Understanding economics

[jsmoke]

Back to this crazy stuff again.

So... if one company makes a profit, surely some people out there must be making a loss. For example a new restaurant opens up and gains X amount of regular customers surely other restaurants out there are losing money as a result to the point the may even have to close.

I saw the economy as having a fixed amount of money in it, like a kitty if you like and i guess it's about distribution of wealth(Adam Smith, i believe), essentially survival of the ......

This can't be right though as our ecomney must have a lot more money floating about now than say 20 ago, so does the Governemt print money every so often to try and balance out the ever increasing population and hence increasing jobs etc..

Or it could be that you have to differentiate between actual legal tender(cash) out there and electronic money. That would make sense as you can increase your electronic money(debt) to whatever you want.

So really i've just answered my own question, that fact of the matter is that debt(which have no assets behind it) increases and we find ourselves where we have all this meaningless debt that doesn't hold any real value.

Ok

 

[The Halk]

Back to this crazy stuff again.

So... if one company makes a profit, surely some people out there must be making a loss. For example a new restaurant opens up and gains X amount of regular customers surely other restaurants out there are losing money as a result to the point the may even have to close.

No. It's almost certain that other places will get less business. However people might go there because it's new, because they do something unique, because it's right next door to them etc...

I saw the economy as having a fixed amount of money in it, like a kitty if you like and i guess it's about distribution of wealth(Adam Smith, i believe), essentially survival of the ......

It is survival of the fittest, however our government and large corporations have slanted things away from economic normality. The economy has a fixed amount of money if you're looking at microeconomic stuff, otherwise it's not a helpful assumption.

This can't be right though as our ecomney must have a lot more money floating about now than say 20 ago, so does the Governemt print money every so often to try and balance out the ever increasing population and hence increasing jobs etc..

You're mixing up money and currency now. There is more of both.

Or it could be that you have to differentiate between actual legal tender(cash) out there and electronic money. That would make sense as you can increase your electronic money(debt) to whatever you want.

Nah, that's not really meaningful.

So really i've just answered my own question, that fact of the matter is that debt(which have no assets behind it) increases and we find ourselves where we have all this meaningless debt that doesn't hold any real value.

Ok

Sorry, but that doesn't make any sense.

 

[Soundood]

correct

the government puts more money into the system (prints more)

but that inturn devalues the already excisting money ever so slightly.

hence why things start to 'cost more'

multiply this with more forigen currencys and you get the basic rules of the game

 

[Kemik]

So... if one company makes a profit, surely some people out there must be making a loss. For example a new restaurant opens up and gains X amount of regular customers surely other restaurants out there are losing money as a result to the point the may even have to close.

It depends on the scale at which you want to look at it, the assumptions you make and the timescale. If it's a town with a small number of restaurants and demand is exceeding supply then no business will be removed from other restaurants. However, that money would have been spent elsewhere, either saved, buy a holiday, etc so those companies lose out.

If it's a town with a lot of restaurants then people may divert cash from going to the cinema to try it out. Generally though, one would assume other restaurants will be the ones who lose out the most initially. Longer term it depends on how that compares to others.

Economics relies on infinite resources, which is true any way you look at it. i.e. printing money has, in theory, little effect on the relationship between supply and demand in this case.

 

[Zefan]

correct

the government puts more money into the system (prints more)

but that inturn devalues the already excisting money ever so slightly.

hence why things start to 'cost more'

multiply this with more forigen currencys and you get the basic rules of the game

Sorry, but that's really very wrong. Things "cost more" for a hell of a lot of reasons - inflation happens very easily without any "money printing" you're talking about.

 

[placeholder]

correct

the government puts more money into the system (prints more)

but that inturn devalues the already excisting money ever so slightly.

hence why things start to 'cost more'

multiply this with more forigen currencys and you get the basic rules of the game

Wow.

 

[Lil old me]

Back to this crazy stuff again.

So... if one company makes a profit, surely some people out there must be making a loss. For example a new restaurant opens up and gains X amount of regular customers surely other restaurants out there are losing money as a result to the point the may even have to close.

Yes this does happen and is known as "opportunity cost", if you want to look it up.

This can't be right though as our ecomney must have a lot more money floating about now than say 20 ago, so does the Governemt print money every so often to try and balance out the ever increasing population and hence increasing jobs etc..

Also true. This is called inflation. As more money is printed the value of the money decreases and so prices increase to compensate.

This is why the government's Quantitive Easing policy has been criticised so heavily. They have automatically created billions of new £'s from nowhere which is expected to cause inflation further down the line. Mervyn King has justified this by saying he expects persistant deflation to be a problem (as has happened in Japan for the last 20 or so years). Won't go into why this is a problem in this post but if you want to know, google Japan bubble economy or ask and I'll try to explain

Sorry, but that's really very wrong. Things "cost more" for a hell of a lot of reasons - inflation happens very easily without any "money printing" you're talking about.

No that is right. Obviously there can be more than one cause for something happening. Yes prices increase by themselves as people try to make an increasing return on their investment, but printing money still has an effect which can't be disputed. Take Zimbabwe for example.

 

[Kemik]

No that is right. Obviously there can be more than one cause for something happening. Yes prices increase by themselves as people try to make an increasing return on their investment, but printing money still has an effect which can't be disputed. Take Zimbabwe for example.

But it's not the fundamental reason why inflation occurs. It's generally a chicken and the egg situation where workers demand more salaries because prices are going up. Prices go up because their raw materials go up. Raw material prices go up because of more people demanding them and workers now have more money to buy them with. Cycle.

 

[placeholder]

Yes this does happen and is known as "opportunity cost", if you want to look it up.

No its isn't.

Bloody hell.

Maybe you should look it up.

 

[Lil old me]

But it's not the fundamental reason why inflation occurs. It's generally a chicken and the egg situation where workers demand more salaries because prices are going up. Prices go up because their raw materials go up. Raw material prices go up because of more people demanding them and workers now have more money to buy them with. Cycle.

No it might not be the main reason but the OP said "This can't be right though as our ecomney must have a lot more money floating about now than say 20 ago, so does the Governemt print money every so often to try and balance out the ever increasing population and hence increasing jobs etc.." Which they do. And it does cause inflation, albeit less than the causes you mentioned.

However, one might argue that QE has the potential to make printing money the fundamental reason for inflation. Don't tell the BOE though!

 

[The Halk]

Yes this does happen and is known as "opportunity cost", if you want to look it up.

I really think YOU should look it up.

Edit : You then go on to criticise Mervyn King. That's ****ing hilarious. You don't even understand basic economics yet you think you know better than the Governor of the Bank of England - possibly the most important financial job on the planet.

They've automatically created? What? They manually did it. You can't even manage basic English.

 

[Lil old me]

No its isn't.

Bloody hell.

Maybe you should look it up.

Of course it is. You can spend money in one restaurant or another; you can't spend it in both. Knock-on effect is one restaurant makes less money than the other. Okay I guess you could say OC is the step before the OP was talking about, but it's still related.

 

[placeholder]

Of course it is. You can spend money in one restaurant or another; you can't spend it in both. Knock-on effect is one restaurant makes less money than the other. Okay I guess you could say OC is the step before the OP was talking about, but it's still related.

No it isn't.

"Opportunity Cost" is not what you as a consumer spend your money on.

 

[Lil old me]

Yes sorry, late here and I've confused myself. I'm sure I did have a train of thought going somewhere but I've gone awry. My apologies. *hangs head in shame*

 

[ntg]

Back to this crazy stuff again.

So... if one company makes a profit, surely some people out there must be making a loss.

Making a loss implies that you are not breaking even. If one company makes a profit some other company may make less of a profit, not necessarily a loss.

For example a new restaurant opens up and gains X amount of regular customers surely other restaurants out there are losing money as a result to the point the may even have to close.

Not necessarily again. Consumers may decide to save less so that they can spend more now, by using the new restaurant.

Or, other consumers may spend less at the other restaurants in order to spend some to the new one. But with new people entering the labour market (i.e. new consumers that did not exist before) this decline of profit in other restaurants may be topped up by them.

Overall, the economy is much more complex than a simple scale with money that is allocated to businesses.

I saw the economy as having a fixed amount of money in it, like a kitty if you like and i guess it's about distribution of wealth(Adam Smith, i believe), essentially survival of the ......

Wrong. An economy's supply of money fluctuates all the time as you have new money coming in from foreign investors or local ones who repatriate funds, you have governments printing money etc., tourists bringing FX into the country and so on.

This can't be right though as our ecomney must have a lot more money floating about now than say 20 ago, so does the Governemt print money every so often to try and balance out the ever increasing population and hence increasing jobs etc..

Our economy does have more money than 20 years ago, or maybe less, it depends how strong it is. For example you can argue the Greek economy has less money in it than 10 years ago simply because people are taking their savings abroad, or save more and postpone any big investments decisions.

The government's job is not to print money to balance out what you suggest. It does do it but for other reasons.

Or it could be that you have to differentiate between actual legal tender(cash) out there and electronic money. That would make sense as you can increase your electronic money(debt) to whatever you want.

One man's debt is another man's asset. You cannot increase 'electronic money' at will.

So really i've just answered my own question, that fact of the matter is that debt(which have no assets behind it) increases and we find ourselves where we have all this meaningless debt that doesn't hold any real value.

As I said above, there is no debt that has no asset behind it. There is no meaningless debt and it has a very real value.

 

[Zefan]

No that is right. Obviously there can be more than one cause for something happening. Yes prices increase by themselves as people try to make an increasing return on their investment, but printing money still has an effect which can't be disputed. Take Zimbabwe for example.

I'm sure we all learned more than enough about the affects of "printing money" in school when studying the Weimar Republic. Of course money devalues a currency, but his post seemed to suggest it was the sole cause of it!

 

[Calabi]

I'm sure we all learned more than enough about the affects of "printing money" in school when studying the Weimar Republic. Of course money devalues a currency, but his post seemed to suggest it was the sole cause of it!

Its not the printing that devalues the currency though its the spending. And it has to be spent on a limited asset like a bid. Whereby those with lots of money spend more than they would have normally on something.

Inflation isnt generally created at the consumer level. Its further up the chain where the inflation is created.

As the OP highlighted there's a limited amount of money in the system anyway and less is going to the bottom. Money flows into these large pools where its used to create inflation. Hence the problem we have now.

 

[daz]

Division of labour and increases of efficiency make it possible for everyone to be a winner.

Mercantilist thinking thought of trade and economics as a zero sum game, Adam Smith blew all of that out of the water.