The Numbers of Economics

Jayanth Dabbi

5 Stages of Material Economy

Extraction

  • The usage of natural resources such as metals and water
  • In the past three decades, one third of the planet's natural resource space has been consumed
  • The problem is that certain peoples (such as the US) use more than their share of resources. There simly isn't enough to sustain our current way of living
  • People who don't own a lot of things don't have value, so they are overlooked when gathering new resources


Production

  • Energy is used to mix toxic chemicals with resources to create products
  • Most of the chemicals have not been tested for health issues, or synergistic impacts
  • Extraction displaces people, who then are forced to become part of this system, such as factory workers, who create products laden with chemicals, indubitably being afflicted by the effects of these chemicals firsthand


Distribution

  • Selling the products is called distribution
  • Corporations try to sell things as fast as they can, at the lowest prices possible
  • This results in widespread pollution, child labor, poor working conditions, and half-baked employee benefits
  • Though it keeps prices down, the externalization of the costs of production is immoral, manipulative, and greedy


Consumption

  • The spread of consumerism was caused by the creation of products that would purposefully break down as well as the brainwashing of consumers as a whole to buy new products
  • These are accelerated by media, which convinces us to consume more goods
  • Since the US has become a consumer culture, people have had less time to do things people enjoy, thereby decreasing leisure time and overall happiness
  • These combine to create a cycle of working more to buy more, which can be stopped with a change of mindset


Disposal

  • Disposal of used goods is done by simply tossing garbage into landfills or incineration then dumping into landfills
  • Incineration releases dioxin, the most toxic man-made material ever discovered
  • Recycling helps, but not enough to overthrow the massive wastes going on


5 Things to Learn from thee Debt Calculator

National Debt

The debt is massive. At nearly 17 trillion dollars, it is $53,326 per person in the United States, which is more than the average annual salary.

Total Debt

This includes Household, Business, State and Local Governments, Financial Institutions, and the Federal Government. It equals over 59 trillion dollars. This means about $750,000 per family. To put that into perspective, the average family only has $3,285 in savings.


Personal Debts

The personal debts amongst Americans totals about 15.86 trillion dollars. Most of this is mortgage debt, which makes sense because usually the largest investment people make in their lives is a house, or another form of property.


Inflation

I set a timer for 10 seconds just to see the rate of inflation. It looks like it went up about 617, which means $6.2 per second, or $190,000,000 a year. This questions the accuracy of website (the actual projections for this year in money printing is much higher), or says that we are in a state of lower inflation, and will probably get higher later in the year.


Decreasing Deficits

The trade deficit is decreasingly slowly, which is a good sign. It shows that the massive rift between imports and exports is decreasing. Also, imported oil is decreasing. This shows that country is on the path to a smaller debt, but it we should focus more and make sacrifices in order to achieve this goal.

6 Pillars of Free Enterprise

4 Stages of Circular Flow

Stage 1

This is where all factors of production are given to a corporation. These are:



  • Capital
  • Land
  • Labor
  • Entrepreneurship


Stage 2

The corporation gives back money in wages, land rents, and building rents and other costs, such as benefits to employees, or interest on loans, or taxes.


Stage 3

The corporation sells its product to consumers for a price.


Stage 4

This is the money that people pay for the corporation's service.


2 Types of Price Elasticity

Elastic

Inelastic demand is when consumers won't react as much to a change in price. This happens with goods that you need. For example, if milk prices were increased, people would still buy milk, because its milk. Its a staple.




Inelastic

This is when the sales of a product react highly to changes in price. For instance, if a certain high end GPU such as the GTX Titan were to drop 10% (about $100), the sales wouldn't change as much, since it still only caters to a niche market. It clearly is specified as a want, a luxury, and an expensive one at that.

4 Major Types of Business

The Sole Proprietorship

This is when a single person operates a business and is responsible for it's debts. It is good because it is simple and easy to start, but since you are personally responsible, credits can bring lawsuits against you, forcing you to pay debts with your own money. Also, you cannot raise capital by selling interest within the business. And, since the money of the business and the owner mix freely, the death of the owner usually resonates to the company.


The Partnership

When at least two people engage in a profit based enterprise, they create a partnership. This, like a sole proprietorship, is easy to form, but is more favorably taxed. However, thought they may experience some liability protection, they still are responsible completely for the business. Also, it is difficult to work with people sometimes, and disputes can occur.

The LLC

LLC stands for Limited Liability Company. This relatively new form of business combines the liability protection of a corporation with the simplicity and tax treatment as a partnership. LLC's are favored because of their flexibility and protection from personal liability for owners, and they are not taxed like corporations. However, LLC's are more expensive to begin than normal partnerships, require annual fees and periodic filings, are banned in some states, and isn't a good option for a business that wishes to go public in the future.


The Corporation

This has existed for thousands of years. A corporation is treated like a human by the law. It's most notable characteristic is that it protects owners from personal liability for corporate debts. Also, corporations have legal precedent that guides officers. These are the best choice for making lots of money, since they can create tax benefits and raise capital by selling securities. The problem with corporations is that they require annual meetings, are expensive to start, and require annual fees and filings.


6 Categories for Inflation

On Coverage

  • Comprehensive Inflation is when the prices of all of a market's commodities rise, also called an Economy Wide Inflation
  • Sporadic Inflation is when only select commodities in few regions rise, usually in focused areas due to market offsetting events


On Time of Occurence

  • War-Time Inflation is caused by a low availability of resources that are required to produce essential commodities because of the prioritization of machines of war. This drives up prices
  • Post-War Inflation happens when governmental functions are subdued after a war, allowing prices to go up faster than before
  • Peace-Time Inflation is when when prices are driven up by government expenditures and spending on capital projects that take a long time to complete


On Government Reaction

  • Open inflation occurs in a free market system where inflation is allowed to go uncontrolled by political institutions
  • Suppressed Inflation is caused by government using price controls and other methods in order to control prices. However, excessive control in the economy leads to black markets and overall degradation of the country.


On Rising Prices

Creeping inflation is when prices rise at up to 3% annually. Chronic Inflation happens when creeping inflation continues to increase for an extensive period of time (this can be continuous, or intermittent). This, if left to run rampant, runs the risk of becoming hyperinflation. Waking inflation is when prices rise between 3% and 10%. Running inflation is 10% to 20%, and galloping inflation is anything higher than that up to 999%. Hyperinflation is inflation at rates of 4 digits or higher.

On Causes

Inflation can be caused by a variety of sources, including deficit financing, excessive credit, hoarding, higher profit margins, higher taxes, raises in wage without a rise in output, the cycle of greater wages causing greater prices, economic development, excessive government spending, increase in population, increased exports, higher import prices, more demand, higher costs of production, and when something that many things depend on becomes expensive, then everything it constitutes becomes more expensive.

On Expectation

Anticipated/expected inflation is when the rate of inflation is what most people expected. Likewise, if most people did not predict the rate of inflation, then it is called Unanticipated/Unexpected.


2 Types of Federal Financial Policy

Fiscal Policy

The government controls the economy through:


  • Taxes
  • Spending
  • Debt


Monetary Policy

These are used by the Federal Reserve (Fed) to influence the economy:


  • Interest Rates: used to control the flow of money to banks
  • Open Market Operations: Fed buys debt from banks to give them money
  • Discount Window: Banks borrow from the Fed to be able to lend more (or less)
  • Currency Pegging: When the currency is tied to another country's currency to protect it
  • Reserve Requirements: Requires banks to keep money aside and not lend it it to slow down economy.
  • Quantitative Easing: When the Fed buys bonds and credits the money back to banks
  • Signaling: The Fed signals that the signals will stay at a certain amount for some time


Changes in International Economics

Before the World Wars

  • The economies were rapidly globalizing due to heavily reduced transportation costs and lower tariffs.
  • World capital markets were integrated into the economy
  • These were due mainly to technology changes, especially electricty


Up to the Great Depression

  • After WWI, transport routes were disrupted, inflation was rampant around the world, and the integration of the international economy was reversed.
  • The Great Depression furthered this: incomes went down, unemployment increased, prices of goods and services fell, and trade barriers were put into place to protect locales from foreign competition


The Effects of the Wars

  • After the WWII, the international economy was in a worse state than it was before WWI
  • Industrial countries that weren't too badly afflicted were producing more than ever before
  • The global economy was split into three parts: industrial countries with high production, raw material exportation based countries, and centrally planned economies


The Recovery Plan

  • International monetary cooperation, reconstruction and development, and international trade were agreed upon by the recovery planners
  • The International Moneteary Fund was created to facilitate international trade
  • The World Bank was founded, to function as a source of long-term official finance
  • The General Agreement on Tariffs and Trade induced multilateral cooperation for an open international trading system


The Postwar World

  • Europe and Japan grew the most rapidly
  • Tariffs were reduced further, allowing international trade to grow again
  • Inflation was relatively low
  • Focus was on international commerce
  • In the 70's, the US had inflation, commodity price boom, and oil prices quadrupled, leading into a recession
  • However, the economy still experienced rapid growth, thanks to globalization and technology