanceSC2
Profile Joined February 2011
Canada475 Posts
February 18 2013 02:47 GMT
#2271
On February 18 2013 11:45 sam!zdat wrote:
Why can't you just do the things, and not break the windows, though? Then you can give somebody a free window.


Because sometimes people are stingy bastards and won't spend their money unless something forces them too.
acker
Profile Joined September 2010
United States2958 Posts
Last Edited: 2013-02-18 02:48:26
February 18 2013 02:47 GMT
#2272
On February 18 2013 11:45 sam!zdat wrote:
Why can't you just do the things, and not break the windows, though? Then you can give somebody a free window.

You can...in most cases (unless you're already fighting a war or natural disaster or something). There's no reason why you HAVE to break windows for fiscal or monetary policy to work. It's just the most extreme negative bad example of fiscal or monetary policy.
sam!zdat
Profile Blog Joined October 2010
United States5559 Posts
February 18 2013 02:48 GMT
#2273
After the revolution, free windows for everyone!
shikata ga nai
Souma
Profile Blog Joined May 2010
2nd Worst City in CA8938 Posts
February 18 2013 02:52 GMT
#2274
I've heard this 'broken window' thing a lot. Can someone explain to me what it is/its background?
Writer
sam!zdat
Profile Blog Joined October 2010
United States5559 Posts
February 18 2013 02:53 GMT
#2275
The broken window thing is just keynesianism
shikata ga nai
aksfjh
Profile Joined November 2010
United States4853 Posts
February 18 2013 02:53 GMT
#2276
On February 18 2013 11:48 sam!zdat wrote:
After the revolution, free windows for everyone!

You're probably going to give out Windows ME... Jerk!
sam!zdat
Profile Blog Joined October 2010
United States5559 Posts
February 18 2013 02:53 GMT
#2277
HAHAHAH oh aksfjh you slay me
shikata ga nai
acker
Profile Joined September 2010
United States2958 Posts
February 18 2013 02:54 GMT
#2278
On February 18 2013 11:52 Souma wrote:
I've heard this 'broken window' thing a lot. Can someone explain to me what it is/its background?


http://en.wikipedia.org/wiki/Parable_of_the_broken_window

It's the idea that nonproductive economic activity (natural disasters, war, etc) can have overall net benefits.
Shiragaku
Profile Blog Joined April 2010
Hong Kong4308 Posts
February 18 2013 02:55 GMT
#2279
On February 18 2013 11:52 Souma wrote:
I've heard this 'broken window' thing a lot. Can someone explain to me what it is/its background?

It is a theory developed by Frederic Basiat to attack economists who say that if you break a window, you can create revenue by getting workers to fix the window.

But instead of having the window broken, the shopkeeper could have used the money that was used to fix the window to improve the shop and make business better.

That was a tl;dr, but it is a fallacy often used to stuff words into other people's mouths.

http://en.wikipedia.org/wiki/Broken_window_fallacy
JonnyBNoHo
Profile Joined July 2011
United States6277 Posts
February 18 2013 03:04 GMT
#2280
On February 18 2013 11:19 sam!zdat wrote:
Show nested quote +
On February 18 2013 11:16 JonnyBNoHo wrote:
On February 18 2013 11:06 sam!zdat wrote:
how can entrepreneurs be fooled? I thought entrepreneurs were rational actors in an efficient market, who process all information perfectly and instantaneously?

I don't think it is assumed that entrepreneurs have perfect information. Otherwise there wouldn't be a point to adjusting for risk.


Isn't that what the efficient markets hypothesis is? Of course entrepreneurs have all the information. It's right there in the efficient market!

And how do you adjust for risk? Risk is, by definition, that which you don't know about in order to adjust for. this idea that it is possible to "adjust for risk" is at the heart of the problem

I think an efficient market is supposed to price risk accurately given all available information (as information changes / is learned, so should the market). If the market doesn't have all the information than it is inefficient and entrepreneurs can exploit the inefficiency for extra profits (alpha).

Risk being the probability and extent to which you are wrong. To adjust for risk you estimate how volatile the business income will be (the more volatile, the more risky) and then use that estimate (beta) in CAPM (wiki link) to determine your risk adjusted discount rate that you then use to discount your estimated cash flows.

The idea is that while you can't know for certain if an investment will fail or succeed, you can say that some are more likely to fail than others. The ones that are more likely to fail will then have a higher hurdle to jump in order to be approved.
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