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361 | In most Microeconomics textbooks it is mentioned that the Constant Elasticity of Substitution (CES) production function,
$$Q=\gamma[a K^{-\rho} +(1-a) L^{-\rho} ]^{-\frac{1}{\rho}}$$ (where the elasticity of substitution is $\sigma = \frac 1{1+\rho},\rho > -1$), has as its limits both the Leontief production function and the Cobb-Douglas one. Specifically, $$\lim_{\rho\to \infty}Q= \gamma \min \left \{K , L\right\}$$ and $$\lim_{\rho\to 0}Q= \gamma K^aL^{1-a}$$ But they never provide the mathematical proof for these results. Can somebody please provide these proofs? Moreover, the above CES function incorporates constant-returns-to-scale (homogeneity of degree one), due to the outside exponent being $-1/\rho$. If it was, say $-k/\rho$, then the degree of homogeneity would be $k$. How are the limiting results affected if $k\neq 1$? | The proofs I will present are based on techniques relevant to the fact that the CES production function has the form of a generalized weighted mean . This was used in the original paper where the CES function was introduced, Arrow, K. J., Chenery, H. B., Minhas, B. S., & Solow, R. M. (1961). Capital-labor substitution and economic efficiency. The Review of Economics and Statistics, 225-250. The authors there referred their readers to the book Hardy, G. H., Littlewood, J. E., & Pólya, G. (1952). Inequalities , chapter $2 $. We consider the general case
$$Q_k=\gamma[a K^{-\rho} +(1-a) L^{-\rho} ]^{-\frac{k}{\rho}},\;\; k>0$$ $$\Rightarrow \gamma^{-1}Q_k = \frac 1{[a (1/K^{\rho}) +(1-a) (1/L^{\rho}) ]^{\frac{k}{\rho}}}$$ 1) Limit when $\rho \rightarrow \infty$ Since we are interested in the limit when $\rho\rightarrow \infty$ we can ignore the interval for which $\rho \leq0$, and treat $\rho$ as strictly positive. Without loss of generality, assume $K\geq L \Rightarrow (1/K^{\rho})\leq (1/L^{\rho})$. We also have $K, L >0$. Then we verify that the following inequality holds: $$(1-a)^{k/\rho}(1/L^{k})\leq \gamma Q_k^{-1} \leq (1/L^{k}) $$ $$\implies (1-a)^{k/\rho}(1/L^{k})\leq [a (1/K^{\rho}) +(1-a) (1/L^{\rho}) ]^{\frac{k}{\rho}} \leq (1/L^{k}) \tag{1}$$ by raising throughout to the $\rho/k$ power to get $$(1-a)(1/L^{\rho}) \leq a (1/K^{\rho}) +(1-a) (1/L^{\rho}) \leq (1/L^{\rho}) \tag {2}$$
which indeed holds, obviously, given the assumptions. Then go back to the first element of $(1)$ and $$\lim_{\rho\rightarrow \infty} (1-a)^{k/\rho}(1/L^{k}) =(1/L^{k})$$ which sandwiches the middle term in $(1)$ to $(1/L^{k})$ , so $$\lim_{\rho\rightarrow \infty}Q_k = \frac {\gamma }{1/L^k} = \gamma L^k = {\gamma }\big[\min\{K,L\}\big]^{k} \tag{3}$$ So for $k=1$ we obtain the basic Leontief production function. 2) Limit when $\rho \rightarrow 0$ Write the function using exponential as $$\gamma^{-1}Q_k=\exp\left\{-\frac k{\rho}\cdot \ln\big[a (K^{\rho})^{-1} +(1-a) (L^{\rho})^{-1}\big]\right\} \tag {4}$$ Consider the first-order Maclaurin expansion (Taylor expansion centered at zero) of the term inside the logarithm, with respect to $\rho$: $$a (K^{\rho})^{-1} +(1-a) (L^{\rho})^{-1} \\= a (K^{0})^{-1} +(1-a) (L^{0})^{-1} -a (K^{0})^{-2}K^{0}\rho\ln K- (1-a) (L^{0})^{-2}L^{0}\rho\ln L + O(\rho^2) \\$$ $$=1 - \rho a\ln K - \rho(1-a)\ln L+ O(\rho^2) = 1 +\rho \big[\ln K^{-a}L^{-(1-a)}\big]+ O(\rho^2)$$ Insert this back into $(4)$ and get rid of the outer exponential, $$\gamma^{-1}Q_k = \left(1 +\rho \big[\ln K^{-a}L^{-(1-a)}\big]+ O(\rho^{2})\right)^{-k/\rho}$$ In case it is opaque, define $r\equiv 1/\rho$ and re-write $$\gamma^{-1}Q_k = \left(1 +\frac{\big[\ln K^{-a}L^{-(1-a)}\big]}{r}+ O(r^{-2})\right)^{-kr}$$ Now it does look like an expression whose limit at infinity will give us something exponential: $$\lim_{\rho\rightarrow 0}\gamma^{-1}Q_k = \lim_{r\rightarrow \infty}\gamma^{-1}Q_k = \left(\exp\left\{ \ln K^{-a}L^{-(1-a)}\right\} \right)^{-k}$$ $$\Rightarrow \lim_{\rho\rightarrow 0}Q_k =\gamma\left(K^{a}L^{1-a}\right)^k$$ The degree of homogeneity $k$ of the function is preserved, and if $k=1$ we obtain the Cobb-Douglas function. It was this last result that made Arrow and Co to call $a$ the "distribution" parameter of the CES function. | {
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1,808 | The unemployment rate in Spain has recently been fluctuating around 25%. What has caused this? | Here's an explanation from Paul Krugman. You can read more about this in Krugman's book End This Depression Now! . Since joining the Euro, Spain has experience large capital inflows —money flowing into Spain, mostly from Northern Europe. These inflows caused a boom in investment , coupled with an increase in prices of virtually everything (including labor) relative to other Eurozone countries. One consequence of this is that the recession in Spain has been exacerbated by the fact that high costs of production (especially high labor costs) made the Spanish economy less competitive so that the country wasn't able to rely on exports to substitute for the reduced domestic demand. In order to remedy this situation, Spain needs to become more competitive (i.e. for labor costs to fall relative to those in other countries). Normally, this would happen automatically: as a country exports less, demand for its currency from importers (and hence the currency's value) falls so that its products become cheaper for foreigners. However, the fact that Spain is in the Eurozone means that it can't devalue its currency—it doesn't have one of its own! Instead, Spain must rely on 'internal devaluation', i.e. reducing the wages of its workers relative to those elsewhere in the Eurozone. This is problematic because workers are typically reluctant to accept a pay cut (so-called downward nominal rigidities). Thus, the way that the economy adjusts is to have a sufficiently large share of the workforce unemployed that people are prepared to accept jobs on significantly lower wage than they might have expected in the pre-recession years. It should be noted that this line of reasoning is not without controversy. For one, a significant share of macroeconomists do not believe the nominal rigidities story. | {
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1,893 | Is a universal basic income or unconditional demogrant possible in the United States? (For the sake of specificity I have focused the question on the US, though the question is certainly interesting in all settings.)
It seems that without some restructuring, the answer is no. But, in order to entertain the idea (and pushing politics aside), what programs could/would be cut in order to fund a reasonably sized basic income? What size of basic income could be afforded, if any? How would tax rates have to change? Of course the answer depends on the size of the basic income. It would be interesting to see how the answer would change for multiple values. | This is a good question. To be concrete, I think it's easier to pick a single number - this is arbitrary, but I'll go with the figure of $10,000 offered in the proposal by Charles Murray (one of the most prominent conservative supporters of a universal basic income). I'll assume that this is offered to every adult in the US age 18 and over, expanding slightly on Murray's 21 and over proposal. This would be about 85% of the average poverty level for a single individual, just above 50% of the poverty level for a single parent with two children, and (at $20,000) about 85% of the poverty level for a family of four with two parents and two children. The direct budgetary cost of this program, of course, is easy to calculate: it is the number of Americans age 18 and over, times \$10,000. There are about 245 million American adults currently, making this cost \$2.45 trillion. This compares to total federal government expenditures that are currently about \$4 trillion. (See this NIPA table for some figures.) Remarkably, the sum of "government social benefits" and "grants-in-aid to state and local governments" (the latter of which is almost entirely grants for social programs like Medicaid) is currently about \$2.4 trillion. Hence, to a first approximation, we could say that the federal government could afford the $10,000 UBI given its current budget if it eliminated all other existing transfers . How plausible is this? Not very. More than 75% of the federal government's transfer spending is on three programs: Social Security, Medicare, and Medicaid. This spending is overwhelmingly concentrated on the elderly, with some also on the disabled (SSDI and Medicaid) and children (Medicaid). Taking away these programs and replacing them with the basic income, which is distributed evenly throughout the adult population, would surely leave these groups receiving far less in total than they currently do. This would be politically near-impossible to push through, and any sudden change would be dubious on policy and moral grounds too. (Even if one doesn't like the distribution of transfer spending embedded in these programs, millions of people have planned their lives around it.) This is just one case of a basic point - which is that unless one plans to achieve massive savings through improved administrative efficiency or improved work incentives, any reallocation of the existing transfer pie will involve offsetting winners and losers. Since existing transfer recipients (aged, disabled, poor children, etc.) are targeted for a reason, such a shift may be quite painful. Moreover, any improvements in administrative efficiency are unlikely to be large enough to save much money; the more likely source of savings would be improved incentives, particularly relative to the dysfunctional disability system and perhaps current overspending on health care. But I haven't seen a case made that these would be anywhere near large enough to make a UBI work within the current budget without large losses to some existing party. On a more positive note, I should mention that the headline cost of the UBI may not be quite as bad as it looks. Since the current tax-and-transfer system embeds very large implicit marginal taxes on some beneficiaries, it would be possible to replace these with higher explicit marginal taxes to claw some of grant back, without incurring additional distortions at the margin. That said, these high marginal taxes are heavily concentrated in certain segments of the population (e.g. single parents with children). The US tax-and-transfer system currently makes heavy use of tagging , which saves money at the expense of potentially perverse social incentives (conservatives have complained about incentives for low-income parents to avoid marriage for years). Doing away with tagging could limit these particular bad incentives and concentrated high marginal rates, but necessitate moderately higher marginal rates throughout the population. Finally, if it is not realistic to eliminate existing transfers, we can think about how difficult it would be to establish a UBI through increased taxation. If (given the substantial existing transfers to the elderly) we limited the \$10,000 to adults below age 65, we are down to a population of about 200 million and cost of \$2 trillion. Since personal consumption expenditures are currently about \$12 trillion, (unrealistically) assuming a constant tax base these \$2 trillion could be raised through a 24% VAT with 70% coverage. This would be quite high, but not totally out of line with international norms . Furthermore, since current GDP is about \$17.5 trillion, and additional \$2 trillion in transfer spending (again unrealistically assuming constant GDP) would increase the US's overall tax intake as a share of GDP by 11.5 percentage points. This would make the US similar to the typical European country , still below states like Denmark, Sweden, and France with the highest taxation. | {
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1,895 | A newspaper said in 2080 China can be a developed country, with a bigger population. Does that mean China's GDP is going to be bigger than the USA's and Europe's combined? Also, is this possible even though China's land area per person is smaller? | This is a good question. To be concrete, I think it's easier to pick a single number - this is arbitrary, but I'll go with the figure of $10,000 offered in the proposal by Charles Murray (one of the most prominent conservative supporters of a universal basic income). I'll assume that this is offered to every adult in the US age 18 and over, expanding slightly on Murray's 21 and over proposal. This would be about 85% of the average poverty level for a single individual, just above 50% of the poverty level for a single parent with two children, and (at $20,000) about 85% of the poverty level for a family of four with two parents and two children. The direct budgetary cost of this program, of course, is easy to calculate: it is the number of Americans age 18 and over, times \$10,000. There are about 245 million American adults currently, making this cost \$2.45 trillion. This compares to total federal government expenditures that are currently about \$4 trillion. (See this NIPA table for some figures.) Remarkably, the sum of "government social benefits" and "grants-in-aid to state and local governments" (the latter of which is almost entirely grants for social programs like Medicaid) is currently about \$2.4 trillion. Hence, to a first approximation, we could say that the federal government could afford the $10,000 UBI given its current budget if it eliminated all other existing transfers . How plausible is this? Not very. More than 75% of the federal government's transfer spending is on three programs: Social Security, Medicare, and Medicaid. This spending is overwhelmingly concentrated on the elderly, with some also on the disabled (SSDI and Medicaid) and children (Medicaid). Taking away these programs and replacing them with the basic income, which is distributed evenly throughout the adult population, would surely leave these groups receiving far less in total than they currently do. This would be politically near-impossible to push through, and any sudden change would be dubious on policy and moral grounds too. (Even if one doesn't like the distribution of transfer spending embedded in these programs, millions of people have planned their lives around it.) This is just one case of a basic point - which is that unless one plans to achieve massive savings through improved administrative efficiency or improved work incentives, any reallocation of the existing transfer pie will involve offsetting winners and losers. Since existing transfer recipients (aged, disabled, poor children, etc.) are targeted for a reason, such a shift may be quite painful. Moreover, any improvements in administrative efficiency are unlikely to be large enough to save much money; the more likely source of savings would be improved incentives, particularly relative to the dysfunctional disability system and perhaps current overspending on health care. But I haven't seen a case made that these would be anywhere near large enough to make a UBI work within the current budget without large losses to some existing party. On a more positive note, I should mention that the headline cost of the UBI may not be quite as bad as it looks. Since the current tax-and-transfer system embeds very large implicit marginal taxes on some beneficiaries, it would be possible to replace these with higher explicit marginal taxes to claw some of grant back, without incurring additional distortions at the margin. That said, these high marginal taxes are heavily concentrated in certain segments of the population (e.g. single parents with children). The US tax-and-transfer system currently makes heavy use of tagging , which saves money at the expense of potentially perverse social incentives (conservatives have complained about incentives for low-income parents to avoid marriage for years). Doing away with tagging could limit these particular bad incentives and concentrated high marginal rates, but necessitate moderately higher marginal rates throughout the population. Finally, if it is not realistic to eliminate existing transfers, we can think about how difficult it would be to establish a UBI through increased taxation. If (given the substantial existing transfers to the elderly) we limited the \$10,000 to adults below age 65, we are down to a population of about 200 million and cost of \$2 trillion. Since personal consumption expenditures are currently about \$12 trillion, (unrealistically) assuming a constant tax base these \$2 trillion could be raised through a 24% VAT with 70% coverage. This would be quite high, but not totally out of line with international norms . Furthermore, since current GDP is about \$17.5 trillion, and additional \$2 trillion in transfer spending (again unrealistically assuming constant GDP) would increase the US's overall tax intake as a share of GDP by 11.5 percentage points. This would make the US similar to the typical European country , still below states like Denmark, Sweden, and France with the highest taxation. | {
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3,115 | I keep seeing the terms first-order conditions and second-order conditions used in my undergrad economics class on production functions, monopolies, etc but I have no idea what these terms mean. It seems like a completely ambiguous term. What kind of conditions? Can someone explain what these terms mean? If it is context dependent, provided some of them most elementary meanings you associate with the term. | Suppose you have a differentiable function $f(x)$, which you want to optimize by choosing $x$. If $f(x)$ is utility or profit, then you want to choose $x$ (i.e. consumption bundle or quantity produced) to make the value of $f$ as large as possible. If $f(x)$ is a cost function, then you want to choose $x$ to make $f$ as small as possible. FOC and SOC are conditions that determine whether a solution maximizes or minimizes a given function. At the undergrad level, what is usually the case is that you need to choose $x^*$ such that the derivative of $f$ is equal to zero:
$$f'(x^*)=0.$$
This is the FOC. The intuition for this condition is that a function attains its extremum (either maximum or minimum) when its derivative is equal to zero (see picture below). [You should be aware that there are more subtleties involved: look up terms like "interior vs corner solutions", "global vs local maximum/minimum", and "saddle point" to learn more]. However, as the picture illustrates, simply finding $x^*$ where $f'(x^*)=0$ is not enough to conclude that $x^*$ is the solution that maximizes or minimizes the objective function. In both graphs, the function attains a zero slope at $x^*$, but $x^*$ is a maximizer in the left graph, but a minimizer in the right graph. To check whether $x^*$ is a maximizer or a minimizer, you need the SOC. The SOC for maximizer is
$$f''(x^*)<0$$
and the SOC for minimizer is
$$f''(x^*)> 0.$$
Intuitively, if $x^*$ maximizes $f$, the slope of $f$ around $x^*$ is decreasing. Take the left graph, where $x^*$ is a maximizer. We see that the slope of $f$ is positive on the left of $x^*$ and negative on the right. Thus, around the neighborhood of $x^*$, as $x$ increases, $f'(x)$ decreases. The intuition for the case of minimizer is similar. | {
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4,866 | Employees sell their labor for wages. If a critical mass of employees get together and demand higher wages, how is this not the same thing as a critical mass of merchants illegally fixing the price of some commodity? Can't a strong union be considered to have an illegal monopoly on labor? | This is more of an elaboration of The Almighty Bob's answer: It is true that if we start from a competitive market (i.e. large numbers of buyers and sellers), then granting market power to sellers (e.g. workers) by allowing the formation of a monopolistic cartel is bad for efficiency. Those sellers will use their market power to increase the price (and reduce the quantity traded), resulting in a deadweight loss. Thus, we tend to look suspiciously upon practices that create market power. Note that here, the policy intervention we have in mind is to break up the cartel and return us to a competitive world. Why should the labour market be viewed differently? Part of the answer is that the relevant counterfactual has changed. Begin with a world without labour unions. The market will then typically not be competitive because there are often a small number of employers who themselves enjoy market power. Just as a monopolist seller can drive up the price, these monopsonistic (or oligopsonistic) buyers of labour can use their power to drive down the price. Now we are faced with the following policy problem: How can we correct for employers' market power and restore wages toward the (higher) efficient level? Two simple solutions come immediately to mind: Reduce employer's market power by stimulating competition between employers. This is achieved, to some extent, by antitrust policy. But it's hard to do much more here short of forcing more businesses to hire more workers. Allow workers to form unions so that both workers and employers have market power. If the firms try to use their power to drive wages down and the workers use it to drive them up then there is a sense in which the two will 'cancel out' and the result can be closer to the efficient wage than a market in which only employers have market power. Whether the second solution indeed works or not depends upon a whole range of factors. Here are a few: If the employer side of the market is, in fact, quite competitive then the correction will likely be too big and we will end up with wages that are inefficiently high. If bargaining is very costly then it might be more efficient to have one side (e.g. the employers) unilaterally set the wage. If there is uncertainty about the wage that firms are willing to pay/workers are willing to accept then bargaining may inefficiently break down (see the Myerson-Satterthwaite Theorem ). | {
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5,861 | Is zero inflation really desirable? To be more precise: Does inflation in real life have benefits that in some situations outweigh its social cost? E.g.: it works as a disincentive against holding money. The treasury derives income from printing new bills, which usually inflates prices. | The optimal level of inflation is very debated with unclear answers. There are many reasons, and a great answer would be very long. It should also distinguish between expected inflation and surprises. I'm not going to do any of this, but giving you three reasons for a desirable positive level of inflation. This list is of course incomplete, also there are many reasons against too high inflation. Downward-rigidity of wages It is really unclear to economists why it is happening, but nominal wages seem to be downward rigid. It appears to be a behavioral thing (and might not be true at all, see Barro (1977) ), but it appears that in crises, once presented with the choice of more firings or reduction of wages, most firms/workers decide to not cut wages but rather respond to the slump with increased separations. To the extent that we believe this lack of reduction in wages is suboptimal, the central bank can enforce a reduction in real wages through increased inflation rates, and thus preventing separations to some extent. Redistribution This argument is based on Keynesian theory. Keynes claimed that the marginal propensity to consume out of income is smaller for rich households (and indeed, we do find this in the data to some extent). Unexpected inflation is similar to redistribution from creditors to borrowers, as long as debt contracts are not indexed to inflation. To the extent that poor people consume more out of this unexpected wealth shock and than rich people decrease their consumption, this redistribution will lead to an increase in aggregate consumption. Room to cutback interest rates This argument was most prominently brought forward by Krugman around 2008. In recessions, you want to be able to decrease nominal interest rates in order to punish households and firms for "holding cash" and incentivize them to spend it instead. If you start with low (say, 2-3%) nominal interest rates during normal times, you don't have a lot of space to cut back nominal interest rates during the crises. If, instead, you would have higher nominal interest rates (Krugman argued for around 8%) and relatedly higher inflation during normal times, you could easier cut back nominal interest rates during busts and stimulate the economy. | {
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5,913 | On a very small scale, it's certainly true that if I gain, somebody else might lose. If I take away my brother's chocolate, then he will lose it, and will most probably not get anything comparable. But on greater scale, say, nationally, if one person (e.g. successful start-up founder) makes a fortune, will this generally be bad for the other players? Or can it be beneficial (e.g. if the money is not saved up)? Does it entirely depend on the rich person's spending behavior? | I completely agree with denesp's answer, however I think you can make it even simpler. On a very small scale, it's certainly true that if I gain, somebody
else might lose. If I take away my brother's chocolate, then he will
lose it, and will most probably not get anything comparable. OK, let's say I prefer chocolate to wine gums and my brother likes wine gums better than chocolate. Then taking his chocolate away and giving him my wine gums is good for both of us, so we both win and no one loses. So the answer is no. You could even consider the extreme case in which your brother hates chocolate and you are doing him a favor by taking it. (Works not as well with chocolate, but you might think of recycling.) In general these "trades" are called Pareto improvements . But this is only one example, if you are interested in the subject, you might be interested in one of the following basic economic ideas: Trade between two countries in which one of them is more efficient than the other: Ricardo's comparative advantage example Your brother likes to give: altruism / warm glow (I really don't like the wiki page here, but was not able to find a decent non-scientific explanation of it.) Or maybe other other-regarding preferences, for example fairness (your brother has a lot of chocolate and feels better if he gives you some): Theories of Fairness and Reciprocity (On page 3 is a brief "Non-technical summary" which might be interesting.) As you can see there are many examples for a "win-win" situation and there are many many others, depending on the situation. | {
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5,922 | I just read that increase in aggregate demand increases investment for a given interest rate. How is it possible because when aggregate demand increases, this shifts the demand for money to the right leading to higher interest rates. Higher interest rates should reduce investment. Am I correct in with my argument?
And help will be appreciated. | I completely agree with denesp's answer, however I think you can make it even simpler. On a very small scale, it's certainly true that if I gain, somebody
else might lose. If I take away my brother's chocolate, then he will
lose it, and will most probably not get anything comparable. OK, let's say I prefer chocolate to wine gums and my brother likes wine gums better than chocolate. Then taking his chocolate away and giving him my wine gums is good for both of us, so we both win and no one loses. So the answer is no. You could even consider the extreme case in which your brother hates chocolate and you are doing him a favor by taking it. (Works not as well with chocolate, but you might think of recycling.) In general these "trades" are called Pareto improvements . But this is only one example, if you are interested in the subject, you might be interested in one of the following basic economic ideas: Trade between two countries in which one of them is more efficient than the other: Ricardo's comparative advantage example Your brother likes to give: altruism / warm glow (I really don't like the wiki page here, but was not able to find a decent non-scientific explanation of it.) Or maybe other other-regarding preferences, for example fairness (your brother has a lot of chocolate and feels better if he gives you some): Theories of Fairness and Reciprocity (On page 3 is a brief "Non-technical summary" which might be interesting.) As you can see there are many examples for a "win-win" situation and there are many many others, depending on the situation. | {
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6,142 | Let's destroy the USD dollar: I am the government of a small, economically and geopolitically unimportant country that has its own currency and a local central bank. I order the local central bank (at gun point, if need be) to lend me dollars . Is there a technical problem to do this? No, this is just an exchange of papers and electronic messages -we can write on them anything we want, especially with a gun in our head. We can attach to these electronic records any three-letter code we want, so why not "USD"? Now I have a bank account with a balance of gazillions and gazillions of dollars- and USD ones, the heavy stuff. I can pay off my public debt, make every citizen rich (or just those that I like), import all the luxuries in the world, buy as much energy as I want, whatever. After all, I will be paying in USD dollars right? I will be wire-transferring from a bank account, an electronic signal that will contain some digits and the code "USD" attached. So let's hear it from the experts: what kind of checks has the international community in place in order to effectively avoid such a situation? And what if, as the most long-lasting counterfeiters know, we were to do this modestly , just a little at the time to help a tad with the local government budget, but without "showing-off riches" to the rest of the world?? | I think you misunderstand what "electronic money" is - moving electronic money around isn't simply a matter of sending the right "codes" - it is ultimately about asking the central bank of that currency to move money around. Sure you can open up excel and write in it "I have \$100" but that isn't USD, much as writing \$100 on a piece of paper doesn't make it a \$100 bill. In order to lend you dollars I actually have to have some dollars to lend you. That means I need a reserve account with one of the 12 Federal Reserve banks. There are no electronic USD that are not ultimately in a Federal Reserve Account . The "ultimately" in that sentence is there because banks can (and do) form hierarchies. Only the largest ("Tier 1" banks, sometimes called "clearing banks") actually have a reserve account with the central bank in a given currency. Other, Tier 2, banks will simple hold accounts with Tier 1 banks. Smaller local banks may even be Tier 3. When it comes to foreign currency dealing, you could be even further down the chain (i.e. a small bank in Australia may be Tier 4 for USD) Because of this hierarchy a certain amount of electronic banking can be done without moving reserves. A transfer only needs to progress up the hierarchy until it gets to a common bank between the two customers. So for example: A payment between two accounts at the same bank, can be done on that bank's systems. A payment from an account at a Tier 2 bank, to a different Tier 2 bank might be done using a shared Tier 1 bank. The Tier 2 bank's are "customers" of the Tier 1 bank, and so the Tier 1 bank can do the transaction on their system. A payment between customers that ultimately fall under two different Tier 1 banks must be done by at a Federal Reserve bank. The US adds an extra complication, because there are 12 Fed Reserve banks - if two Tier 1 banks don't bank with the same Fed Branch, then the Fed Reserve System also has to go "one step higher" and the New York Fed acts as the very top bank: " How do reserves move between the 12 federal reserve banks? " explores exactly how that is done. So the problem in your scheme is you couldn't get your central bank "into" this pyramid of banks. Your central bank's computer can show $1tr on screen but the only way to transfer to another bank, would be to instruct YOUR Fed bank to take money out of YOUR fed reserve account and put it into the other bank's account. Your central bank can't make reserve dollars. Aside: An alternative way of looking at this, for those familiar with how BitCoins work, is to note that the important feature of electronic money is to prevent double spending. BitCoin does this with the BlockChain; the USD equivalent of the block-chain is held on the Fed Reserve computers. You can't just declare yourself to have billions of bitcoins - to spend them you have to get your transactions onto the BlockChain. With electronic USD you have to get your transactions onto the Fed ledger. Only the Fed has a copy of this and their say is final. There would be no way for your central bank to change the Fed ledgers. | {
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9,176 | Decades ago a factory job could support a wife and kids until retirement and they offered insurance, benefits, etc. Now, no more unions, those jobs as well as tech and customer service jobs are outsourced, and anything left in the US is mostly being replaced by a machine or robot. Assembly lines had 50 guys in the factory, all gone due to 2 robots assembly something and only needs a few men to monitor them. Blockbuster and Borders were destroyed by online video streaming and Ebooks. Wages also aren't keeping up with the cost of living. The rich get all these tax cuts even if they outsource every job they make, but us "little people" keep getting the downside. I'm young and very scared of the future. Technology and new companies use to make jobs. Now one guy can make billions of dollars with a few friends only. | This is an interesting question a lot of good labour economists have been thinking about for a while. There are a few conflicting theories as to what will happen. You could base a whole career on this question. This IGM survey will give you some idea as to what leading economists think. The prevailing opinion seems to be that increased automation is not going to come at a cost to employment . There are countless examples of advancement lowing the returns to labour occurring throughout history (the plough, the steam train, industrial revolution). None of them has shown a long-run reduction in employment. The Solow Swan model for example, includes inputs to labour, capital and technology. They show technology and labour being complementary. I know of no empirical evidence suggesting that this has changed. This HBR article suggests that we aren't really seeing a cost in jobs, more a benefit in productivity. It also mentions Robert Solow's famous remark (which was correct at the time): you can see the computer age everywhere but in the productivity statistics This MIT article presents a bleaker perspective with the concluding sentence: In other words, in the race against the machine, some are likely to win while many others lose. Another article suggests that "this time it's different". The analogy used is that humans are horses and we are reaching peak human demand for the labour of horses today is vastly less than it was a century ago, even though horses are extremely strong, fast, capable and intelligent animals. “Peak horse” in the U.S. came in the 1910s In my opinion, this analogy is intuitively satisfying but is not particularly useful. We will see fewer humans working the supermarket checkouts and more in entertainment in the same way horses are no longer our ploughs and our taxis but are more likely to be racing and performing. Past that I think the comparison is a pretty big logical leap. The Economist has an opinion somewhere in between [Keyne's] worry about technological unemployment was mainly a worry about a “temporary phase of maladjustment” as society and the economy adjusted to ever greater levels of productivity. So it could well prove. However, society may find itself sorely tested if, as seems possible, growth and innovation deliver handsome gains to the skilled, while the rest cling to dwindling employment opportunities at stagnant wages. More likely, we will see a (potentially painful) transition in the uses of labour. A factory that used to employ thousands will now employ hundreds, possibly eventually only a dozen. These people will seek employment elsewhere and probably find it, either in existing industries or ones that do not yet exist. | {
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10,511 | This image shows US real median household income. It seems remarkable for its lack of growth over the last 20 years. This has been the subject of much political debate (around the "1%" and "occupy Wall Street" movements, etc.) but I am interested in more objective economic analysis of this phenomenon. Given that people are better educated and are working with better technology (which should make them more productive), and that the real economy has grown more generally, what economic theories can explain the lack of growth in real median household income? | The metric of median household income is also used by others to argue the presence of income inequality: https://en.wikipedia.org/wiki/Income_inequality_in_the_United_States#Causes However, it seems that it is not only the median but also the mean that stagnates : (I used family instead of household income because I could not find a time series for mean household income.) If the problem was only one of inequality then the mean income should still increase. I think there are several reasons why median household income seems to stagnate. First of all I think there is a visible upward trend that is only somewhat masked by the 2008 financial crisis. Granted this trend is still smaller than the increase of productivity. Why median household income grows at a slower pace than before is still a question. I think the problem arises because neither the number of households nor their distribution is constant. Changing size of households One thing that I believe has an effect is that average household size has decreased over the period you are looking at. (I had some trouble opening the Census Bureau's xls files .) So while total household income has in fact increased it is now divided between more numerous, smaller households making both the mean and the median smaller. Changing composition of the US labor force Another reason might be immigration. According to this site (I don't know if the statistics are reliable, there are a lot of links on the site I consider to be politically biased) the mean immigrant income is lower than the mean 'native' income. This is not surprising, immigrants need time to adjust and build the social networks necessary to get good jobs. Depending on the measure of productivity you use this can mean that while productivity in any given industry increases the weight of low-productivity industries increases as well. Thereby immigration may decrease mean and median income.
Note that this does not imply anything about the effect of immigration on the welfare of 'natives'. I am not claiming that the median household income of 'natives' is increased or decreased, I am pointing out that the weights used in the calculation are shifting. | {
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10,526 | I am aware of how the interest rates affect the demand for a currency, but am baffled by how it affects the supply for a currency. I've read conflicting theories. Is it true that an increase in the interest rate increases the supply of a currency? Many thanks | The metric of median household income is also used by others to argue the presence of income inequality: https://en.wikipedia.org/wiki/Income_inequality_in_the_United_States#Causes However, it seems that it is not only the median but also the mean that stagnates : (I used family instead of household income because I could not find a time series for mean household income.) If the problem was only one of inequality then the mean income should still increase. I think there are several reasons why median household income seems to stagnate. First of all I think there is a visible upward trend that is only somewhat masked by the 2008 financial crisis. Granted this trend is still smaller than the increase of productivity. Why median household income grows at a slower pace than before is still a question. I think the problem arises because neither the number of households nor their distribution is constant. Changing size of households One thing that I believe has an effect is that average household size has decreased over the period you are looking at. (I had some trouble opening the Census Bureau's xls files .) So while total household income has in fact increased it is now divided between more numerous, smaller households making both the mean and the median smaller. Changing composition of the US labor force Another reason might be immigration. According to this site (I don't know if the statistics are reliable, there are a lot of links on the site I consider to be politically biased) the mean immigrant income is lower than the mean 'native' income. This is not surprising, immigrants need time to adjust and build the social networks necessary to get good jobs. Depending on the measure of productivity you use this can mean that while productivity in any given industry increases the weight of low-productivity industries increases as well. Thereby immigration may decrease mean and median income.
Note that this does not imply anything about the effect of immigration on the welfare of 'natives'. I am not claiming that the median household income of 'natives' is increased or decreased, I am pointing out that the weights used in the calculation are shifting. | {
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10,742 | In the youtube video Why We Look down on Low Wage Earners the author argued: "economics states that wages are determined [...] by the number of people willing and being able to do a given job that others won't do." ( video at 1:00 ). While this explains much of the variance in the wages of different jobs, it does not give in my opinion a good explanation, why celebrities earn high wages. Take for example actors. There are a lot of people working in this field and there are many more wanting to become an actor or actress. Due to the quoted theory the wages in this field should be low which is not the case for celebrities . The theory does also not explain the variance of the wages inside this field (compare the median hourly earning of actors / actresses with those of celebrities). My question: How do economics explains the outliers in the wages in form of the high earnings of celebrities? How does popularity exert an influence here? (Do celebrities get much money because they are popular or are they popular because they are rich?) How does economics explains the different wages for a certain kind of job? | If you ask yourself how much a potential employer would have to pay you to convince you to work for him, the answer is probably something like "at least as much as I could earn by doing the same job for another employer". So, provided there are several employers competing to hire workers, you can think of employers as bidding against each other for the best employees. But how much will firms bid? Each employer would be willing to pay up to the difference between its profit if it hired this particular worker and its profit if it took the next best alternative. This is why the supply of alternative employees matters. If there are many people capable of doing the same job then a firm's profit if it hires you will be almost the same as the profit if it hire someone else. So why should it 'bid' a lot to hire you? An unskilled factory worker who asks his employer for a significant pay rise will likely be refused because virtually any worker doing the same job would have equivalent productivity. Celebrities are a different story. Just as factory workers are hired to produce goods for the factory owner, actors are hired to produce movie ticket sales for the studio. But viewed in this light, Tom Hanks or Angelina Jolie are not close substitutes for as yet unknown actors at all. Indeed well-known actors are considerably better at producing ticket sales than unknown talent . Studios are willing to bid a lot to attract top actors because having a star in your cast is worth millions of dollars in extra ticket sales. | {
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10,747 | Varoufakis' book contains some arguments and explanations. I don't have the book in English with me, so this is a 'free translation' of a couple of points (bold is mine): "Contrary to the entrepeneur, the banker does not organize production. (...) We're wrong to think that he is an intermediary between those with excess money and those who wish to lend that money (...). Before, it was like that. Centuries ago. Now, only in very rare occasions does the banker have that role. (...) In developed market societies, the banker does not obtain existing value (money) from some to then give it to others. He obtains it from the future, so that it's possible to use it in the present. (...)" ['Talking to my daughter about the economy', Chapter 4, section 'The "hand" of the banker'] He later, on the same chapter, goes on to say: "Every society has its legends. Market society is no exception. The
fundamental legends of our time are these four: (...) Bankers lend money from savings accounts deposits. (...)" Finally, later on (Chapter 5), when listing reasons for why people can't get loans after a crisis, he lists some reasons: "First, because banks won't lend them money, since they are themselves
based on money that they don't own, that is, the debts of private
parties and the State to them, which will never be payed." What does he mean by 'banks lend money from accounts' being a legend? I am admitedly very naive about economy in general (hence what may seem a very ignorant question) but I was always under the assumption that banks make money by charging higher interest from the money they lend then they pay people for their savings accounts. What is this 'borrowing from the future' mechanism that he describes? Finally, doesn't the last bit contradict that? If banks can 'make up' money 'from the future', why do they depend on the money from the debts of people, companies and the State? | If you ask yourself how much a potential employer would have to pay you to convince you to work for him, the answer is probably something like "at least as much as I could earn by doing the same job for another employer". So, provided there are several employers competing to hire workers, you can think of employers as bidding against each other for the best employees. But how much will firms bid? Each employer would be willing to pay up to the difference between its profit if it hired this particular worker and its profit if it took the next best alternative. This is why the supply of alternative employees matters. If there are many people capable of doing the same job then a firm's profit if it hires you will be almost the same as the profit if it hire someone else. So why should it 'bid' a lot to hire you? An unskilled factory worker who asks his employer for a significant pay rise will likely be refused because virtually any worker doing the same job would have equivalent productivity. Celebrities are a different story. Just as factory workers are hired to produce goods for the factory owner, actors are hired to produce movie ticket sales for the studio. But viewed in this light, Tom Hanks or Angelina Jolie are not close substitutes for as yet unknown actors at all. Indeed well-known actors are considerably better at producing ticket sales than unknown talent . Studios are willing to bid a lot to attract top actors because having a star in your cast is worth millions of dollars in extra ticket sales. | {
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12,641 | In Europe it's usual, that fuel prices are 10-20% higher on the highway, than in the city. This is not only my personal observation, but also mentioned on travel sites (eg here and here ). I don't have much expertise in economics, but as I understand this should not be possible in a competitive market, since what would stop a petrol station to lower their prices to the same level as the ones in the city, and get all the customers? One solution could be, that they are different companies, but even the big ones like Shell and OMV have higher prices on the highway. My question is: what is the reason for this situation, and what stops petrol stations from lowering their prices? | Because there is no indication in your question that you are a student or practitioner of economics, I am writing an answer for a lay audience. Let me know if you would like more technical detail. A fairly general prediction from economic models of competition between firms is that the price that maximises their profit is higher the less sensitive is demand to that price (this sensitivity is measured by the " price-elasticity of demand "). Intuitively: if demand is very sensitive to price then a cut in price will cause demand to increase a lot. The firm receives less for each unit it sells, but sells very many more units and is better-off overall. if demand is not sensitive to price then the firm can increase price without causing its sales to fall very much and will therefore wish to do so. There are lots of things that affect the sensitivity of demand. One example, as DornerA mentioned in a comment, is geographic location. If the nearest competing seller is very far away or inconveniently located then buyers will be reluctant to shop elsewhere, meaning their demand is likely to be less sensitive to price increases at locations that are geographically isolated in some way. This seems like a reasonable way to think of highway fuel stations. A little thought should convince you that the same principle (that prices are higher when demand is less sensitive) holds for other cases where demand is price-insensitive too. For example: why is food so expensive on trains/airplanes? why are branded goods more expensive than generic ones? why are the photographs from theme park rides so expensive? etc. Edit: A comment by AndrejaKo reminds me to add that the other very common reason why firms might increase their price is that they have higher costs. However, economics theory predicts that only unit costs (i.e. those that increase when you sell more units) matter for optimal pricing. Thus, for example, the fact that land near a highway is expensive would not seem like a very convincing explanation for high fuel prices (because the land costs the same regardless of how many units of fuel are supplied). But if, for some reason, supplying each litre of fuel was more expensive at highway fuel stations (because, for example, transporting the fuel there is more expensive) then we would indeed have an explanation for higher highway fuel prices. | {
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15,840 | I'm looking for a more general and principled answer and use Scandinavia today only as a sketchy example of the kind of scenario I'm asking about. I live in Scandinavia where house prices has had an uninterrupted bubble boom during a quarter of a century now. Households are the most indebted in the world. Mostly of course in the form of housing loans. If the housing bubble would burst in Scandinavia as it has done in many other places the recent decade, certainly all banks will immediately be wiped out and millions of Scandinavians will become completely destitute for the rest of their lives with unpayable debts and no property to match it as a deep depression sets in. Some key figures (for Sweden, not the oil country): +7% housing prices on average per year since 23 years, with record increases the last couple of years. 0% growth in GDP per capita last 10 years (housing prices doubled anyway). 1.2% (positive) CPI-inflation since 10 years. 0.8% (positive) consumer housing loan now offered in ads without negotiation (after tax deduction) while central bank interest rates are stuck deep into
the negative. Imagine that the government makes a law that forbids anyone to sell any housing at a lower price than what it was last bought for. Thus per definition the house bubble cannot burst, not legally anyway. And everyone is safe, the crash prevented and everyone will keep making millions simply by borrowing more for risk free "investing" in simply owning ones own house, right? What would the negative consequences be and how would it play out? | That would be really, really bad. Any house that loses value will be unsellable, and thus virtually worthless. Most people living in such a house would be prevented from moving. They cannot sell it, since no one wants to buy an overpriced house, and they cannot afford buying another house with their capital already tied up in the current house. A black market would appear, with people giving money back under the table. "Buy my house for 4M SEK and I'll refund 1M SEK under the table." I can tell you one thing it won't do. It won't stop prices from ever falling. | {
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17,834 | Why do different countries have different currency? I have this question because I want to know why to divide it? If it's not divided then we can easily use the money anywhere and we won't need to use currency exchange . | I will focus on some economics reasons not mentioned explicitly so far. There are economic benefits to having your own currency. Your question essentially raises the question of so-called "Optimum Currency Areas" (OCAs). There was a lot of interest in the question of what areas should have the same currency. It is in general not immediately obvious that different countries should have the same currency, or even that the same country should have the same currency everywhere. Your question boils down to asking whether the whole world is an OCA - and the short answer is no. The pros of having different currencies are that you can use monetary policy to offset shocks. Especially for trade shocks, because monetary policy can change the exchange rate of a currency to affect trade. For example if Germany and France are hit by different shocks, then they will want to conduct different monetary policies, which they can't if they share the same currency. The main cost of different currencies are transaction costs of exchange, which can hamper things like trade and tourism. Therefore an area should have the same currency (is an OCA) if it is subject to the same shocks or other factors are present, such that those shocks are absorbed without monetary policy. This thinking leads us to the four most important criteria for an area to be an OCA. You can use these criteria to evaluate whether countries should have the same currency and to answer your question. It is worth noting, that the pioneer in this literature was Robert Mundell with his 1961 paper. The other two most important works are Kenen (1969) and Mckinnon (1963). The criteria are: The regions should have similar business cycles. As mentioned, if the countries tend to experiene similar shocks, then they will require the same monetary policy. In that case there is no reason for them to have different currencies! Openness of the economy (Mckinnon). This can be divided in two parts: 2.1. High labor mobility across regions. If there is a recession in one region and people can move to another one as a response, then monetary policy is less important in adjusting to the shock, as labor itself adjusts. This is a reason why countries can usually have the same currency within their whole territory. For example, people who lose their job in one U.S. state often move to another. If that wouldn't be possible, then adjusting to the recession with monetary policy would be more important. That is why the freedom of movement agreement is so important for the Euro to be sustainable. Note that wage flexibility would be required here as well. 2.2. Capital mobility. The reasons are similar as for labor mobility. If a region becomes less developed, then returns to capital there will increase. If markets are free, then capital can travel from the more prosperous region to the one hit by the shock, thereby mitigating the negative effects of the shock. Note that price flexibility must be given here for these effects to occur. A risk sharing system, such as fiscal transfers. Since monetary policy can't be used, we would need fiscal policy. Fiscal transfers from unaffected areas can help with negative shocks in another region. The Eurozone has a no-bailout clause, so this condition wasn't given during the Greek crisis. However, this was de facto abandoned. This is unsurprising to those familiar with the theory of OCAs. Product Diversity (Kenen). Trade shocks, which monetary policy can help with, usually occur to certain industries and not the whole economy. If countries produce a variety of products, they will be less likely to suffer from large demand shocks. Hence, more diverse economies will face fewer trade fluctuations and see smaller increases of unemployment if shocks occur to one industry. This also reduces the need for monetary policy stabilization, since any given shock has a small impact on the overall economy. Sometimes further criteria are also given, but they are less important. These include "solidarity" as well as homogenous preferences across regions, for similar reasons as the condition of similar business cycles. So you can use these criteria to evaluate whether certain countries or areas should have the same currrency or not. All these criteria are definitely not fulfilled for the whole world, so there is a role for different currencies. An issue with the theory of OCAs is that it is unclear how much weight we should give to each criterium. So it could be unclear how to evaluate whether two countries who partially fulfill some of the criteria should have the same currency or not. | {
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19,210 | Bloomberg shows this chart: I understand the above chart to mean that consumers were actually paid to use electricity. (Please correct me if I'm mistaken.) I was wondering how this is possible? How is the power/electricity market special and different from other markets? (Or perhaps the German electricity market is special.) | Yes, customers who were exposed to day-ahead wholesale market prices were paid to use electricity. It is a combination of several different factors that make the day-ahead wholesale electricity market special. Firstly , very few electricity consumers participate in it directly. So the demand side is very illiquid, with very low short-run elasticity - and it quickly becomes perfectly inelastic. Secondly , there's very little time-arbitrage. The market for electricity at 0500 and the market at 1500 are two separate markets: there are very few arbitrageurs who can buy at 0500 and sell at 1500. That's because until recently, there's been very low rewards for doing so (more on this, below). Thirdly , there are several suppliers for whom reducing supply would incur expense: so, for market-clearing purposes, they have negative short-run marginal costs. There are two ways that can happen. very inflexible conventional generators (usually nuclear) just can't turn their output up and down every hour or two, without incurring maintenance costs. generators with contracts that enable them to sell all their output at a pre-specified positive price: they would need wholesale prices to go negative by the more than that amount, to make it worthwhile for them to reduce their output. Germany now has such a high combination of those two kinds of generators, that there are times when their combined output is greater than domestic consumption, and that's when prices go negative. Fourthly , although Germany shares a grid with many other continental European countries, the opportunities for spatial arbitrage are very limited, because total German generation is much much larger than the interconnection power capacity to the rest of the grid: so that interconnection capacity strictly limits the amount of energy that can be arbitraged with other countries within a given trading hour. Finally , though it seems strange, these negative prices are a good thing. They're a temporary condition that will only last for a transition period, as electricity markets decarbonise. At the moment, we've got transmission networks and market structures that were designed for, and built around, excessively-polluting suppliers such as coal and gas. We have to stop that pollution - the cost of it way exceeds the benefits. So, the industry has to change structurally, and markets and networks will have to change too. Coal- and gas-fuelled generators have been very helpful for in-day markets, because they can rapidly change the amount they supply. So the near-absence of participation from the consumption side hasn't been a problem at all, until recently - and why the rewards for arbitrageurs were low. But now, there is an increasing number of hours when those very flexible generators no longer dominate the market. As we move to a grid that no longer has that supply-side responsiveness, we need responsiveness from new arbitrageurs, and from the demand-side. Period of negative pricing provide strong incentives for those new market participants to come forwards. And, as more and more of those new participants enter the market, the negative prices will become rarer and rarer. So this isn't just Germany. It has happened, and will happen, elsewhere too. | {
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19,738 | I'm coming at this from a scientific point of view, having had no formal training in economics - most of what I know about it was from self-studying an undergraduate economics textbook. My question is, why do economists disagree so much? This doesn't happen in the sciences. For example, for the question "will a driver in a car with these safeguards survive a collision at 100km/h", most scientists will agree on an answer. It might be conditional on various things (e.g. age of the driver), but most scientists will come to the same conclusion. However in economics, it's different. Faced with a question such as "should we provide more fiscal stimulus for the economy", it's possible that one big group of economists says "yes", and then another big group says "no". To some extent this might be because of personal interpretation of what is desirable. However I would expect that economists should still be able to say something like "if you provide fiscal stimulus, this will happen, and it's up to you to judge whether the consequences are desirable", and yet it seems there's no consensus on what will actually happen. It doesn't help that when I see economics debated in the media, both sides advance what looks like reasonable arguments. Does economics have predictive power? If so, why can't economists simply tell policymakers what to do? If not, what's the point of economics (it might as well be astrology)? | Some areas of economics have more consensus and predictive power than others. Most economists would agree on the effects of trade barriers, could fairly accurately forecast the effects of a price change given a good demand estimate, would come to the same conclusion about the effects of allowing a merger between two large competing firms, know how asset prices will react to a change in interest rates, etc. The effect of a fiscal stimulus is one of the most complicated questions in economics because you are asking about the effect of stimulating a system with millions of moving parts (people and firms) and many dimensions (consumption/saving, employment/work, trade, investment, innovation, ...). This is a long way from the simple, closed systems for which natural science is able to give sharp predictions. In fact, when you look at parts of the natural sciences that deal with similar levels of systemic complexity, the overall (lack of) predictive power looks similar to that in economics: although principles of ecology are well understood, it is almost impossible to accurately predict what the final effect of, say, introducing a new species into an ecosystem will be the theory of evolution is probably one of the greatest scientific theories of all time, but can only be used to make the vaguest predictions about the future medics cannot accurately predict the onset of a wide range of diseases—only diagnose them ex post models of future global temperature increases have wide error bars weather forecasts more than one or two days into the future have wide error bars The other thing to note is that fiscal stimulus is a highly politicised topic and economists often do a (frustratingly) poor job of keeping politics out of the debate. If you read the economic literature, you will find a story similar to that for your car crash: any outcome is possible but some look more likely, depending on the exact circumstances. Given this ambiguity, politicians of different persuasions have no difficulty finding an economist willing to ignore this nuance and take a politically expedient position (just as conservative politicians can always find scientists willing to play down anthropogenic global warming). But that is less a failing with economics than with economists. | {
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20,481 | Recently, I witnessed two acquaintances of mine engaging in bartering, where one traded his services for the services of the other. Both services had about the same value. By trading them directly, they didn't pay VAT or tax on income, as no money or even goods were involved here. That wasn't the reason for the barter, but it's an interesting aspect. I'm not pushing this behaviour, but it makes me wonder why there's not more people doing this, as it is an easy way to save money by leaving out money and thus taxes. AFAIK, this is legal, or at least a 'grey area'. I suppose in most countries some law exists to prevent this happening on a large scale, but it would be impossible to enforce it everywhere or on a small scale. Especially since goods can still be valued in terms of money, but it is much harder to do so with services. And their presence and traceability is volatile, unlike with goods. I live in a rather small village where locals often (have to) make use of each others service, often requiring the service more than once. Taxes and VAT are high here in the Netherlands, so it would make a significant difference. I'd expect them to barter the service to save money, but they just pay by the bill. I did witness two people bartering once, but never before. I haven't heard it to be common in other modern countries either. Why is it not more common? | The main likely reasons why barter is not more common are: The inconvenience of having to find another party who both offers what you want and wants what you offer. Even if such a party can be found, the possible complexity of negotiating a "fair" transaction (eg I'll do your electrical job if you'll clean my windows monthly for the next 3 months). I don't want to encourage it, but for those seeking to evade tax, the comparative ease in many circumstances of doing so via a normal monetary transaction, but with payment in cash. A further point is that most countries with VAT have a significant "VAT threshold", that is, a minimum value of annual sales at which businesses are required to register for VAT and charge VAT (where applicable) on their sales. In the UK, for example, the threshold is currently £85,000. So an individual could provide services not exceeding that amount in any year and would not have to charge VAT. If two such individuals were to enter into a barter arrangement, there would be no VAT saving. The Netherlands is atypical in that its VAT threshold is unusually low: 1,345 Euros (see here , table on p 2). | {
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20,992 | What are some results in Economics that are both a consensus between most economists and far from common sense? I would also welcome suggestions of clear definitions for what we should mean as consensus , specially considering that economics is an area with a lot of methodological divergence. Let me try first, a suggested definition for consensus in this setting would be: the existence of a group of experts that would claim that the result
is certainly true. | The principle of comparative advantage As Paul Samuelson ( 1969 ) put it: thousands of important and intelligent men ... have never been able to grasp the doctrine [of comparative advantage] for themselves or to believe it after it was explained to them. Example Imagine that an American worker who devotes all his time to soybean production can produce up to 100 tons of soybeans per year. And if he devotes all his time to steel production, he can produce up to 4 tons of steel per year. In contrast, the corresponding figures for a Chinese worker are 30 tons of soybeans or 3 ton of steel. Maximum possible production
American Chinese
Soybeans 100 30
Steel 4 3 A layperson could reason: An American worker is literally more productive than a Chinese worker at everything . So why aren't we simply producing all of our own soybeans and steel? Instead, we're doing the foolish thing of importing steel from China! This reasoning is "common sense". It is also wrong. Although the American worker is "better at everything" (we say he has the absolute advantage in producing both soybeans and steel), the Chinese worker has the comparative advantage (CA) in producing steel. This is because by producing 1 ton of steel, the American forgoes 25 tons of soybeans, while the Chinese forgoes only 10 tons. And so, by the principle of CA, the American should focus on producing soybeans and the Chinese on producing steel. The two can then trade to mutual benefit. Numerical example: Say that without trade, the American spends a quarter of his time producing steel and the rest producing soybeans. The Chinese spends half his time on each. Hence: 1. Consumption without trade
American Chinese
Soybeans 75 15
Steel 1 1.5 But they can do better by specializing and trading. The American, whose CA is in soybean production, should specialize in soybeans. And the Chinese, whose CA is in steel production, should specialize in steel. 2. Production after specialization but before trade
American Chinese
Soybeans 100 0
Steel 0 3 The American can then trade, say, 20 tons of soybeans for 1.2 tons of steel. End result: 3. Consumption after specialization and trade
American Chinese
Soybeans 80 20
Steel 1.2 1.8 Comparing Scenarios #1 and #3, we see that with specialization and trade, both the American and Chinese workers are strictly better off. Remarkably, each gets to consume more of both soybeans and steel than they did without trade. Thus, even though the American is "better at everything", the principle of CA offers a powerful rationale for why he should still import steel from China and be "dependent" on the Chinese worker. | {
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22,599 | I've been reading and speaking to a number of educated economists and economics PhDs who are against the use of intense mathematics and mathematical proof in economic theory. Specifically I've been speaking to those of Marxist and heterodox persuasion and reading their work in an attempt to become more open minded. They emphasize that the study of work by classical economists (like Adam Smith, Karl Marx, and David Ricardo) is still relevant and that the practice of how mainstream economics uses mathematics is abusive and is an attempt to fool the masses regarding the "science" economists practice. I have difficulty understanding this argument. What is a reason to be against mathematics in economics? Note: I'm pretty mainstream and like how economics is taught and structured. I'm not anti math-in-economics, I just want to know why this is an argument. | I find that the essay " The New Astrology " by Alan Jay Levinovitz (an assistant professor of philosophy and religion, not an economist) makes some good points. ...the ubiquity of mathematical theory in economics also has serious downsides: it creates a high barrier to entry for those who want to participate in the professional dialogue, and makes checking someone’s work excessively laborious. Worst of all, it imbues economic theory with unearned empirical authority. ‘I’ve come to the position that there should be a stronger bias
against the use of math,’ Romer explained to me. ‘If somebody came and
said: “Look, I have this Earth-changing insight about economics, but
the only way I can express it is by making use of the quirks of the
Latin language”, we’d say go to hell, unless they could convince us it
was really essential. The burden of proof is on them.’ The essay also makes a (more or less adequate—which, I leave up to you) comparison with astrology in ancient China to show that excellent math can be used to prop up ridiculous science and grant status for its practitioners. | {
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27,228 | Sorry this might be borderline off-topic (and I am an economics layman at best), but I found this rather puzzling and would like to know why this is happening. I just came across an article which documents another development in the quarrels between Australian milk farmers and big supermarket chains. As I understand it, the farmers demand that supermarkets charge higher prices for milk and then pass on the additional revenue back to the farmers. When I think of the free market, I would expect this to be unnecessary, as the farmers could charge more when they sell the milk to the supermarkets or, if that doesn't work (why wouldn't it?), some farmers would stop milk production leading to milk scarcity leading to higher prices or, more importantly, higher revenue for the farmers. What am I missing? | Please also see the new Additional Addendum at the bottom written a few days after I first wrote this answer. You are correct and not missing anything. Absent good reasons to the contrary (and none have been given here), we may presume that the free market works. If the Queensland milk industry is being "squeezed", then this suggests that there are simply too many dairies and some should shut down. "We've got 370 dairies in Queensland at the moment, that could get down to 150 in eight to 10 years' time, and there will be more imported milk," he [Farmer McInnes] added. Farmer McInnes's alarmist scenario illustrates a commonly-held economic fallacy that probably arises from the common tendency to think about everything in binary terms. To him, it's either: Queensland raises the price of milk by 10 cents a litre and thereby preserves its 370 dairies; OR Queensland does not raise the price of milk and thus sees a catastrophic fall in the number of dairies from 370 to 150. Such binary or all-or-nothing thinking is a failure to recognise how to free market works. The free market is capable of making marginal adjustments . If at present, the Queensland milk industry is being "squeezed", then this suggests that there are simply too many dairies relative to demand. What should naturally happen is: The least profitable/productive dairies voluntarily shut down. Supply will fall. The price of milk will rise to the point at which the remaining dairies are happy with the prices they receive. The end result is that the number of dairies will fall, but probably by only a handful and not catastrophically to 150 (I don't even know where he gets this number from). But even if the number of Queensland dairies does fall to 150, then this is not necessarily a bad thing, so long as this fall is a result of natural market adjustments. Lengthy addendum. Producers seeking government/public protection have always made certain specious arguments. Here in this article, in addition to the main such argument refuted above, several other of such arguments were also made. They are well worth refuting: the costs are enormous. Drought has led to soaring grain prices, making it more expensive for farmers to feed their herds on top of costs like water and power. ... 10 cents is the difference between getting by and making a profit, but have invested too much to pull out. Under the free market or capitalist system, individuals take risk and can then enjoy either rewards or losses. Suppose instead that these farmers instead benefited from low grain prices and enjoyed profits of 20 cents per litre of milk sold. Should consumers then have stood outside supermarkets demanding that milk prices be lowered by 10 cents per litre? This would, of course, have been absurd -- but it is also exactly what the present farmers are doing. At play here is also some sort of strange morality, in which it is thought "fair" that consumers "should" help pay for producers' costs. But suppose I spend 20 years of my life creating what I (and no one else) consider to be a magnificent work of art. Should I then protest when nobody out there is willing to pay me $1M for this work of art and all the years of hard work I put in? No. Consumers (be it of milk or my magnificent artwork) are free to pay whatever they like and need not be coerced into paying more than they'd like. Mr McInnes runs ... a family farm that's been operating for 104 years Here the age of the farm was simply included without comment. This is an emotive argument based on age/history/tradition that clearly has some appeal. It is not altogether invalid. Some communities/countries may collectively decide that certain things (like farms or art performances) are worth promoting, preserving, and hence subsidising or being otherwise protected from market forces. However, such subsidies should be made clear, transparent, and explicit. And ideally, they should arise through the democratic process, rather than through a few farmers' protest outside a supermarket. [raising the price of milk by 10 cents per litre] would only cost consumers an extra \$8 a year. This, by itself, is not an argument at all. Why should each milk consumer in Queensland have to pay \$8 more per year to milk producers? Should they also each pay \$8 more to Queensland's avocado producers, the King of Thailand, or Mel Gibson? Just because a cost is perceived to be small (and I personally do not perceive paying an extra A$8 a year for milk to be small) doesn't mean we can ignore the cost. Instead, every cost must be weighed against the corresponding benefits. And here, no benefits whatsoever have been articulated, other than that of helping out a few dairy farmers. And no reason has been given for why dairy farmers are any worthier of special help than are avocado farmers, the King of Thailand, or Mel Gibson. Another addendum. My answer above has been correctly criticised for being overly theoretical. And so I have spent a little more time studying the specifics of the Australian dairy industry. One particularly important reference is the Australian Competition & Consumer Commission's (ACCC) Dairy Inquiry: Final report (April 2018). It turns out that there are market failures in the Australian dairy industry.†
However, these market failures are not what everyone here has assumed. A little background: On January 26 2011 (Australia Day), the supermarket chain Coles began its milk price war by offering $1-a-litre milk. Soon after, two other chains, Woolworths and Aldi, followed suit (see e.g. this story ). Everyone has thus assumed that the "villain" in this story is the supermarkets (and especially Coles). However, it turns out that the "villain" (if there must be one) is instead the processors , which are another intermediary between the dairy farmers and the supermarkets. According to the Dairy Inquiry (p. xii), the key market failures arise from: the strong bargaining power imbalance and information asymmetry in farmer-processor relationships. The Dairy Inquiry issues 8 recommendations (pp. xxv–xxvii). All 8 pertain to rectifying the power imbalance and information asymmetry between the farmers and the processors. All 8 are contractual and informational. All 8 pertain to increasing clarity, transparency, simplicity, and the ease with which farmers can switch between processors in the farmer-processor contracts. Importantly, the ACCC does not recommend raising supermarket prices as a possible solution : The ACCC did not obtain any evidence that supermarket pricing, including $1 per litre milk, has a direct impact on farmgate prices ... farmers’ lack of bargaining power means that they are unlikely to benefit from an increase in the retail (or wholesale) prices of private label milk or other dairy products. Even if processors were to receive higher wholesale prices from sales to supermarkets, this does not mean the processors will pay farmers any more than they have to secure milk. A common lay reaction to many economic problems is to call for artificial price floors. (Indeed, the Australian Labor Party has proposed doing so with milk prices if it wins the federal elections -- this is thus evidently a popular "fix".) However, economists know that artificial price (and quantity) restrictions are generally a bad idea and usually cause even more problems. If there are market failures, then we should try to address those market failures directly, instead of using artificial price restrictions. For example, if there are externalities, then one possibility is to use the appropriate Pigovian taxes and subsidies. And in this particular example, the market failure is that of uneven bargaining power and information asymmetries between farmers and processors. Therefore, the economist's preferred solution is not a milk price floor, but to tackle the market failure directly, namely by reducing the information asymmetries between farmers and producers. †I never claimed otherwise. In particular, I never claimed, as has been caricatured by some of my opponents, that the Australian dairy industry is a perfectly competitive and free market. I merely claimed that all of the arguments in the originally-cited article were invalid and failed to explain what, if any, the market failures or imperfections were. All markets in the real world are imperfect. The onus is on one to explain and ideally quantify what the market failures are. That way we can better understand the problems and find a better solution, instead of simply screaming for a price floor whenever there is perceived "unfairness"/"injustice"/"exploitation". I have also deliberately put "villain" in scare quotes. In economics, we are less interested in looking for the "villain" or someone to blame than in trying to find solutions for each problem. And there usually are solutions, once we set aside our moral outrage. | {
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30,239 | If a country prints money and distributes it between the people, it causes inflation. But what if a country prints its own money to spend ONLY abroad, which would allow a country to buy whatever it wants. What's wrong with this logic? | In order for one country to spend in another, it needs to exchange its currency for the currency of the other nation. This is done through something called the foreign exchange market. Like most markets however, the laws of supply and demand apply here too. If a country suddenly starts printing a lot of money, the actual value of its money in the foreign exchange market will go down (due to its increased supply). This will ultimately mean the currency will depreciate with respect to others, and will thus have lower buying power. | {
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32,253 | Say I buy a glass bottle, I can either put it in the landfill or recycle it.
My understanding is, glass will breakdown into sand. (Not sure how well though, since we sometimes find glass from Roman times.) Alternatively we can recycle it. But I was wondering wouldn't this put some people out of work? Such as the people who have to mine all the silica for use in making the glass in the first place. And considering it is more economic to recycle glass, this seems like fewer humans would be needed. Therefore could I make the case that not recycling my glass bottle is helping with employment. On the other hand, recycling might be helping the economy as a whole and there might be more money in the economy for public sector jobs. Which is right? | Any invention that replaces human labor puts an end to that specific task. Glass recycling eliminates (or decrease) the need for silica-gathering task. Typewriter eliminates the need for printing press typesetter. Etc. Those people whose tasks are eliminated will get reallocated to their most productive use. This might be in the form of job change (silica miner move to coal miner), or might be in the form of task redefinition (the book Prediction Machines describe how self-driving school bus might shift the main task of a school bus driver to an adult who oversees and "teaches" the schoolchildren.) Going back to your question, recycling also creates new jobs. They need people to sort bottles, maybe drive a recycling truck, etc. So whether an invention leads to more or less job is ambiguous. Added : While the effect on a specific industry might be quantifiable, if you take into account job mobility, etc. then the effect on the whole labor market is ambiguous. Regardless, an invention that increases productivity should increase the size of the pie. We can produce more from the same resources. How that bigger pie is divided, however, is another very important question altogether. | {
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32,846 | Do companies also know for a better lack of words armistice? When searching for non compete agreements everything that comes up are agreements between companies and employees, but do whole companies also have non compete agreements with other companies? This is akin to price fixing, but would include more, since competition is not only restricted to price. I wonder if companies which are not allowed to merge because of monopoly laws have such non compete agreements. What are such non compete agreements called? Because right now this term seems to only apply to contracts between companies and employees. | This is known as dividing markets or market allocation, and it is against the law in the US, the EU , and I imagine in most countries with antitrust laws. | {
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36,127 | I don't understand why the price of oil futures went negative today. News say it is because sellers cannot sell it. But, why don't they just hoard it until the coronavirus crisis is off? Why don't speculators jump in and bring up the demand again to positive? Alternatively, I would like to get paid for receiving a barrel of oil (I can keep it in my back garden) and then sell it in the future. | I'm answering from my memory of Reddit comments like blitzkrieg9 and AdmiralAkbar1 . Don't hesitate to edit this post to link to them, but I can't remember where exactly I saw them. And I haven't just copied and pasted – I've rewritten out typos. Alternatively, I would like to get paid for receiving a barrel of oil (I can keep it in my back garden) and then sell it in the future. Unprocessed crude oil is full of toxic and nasty stuff, and if not properly contained, many dangerous gasses like benzene or hydrogen sulfide will just evaporate out of it. You definitely don't want to be anywhere near an open swimming pool full of crude oil. You can't really do anything with it at home, and if you dump it, you go to prison. You get nasty byproducts that you'll have trouble selling in the tiny quantities you produce, but which are illegal to dump. But hey, you might get a gallon or two of usable gas out of it! But, why don't they just hoard it until the coronavirus crisis is off? Crucially, this is the price for crude oil which still has to be refined into usable products, and cannot easily be disposed of. The negative price reflects the costs associated with storing the stuff indefinitely. And you can't turn off producing wells like a tap. It takes time to shut them down without ruining them, so that they can be turned on again. Look how long it took to get Kuwait up and running again after the first Gulf War, when the retreating Iraqis destroyed wells. It's simple to shut in natural gas by turning the valve, as natural gas has a natural pressure. Oil does not have natural pressure. Once oil's shut in, it's not easily "turned back on". It's part of what causes wild price swings as supply can't move as fast as demand. The leases for oil and gas in America have "shut-in clauses" where after being shut in for a certain period of time (usually one year or so, but they vary) the lease holder has to go back to the mineral owner, to re-lease. Again with gas, operations can go and turn on a gas well for a month, then turn it back off just to get enough production time to avoid the shut-in clauses. You can't do this with oil. Even old stripper wells need about $18-20 to pay to keeping them operating. Even if you can stop extracting oil, the oil producing countries are often in a sort of Mexican stand-off. If you produce too much, oil drops and you lose money. If you produce less, the other countries may produce more and you lose money. Why don't speculators jump in and bring up the demand again to positive? A futures contract is simply a contract to buy something in the future, like next month or next year. Some futures contracts "settle to cash". This means we determine the price when I bought the contract and the actual real-world price on expiration date, then one of us pays the other person the price difference. But oil and most commodity contracts settle for the actual product! If you don't close out your soybean contract, your exchange calls you asking what you'd like to do with your soybeans that are waiting for you in Kansas City! Same with oil. Tankers are showing up in Houston with millions of gallons of oil and somebody needs to take delivery. Nobody can, because all the storage facilities are already full. So people are literally paying you over $30 a barrel for you to possess oil! You're referring to a specific contract for specific delivery to an oil pipeline in Oklahoma on Apr 21 2020. That is the crux of the issue. The supply vs demand kerfuffle is very localized at a major crude oil pipeline junction in middle America. This is unprecedented. But it is a LOCALIZED phenomenon. What's happening now is what happened in Trading Places when the real report comes out: people realized that they overpaid for their futures and are selling to try and recoup some of their losses. There's less demand for oil right now, there's less hope of more demand for oil in May, and there's little storage space left. Low demand + high supply = low prices. A few days ago, the settlement price for a barrel of oil for futures contracts with May settlement dates was locked at ~\$18 a barrel. People expect it to be way lower than \$18 next month. So they're trying to sell off their futures contracts. It's going negative because they're literally paying you to take it off their hands if you have room for it. Although they know it'll be a loss, they figure it's less of a loss than holding onto worthless oil that they can't store. | {
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36,280 | I get why, say, the military is a public good, but I don't get why public roads are public goods, since they can't be non-rivalrous, given that at any time only a subset of the population can actually be on them. | The property of rivalry is a continuous (rather than binary) variable.* A good is rivalrous if my consumption of it reduces the amount that can be consumed by others. So, a particular Big Mac is fully rivalrous, because each bite I take from it reduces (by that exact same amount I've bitten) the amount left for you. The degree to which roads are rivalrous is lower: My driving on a deserted road at night does not reduce at all the amount that can be driven on the same road by others. But your doubt is correct—it is not generally $0$ : My driving at peak hour at a city center does reduce the amount that can be driven by others. Ideas are a good (and possibly sole) example of a good that's perfectly non-rivalrous. (My "consumption" of the Pythagorean Theorem leaves no less for anyone else.) Side point: But with the right laws and accompanying enforcement—e.g. patents, copyright—even ideas can be made excludable. Defense is often given as a classic example of non-rivalry. But I would argue that although defense exhibits a very high degree of non-rivalry, it is less than perfectly non-rivalrous. (The resources used to defend John in New York from a nuclear attack does reduce the US Department of Defense's ability to defend Jane in Hawaii. The resources used to defend a nation with over 1B people are greater than the resources used to defend a nation with less than 1M people.) *Likewise, the properties of excludability and being a public good are continuous (rather than binary) variables. (Many introductory textbooks tend not to emphasize this important point sufficiently.) | {
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36,801 | I get that people buy long term government bonds, because of how safe it is, and if there would be a recession the government would just print more money and could pay it back. But why would anyone buy a bond, that yields a negative return? If i would just keep my money in fiat, it would just depreciate in the 10 years, but after the 10 years it would still be more than investing it in a safe negative rate. | Some pictures and text are from Schroders , Marketwatch and other websites, but I don't remember all them. Of note, Germany first sold negative-yielding bonds in Aug 2019, €2bn worth of 30-year bonds that offer no interest payments at all. 1. Better than holding cash Cash is obviously most liquid, but some central banks like Japan impose negative interest rates on cash deposits, which trickles to the rate banks charge institutional investors. Then highly liquid but only slightly negative yielding government bond looks better! Because the UK government unlikely will default, bond buyers are just paying a small sum to the government to guard your money, like in a vault! 2. Wagering that there are other “bagholders.” Investors who buy negative-yielding bonds are betting on the value of the securities to keep rising. Although investors buying bonds with subzero interest rates are paying for the privilege to hold a bond, they can profit way above their cost if the security’s price rises. For example, if you expect a central bank to buy more assets, bond buyers can rely on the central bank to hoover up their negative-yielding securities. In July 2020, an auction for €4 billion euros of 10-year German government bonds TMUBMUSD10Y, 0.644% sold at $-0.26%$ , but at a premium price of 102.6 cents to the euro. The benchmark bund is now trading at a price of a 106.9 cents to the euro,. So investors who bought this at auction would've gained around 4% from the price increase alone. 3. Bonds as deflation hedge When prices fall, most asset classes don't perform well in deflation. An exception are fixed interest government bonds! Because they fixed their coupon and principal, they retain their value and will positive real (inflation-adjusted) return, if inflation $<$ their yield. In other words, a negative yielding bond can positive real return if there is deflation. So you can hedge against deflation with negative-yielding bonds. 4. Currency hedging can transform negative yields into positive yields. Negative yields don’t mean negative income for some bond buyers. Unlike European and Japanese investors, US investors are often paid to hedge against fluctuations of foreign currencies because U.S. interest rates are much higher than in other developed markets like Europe and Japan. Currency hedging can annualized return 3% for U.S. investors, like American fund managers, buying negative-yielding euro-denominated debt like European government bonds, according to Jens Vanbrabant, senior portfolio manager at Wells Fargo Asset Management. In Sep 2009, the 10-year German Bund yield at -0.6% looked unattractive to US investors.But currency hedging is priced at the difference between US and German short term interest rates, which can be positive even if a central bank cuts interest rates. Since US short term interest rates are much higher than Germany's, US investors are paid money to hedge euro exposure! With currency hedging, US investors can earn 2.2% when investing in German 10 year bonds (see Figure 2 by Schroders), higher than the 1.6% available on US 10 year Treasuries. 5. Diversification benefit What other bolt holes can weather volatile global equity markets, Brexit, US-China trade war? Traders like volatility to a degree, but they try to diversify the risk so their portfolios aren’t fully exposed to the market's unpredictability. So buying notoriously safe bonds is a risk-averse strategy. You'll lose some money for that safety, but that loss can constitute ‘over-performance’ if other asset classes tumble. When risky assets sell off, negative yields on government bonds may be overshadowed by their proven ability to rally during recessions. Even at negative yields, bonds still are important. Figure 3 by Schroders proves the 3-year rolling correlation between German Bunds and the German DAX stock market index. The two strong negative correlated, if you overlook the period between 2014 and 2017 when the European Central Bank’s (ECB) quantitative easing raised higher bond prices (lower bond yields) and higher stock prices. Bonds perform well when equities don't, vice-versa. In times of distress, you must reduce risk like this! If you are running for safety, capital leave stocks to government bonds. Even if negative-yielding bonds lower your return compared to normal conditions, they can still reduce portfolio risk. 6. Roll down the yield curve later. You're assuming the bondholder is holding it long term, but many don't. In periods of uncertainty, demand for bonds increases, which makes their price increase. So you can profit from buying and selling government debt. If you think this volatility will last, buy bonds now in the hopes that more investors flock to them later. You don't even need fellow investors to buy them! The central banks may be the ones to buy bonds to try to stimulate the economy. Bond buyers can take advantage of the yield curve’s slope, which still can be steep even for negative-yielding bond markets in Germany and Japan. For example, a trader can buy a negative-yielding 3-year bond and sell it after a year. Since debt prices inversely correlate with yields, all else being equal, the value of the 3-year bond should be higher than, for example, a 2-year bond. So long as shorter-term bonds' interest rates are more negative than their longer-dated counterparts, the long-term bond's price should rise closer to maturity. But they can profit from this “rolling down the yield curve” as a short-term strategy, and must sell the bond well before maturity, because the bond will trade only at par when it expires. For example, the Swiss 10-year bond was yielding -0.1% in Jan 2009. But at 22 August 2009, it had returned 5.6%! Negative yields can still positive return! Of course, this works both ways. Any rise in yields can make you lose money. 7. Some institutions are legally required to buy bonds! Liability matching with negative yields The other reasons are about speculation or managing risk. But institutions can be legally mandated to buy bonds with negative yields. Certain institutions must follow rules dictated by the banks, pensions funds or insurance companies who provide the bulk of the capital. Those rules mandate the managers to invest just in certain things like investment-grade bonds. Regulators force some clients to buy certain assets, like banks can only buy liquid assets. Liability-relative investors, such as insurance companies and pension funds, don't care the absolute return or yields from bonds. They often buy bonds to “match” their liabilities. The present value of these liabilities is calculated in many ways, but factors in government bond yields. For example, in Sep 2009 in the euro area, insurance industry used negative rates up to the 11 year maturity point (Source: EOPIA. See data from 31 July 2019). These liability-driven market participants can buy negative-yielding German Bunds to match a future liability . Their values will move in tandem with each other. If they don't buy negative matching assets, they'll be exposed to significant risks if interest rates fell further. | {
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36,820 | I am looking for a term describing the second part of a utility function in behavioral economics and related disciplines. For example, Thaler (1983) describes a utility function that could be simplified like $u_i=\overline{p}-p \pm v(p^*-p)$ with $\overline{p}$ valuation of the good, $p$ price of the good, and $v(p^*-p)$ the so-called transaction utility; the utility gain/loss from making a bargain or being ripped off.
Similarly, a simplified Fehr-Schmidt utility (1999) function consists of $u_i=(\overline{p}-p)-\alpha (p^*-p)-\beta (p-p^*)$ . with the second and the third term of the utility function describing negative preferences for inequity. Thaler calls the first term "acquisition utility" and the second term "transactional utility". Is this a consensus in (behavioral) economics, i.e., could we call the second/third part of Fehr-Schmidt "transactional utility" or is there another, better term for this second part of utility that is added to the "classical" utility? Do you know of a paper comparing these terms? I only do so with respect to fairness (Fehr, Schmidt, 2006; Clavien, Chapuisat, 2016). ... Clavien, Christine; Chapuisat, Michel (2016): The evolution of utility functions and psychological altruism. In: Studies in History and Philosophy of Science Part C: Studies in History and Philosophy of Biological and Biomedical Sciences 56, S. 24–31. DOI: 10.1016/j.shpsc.2015.10.008. Fehr, Ernst; Schmidt, Klaus M. (1999): A Theory of Fairness, Competition, and Cooperation. In: Quarterly Journal of Economics 114 (3), S. 817–868. DOI: 10.1162/003355399556151. Fehr, Ernst; Schmidt, Klaus M. (2006): The Economics of Fairness, Reciprocity and Altruism – Experimental Evidence and New Theories. In: Foundations, Bd. 1: Elsevier (Handbook of the Economics of Giving, Altruism and Reciprocity), S. 615–691. Thaler, Richard (1983): Transaction Utility Theory. In: Advances in Consumer Research 10 (1), S. 229–32. | Some pictures and text are from Schroders , Marketwatch and other websites, but I don't remember all them. Of note, Germany first sold negative-yielding bonds in Aug 2019, €2bn worth of 30-year bonds that offer no interest payments at all. 1. Better than holding cash Cash is obviously most liquid, but some central banks like Japan impose negative interest rates on cash deposits, which trickles to the rate banks charge institutional investors. Then highly liquid but only slightly negative yielding government bond looks better! Because the UK government unlikely will default, bond buyers are just paying a small sum to the government to guard your money, like in a vault! 2. Wagering that there are other “bagholders.” Investors who buy negative-yielding bonds are betting on the value of the securities to keep rising. Although investors buying bonds with subzero interest rates are paying for the privilege to hold a bond, they can profit way above their cost if the security’s price rises. For example, if you expect a central bank to buy more assets, bond buyers can rely on the central bank to hoover up their negative-yielding securities. In July 2020, an auction for €4 billion euros of 10-year German government bonds TMUBMUSD10Y, 0.644% sold at $-0.26%$ , but at a premium price of 102.6 cents to the euro. The benchmark bund is now trading at a price of a 106.9 cents to the euro,. So investors who bought this at auction would've gained around 4% from the price increase alone. 3. Bonds as deflation hedge When prices fall, most asset classes don't perform well in deflation. An exception are fixed interest government bonds! Because they fixed their coupon and principal, they retain their value and will positive real (inflation-adjusted) return, if inflation $<$ their yield. In other words, a negative yielding bond can positive real return if there is deflation. So you can hedge against deflation with negative-yielding bonds. 4. Currency hedging can transform negative yields into positive yields. Negative yields don’t mean negative income for some bond buyers. Unlike European and Japanese investors, US investors are often paid to hedge against fluctuations of foreign currencies because U.S. interest rates are much higher than in other developed markets like Europe and Japan. Currency hedging can annualized return 3% for U.S. investors, like American fund managers, buying negative-yielding euro-denominated debt like European government bonds, according to Jens Vanbrabant, senior portfolio manager at Wells Fargo Asset Management. In Sep 2009, the 10-year German Bund yield at -0.6% looked unattractive to US investors.But currency hedging is priced at the difference between US and German short term interest rates, which can be positive even if a central bank cuts interest rates. Since US short term interest rates are much higher than Germany's, US investors are paid money to hedge euro exposure! With currency hedging, US investors can earn 2.2% when investing in German 10 year bonds (see Figure 2 by Schroders), higher than the 1.6% available on US 10 year Treasuries. 5. Diversification benefit What other bolt holes can weather volatile global equity markets, Brexit, US-China trade war? Traders like volatility to a degree, but they try to diversify the risk so their portfolios aren’t fully exposed to the market's unpredictability. So buying notoriously safe bonds is a risk-averse strategy. You'll lose some money for that safety, but that loss can constitute ‘over-performance’ if other asset classes tumble. When risky assets sell off, negative yields on government bonds may be overshadowed by their proven ability to rally during recessions. Even at negative yields, bonds still are important. Figure 3 by Schroders proves the 3-year rolling correlation between German Bunds and the German DAX stock market index. The two strong negative correlated, if you overlook the period between 2014 and 2017 when the European Central Bank’s (ECB) quantitative easing raised higher bond prices (lower bond yields) and higher stock prices. Bonds perform well when equities don't, vice-versa. In times of distress, you must reduce risk like this! If you are running for safety, capital leave stocks to government bonds. Even if negative-yielding bonds lower your return compared to normal conditions, they can still reduce portfolio risk. 6. Roll down the yield curve later. You're assuming the bondholder is holding it long term, but many don't. In periods of uncertainty, demand for bonds increases, which makes their price increase. So you can profit from buying and selling government debt. If you think this volatility will last, buy bonds now in the hopes that more investors flock to them later. You don't even need fellow investors to buy them! The central banks may be the ones to buy bonds to try to stimulate the economy. Bond buyers can take advantage of the yield curve’s slope, which still can be steep even for negative-yielding bond markets in Germany and Japan. For example, a trader can buy a negative-yielding 3-year bond and sell it after a year. Since debt prices inversely correlate with yields, all else being equal, the value of the 3-year bond should be higher than, for example, a 2-year bond. So long as shorter-term bonds' interest rates are more negative than their longer-dated counterparts, the long-term bond's price should rise closer to maturity. But they can profit from this “rolling down the yield curve” as a short-term strategy, and must sell the bond well before maturity, because the bond will trade only at par when it expires. For example, the Swiss 10-year bond was yielding -0.1% in Jan 2009. But at 22 August 2009, it had returned 5.6%! Negative yields can still positive return! Of course, this works both ways. Any rise in yields can make you lose money. 7. Some institutions are legally required to buy bonds! Liability matching with negative yields The other reasons are about speculation or managing risk. But institutions can be legally mandated to buy bonds with negative yields. Certain institutions must follow rules dictated by the banks, pensions funds or insurance companies who provide the bulk of the capital. Those rules mandate the managers to invest just in certain things like investment-grade bonds. Regulators force some clients to buy certain assets, like banks can only buy liquid assets. Liability-relative investors, such as insurance companies and pension funds, don't care the absolute return or yields from bonds. They often buy bonds to “match” their liabilities. The present value of these liabilities is calculated in many ways, but factors in government bond yields. For example, in Sep 2009 in the euro area, insurance industry used negative rates up to the 11 year maturity point (Source: EOPIA. See data from 31 July 2019). These liability-driven market participants can buy negative-yielding German Bunds to match a future liability . Their values will move in tandem with each other. If they don't buy negative matching assets, they'll be exposed to significant risks if interest rates fell further. | {
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37,045 | Sorry I have no background in economics but as a computer programmer, I specialise in building models out of simple math and logic, so I hope we can speak the same language without having to get into too much economic jargon. Consider the following scenario: Kate is a hairdresser and Alice owns a restaurant. Every month Kate goes to Alice's restaurant and spends \$50 on a meal, and Alice spends \$50 getting her hair cut at Kate's. This generates $100 of GDP. Now say there is a global pandemic which makes it dangerous to meet each other, Kate decides it's safer to cook her own dinner and Alice cuts her own hair. They are both in exactly the same financial position as they were before but no GDP has been generated. After a while the government announces that we all need to do our bit to "get the economy moving again" (which I interpret to mean "generate GDP") even if it means putting ourselves in danger. I understand that the government wants economic activity because that's how they collect tax revenues, and I also understand that some people do jobs that are essential for the functioning of society. I also understand that going to work conveys other psychological benefits than simply earning money, but let's assume for the moment that there are at least some people people who would rather just stay at home and where there is reduced natural demand for their services. It seems to me that all the money that hasn't been spent in restaurants and hairdressers during the COVID-19 pandemic hasn't gone anywhere, it's still sitting in the bank accounts of the people who would otherwise have spent it. If we could find another way of redistributing that wealth from the people who's jobs are essential (and are therefore still getting paid but aren't going to restaurants) to people who's jobs are not essential (and therefore don't need to work during the pandemic), is there any harm with putting the economy on hold for an indefinite period until people decide they want to go back to work again? Edit 8 June Thanks for all the great responses, this has really helped my understanding but I don't think anyone has hit the nail on the head so I've added this note to try and clarify what I was after. I’ve tried not to move the goalposts to the extent that previous replies look stupid (I haven’t edited anything above this line). Firstly just to clarify my original question, I wasn’t questioning the benefit of economic growth over stagnation under non-covid circumstances; I was questioning whether covid + economic stagnation might be better than covid + enforced economic activity. Also one thing I maybe didn’t make clear enough is that I wasn’t talking about an enforced lockdown in cases where people would rather go to work; I was arguing that people who wanted to consume or produce less shouldn’t be obligated to consume and produce more, just to fuel the engines of capitalism. The effect of covid has been to push the cost of goods upwards (because of the risk of contracting covid while producing them) and the benefit of consumption downwards (because of the risk of contracting covid whilst consuming). This will put some markets into a state of oversupply, even without an enforced lockdown. So let’s say my widget supplier says “I’m no longer willing to supply that widget for \$50; I’d rather lose my job and get paid \$30 on welfare” and I say “I’m not willing to pay \$50 anymore; I’d rather live without it, even if it means I have to pay \$35 more in taxes”. In this scenario we’re both happier than we would have been had we traded, and the government gets $5 to administer the welfare. The only people who aren't happy are those that have a vested interest in ever-increasing GDP, who in turn are often those in powerful positions and might try to use their influence to "get the economy moving again" to the detriment of the average citizen. | Trade creates value. Previously, Kate preferred spending \$50 on food at Alice's restaurant (rather than cook her own food). And Alice preferred spending \$50 getting her hair cut at Kate's (rather than cut her own hair). That Kate must now cook her own food and Alice cut her own hair means that value has fallen (where value is broadly defined as the degree to which individuals' desires are satisfied). (Note though that the fall in value in the above example is probably not very large. In most other examples and cases, the fall in value will be much larger—consider for example the children who no longer go to school and are now supposed to be learning at home.) Money is not the source of value. You write: It seems to me that all the money that hasn't been spent in restaurants and hairdressers during the COVID-19 pandemic hasn't gone anywhere, it's still sitting in the bank accounts of the people who would otherwise have spent it. This expresses a common misconception among non-economists. Money is not the source of value.† Value is the satisfaction of people's desires—and such value arises through production and consumption. If everyone is sitting at home and not producing anything, then no desires are satisfied, no value is produced, and all the money sitting in banks is worthless. †The mercantilists of the 17th and 18th centuries likewise believed that gold and silver were the sources of value and that one's country should try to accumulate as much gold and silver as possible. Adam Smith pointed out that this was mistaken--value comes from production and consumption, not precious metals, pieces of paper, or numbers in a bank account. | {
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37,841 | I recently read in a news article that a large amount of Libyan banknotes printed in Russia were seized in Malta following an order coming from the USA. Both Russia and the USA have geostrategic interests in this part of the world so I assume this action is probably linked to an economic warfare operation. Banknotes normally include a large amount of security features that prevent people to easily counterfeit them but I assume that for large countries like China, Russia or the USA it is not a big deal to print banknotes of a foreign country. In time of war it can be quite interesting for a large country to print a lot of banknotes and spread them in the economy of an adversary country to destabilize its economy. But putting apart the above mentioned news article I wasn't able to find evidences of such a scenario so my question is : Are there historical cases of country A printing the currency of country B for the main purpose of economic warfare ? | Very obscure historical example: From 1287 to 1295, the Danish nobleman Stig Andersen Hvide was leading a band of outlaws from the island of Hjelm supported by the king of Norway against the king of Denmark. Stig managed to kidnap expert coin makers and bring them to Hjelm, where they produced counterfeit Danish coins. This allowed Stig and his supporters to buy up all the supplies they wanted in Danish merchant cities. The heavy inflation and the problems it caused for the Danish economy made it difficult for the Danish king to afford assembling an army against Stig. | {
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40,083 | I am a Natural Science student and read a little about economics. I am not sure this question is related to economics or not, decided to give it a try. Recently, I am looking for printing service. From more than one service providers, I got the details that, printing a page is more expensive than photocopying a page. I asked them why is that so, and they said because the quality from printing is better than the quality of photocopying (photocopying inevitably causes a little dislodgement, cannot be 100% same as the original). They confirmed that the inks and papers used for both are the same. This is what I replied: ''Raw materials required for both are equal, printing needs way less work than photocopying each page one by one, so I actually expect the price for printing to be at worst the same as photocopying if printing is not cheaper than photocopying.'' And I didn't hear back from them. Who is right here? If the shoppers are right and printing should cost more than photocopying, do you really want to penalise your customer for reducing you work? If I am right and printing should cost less than photocopying, do the shoppers really want to give higher-quality product to customers at lower price? Is there any economics theory for this and other similar everyday occurrence? | No one is "right" here, there is rarely a "should" in economics, it is not about morals. When making a purchase, you are usually willing to pay an amount $x$ larger than the price $p$ which is larger than the cost $c$ it took to make the product/provide the service. You are arguing that price should only depend on cost. The store is arguing that if you are willing to pay more, they can charge more. Unless they have competition who undercuts them, they are right. In the theoretical model of perfect competition, where there is a single type of product and firms face very strong competition the price would equal the average cost in the long run. I would argue the model does not apply here, competition is not perfect (if I am wrong, go to the competition). In case of imperfect competition it is normal to charge people whose demand is less elastic w.r.t. price more. What you can do: pay them or find a better offer. If you are convinced that you are right , found a rival printing firm, undercut them and put them out of business. | {
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41,380 | In standard economic theory wages are simply prices on the labor market determined in equilibrium by the supply and demand of labor. Looking across space within countries it is however standard to find a relative large variation in local wage levels. At the same time labor is often very mobile again within countries. For the United States of America the U.S. Census reveals that in 1990 four percent of white males age 25 to 34 moved across state lines, with the cumulative effect that almost a third of this group no longer resided in the state in which they were born. When individuals move the supply of labor changes and one could expect wages to equalize based on the assumption that the migration itself was motivated by the one state offering higher wages than another. Seen in the light of this it can seem a little puzzling that spatial wage differentials nonetheless continue to exist. What are the main explanations offered by economic theory? | There are several explanations for this in the literature (the order does not necessarily reflect importance of each explanation). Different Price Levels: Non-trivial portion of the wage differential is due to different price levels/cost of living. Once you adjust for different price levels and compare real wages gap narrows. This is obvious but since you do not mention in your question whether you are talking about real or nominal wages I thought it is useful to mention that. Regional Institutional Differences : For example Blackaby and Murphy (1991) argue that inter regional real wage differentials are at least partially due to labour market institution heterogeneity (unionisation and the bargaining system). This applies especially to unions/federations like US where there can be large heterogeneity in regional laws & regulations. Regional Heterogeneity/compensating differentials : Even within one country the geography is usually heterogenous which creates opportunity for compensating differentials (Farber and Newman, 1989) . If you are offered two jobs that are same in all aspects but one job requires you to relocate somewhere to Alaskan wilderness and the other job requires you to relocate to some pleasant state with nice beaches you will likely be willing to accept lower salary from the job in nicer place because you are compensated by the fact that you are living in a nice place. Some regional differences could be also explained by agglomeration economics (e.g. urban vs rural areas have different economic implications), see for example Combes & Gobillon (2015) . Worker Heterogeneity: The wages would only equalize among workers that are homogenous across all work relevant characteristics. However, people are different from each other and often people who are similar tend to cluster together. For example, would it be surprising to find that average wage in silicon valley is higher than average wage in some farming community? This would be just comparison of apples to oranges. Hence looking at average wages can be deceptive and research that takes into account worker heterogeneity find that the wage differentials shrink substantially (see Gerking and Weirick, 1983 ; Dickie and Gerking, 1987 ; Farber and Newman, 1989 and Combes, Duranton and Gobillon, 2008) . Regional Differences in Human Capital : Workers are not just compensated for their labor but also get return for their human capital. Human capital endowments might differ across regions (perhaps due to regional differences in quality of education) leading to wage differentials (see Duranton and Monastiriotis, 2002 ; Motellón, López‐Bazo & El‐Attar, 2011 ). I think the above summarizes all the major factors but there might be some further ones as well for that you can see the sources above and ones cited therein. | {
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41,937 | In a British supermarket, I saw the prices of Christmas chocolate gift boxes being cut dramatically (£1.50 to £0.15, and £7.50 to £0.22). I don't quite understand this behaviour, where the chocolate boxes are sold (presumably) below cost. I've learned that this sort of strategy could be used to eliminate competitors and strengthen monopoly, but I don't think that's quite relevant for this case. It seems more of a clearance to me. What is the motivation behind such behaviour? Why don't the supermarkets just continue selling them at a low price, but not so low? Is it simply for saving warehouse costs? | Is it simply for saving warehouse costs? Probably yes, holding onto inventory is very expensive. You have to pay for warehousing of the good, it takes the spot of some other inventory that might be in high demand. Food is also perishable so it cannot be stored indefinitely. Stores have to always guess what demand for their products will be, sometimes they get it wrong and order excess inventory. It can often be more profitable to sell excess inventory below the production cost or many times even just to throw it away to make space for new products. Holding onto it would be a sunk-cost fallacy. The costs are already incurred in the past, even if they were a result of a mistake it does not make sense to try to double down on the mistake and hold onto them. It is more profitable to ignore the sunk-costs of getting them and make new decisions of what to do with the inventory based on new information. | {
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41,957 | What links can be made between the marginal productivities of the factors of production and the costs of
production | Is it simply for saving warehouse costs? Probably yes, holding onto inventory is very expensive. You have to pay for warehousing of the good, it takes the spot of some other inventory that might be in high demand. Food is also perishable so it cannot be stored indefinitely. Stores have to always guess what demand for their products will be, sometimes they get it wrong and order excess inventory. It can often be more profitable to sell excess inventory below the production cost or many times even just to throw it away to make space for new products. Holding onto it would be a sunk-cost fallacy. The costs are already incurred in the past, even if they were a result of a mistake it does not make sense to try to double down on the mistake and hold onto them. It is more profitable to ignore the sunk-costs of getting them and make new decisions of what to do with the inventory based on new information. | {
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42,416 | Look at the whole world --the union of all goods and services and workers and customers. Everyone who is a customer is a worker somewhere (they had to get the money to be a customer somehow). But not all revenue goes toward worker wages--some goes to cost of goods--production, not just labor. And considering the whole world--it's a closed system...so if everyone pays Z in as a customer--they lose X to cost of goods and are paid out up to Z-X as workers -- then, when they are next customers, next round of purchasing, Z-X goes back in as rev and Z-2X comes back to everyone... keeps going. You lose cost of goods each round of purchasing. you need X more from customers to sustain this--which means you need to keep injecting X from outside or have more customers than workers. But where do these injections come from if we are accounting for all goods and services? Or where is this larger set of customers who are not also workers? Where does their money come from if not from work? Elderly, children and those who do not work also derive their money from this cycle--they were workers, will be workers or live off a % of workers' wages from taxes or friends and family. The answer is presumably wealth or value creation but how is this integrated into the cycle of workers and customers so that Z grows instead of shrinks? Economic novice--thanks! | In short because economy is not a zero-sum game and because economic production does not need to decline but can grow over time. First of all, forget about money. Money in economics is just extra tool that solves issue of double coincidence of wants, allows you to store value over time and to do accounting. In fact, traditionally money consisted of commodities such as stone, or precious metals or even products, coffee, cigarettes or even alcohol etc at some point in time and place served as money. As a non-economist this might come as a surprise to you but most microeconomic models do not even have money in them. Money can play an important role in macroeconomic perspective because in the short-run it can affect the real economy, but from micro perspective and even long-term macro perspective money is neutral and not important. Next, as you pointed out a world's economy, taken as whole, is a closed system but that does not mean people should get poorer over time. This is not an equivalent of thermodynamically closed system where entropy has to dissipate energy overt time. A closed economy can be described as: $$Y = C + I + G$$ which says that output/income (they are economically equivalent) $Y$ has to be equal to consumption $C$ , investment $I$ and government spending $G$ . In turn, $Y$ is a result of production. A common specification for production process would be to use Cobb-Douglas production function, so I will do that here as well, although in principle there could be multiple functional forms that production process could have. Moreover, for simplicity I will restrict myself to two factors of production (labor and capital) even though in principle you could put into Cobb-Douglas also human capital (education), land and other factors, but I omit them for sake of brevity. Given these assumptions the production process would be given by: $$Y = A K^{\alpha} L^{\beta}$$ where $A$ is the available technology (broadly defined - in economics better production strategies count as a technology as opposed to just 'gadgets' such as PC), $K$ is the stock of capital and $L$ is the stock of labor. Alpha and beta are parameters of the production function that determine other characteristics of production such as what sort of economies of scale production exhibits (e.g. increasing, decreasing or constant). Thus, we can say that the consumption, investment and government spending is equal to this production process: $$ A K^{\alpha} L^{\beta} = Y = C + I + G$$ So as long as technology $A$ or capital $K$ or labor grows, output $Y$ will grow as well and even completely closed of economy can consume more, invest more or have more government spending. Furthermore, what we really care about is usually output/income (in economics output and income are equivalent and interchangeable) per head. So if we for simplicity assume constant returns to scale ( $\beta = 1-\alpha; 0 < \alpha < 1$ ) we can divide the last expression by $L$ to get whole expression per capita as: $$A \left(\frac{K}{L}\right)^{\alpha} = \frac{Y}{L} = \frac{C}{L} + \frac{I}{L} + \frac{G}{L} $$ Here, if we keep the population growth constant then we can see that per capita incomes/output and consequently per capita consumption, investment and government spending will grow when our capital stock and technology stock grows. You get growth in capital stock from investment (investment is part of production that is not consumed but saved for future, possibly for further production), and growth in technology from human ingenuity or also depending on which economic growth theory you buy to also investment. In addition, all the above is up till now just manipulation of definitional expressions. We could further continue by adding on some growth theory which could yield further insights. For example, the most popular growth model presently is the Solow-Swan growth model where it can be shown that what really matters is growth in $A$ because increase in investment and capital stock can only increase level of output not growth. If you buy into endogenous growth theories investment can even increase the growth rate further beyond that (you can read more on this in Barro & Sala-i-Martin: Economic Growth 2nd ed). In order for people to get poorer over time (in per capita terms) an economy would have to experience either destruction of technology (for example ancient Romans, Greeks, Carthaginians etc had plumbing but this knowledge was lost in many parts of World - but not all - during dark ages, or another example would be concrete) or by destruction of capital (e.g. war, violence, natural disasters etc. but also just wear and tear i.e. depreciation). Empirically, and let me add thankfully, people historically turned out to be better at producing new technologies and adding new capital through investment, than at destroying either of them. Consequently, to sum up people do not get poorer over time and in fact get richer because of growth in economic production (which in turn determines people's income), and economic growth occurs primarily thanks to growth in technology and investment. In fact note because the economic growth is to large extent driven by technology, it is possible for economic production to grow indefinitely (assuming technology has no limit - e.g. in real life it is possible you can't get at an end of technology tree like in some strategy game as it might have no end). In addition, more rich models would also include other important factors such as human capital (education) but the explanation above would not conceptually change (education macroeconomically functions in same way as capital - hence why economists call it human capital). | {
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42,567 | I am reading this article here that explains why bitcoin is a better store of value than gold. In sum, here are some of the reasons proposed: If someday a "bitcoin standard" does come to fruition, would it still be susceptible to the problems that plagued the gold standard? | It would not just be plagued by the same problems it would create some new ones. Following the Weber (2016) who actually written research exploring exactly the question that you are asking here: The scope of monetary policy would be more limited under the Bitcoin standard than
under the gold standard. The ability to issue fiduciary currency would give central banks
limited ability to act as lenders of last resort. However, virtually costless arbitrage of Bitcoin across countries would prevent central banks from implementing interest rate policies to affect their domestic economies. An empirical examination of countries’ experience with the gold standard leads to the
following conjectures about how the Bitcoin standard might perform: In the long run, there would be moderate deflation that would increase over time until
reaching a rate of deflation equal to the negative of the rate of growth of world output
around 2026. Price levels of the various countries would be highly, but not perfectly, correlated, much
as they were under the gold standard. Exchange rates among the fiduciary currencies of various countries would be fixed at
par, because the cost of Bitcoin arbitrage is essentially zero. There would still be financial crises, because they can occur under any fractional reserve
financial system. The paper concludes by speculating that even if the Bitcoin standard were to come into
existence, it would not last long, for two reasons: (1) The payments world is changing so
rapidly that there will be a technological innovation that provides a potential medium of
exchange with the same or greater benefits of Bitcoin or with lower costs. Such an innovation
could come either from the private sector or from the government. (2) There would be
pressure to return to a fiat money system so that a more activist monetary policy could be
pursued. In a nutshell, it would be pretty similar to gold standard but with some extra strings attached that would just additionally constrain monetary policy making it even slightly worse. As a consequence, if Bitcoin standard would ever become adopted it would likely perform even worse than Gold standard did (which is saying something), and would likely go the same way. You can find more detail on the workings of such standard in the paper itself. Response to Edit: The above still applies but let me also respond to the new infographic that was added to the question. Scarcity - This is exactly why Bitcoin would perform worse, and it is connected to what was written above. Durability - Given that gold has very long half-life and under gold standard it was mostly stored in vaults not actually used (hence no wear & tear) this never was issue with gold standard. Portability - Same as above, under gold standard people mostly moved claims to gold, actual gold moved from vault to vault only occasionally. Also note in both Bitcoin and Gold standard people would not pay with Bitcoins or Gold respectively, they pay with banknotes that are backed by either Bitcoin or Gold respectively (and which would be on fixed exchange with banknotes e.g. 1USD=0.1 Bitcoin for example). Divisibility - This is moot point. You can have 0.000001 troy ounce. In fact gold is for all practical purposes infinitely divisible (up to the scale of individual atoms of course). Storage - this was never significant issue with gold standard, in addition people still store investment gold in vaults its just not tied to money. Counterfeit - Again completely moot point. Under gold standard gold would mostly just sit in vaults. People would not pay with gold coins. Banknotes backed by either Bitcoin or gold would be equally difficult to counterfeit as regular fiat banknotes since that is what people would be using as money under Bitcoin standard. Adoption - Again not relevant, if we talk about Bitcoin standard adoption requires fixed exchange between a currency and Bitcoin - to my best knowledge no country did this to the date. Also, I never heard of use of market capitalization as measure of adoption when it comes to monetary system so the metric does not provide any argument either in favor of gold or Bitcoin. | {
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42,588 | I want to find a way of representing a dynastic utility function in which not only the head of the dynasty's utility is dependent on its descendants' utility, but all members of the family tree gain utility from the utility of some of their offspring. In particular, I would like for the total utility of a person $U_{x_{i}}=u(x_i)+u(x_{i+1}) + u(x_{i+2})$ for all $i$ in the dynasty, where ' $u(x_{i})$ ' denotes the utility of $x_i$ which is not dependant on the utility of children and grand-children ('non-parental utility'). So I want a model which allows us to say that the utility of the dynastic head is partly a function of the utility of his children and grandchildren's utility, but where his children's utility is again partly a function of his grandchildren's and great-grandchildren's utility, and so on. In Becker and Barro's model, we have that \begin{equation}
U_{x_0}=\sum_{i=0}^{n}N_i \beta_i(u(x_i)).
\end{equation} , where $N$ is the number of descendants in a generation $i$ and $\beta$ is an intergenerational altruistic discount rate. The problem with this model is it lacks the 'nested' or 'recursive' feature explained above--it simply states that the dynastic head derives utility from his descendants' utility without taking into the consideration that his descendants utility might in turn depend on their descendants' utility. Adding in the discounting element, let me give a concrete example: suppose I, as the dynastic head ( $x_0$ ), directly receive 50% of the utility of all of my children (i=1) and 25% of the utility of my grandchildren (i=2). Let us say I do not directly receive any utility form the utility of my great-grandchildren. I will still indirectly receive utility from my great-grandchildren since my children receive 25% of their utility and my grandchildren receive 50% of their utility. If we assume for simplicity that my child had one child, which in turn had one child, which in turn had one child $u(x_3)=1$ , then I indirectly gain $50\%*25\%*1 + 25\%*50\%*1$ = 0.25 utils from my great-grandchild. How do I get a general expression for this phenomenon which holds for $n$ generations? Any suggestions or pointers are hugely appreciated! | It would not just be plagued by the same problems it would create some new ones. Following the Weber (2016) who actually written research exploring exactly the question that you are asking here: The scope of monetary policy would be more limited under the Bitcoin standard than
under the gold standard. The ability to issue fiduciary currency would give central banks
limited ability to act as lenders of last resort. However, virtually costless arbitrage of Bitcoin across countries would prevent central banks from implementing interest rate policies to affect their domestic economies. An empirical examination of countries’ experience with the gold standard leads to the
following conjectures about how the Bitcoin standard might perform: In the long run, there would be moderate deflation that would increase over time until
reaching a rate of deflation equal to the negative of the rate of growth of world output
around 2026. Price levels of the various countries would be highly, but not perfectly, correlated, much
as they were under the gold standard. Exchange rates among the fiduciary currencies of various countries would be fixed at
par, because the cost of Bitcoin arbitrage is essentially zero. There would still be financial crises, because they can occur under any fractional reserve
financial system. The paper concludes by speculating that even if the Bitcoin standard were to come into
existence, it would not last long, for two reasons: (1) The payments world is changing so
rapidly that there will be a technological innovation that provides a potential medium of
exchange with the same or greater benefits of Bitcoin or with lower costs. Such an innovation
could come either from the private sector or from the government. (2) There would be
pressure to return to a fiat money system so that a more activist monetary policy could be
pursued. In a nutshell, it would be pretty similar to gold standard but with some extra strings attached that would just additionally constrain monetary policy making it even slightly worse. As a consequence, if Bitcoin standard would ever become adopted it would likely perform even worse than Gold standard did (which is saying something), and would likely go the same way. You can find more detail on the workings of such standard in the paper itself. Response to Edit: The above still applies but let me also respond to the new infographic that was added to the question. Scarcity - This is exactly why Bitcoin would perform worse, and it is connected to what was written above. Durability - Given that gold has very long half-life and under gold standard it was mostly stored in vaults not actually used (hence no wear & tear) this never was issue with gold standard. Portability - Same as above, under gold standard people mostly moved claims to gold, actual gold moved from vault to vault only occasionally. Also note in both Bitcoin and Gold standard people would not pay with Bitcoins or Gold respectively, they pay with banknotes that are backed by either Bitcoin or Gold respectively (and which would be on fixed exchange with banknotes e.g. 1USD=0.1 Bitcoin for example). Divisibility - This is moot point. You can have 0.000001 troy ounce. In fact gold is for all practical purposes infinitely divisible (up to the scale of individual atoms of course). Storage - this was never significant issue with gold standard, in addition people still store investment gold in vaults its just not tied to money. Counterfeit - Again completely moot point. Under gold standard gold would mostly just sit in vaults. People would not pay with gold coins. Banknotes backed by either Bitcoin or gold would be equally difficult to counterfeit as regular fiat banknotes since that is what people would be using as money under Bitcoin standard. Adoption - Again not relevant, if we talk about Bitcoin standard adoption requires fixed exchange between a currency and Bitcoin - to my best knowledge no country did this to the date. Also, I never heard of use of market capitalization as measure of adoption when it comes to monetary system so the metric does not provide any argument either in favor of gold or Bitcoin. | {
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42,999 | If women are paid less for the same work, why don't employers hire just women? Do employers decide to lose profits just out of sexism, in feminists' and researchers' opinion? It doesn't make sense to me. In the free and competitive market, if people earn less, it means they generate, or are expected to generate, less added value (for example, because they are less educated). Am I wrong? | There could be several reasons here are just few: Principal-agent problems. Firms are typically not managed by their owners but by managers (agents) who act on the behalf of owners/shareholders (principals). While, owners might desire to maximize profits agents can to some degree act to pursue their own goals (see discussion in Hendrikse Economics and Management of Organizations). For example, CEO might spend more lavishly on things like their private jet, limo, having HQ built by famous architect than profit maximizing CEO would. In the same way CEO/manager with taste for discrimination might pursue that taste even at the expense of profit (to a degree of course). Consumers could have taste for discrimination. This is in fact classic example coming from one of the earliest work on discrimination. If consumers simply have preference for seeing men instead of women at some work and are willing to pay for satisfying this preference, there will be wage gap between men and women (see Mankiw Principles of Economics pp 395). Mankiw has a good example of this for the race wage gap, but the logic of the example directly extends to gender wage gap: Studies of sports teams suggest that racial discrimination has, in fact, been common and that much of the blame lies with customers. One study, published in the
Journal of Labor Economics in 1988, examined the salaries of basketball players and
found that black players earned 20 percent less than white players of comparable
ability. The study also found that attendance at basketball games was larger for
teams with a greater proportion of white players. One interpretation of these facts
is that, at least at the time of the study, customer discrimination made black players
less profitable than white players for team owners. In the presence of such customer discrimination, a discriminatory wage gap can persist, even if team owners
care only about profit. It could be result of government intervention (See discussion in Mankiw Principles of Economics pp 395). For example, many governments around the world mandate that firms have to provide women with job guarantee during late pregnancy/mothers leave. Perks like these are costly and in competitive markets firms will just pass costs of these perks directly on their female employees (in form of lower wage - although this would not affect total compensation it is part of explanation for wage differentials). Most labor markets are not perfect. In imperfect labor markets there are often quasi-rents to have that can be split between employee and employer. If for example women tend to be less assertive during negotiation (e.g. see Amanatullah & Morris, 2010) , they might end up with less quasi-rents than their male counterparts (this argument is covered in greater detail in the Papayapap's answer). The list above is not exclusive, but those are one of the major reasons you will commonly find in economics textbooks. To sum it up, the argument you make in the question is valid argument but it is only guaranteed to work under host of additional supporting assumptions. For example, assumption that customers do not care about gender might be true in some profession but not in others (e.g. perhaps male anchor appears more trustworthy to audience?). Although careful studies that control for all relevant characteristics show that gender wage gap is much smaller than laymen commonly perceive it to be, based on senseless comparison of aggregates between male and female pay, many studies show that there still is some gender pay gap that cannot be accounted for by objective factors. See discussion of these results in this nice explainer from The Economist . For example, in 2016 the gender pay gap in the UK was estimated to be only $0.8\%$ , in France $2.7\%$ and Germany $3\%$ , once objective factors were accounted for. That is admittedly small, but should not be trivialized nonetheless. | {
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43,038 | Yesterday we had a question about the alleged underpayment of women in work, asking why employers would hire fewer cheaper female workers and would instead hire a larger number of expensive male workers. A large amount of discussion ensued. I'd like to approach the same topic from a different angle. Without doubt many occupations show a gender bias, and across the board it is apparent that women are more concentrated in occupations which attract lower hourly pay. What are the economic reasons why, when encountering low pay (or anticipating it at the start of their careers), women should not simply respond to economic incentives, and choose to transfer to higher-paid occupations to increase their earnings? I should say pre-emptively that I'm not satisfied with ideas that merely may explain the effect, as yesterday's question produced a proliferation of rationalisations and claims that lacked rigour. I'd prefer to see an explanation that attempts to be comprehensive, or supports contentious claims (such as those about women's productivity) with research. | I should say pre-emptively that I'm not satisfied with ideas that merely may explain the effect, as yesterday's question produced a proliferation of rationalisations and claims that lacked rigour. I'd prefer to see an explanation that attempts to be comprehensive, or supports contentious claims (such as those about women's productivity) with research. Your question and the yesterday's one are contentious even in the literature, which means there is no consensus among the economists and no one can give an answer that satisfies everybody. Given the complexity of these questions, they can involve and interact with many different issues, all of which matter to some extent. Even in the literature, the common way is to attack them from one specific perspective rather than to offer a "comprehensive" answer. Also a convincing explanation usually requires careful data analysis, qualified modelling and many robustness checks, which suits more to an academic paper rather than to an answer in this forum. However, I agree with you that we should avoid rationalisations and claims that lack rigour and the support of academic references. In the comments of this question someone has already mentioned that some recent papers argue that commuting requirement can be one potential reason. I thus list some recent papers that suggest other deep-in-root causes below. Adda, Dustmann, Stevens 2017 finds that different occupations can diverge in the amenity "child raising value" and in the loss of accumulated skills when interrupting work careers. Given the fertility consideration, women would thus more likely to choose the occupations that have lower wage growth. Occupation choice is also related with education choice. Women's underrepresentation in the math-intensive fields (i.e. STEM fileds) translates into their underrepresentation not only in high-paying occupations but also in occupations where the gender wage gap within the occupation is particularly small. A survey paper by McNally 2020 reviews many arguments behind this gender differences in tertiary education. Hsieh, Hurst, Jones, Klenow 2019 studies the roles that the discrimination in the labor market, the barriers to forming human capital, and the differences in preferences or social norms play in individuals' occupation choice. They find that the improvement in the discrimination in forming human capital is the most important driver behind the increased participation of women in high-wage occupations in recent decades. In additional to typical economics reasoning, Bertrand 2020 suggests that endogenous preferences and self-fulfilling prophecies caused by gender stereotypes can be important for the low share of women in STEM careers and occupations. Also, Grosjean & Khattar 2019 shows that cultural persistency can affect womens' occupational choices. | {
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45,539 | I find this phenomenon to be kind of puzzling. USA is one of the countries with one of the highest purchasing powers in the world, yet when it comes to healthcare an standard US citizen is likely to not be able to afford it if what needs to be dealt with is something not too simple. For example this graph , based on OECD data, clearly shows that the USA is an outlier when it comes to healthcare spending: It spends almost twice as much per capita as other comparably affluent countries. I can understand that as an essential service prices may skyrocket if the market is left without regulation but... essential goods like housing and food are by no means comparable with healthcare costs in general (for this question I'm setting as time frame last 10 years). What are the reasons healthcare costs are so skyrocketed in the USA? | There are several reasons for that, following Papanicolas et al (2018) : High regulatory and administrative burden. US has one of the highest regulatory and administrative burdens. US healthcare market might be unregulated in terms of prices and range of services and procedures you can get but it is actually quite heavily regulated when it comes to licensing, building codes etc. in addition, US does not have unified administration system for insurance which also creates a lot of admin costs. High costs of pharmaceuticals (drugs) and medical equipment. High labor costs. This is actually one of the more important reasons since US medical labor costs are extremely high. US doctors and nurses are payed much more than in many other advanced countries. These are one of the primary reasons listed in literature, there are also some other issues that contribute to this, such as excessive testing due to US being very litigious country and hospitals wanting to avoid liability (see Brateanu et al 2014) . A serious concern is also high market concentration in healthcare industry making it not very competitive which is also a reason why prices are very high (see Reinhardt et al 2004) . | {
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49,780 | Many folks speak about potential stock market crashes when central banks raise interest rates. I am not a graduate economist nor do I pretend to understand it, but I am definitely curious about what's happening because it affects me. I have two questions: Why is the FED/ECB/whatever raising interest rates bad for stock markets? (I am aware that this is an assumption - my information could be wrong.) Why is it so bad if the stock market crashes? If nobody wants shares of companies A,B,C or everyone is in rush to sell shares of companies A,B,C, does it mean that the companies should stop their operations? Does it mean no one would buy the goods/services produced by these companies? In 1929 the stock market crash resulted in huge unemployment. I don't understand why. I understand why is bad for shareholders, but they are the once gambling in the first place. Everyone take these consequences as a common sense and no one really explains why is it so. | Why FED/ECB/whatever raising interest rates is bad for stock markets? (I am aware that this is an assumption - my information could be wrong) This is because interest rates critically determine price of stocks. For example, using simplistic (but for your question sufficient) Gordon stock price model, the price of stock is: $$P = \frac{D_0}{i-g}$$ Where $D$ is dividend the stock pays, $i$ interest rate and $g$ growth rate of a dividend.
As you can see increase in $i$ will decrease the stock price. The intuition for this is that stock is nothing else, just infinite sum of discounted future dividends (which grow at some rate $g$ ). The higher interest rate is, the lower the present value of money that you recieve in future. For example, if I offer you \$100 in 1 year with interest rate 5%, present value of my offer is $\frac{100}{1.05} \approx 95.24$ . If interest rates suddenly change to 10% suddenly the present value of the same offer (getting 100 in one year) is only $\frac{100}{1.1}\approx90.91$ . As you can see interest rate critically determines present value of future cash flows. The Gordon stock pricing model is simplistic but even in more complex models you will see the same relationship, higher interest rates mean lower stock prices - ceteris paribus. Why is it so bad if the stock market crash? I mean if no body wants shares of companies A,B,C or everyone is in rush to sell shares of companies A,B,C, does it mean that the company should stop operation? A) Not every stock crash has severe consequences for wider economy. For example, Black Monday (1987) was one of the largest stock crashes in history but the recession it caused was very mild (see discussion of this period in Clarson 2007 or see this Fed history blog ). B) Stock market crash can spill over to the real economy because it impedes investment. Again using simplistic, but for your question sufficient, macroeconomic model of a closed economy (See Blanchard et al Macroeconomics an European Perspective Ch 3-5): $$Y = C +I + G$$ Where $Y$ is the output/income of the economy, $C$ consumption which we can assume to follow $C=c_0 +c_1(Y-T)$ where $c_0$ is autonomous consumption (consumption that does not depend on income), $c_1$ is marginal propensity to save (must be $0<c_1<1$ as you cannot save more that 100% of your income), $T$ are taxes and $I$ is investment and $G$ government spending (for simplicity assume balanced budget T+G$. We can show that the good market equilibrium will be given by: $$ Y = \frac{1}{1-c_1} \left( c_0 + I + c_1 T \right)$$ As you can see if $I$ falls because investment spending falls (which could occur in the aftermath of stock market crash - when people are not willing to invest into stock which gives company money for further investments), the output/income of an economy $Y$ will fall as well. What even more because someones spending is someone else income, there will be multiplier effect, so output might drop by more than the fall in investment itself (since $\frac{1}{1-c_1}>1$ ). Does it mean no one would buy the goods/services produced by these companies? No necessarily, as shown above, fall in investment means some people have less income, so they will spend less. The effect here is mainly indirect. It is not that fall stock market crash would make people desire to buy products less in itself, most people probably do not even know if there is stock market crash unless they hear it in the TV, but when companies invest less then someone's income is reduced and thus naturally their spending declines as well. This being said, negative news might make people panic and decide to buy less goods and services today because they are worried about future, so there can be direct effect as well. PS: There is of course also an extra bit of an nuance to everything above, I restricted myself to simple 101 models since you stated you are not an economist. But generally more complex models would tell very similar story. | {
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49,915 | I’m not an economist and would like some insight into this thought experiment. If people, the news, social media, etc. suddenly stopped talking about inflation, would inflation still take place? Inflation is a money supply issue(?) so, if no one knows about the money supply, about how the government is printing and printing, as if the printing took place completely in the dark, would the price of goods still increase? What forces would drive this price increase? Thanks! | In this case, I think it is best explained without any economics jargon. If your thought experiment is taken to the extreme and no one knows about the money, it would literally imply that the money that was printed never went into circulation. In this scenario, nothing happens. However, usually someone doesn't print money just to store it in a vault or use it as wallpaper. Let's assume the money is handed out to people (even if everyone thinks no one else got money). People have a tendency to spend their money to buy goods and services. You can test that relatively quickly if you have kids, and you give them pocket money. Try to double it for some time. I would be very surprised if they would save everything. Seems in the UK , almost a quarter of children (22%) spend their pocket money immediately and, hence, do not save at all. If you don't have kids, imagine you win a couple million in the lottery. What would you do with the money? Now, a large scale increase in money supply is equivalent to everyone (at least whoever receives the money) "winning" the lottery. However, there is a problem. What you can buy in an economy is not determined by how much cash there is, but by the productive capacity (quality of factories and workers plus availability of raw materials). Let's assume people dream of a Tesla and finally (think they) can afford it with their newfound wealth. Unfortunately, Elon's company already finds it hard to build enough cars. As soon as people try to spend the money, too many people are chasing too little goods and services. Even if companies wouldn't raise prices, they would run out of inventory. If companies would miss the opportunity to raise prices to a price where demand meets supply, you may think prices may not change after all. However, if people really want something and have money, they will try to get it somehow (e.g. offer the lucky ones who got a Tesla more money until they are willing to sell). Bottom line is that some will be willing to pay more, and others will be willing to sell for a higher price. Eventually, if money supply grows very excessively indeed, people will realize money is so worthless that they will end up using it as wallpaper after all. | {
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51,451 | There has been a lot of innovation in the agricultural industry. GMO, giant silos, factory farming, machinery, etc. But if we look at actual food prices since 1960 food actually got more expensive. So why hasn't the innovation led to a drop in food prices? | Why hasn't innovation in the agricultural industry led to a significant reduction in food prices? Mostly (present couple of years excluded) this is because of inflation. Inflation means money loses value. A dollar today does not have the same value as a dollar in 1900. The same holds for almost every currency around the world. More recently, real food prices also increased due to Covid19 supply chain disruptions and the Russo-Ukrainian war. Furthermore, your claim: But if we look at actual food prices since 1960 food actually got more expensive. is not very accurate. First you only show food prices for wheat, not for all food. Second, food did not actually became more expensive over time, but cheaper over time (excluding a recent few years for which I was not able to find good data source for historic comparison, and likely Covid19 and the current Russo-Ukrainian war will affect real price of food). As you can see below real food prices dropped over time (even though there was an increasing trend recently). What happened is that food got cheaper thanks to productivity increases, but money lost its value faster than food got cheaper. As a result value of food in terms of US dollars or Euro rose, but value of food in real terms got cheaper. Overall real food price index around the world from Polaski (2008) : US real food price index for all food and home-cooked food from Christian and Rashad 2007 : Recently, there was increasing trend in real food prices, just anecdotally at conferences you could see a lot of papers worrying about high food prices impact on development. This was due to Covid19 lockdowns supply chain disruptions and the Russo-Ukrainian war. However, I was unable to find any source that would have recent real price index that would allow comparing today's prices with prices in 1900s or 1950s. Supply chain disruptions decrease overall productivity (e.g. value created divided by inputs), and the Russo-Ukrainian war just means that most of the world cannot (or put restrictions on accessing) access food production of large food producers, namely Russia and Ukraine. | {
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51,456 | I came across this idea while looking to buy a house and I wondered if there was a term for it. The initial purchase options have a linear cost to value relationship. However, I'm tempted to make a larger purchase than planned because the additional value is proportionately much higher. Simple Example: Option 1: Cost = 3, Value = 3 Option 2: Cost = 5, Value = 5 Option 3: Cost = 7, Value = 10 | Why hasn't innovation in the agricultural industry led to a significant reduction in food prices? Mostly (present couple of years excluded) this is because of inflation. Inflation means money loses value. A dollar today does not have the same value as a dollar in 1900. The same holds for almost every currency around the world. More recently, real food prices also increased due to Covid19 supply chain disruptions and the Russo-Ukrainian war. Furthermore, your claim: But if we look at actual food prices since 1960 food actually got more expensive. is not very accurate. First you only show food prices for wheat, not for all food. Second, food did not actually became more expensive over time, but cheaper over time (excluding a recent few years for which I was not able to find good data source for historic comparison, and likely Covid19 and the current Russo-Ukrainian war will affect real price of food). As you can see below real food prices dropped over time (even though there was an increasing trend recently). What happened is that food got cheaper thanks to productivity increases, but money lost its value faster than food got cheaper. As a result value of food in terms of US dollars or Euro rose, but value of food in real terms got cheaper. Overall real food price index around the world from Polaski (2008) : US real food price index for all food and home-cooked food from Christian and Rashad 2007 : Recently, there was increasing trend in real food prices, just anecdotally at conferences you could see a lot of papers worrying about high food prices impact on development. This was due to Covid19 lockdowns supply chain disruptions and the Russo-Ukrainian war. However, I was unable to find any source that would have recent real price index that would allow comparing today's prices with prices in 1900s or 1950s. Supply chain disruptions decrease overall productivity (e.g. value created divided by inputs), and the Russo-Ukrainian war just means that most of the world cannot (or put restrictions on accessing) access food production of large food producers, namely Russia and Ukraine. | {
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52,040 | Currently I'm learning about finance and I want to understand the following. In the Netherlands the interest on a mortgage is about 3%-4% depending on the payback period. When learning about stocks and ETF, I learned that the average market return is around 10%. My question is therefore, why are banks bothering providing mortgages, while they also could invest the capital in markets? | A bank (or anyone else) considering possible investments needs to consider both return and risk. Stock market investment is risky in two respects: a) individual stocks may achieve more or less return than the market average; b) even if an investor has a well-diversified portfolio of stocks so that their combined return in any one year is close to the market average for that year, the market will have good and bad years reflecting general economic conditions. Investing in mortgages, by contrast, is less risky because: a) the interest rate is defined in advance (or perhaps variable at the lender's discretion); b) if the borrower cannot keep up their payments, the lender has the security of being able to obtain possession of the property (which they could then sell to recover their capital). This does not provide complete security because the market price of the property may have fallen and become less than the amount lent, but it greatly reduces the risk to the lender. | {
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54,517 | In my opinion, any money we make will be completely taken away by taxes. Here is my logic. When I earn some money (x) , I have to give some as tax to the government. For example, let it be 10% of my income. After taxes, I have х - х * 10% = 0.9x of the money I earned. I will spend this money on my needs, and it will become someone's profit. Therefore, this person will also pay 10% to the government.
In this way, the initial amount will remain 0,9х - 0,9х*10%=0,81x .
Here is my calculation table: As we can see, after 30 steps, only 4% of the initial amount will remain from this money. And this happens with any salary.
In the next tax period, I will earn new money and the whole cycle will repeat itself. My friends told me that I am wrong, and taxes don't take 100% of our money because after taxes we still have 90% of the money we earn.
In my opinion, such a view is wrong, because it reflects only 1 present moment, not taking time into account. The money that remains in the hands of a specific person is just a temporary advance. I also want to pay attention to the fact that our salary was also someone's income, therefore, compared to the employer, we are several steps down when it comes to money movement. In any case, the government with the help of taxes will take all 100% (close to 99.99% to be very precise) of our money, just not immediately, but a few steps later. So tax rate shows the speed with which the money will be withdrawn. For example, when tax rate is 30%, then money completely disappears in 10 moves. Mathematically, everything seems to be true, but is everything like that in reality?
People told me that I am wrong, but don't explain why, so where am I making a mistake? | No, this will not happen. Government does not tax people just for 'shits and giggles'. Governments do not hoard money at some pile as a some sort of dragon from a fantasy novel. Taxes are levied so government can spend that money on some public goods or to use them as transfers to alleviate poverty or inequality. As you correctly point in your question, your spending is someone's else income. Government spending works the same way. When government spends money on a new bridge it creates profits for the contractor, wages for the workers, rents for landowners and interest to capital owners. When it comes to transfers, transfers are not income per se but then spending of the people who receive transfers will create incomes for whatever business and its employees and investors the people getting transfers choose to patronize. Sure if the government would keep all the money they tax, and if money supply would be kept constant by central bank, then at some point all the money would be eventually siphoned out of the economy and government would get 'all the money', while the economy would be in ruin because people would have to revert to barter and there would be no provision of basic public goods such as police etc. However, in real life governments rarely if ever avoid spending money they tax. In fact most real life governments are running relatively large debts (e.g. see OECD statistics ) showing that most governments spend usually more than they even tax. | {
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963 | I've noted that really often, questions require the use of schematics, and answers too. Since I've seen some online editors, why don't we also embed one, to encourage the use of proper schematics? | Thanks to the great work of the people at CircuitLab (special thanks to Yuan Wei, the developer who worked with me on this), this is now live. For users with at least 11 reputation, everybody, there is a new button in the editor's toolbar: This button will launch the CircuitLab schematics editor / simulator. Clicking “Save and Insert” in the schematics editor closes it again and inserts the circuit's image into the post editor. When editing an existing post that already contains a schematic, you can also click “edit the above schematic” which appears below the circuit image in the post editor's preview. This will open the corresponding circuit in the editor for further refinement. If you're interested in some technical details and design decisions regarding the editor integration, you can read my announcement post on meta.ux (starting from “This was a somewhat…”). This was about the Balsamiq mockup editor, which was the first external editor that we integrated with a Stack Exchange site. The CircuitLab editor's integration is very similar; from a user's perspective it's almost identical. CircuitLab officially only supports Firefox and Chrome . It seems to however work just fine in the other browsers that we support on Stack Exchange (IE9+, Safari, Opera). Nonetheless, when you launch the editor in a browser other than Firefox or Chrome, we'll warn you that the browser isn't officially supported by the editor (but we won't refuse to launch it – as I said, it generally works fine). For detailed information about the CircuitLab editor, have a look at their documentation . | {
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2,557 | I realized it's a breadboard, and the ICs are not across the channel in the middle. It's been bothering me since. | I believe this would be classified under artistic license. If you want a rundown of what is wrong, here's what I notice: There's no wiring The pin pitch is twice as coarse as the breadboard holes The 5x7 LED arrays are lit up without any apparent source of power There are LEDs in the IC packages There are 10 and 12 pin DIPs There aren't enough holes underneath the LED arrays All pins will be shorted to at least one other pin It doesn't bother me. | {
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2,745 | This post from 3 years ago seems to show that https://electronics.stackexchange.com/ was originally named Electronics Exchange. Now it is Electrical Engineering. I was wondering why this change was made. I know I didn't give it a proper look when I was looking for a decent electronics site (I assumed it was pure electrical engineering, not electrical and electronic). Was there a reason why it was renamed? I feel like the current name isn't necessarily all-inclusive of the content (nor would Electronics Exchange). Has there been a discussion somewhere (I have searched and can't find it) which led to the renaming or suggested other names? EDIT : I just saw this on the community bulletin and thought it was a perfect case of what I am describing. | We were seeded by a site called chiphacker.com which you can see on the proposal. We were originally called "Electronics and Robotics" but robotics did not feel it had a home here. Next, we were named "Electronics Design" which worked really well, but as you see from the post, trademark infringement. They just picked "Electrical Engineering". They may have asked us mods at the time, but I dont remember it offhand. I agree that it should have been "Electrical and Electronics Engineering." The name is picked to match the order of IEEE . The difference in use is due to which side of the pond you are on generally. In the US we say electrical engineer to be all encompassing, other side is a bit more specific and electrical engineers generally do power. Hope this clears it up. | {
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2,777 | In some chat discussions 1 , it has come up that EE.SE does not have an environment that is receptive of newbies/new users. Here, I'm talking about both people who want to learn EE and those who want to use electronics but don't want to know the nitty gritty conceptual details (I agree that the second category is quite different, opinions on both are fine). IMO, while a site should strive for an expert audience, they should not shun or scare off newbies to achieve this. So, my questions are the following: What is your (individual) stance on newbie questions on EE? Is there anything that needs fixing regarding this? 1 in the main EE room , the arduino room , as well as this meta post . There also is a bit about how EE.SE may be scaring off newbies in the Arduino proposal sub-meta here | Answering EE questions is hard. Doing it well is super hard. One basic problem is that people think that EE is easy-- like residential plumbing. They don't realize that EE can be subdivided into many specialized fields that by themselves can turn into a lifetime career. This quick DIY-like mentality is not compatible with the realities of EE, and it makes both the OP and the Answerer quite frustrated. Often a good answer to a bad question has to take on one or more of these themes in the answer: You need to make an effort to find the solution, the problem you are trying to solve is a lot bigger than you think, you need to hit the books and learn a lot more before attempting that, it can't be done, or just give up now. It is almost impossible for a normal person to give an answer with those themes in it without insulting the OP-- and it is even worse for the typical EE without any people-skills! Below are some example questions that I no longer answer. Others do attempt to answer them, and that's when the newbie OP gets offended. But if nobody answers the question, or the question gets closed, then the OP still gets offended. You can't win! At least when I don't answer (and don't comment) then it is someone else that is doing the offending! This question should be closed because you are in over your head: Someone will ask something along the lines of, "I want to design/build this super ambitious thing that requires expertise in at least 3 major fields, but can you please tell me how to do it in maybe 3 or 4 paragraphs. Oh, and I have absolutely no knowledge in anything relevant." To properly answer this question I basically have to tell the person that they are in way over their head and they should give up while they are ahead-- and I have to do it without insulting the person or making them feel bad. To do the project in a "half baked" way would require a team of 5 to 10 people (20+ if done right), yet I come across as being a pompous jerk for suggesting that this guy isn't smart enough to do it all by himself. Can you do my homework for me, please? These questions often are copied verbatim from a homework assignment. I'm not talking about people who actually make an effort to learn something (those questions are nice!). I'm talking about the questions where the OP makes zero effort to learn and just wants the answer so he/she can copy it to their homework. Often when people comment on the Q, asking the OP for more info or for some evidence that they have tried to do it themselves the OP gets angry. Using 1 quart sour cream, three bolts of different sizes, and a pen how can I ride a horse? These questions ask for a solution using specific components or techniques-- but the list of things to work with are irrelevant or otherwise worthless. When we suggest that this is not a workable, the OP gets angry or defensive. If I suggest a different solution the OP will accuse me of not reading the question. Often the OP is convinced that those components are absolutely all that is required, and often they are so very wrong. Can you Google this for me? Simple questions that could be solved in 15 seconds by Google. This is related to the next type of question... I can't be bothered with the details, I just want a quick answer. These questions are difficult because there is often not a quick answer, and the OP refuses to accept that. Or we need more information, but the OP can't/doesn't/won't provide it. This is difficult for us to answer because we just know that the time we spend on a good answer just isn't appreciated by the OP. If the OP can't be bothered with the details then I can't be bothered to write an answer. I am using an Arduino... The Arduino platform is super cool, because it gives many people the ability to do things they never would have otherwise. Unfortunately, it allows people to play in fields that they do not have the ability to do. You have software people trying (badly) to do hardware. Or hardware people wanting to do software. While that is not really a terrible thing, it causes people to take a lot of shortcuts or do a kludgy solution and then we have to tell them that they need to throw away everything they have done so far and start over from scratch. Telling people that they screwed it all up almost never comes across well, no matter how gently you do it. Also, we have to say things like, "Go spend the next year learning the basics of digital-signal-processing before trying this again"-- and that never goes over well either. Answering an Arduino question often opens a can of worms. The question might be simple, at first, but quickly explodes into a huge thing that takes a lot of time to address correctly. This is especially true if the comments on the Q or A turns into a chat session. Solutions For Newbies I am not opposed to Newbie questions. We were all newbies once. But newbies need to be educated to at least a certain level before coming in here and asking lots of frustrating questions (frustrating for the OP and the answerer). After all, we would not accept someone going onto BrainSurgery.SE and posting a question like, "I sharpened my Leatherman and now I want to do some doctorin'". A repository of "how-to's" and common "answers" is required. One "How To" should be on how to ask a good question, and what makes a bad question. Common answers should be more in-depth than what a normal answer can be. For example, we commonly get questions about connecting power supplies in series/parallel but a proper tutorial on this would be 2,000+ words long and is unlikely to be written by a normal member. But if one person spent a day writing it and it was put into a special section on the site then it could be easily referred to. The OP gets a detailed document on their issue, and we don't have to answer the same question, badly, because we don't have the time to do it properly. This is what I'd like a EE.SE blog for: as a special place on the site for how-to's and more in-depth answers. | {
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5,107 | If you take a look at the comments** on this question: Replacing a Switch and Avoiding body diode conduction . You will see that someone has mentioned being paid for their answer and I was just curious as to whether or not this is deemed acceptable? You may notice that the question is being asked by me and I have no issue with the person themselves saying that or asking for that sort of incentive I was just wondering where the EE.SE stood regarding this. The user is clearly an experienced member of the EE.SE so there probably is no issue with it but again - just wondering. [** Below are the comments in question. They have since been deleted in the original thread.] Bounty doesn't put any food on the table, and If you're going to sell it and make some money, I'd like to see some of it if you use my idea. Email me if you're interested. – EM Fields @EMFields I am afraid you are mistaken... Unless your idea has a patent or something I would really appreciate the help. – elliotdawes Patent??? I'm not trying to restrict you in any way, I'm suggesting that I can help you, for a fee, if you're interested in paying for help you're going to use to make money with. If not, oh, well... – EM Fields | This site is about free exchange of question and answers. However, sometimes the person asking a question could clearly benefit from some professional help that would go well beyond writing a answer here. I don't see anything wrong with giving a basic answer, and mentioning that there is a lot more to it and that you're available to consult professionally on this topic. Further communication should then be outside this site, but making initial contact here is legitimate. This should be done sparingly and politely, preferably after providing at least a basic answer customary to this site. The example you cite is too in your face and obnoxious. I think it's OK to be more direct in a short comment, but being a prick about it, as in the example you cite, is not OK. In summary: OK: You need to do X, Y, and Z. However, this is a deep subject that can't be answered reasonably here, and your problem would take some time to properly address. I am available to consult in this area. Contact me off site if you want to discuss this further. NOT OK: I know the answer, but you're going to have to pay to get it. By the way, I do EE consulting for a living. I have written over 2800 answers here in 3 ½ years, and offered professional services maybe around three times. It's just not approriate in the vast majority of cases. Any experienced consultant can verify that telling someone you have the answer and they have to hire you to get it is not how to get a job. The best way to get a job is to provide as much help as possible in the initial (free) consultation. If you can solve the client's problem in a two hour meeting, then there wasn't ever a consulting job there anyway. I've actually had cases where I didn't get the job because I solved the problem up front. That's perfectly fine. The client goes away happy, and you've built some trust. When they have their next real problem, you're going to be the one they call. Most problems are of course too big to solve in the first meeting, but do your best to dig in and be as effective as possible right up front. Trying to hold something back so that you get paid for it later is professionally irresponsible, and just plain stupid anyway. You're much better off showing the client you're really going to work for them and not take them for a ride, which is the number one fear of most clients, especially unsophisticated one. That's actually a good reason not to take a job. A client that won't trust you is going to be a pain to deal with. No matter what you do, they'll always think you're taking advantage of them, constantly trying to squeeze you on price, regularly second-guess you, and probably say bad things about you to others. Whatever money they might pay you isn't worth it. Consulting requires trust both ways. You have to do your part by being trustworthy, but you also have to know when to walk away if the client isn't ever going to trust you anyway. | {
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5,175 | A new user asked a question, found out the answer, and took the time and effort to inform us about that and even make his solution clear with a diagram: Arduino IR Receiver (Answer) . Now, he used Fritzing, which is clearly just not good enough for some people - sigh -: Enough with those stupid wiring diagrams already! We do electronics here, which means we communicate circuits with schematics . – Olin Lathrop 8 hours ago I flagged this comment as rude or offensive. This comment violates all three points in the Be Nice policy. My flag was declined. Why? Whether you agree with the comment or not, this is not a way to treat other human beings. This comment clearly violates many policies, written and unwritten rules that are on the very base of the StackExchange network. Clearly there are some disagreements about the treatment of new users and other things. But has this lead to the point we can't trust the flagging system anymore? I've done a small test, and flagged some other comments: A comment on Understanding to isolating sensor input capacitance which was removed (thanks for that). What a mess! What MOSFET? What switch? Which capacitor do you think is the "filter" capacitor? Do you realize that D1 will always be reverse biased and therefore off? What's with the base of the transistor tied to the case of the opto, which also seems to be shorting across both inputs of the LED? link Declined, but clearly not in line with Be Nice, as it calls something (the post? The circuit?) a mess, which falls under the category name-calling (amongst others) You've asked a bunch of questions about motors here in a short time. Try to actually understand the answers to the other questions before blurting out new questions. You have already been given a lot of information that it seems you haven't taken the time to absorb and think about. People here want to help, but not if you don't appear to be learning. link "actually understand" is border-line, "blurting out new questions" is insulting. Your question makes no sense because there is no standard "up" for a ethernet connector, and you didn't specify one either, yet you expect we know what you mean by "upside down". link Could've been much worse, but yes, I think even saying 'your question makes no sense' shouldn't be allowed. -1 for blatant RTFM failure. link RTFM = Read The Fucking Manual. How that can be considered OK or even border-line, I really fail to see. Note: all examples come from one user. I do not mean to pick on that user, which is why I didn't copy his/her name. It was simply because with this I could easily find a great enough comments pool to test with. Note 2: since I flagged all these comments in a short timeframe, it's likely one mod reviewed all, so this test may very well not be representative. | Some of the comments called into question here reminded me of someone that I hadn't thought about in years, my 10th and 11th grade electronics teacher. Hey, Mr. Gibbs - if you're reading this, thanks for putting my feet to the coals so I could get my hands around the process of learning and discovery myself . Gibbs was sort of comical, somewhat ornery and quite famous for telling you what you needed to hear, which usually wasn't anything close to 'good job'. It wasn't his penchant for occasionally blowing his top and off-the-hip salty witticisms that caused him to gain my respect and the trust that a student puts into his teacher, it was something else that separated him from the rest of my teachers: He hadn't let himself become cynical, he always listened, and he always taught . While he was often low on patience, he'd never demean or belittle the student , he'd never make you question the value of learning; he'd just make it clear that you could do better and damn well should on your next try. I've already taught you how to do that, until you can do it, there's no use in teaching you more, it all depends on you learning this. While plenty disagreed with the style in which he taught, not a single person could call into question the facts that he was teaching, and he was listening to his students while teaching directly and effectively to their weaknesses. Every one of his students loved him. When the line between teaching and sneering becomes so blurry to consistently warrant clarification and justification, something is wrong. Not everyone has the patience of a saint. I can't discount the fact that a large number of new users arrive here unaware that there's an order in which to learn things, and unaware that they've skipped several very important steps in that process. I'll also concede that many would much rather that the order of things not apply to them, because who has time for that? Still ... If you're going to interact with people on a Stack Exchange site, you must make a conscious effort to not berate or belittle our users. If the sum of this community's culture is the worst that its leaders will tolerate, snark would not bode well for this community. It's fine to be cynical. It's fine to feel that the effort someone has documented makes them undeserving of your time. How you feel and what you say are two different things. If you don't want to answer these questions, don't answer them. If you don't like someone else's answer to a question and can't engage them in a manner that doesn't antagonize them - down-vote and move on. No one is forcing you to try to teach every student, doing so is an unnecessary burden that you're placing on yourself, and on this community, because what you say reflects on it as a whole. If your comment is negative and appears to speak more to the person than the post , it can and should be removed without further consideration. We built comments for you to help people make their posts better, not for you to make them feel bad about writing it in the first place. If you're doing the latter, don't expect what you've written to last long on the site. If you're doing it consistently, you're going to be asked to stop. If you can't seem to stop, we'll help you stop, which probably isn't what you want. It's that simple. | {
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5,492 | Some questions involving I2C have been edited to I²C. They refers to Inter-Integrated Circuit, according to Wikipedia, is pronounced I-squared-C, a multi-master, multi-slave, single-ended, serial computer bus invented by Philips Semiconductor (now NXP Semiconductors). It is typically used for attaching lower-speed peripheral ICs to processors and microcontrollers. Alternatively I²C is spelled I2C (pronounced I-two-C) or IIC (pronounced I-I-C) What is the preferred spelling on EE.SE? Should spelling being i2c, I2C, or I²C, or something else? The recent edit to I2C bit banging is why I bring this up. Even the url is not handled correctly by the SE system, as the ² breaks the automatic url recognition. A search for i²c will only bring up results for IC . | Spelling should be I2C, as I²C is not searchable. While I²C may be the correct spelling, SEO and in site search-ability should be preferred. | {
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5,659 | Sinking 80 mA with a microcontroller without any driver circuit? is a general question on parallel current sourcing capabilities, but it was single handedly closed and migrated to Arduino.Se. It has nothing to do with Arduinos specifically, and mentioned other platforms in the same sentence, like the Raspberry Pi, yet was migrated to Arduino. It was rejected for that reason, and still remains closed here, as this question does not appear to be about electronics design within the scope defined in the help center. when it's clearly about electronics design. Why? | That was a dumb migration that should be reversed. | {
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6,384 | The question in question has been reopened and closed but is still need to be open so more answers can be given. I will gladly read even if it is hypothetical and upvote. I have a question about my Electrical Engineering Stack Exchange post: Can solar cells be wired to produce 120 volts AC? This doesn't answer my question really. I was hoping that someone whom has experience in solar design could get a chance to answer before it was closed by the same person who answered it in such a short time? Thous gaining reputation with out any other valid answers could be given seams like cheating and left me without the input from other experts who did not even have a chance to look at it? | It does indeed seem unfair. Dave thought it was on-topic enough to answer, for him , but closed it for everyone else to answer. This sends conflicting messages. Fortunately a question can be reopened by the same community that votes to close it. It seems that is what will happen to your question. Of course, this assumes that everything else is good with your question. It already had a close vote from a non-moderator before it was closed. I think one of the problems here is that a moderator is not allowed to vote for closing. They can only close. I understand that a lot of moderators would really like to be able to cast a vote instead of using the close-hammer. | {
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6,469 | There's numerous instances where inexperienced users bought things off the internet that didn't come with anything resembling sufficient documentation, often even of very basic things like operating voltages, and expect us to compensate for the shortcoming of the seller. I think we should not tolerate these kinds of questions for (at least) two reasons: Politically, and economically, it's unsound to support business models where people of no technical expertise whatsoever sell components on the internet, getting around having to actually afford documenting their parts, whereas companies that actually do offer even the minimum feasible documentation have expenses. This is made morally worse by the fact that "clones" and plain counterfeits that don't even incur any R&D costs are among the things that are most heavily sold in this form. It's bad for the quality of questions on this site. Basically, the same reasoning as against product recommendation questions apply: Information outdates quickly, this isn't a catalogue, the questions are usually underresearched. Finally, I also do think it's bad for beginners. If I accumulate my experiences with things that people have bought over {insert direct far-east import marketplace platform here}, it's that these things seldom work as well as to expect from a reasonably engineered and quality-assured product, and that's usually the reason why the price tag's so low. Beginners are led to believe that not getting the specs of what they pay for from whoever they pay is the norm. And that should really not be the case. And, if we don't proliferate quickly outdated info based on guessing on (usually actually stolen) product photos, we can at least avoid giving this impression a platform. So: Can we please have a close reason I'm voting to close this question as off-topic, as StackExchange should not be used as substitute for sufficient documentation. Please refer to the manufacturer, seller or service dealer for sufficient documentation, as is the standard for any reputable business. | I completely understand your position but disagree. I don't see why those of like mind can't simply ignore the question if it's of no interest. Championing the active prevention of the posting and answering of what are most certainly widely useful answers for the stated reasons seems heavy-handed in a central-planning sort of way. If there was a 'hobby' SE that might make sense to shunt questions off to there, but there isn't and there are a bunch of presumably similarly (but differently) annoying questions that arise from bad youtube videos, instructables and such like. | {
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6,697 | In the interest of having an explicit strategy on component identification questions, here is a "poll" question for community opinion on the matter. Historically, these questions have been allowed, but this is an existing strategy, not necessarily the current opinion of the community. This question is designed to be a simple binary question that will be used to shape a more nuanced policy later. I will include the pro and con reasons that I can think of, if you have another reason that I did not include, feel free to leave a comment. TLDR: Should we allow component identification questions? Please note, only upvotes will be counted. | Yes: Component identification questions should be allowed (This does not excuse other close reasons). People answering these questions enjoy answering the questions. We've probably all at some point tried to scavenge parts and wondered what a particular one was. 1 Some community members enjoy answering these questions. The questions hitting the Hot Network Questions tab improves our site visibility. Reverse Engineering is a legitimate design activity. You have to know what the parts are before you can figure out how the circuit works. (add comments below for additional reasons) | {
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6,959 | This post was just migrated to the car mechanics site: https://mechanics.stackexchange.com/questions/67998/detect-if-a-can-node-is-transmitting-or-receiving Why? It is a 100% electronics question and has absolutely nothing to do with cars at all. Car mechanics can't answer questions about the behavior of CAN transceivers or about line impedance. | It shouldn't have been. Migration should only happen when something is OFF TOPIC HERE, and on topic there. This is clearly an on topic Electrical Engineering question. The mod who migrated it single-handedly does this to any question that even mentions a car, arduino, or raspberry pi to those other stack exchange sites. Flagged for migration review by Mechanics mods. Update: The question has been closed on Mechanics as Migration Rejected. It can be voted to reopen here now. Further update: The question has been reopened here . | {
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3 | How do I know when to use lead, flux-core, lead-free, or any other kind of solder out there? Do you have any tips on solder gauge for specific applications? | A great question, and since a textbook could probably be written to answer it, there's probably not going to be any single answer. I want to provide a general answer tailored to hobbyists, and hope that people more knowledgeable can come in and tie up specifics. Summary Solder is basically metal wire with a "low" melting point, where low for our purposes means low enough to be melted with a soldering iron. For electronics, it is traditionally a mix of tin and lead. Tin has a lower melting point than Lead, so more Tin means a lower melting point. Most common lead-based solder you'll find at the gadget store will be 60Sn/40Pb (for 60% tin, 40% lead). There's some other minor variations you're likely to see, such as 63Sn/37Pb, but for general hobbyist purposes I have used 60/40 for years with no issue. Science Content Now, molten metal is a tricky beast, because it behaves a bit like water: Of particular interest is its surface tension. Molten metal will ball up if it doesn't find something to "stick" to. That's why solder masks work to keep jumpers from forming, and why you see surface-mount soldering tricks. In general, metal likes to stick to metal, but doesn't like to stick to oils or oxidized metals. By simply being exposed to air, our parts and boards start to oxidize, and through handling they get exposed to grime (such as oils from our skin). The solution to this is to clean the parts and boards first. That's where flux cores come in to solder. Flux cores melt at a lower temperature than the solder, and coat the area to be soldered. The flux cleans the surfaces, and if they're not too dirty the flux is sufficient to make a good strong solder joint (makes it "sticky" enough). Flux Cores There are two common types of flux cores: Acid and Rosin. Acid is for plumbing, and should NOT be used in electronics (it is likely to eat your components or boards). You do need to keep an eye out for that, but in general if it's in the electronics section of a gadget store it's good, if it's in the plumbing section of a home supply/home improvement store, it's bad. In general, for hobbyist use, as long as you keep your parts clean and don't let them sit around too long, a flux core isn't necessary. However, if you are looking for solder then you probably should pick up something with a rosin core. The only reason you wouldn't use a flux core solder as a hobbyist is if you knew exactly why you didn't need the flux in the first place, but again, if you have some solder without flux you can probably use it for hobbyist purposes without issue. Lead Free That's pretty much all a hobbyist needs to know, but it doesn't hurt to know about lead-free solder since things are going that way. The EU now requires pretty much all commercially-available electronics (with exceptions for the health and aerospace industries, as I recall) to use lead-free components, including solder. This is catching on, and while you can still find lead-based solder it can lead to confusion. The purpose of lead-free solder is exactly the same: It's an evolution in the product meant to be more environmentally friendly. The issue is that lead (which is used to reduce melting point of the solder) is very toxic, so now different metals are used instead which aren't as effective at controlling melting point. In general, you can use lead-free and lead-based solder interchangeably for hobbyist uses, but lead-free solder is a bit harder to work with because it doesn't flow as nicely or at as low a temperature as its lead-based equivalent. It's nothing that will stop you from successfully soldering something, and in general lead-free and lead-based solders are pretty interchangeable to the hobbyist. Tutorials There are plenty of soldering videos on YouTube, just plugging in "soldering" to the search should turn up plenty. NASA has some old instructional videos that are great, because they deal with a lot of through-hole components. Some of these are relevant because they discuss the techniques and how the solder types relate. In general, if you got it at the electronics hobby shop, it's good to use for hobbyist purposes. | {
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78 | Are there any special requirements for charging lead-acid batteries? | Charging lead-acid batteries with a power supply Lead-acid batteries can be charged manually with a commercial power supply featuring voltage regulation and current limiting. Calculate the charge voltage according to the number of cells and desired voltage limit. Charging a 12-volt battery (6 cells) at a cell voltage limit of 2.40V, for example, would require a voltage setting of 14.40V. The charge current for small lead-acid batteries should be set between 10% and 30% of the rated capacity (30% of a 2Ah battery would be 600mA). Larger batteries, such as those used in the automotive industry, are generally charged at lower current ratings. Cells constructed of a non-antimonial lead grid material allow higher charge currents but have a lower capacity. The cylindrical Cyclone is sealed and can sustain a pressure of up to 3.5 Bar (50 psi). A pressurized cell assists in the recombination of gases. Observe the battery temperature, voltage and current during charge. Charge only at ambient temperatures and in a ventilated room. Once the battery is fully charged and the current has dropped to 3% of the rated current, the charge is completed. A good car battery will drop to about 40mA when fully charged; a bad battery may not fall below 100mA. After full charge, remove the battery from the charger. If float charge is needed for operational readiness, lower the charge voltage to about 13.50V (2.25V/cell). Most chargers perform this function automatically. The float charge can be applied for an unlimited time. --Information found here Hope This Helps! | {
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267 | I've been writing Linux character device drivers for other people's stuff for some time. I'd like to find a new hobby and the thought of making my own USB gizmos seems really neat. I would be thrilled to be able to control some LEDs, servos, and step motors. I really enjoy learning new things on my own and the excitement when something finally works. I've not done any serious MC programming, but do know my way around. Can anyone recommend some kits that would be helpful to a complete noob? Ideally, they are: Linux Friendly Able to ship internationally (I'm currently living in Asia) Offer breadboard kits If you have the time and inclination, links to projects on other people's sites that include schematics and parts lists would be greatly appreciated. I want to study from examples, but good examples, which is why I'm asking here. My eventual goal is to make my own data collectors - everything from rainfall to average decibels to light levels. Sorry if this has been asked before, I did search (and searched tags). | The Arduino is really popular, and it is open-source hardware, so there are variations , including the third-party Freeduinos called Bare Bones Board , the Really Bare Bones Board , and the Boarduino , which are very nice for using with breadboards. The standard Arduino is adapted using things called Shields. You can make your own breadboard shield or buy something like this ProtoShield Kit. The Arduino uses an FTDI USB-RS232 chip or cable. [The standard Arduino has it build in, while the most of the bread board ones use a special cable that has the chip inside, and saves you some money.] There is a built-in driver for Linux, and Mac OS X and Windows users can download a driver. Effectively, this means that the Arduino acts as a device communicating on a serial port, and so it is very easy to communicate with. To use it, you also download software. It comes with an IDE, an AVR-GCC toolchain, a really nice library, and software to upload your program on to the chip. It hides most of the details from you, and has a great community. It is programmed in a language called "Wiring", but it is really C++. Lastly, being open-source hardware, there are schematics out there. Indeed, I seem to recall reading that it was fairly easy to build an earlier model. Searching for "Arduino schematics" in your favourite search engine will give you good results. As for kits, the Maker Shed offers a lot of Arduino-related items in stock. They appear to ship around the world. Some ones of interest include: Ultimate Arduino Microcontroller Pack Arduino Quickstart Pack Arduino Protoshield Kit Getting Started with Arduino Kit The Shoppe at Wulfden (USA) has a nice experimenters kits, and appears to ship internationally. Solarbotics (Canada) has a ARDX Arduino Experimenter's Kit , a Freeduino Starter Bundle - Ultimate and an Arduino Starter Bundle - Basic (and Ultimate ), and appears to ship internationally. The main Arduino's "buy" page lists Arduino vendors in all areas of the globe. Other places I would check include Adafruit Industries and Sparkfun Electronics (both in the US). | {
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297 | What is a good microcontroller for doing Ethernet applications? Or do I just need a good Ethernet library to connect with an Ethernet MAC/PHY? | Microchip's PIC18s with built-in ethernet are excellent for this, just add a magjack (or other connector with built in magnetics) and download their TCP/IP stack. You'll be pinging things in no time. For more grunt, the PIC24 and PIC32 also have TCP/IP stacks designed to run with one of the SPI Ethernet MAC/PHY parts they offer (ENC624J600 or ENC628J60). ST also recently enhanced their ARM Cortex based STM32 line to include on-chip ethernet, but you'll need an external PHY and magnetics. It's an option if you're already looking at the PIC32. | {
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433 | I've noticed, with regards to microcontrollers, there are several way to program them. I am sorta familiar with USB as my Arduino's can be programmed via USB. What is a JTAG or SPI interface? Ultimately I know that these interfaces provide a means to flash the chip with new instructions but how do they differ? Are there any advantages of one over another? | ATMEGA microcontrollers like the one in the arduino that are coming straight from the factory can only be programmed using the SPI or JTAG interface. SPI stands for Serial Peripheral Interface and is a way for microcontrollers to communicate with each other or with the outside world. It's also called 3-wire sometimes because it uses three wires to communicate. To program a chip, you will need a special programmer which reads commands from USB to drive the SPI lines to program the chip. A popular one seems to be the USBTinyISP from Adafruit . A very good introduction into SPI programming is at SparkFun . The most popular applications for programming Atmel AVR chips are avrdude (cmd line), ponyprog (doesn't work with newer programmers) and in some cases AVR Studio (if your programmer supports it). The advantage of SPI programming is that you can program any Atmel chip straight from the factory so you wouldn't always need an Arduino in your projects. Where SPI is "just another" serial protocol, JTAG is a protocol which is especially designed to program and debug microcontrollers. Not all Atmel micro's support JTAG but the ones that are used in the Arduino do. The JTAG protocol can be used for cool things like "in circuit emulation" and debugging which means that it enables you to see the state of the program in your microcontroller while it's actually running. To do this you'll need a special programmer. Seen my answer for another question . To program a chip using USB, you'll have to program it first with a "bootloader" using SPI or JTAG. Once loaded with the bootloader, the system will be programmable from any PC using a USB-Serial converter. The downside is that the bootloader takes up some memory space and this method does not allow you to see the state of the chip while it's running. | {
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460 | I'm putting together a design for a hardware random number generator that will utilize multiple sources of entropy ( combined ): Ambient light Ambient sound (and sound levels) Ambient temp Ambient humidity Position of the device itself (upside down, tilted left, titled right, etc) Other sources in the future, possibly even GPS data (marked possible because two users may be standing next to each other, hence possibly deterministic if you know them.) My idea is to make an entropy pool 'recharger' that people can carry around with them during their day while it continues to write to a USB drive. After a few hours, the user will have a nice ~4GB entropy pool that can be plugged in to a PC and used. I can't afford the really expensive QRNG's based on light or radioactive decay, so I'm trying to come up with something cheaper. In your opinion, is Arduino the best choice for prototyping this? If not, what would you recommend? | I think you'll want to go down the path busz suggests. Search for the concept "diode noise". The PN junctions in diodes and transistors can produce close to perfect Gaussian white noise. Sampling that should be a source of entropy that's better than any environmental source. The problem with most environmental/ambient data is the values just don't change that much over time: temperature, humidity, light and sound all have less than an order-of-magnitude of variability with really strong modes. An accelerometer to measure motion might be a good source of variability if mounted on a person, but you'd likely have to do a bit of signal processing to remove the normal modes of oscillation that are present in how humans move. An ambient light & sound source might have some pretty high variability if placed in an high-density urban space, but again I think there would be a lot of repetition. I still think the best source of entropy would be going down towards fundamental physical properties of materials like diode noise than going up in scale and looking at environmental factors capable of being read by a microcontroller. | {
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515 | I am designing a circuit that needs to output 5VDC @ 1A. I'm trying to use a wall transformer to step the voltage down to 12VAC. The next step is the diode bridge and ripple capacitor. The ripple voltage equation is: $$V_{ripple} = \frac{I}{2fC}$$ I = load current (1A)
f = AC frequency (60Hz)
C = Filter Capacitor (? uF) If I choose a C of 1000 uF, the ripple voltage is 8.3 V! Do I really need to put more capacitance to lower the ripple voltage? Is there another method of converting AC to DC? | 1000 µF at this voltage isn't terribly big. Are you limited by size or something? To completely get rid of the ripple and produce 5 V, you need to add a voltage regulator after the capacitor. 12 V RMS = 17 V Peak , which, minus the two diode drops, is the peak DC voltage you'll see at the output of the rectifiers: 17 - 1.1 - 1.1 = 14.8 V. So there's no threat of exceeding the input limits of the regulator (35 V input). If the ripple is 8.3 V, then the DC voltage will be varying from 6.5 V to 15 V. This is just barely high enough to feed into the regulator without dropping out of regulation, since the 7805 has about 1.5 V dropout at 1 A (depending on temperature). So yes, you should use a slightly higher capacitor (or multiple capacitors in parallel, if space is an issue). ( Source: Alan Marshall ) Here's a guide to each stage of the power supply circuit. Also: Real life power line voltages vary from one outlet to the next, and the frequency varies by country. You need to calculate the low line/high load condition to make sure it doesn't drop below regulation, as well as the high line/low load condition to make sure it doesn't exceed the regulator's input voltage limit. These are the generally recommended values: JP: 85 VAC to 110 VAC (+10%, -15%), 50 and 60 Hz US: 105 VAC to 132 VAC (+10%), 60 Hz EU: 215 VAC to 264 VAC (+10%), 50 Hz | {
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616 | I need basic electronics books (diodes,transistors,current.. etc) as I am just starting out with electronics and want to have something to read over the holiday. Any suggestions of good beginners' books? | The Art of Electronics:Paul Horowitz and Winfield Hill Often described as the Bible of Electronics. Its fair to say that if you buy this one, you wont need another for a while! Contents: Foundations voltage and current; passive components; signals; complex analysis made simple. Transistors an easy-to-use transistor model extensive discussion of useful subcircuits, such as followers, switches, current sources, current mirrors, differential amplifiers, push-pull, cascode. Field Effect Transistors JFETs and MOSFETs: types and properties; low-level and power applications; FET vs bipolar transistors; ESD. how to design amplifiers, buffers, current sources, gain controls, and logic switches. everything you wanted to know about analog switching -- feedthrough and crosstalk, bandwidth and speed, charge injection, nonlinearities, capacitance and on-resistance, latchup. Feedback and Operational Amplifiers "golden rules" for simple design, followed by in-depth treatment of real op-amp properties. circuit smorgasbord; design tradeoffs and cautions. easy to understand discussion of single-supply op-amp design and op-amp frequency compensation. special topics such as active rectifiers, logarithmic converters, peak detectors, dielectric absorption. Active Filters and Oscillators simplified design of active filters, with tables and graphs. design of constant-Q and constant-BW filters, switched-capacitor filters, zero-offset LPFs, single-control tunable notch. oscillators: relaxation, VCO, RF VCO, quadrature, switched-capacitor, function generator, lookup table, state-variable, Wein bridge, LC, parasitic, quartz crystal, ovenized. Voltage Regulators and Power Circuits discrete and integrated regulators, current sources and current sensing, crowbars, ground meccas. power design: parallel operation of bipolar and MOSFET transistors, SOA, thermal design and heatsinking. voltage references: bandgap/zener: stability and noise; integrated/discrete. all about switching supplies: configurations, design, and examples. flying-capacitor, high-voltage, low-power, and ultra stable power supplies. full analysis of a commercial line-powered switcher. Precision Circuits and Low-Noise Techniques an easy-to-use section on precision linear design. a section on noise, shielding, and grounding. a unique graphical method for streamlined low-noise amplifier analysis. autonulling amplifiers, instrumentation amplifiers, isolation amplifiers. Digital Electronics combinational and sequential design with standard ICs, and with PLDs. all you wanted to know about timing, logic races, runt pulses, clocking skew, and metastable states. monostable multivibrators and their idiosyncrasies. a collection of digital logic pathology, and what to do about it. Digital Meets Analog an extensive discussion of interfacing between logic families, and between logic and the outside world. a detailed discussion of A/D and D/A conversion techniques. digital noise generation. an easy-to-understand discussion of phase-locked loops, with design examples and applications. optoelectronics: emitters, detectors, couplers, displays, fiber optics. driving buses, capacitive loads, cables, and the outside world. Microcomputers IBM PC and Intel family: assembly language, bus signals, interfacing (with many examples). programmed I/O, interrupts, status registers, DMA. RS-232 cables that really work. serial ports, ASCII, and modems. SCSI, IPI, GPIB, parallel ports. local-area networks. Microprocessors 68000 family: actual design examples and discussion -- how to design them into instruments, and how to make them do what you want. complete general-purpose instrument design, with programming. peripheral LSI chips; serial and parallel ports; D/A and A/D converters. memory: how to choose it, how to use it. Electronic Construction Techniques prototyping methods. printed-circuit and wire-wrap design, both manual and CAD. instrument construction: motherboards, enclosures, controls, wiring, accessibility, cooling. electrical and construction hints. High-Frequency and High-Speed Techniques transistor high-frequency design made simple. modular RF components -- amplifiers, mixers, hybrids, etc. modulation and detection. simplified design of high-speed switching circuits. Low-Power Design extensive discussion of batteries, solar cells, and "signal-current" power sources. micropower references and regulators. low-power analog circuits -- discrete and integrated. low-power digital circuits, microprocessors, and conversion techniques. Measurements and Signal Processing what you can measure and how accurately, and what to do with the data. bandwidth-narrowing methods made clear: signal averaging, multichannel scaling, lock-in amplifiers, and pulse-height analysis. It takes a bit of a commitment to read it all, but it is the sort of book that you can pick from. Not to heavy on the maths. | {
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621 | What are the advantages of stranded vs solid wire? what should i be using for prototyping circuits? | Solid wire (24 gauge) is good for use as jumpers in solderless breadboards. Trying to push in stranded wire is frustrating. Solid wire holds its shape, so you can route wires along a path and they'll stay there. Use stranded wire for everything else. It is flexible so it's good for cables going between a circuit board and knobs/switches on an enclosure, connecting cables between circuit boards, or any time you might have physical flexing in a wire. 24 gauge is a good all-around size for stranded too. | {
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708 | I'm trying to interface a 3.3V I 2 C device to a 5V Arduino. I don't have any problem with SCL line.
I can use a simple voltage divider but I have an issue with the SDA line as this is bi-directional. I'm not at all sure how to handle this. I have though of adding a pair of diodes, with a voltage divider on the slave input side and nothing extra on the master input. Are there any other solutions? | Good document about the subject is Bi-directional level shifter for I2C-bus and other systems which uses a single mosfet as a bi-directional level shifter. | {
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765 | How do i measure the level of a water tank with a microcontroller? | Well, assuming you are operating here on earth (as opposed to in orbit), you can use a float sensor that you measure using the micro. The question is: Do you need to know the exact level, or do you just need some sort of trip when it gets to high/low? On the 'trip at specific level' theme, you can get switches like this - generally the float contains some kind of attitude sensing switch. When the water level is lower, the float ends up on it's side, and the switch is 'off', while raising the level forces the float upright, and therefore 'on'. These are often used for sump pumps. They are pretty reliable and very easy to deal with, though you have to be careful to anchor them correctly, and you have to be sure that nothing gets in the way of the float. If you need to know the actual level, then you've got lots of choices, but it's less simple. You can go with something like an ultrasonic sensor (ultrasound beam firing down from the top of the tank to reflect off the water level). These guys seem to make level indicators for BIG tanks which consist of a float and an external weight cabled together. As the float rides up and down on the fluid, the external indicator moves appropriately. You could build something similar, with nothing more complicated than photo-cells to read the level (if it's a large tank, or you want lots of granularity, you'd need a lot of photo-cells). Alternately, taking the cabled float idea, you could put an idler wheel that moves whenever the cable moves, and then attach an encoder to that. This would allow you to track the level with pretty high accuracy. | {
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824 | I have seen many articles that tell me I should be using RTOS for time management and resource management. My time has not permitted my own research, so I come to chiphacker for advice. I use low resource microcontrollers(MSP430, PIC) and was looking for RTOSs I can use. To the point: Resource cost of system Advantages of system Disadvantages of system Implementation Tricks Situations the RTOS should/should
not be used in. I do not use systems like the arduino, the projects I work with cannot support the cost of such a system. | I haven't had much personal experience with RTOS's other than QNX (which is great on the whole but it's not cheap and I have had a really bad experience with a particular board vendor and QNX's we-don't-care attitude for systems other than their most common) which is too large for PICs and MSP430's. Where you will benefit from an RTOS is in areas such as thread management/scheduling inter-thread communications + synchronization I/O on systems with stdin/stdout/stderr or serial ports or ethernet support or a filesystem (not an MSP430 or PIC for the most part, except for the serial ports) For peripherals of a PIC or MSP430: for serial ports I'd use a ring buffer + interrupts... something I write once per system and just reuse; other peripherals I don't think you'd find much support from an RTOS, as they are so vendor-specific. If you need timing that is rock-solid to the microsecond, an RTOS probably won't help -- RTOS's have bounded timing, but typically do have timing jitter in their scheduling due to context switching delays... QNX running on a PXA270 had jitter in the tens of microseconds typical, 100-200us maximum, so I wouldn't use it for stuff that has to run faster than about 100Hz or which needs timing much more accurate than about 500us. For that kind of stuff you probably will have to implement your own interrupt handling. Some RTOS's will play nicely with that, and others will make it a royal pain: your timing and their timing may not be able to coexist well. If the timing/scheduling is not too complex, you may be better off using a well-designed state machine. I would highly recommend reading Practical Statecharts in C/C++ if you haven't already. We've used this approach in some of our projects where I work, and it's got some real advantages over traditional state machines for managing complexity.... which is really the only reason you need an RTOS. | {
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825 | Anyone have any recommendations on a good rs232-to-usb converter. There are a lot out there and from the looks of it some are hit or miss. Good driver support is a must. | Any FT232 chip is good(ie FT232R). The drivers are publicly available and windows will download automatically. It will show up as a serial port and there are many pre-built solutions available. The Company that makes the FT232 chips, FTDI , will sell many solutions they developed in-house, also. | {
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869 | What are the items you have in your personal electronics tool kit? | Most important tool: A quality soldering iron . Mine's a Weller. Those Radio Shack pencil irons are useless, and will only make life more difficult. A wet sponge for cleaning the iron tip, several tips for the iron. Both desoldering braid and a solder sucker . Plenty of 60/40 solder , the silver bearing stuff doesn't flow nearly as well. A well stocked junkbox is extremely important. The more components you have to hand, the faster you can work. A good digital multimeter , I love my Fluke. Add to that a good analog multimeter , digital meters offer no sense of change over time. A dual channel 100MHz oscilloscope (mine's a tektronix mainframe that I scavenged). Good lighting ! A third-hand rig or similar to hold parts and boards that are being soldered. A spectrum analyzer is very useful for radio work. A function generator . A sharp pair of flush cutting nippers . Several spools of different coloured 20 gauge hookup wire . Some people keep flux to hand, but I've never found I needed it. Assorted scraps of printed circuit board, or strip board - breadboards are very finicky and can add circuit-killing parasitic capacitance. The absolute best tool I've found for cutting PCB is a jeweler's saw . You can buy them from Contenti, and aren't very expensive. I've never seen anything use produce a better or faster cut. I think that covers the bulk of it, it may seem like a lot of stuff but it's mostly small stuff. An LCR meter is handy, too. I have a foredom flexshaft, it's kind of like a Dremel but more powerful and higher quality. They're not cheap machines, but are a real life saver for modifying circuit boards. | {
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902 | How do I detect light with an LED? | It is possible to use a led as a light sensor as well as a light emitter. Essentially a reverse biased led will act as a capacititor, if it is then disconnected the charge will drain at a rate roughly proportional to the light hitting it. We can use this with a microcontroller - utilising the multi state ability of the ports. The resistor should be about 100 ohms, I have only used this with red leds - it may work with others. Use the following sequence: Set Port A output high
set Port B output low // this makes sure the led is discharged
wait 1mS
set Port A output low
set Port B output high // reverse bias and charge
wait 1mS
set Port B as input // Port B is high impedance input
time how long for Port B to read low The length of time will be dependant on the amount of light hitting the led. There are several examples of this on the web - I will list them here as I find them again: LED senses and displays ambient-light intensity Red LEDs function as light sensors Multi-Touch Sensing through LED Matrix Displays - very cool video LEDs As Sensors Very Low-Cost Sensing and Communication Using Bidirectional LEDs | {
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922 | How do most voltage regulator ICs work? Are they the same as hooking up a variable resistor and a voltmeter and turning the knob until you get the desired voltage? | Voltage regulators achieve "stiffness" via a feedback control loop, where "stiffness" means that a large change in load current causes a small change in voltage. Both switching and linear regulators include a control loop (historically analog... some of the newer switchers use digital control loops) to adjust some parameter of the circuit so that the output voltage remains constant in the presence of load current changes and input voltage changes. In a linear regulator the circuit parameter is the pass transistor drive circuit (which produces base current for an NPN/PNP power transistor, gate voltage for a MOSFET). In a switching regulator the circuit parameter is the duty cycle of the switching element(s). So there's really two areas you need to understand if you want to get into the details of how regulators work: topology design (achieve required limits of current/voltage/etc) control loop tuning + stability | {
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940 | How do you get around the annoying pin spacing on the Arduino? Where pin 7 and pin 8 are not standard spacing. Why is it set up like this? | I got to meet Massimo at Flourish Conf in Chicago this year... and I actually asked him this same question. What is up with the odd pin spacing?! This had been a subject of debate among friends, with the general agreement being that it help you from putting shields on backwards. Turns out, the actual reason for the odd pin spacing was an error in the original CAD/gerber file. So yea, the odd pin spacing was completely unintentional. Massimo also mentioned that there was a proposal to remove the odd pin spacing starting with the Duemilanove, Mega and future models (a so called "restart"), but was voted down in favor of reverse compatibility with old shields, etc. Hope this helps with the odd pin spacing question. | {
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984 | I just recently started using a Sparkfun serial LCD. I am able to control it through an arduino, but I want to be able to control it through a terminal on my computer. To be able to move the cursor or clear the screen, you need to be able to send hexadecimal code to it, for example, 0xFE. I am unable to find an open source terminal program for Windows that will give me this functionality. An example of a program that works very well is Eltima serial port monitor , although it is rather expensive for just a student. I have a USB to serial FTDI breakout board to get the signal to the LCD. Any suggestions as for programs, under Windows 7, will be greatly appreciated. | I just write short Python programs using pySerial : >>> import serial
>>> ser = serial.Serial(0) # open first serial port
>>> print ser.portstr # check which port was really used
>>> ser.write("hello") # write a string
>>> ser.write(0xa4) # write a byte
>>> ser.close() # close port | {
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1,024 | I was going to add a bit of information to my post on a previous day using schematics and some instructions. What programs are being employed for this purpose? I mostly want to see what others are using and that I can easily use to give descriptive schematics. In a perfect world, and I know this is a case of me wishing, it would be: Free. Extremely easy to draw schematics
in. Allows simple production of
waveforms for the inputs/outputs. | Try KiCAD . Now it even does SPICE simulations , ngspice specifically, and it handles pretty much everything else. Other than that, if you wish, KiCAD has also the tools to design printed circuit boards, and even has a 3D viewer and exporter for the boards! KiCAD runs on Windows, Linux and Apple OS X. There is also a project called ESIM that bundles KiCAD with a SPICE simulator and differential equation solver. | {
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1,060 | I've seen a lot of people talking about FPGA's before and I know that it stands for field-programmable gate array but how does it work and what is the purpose of using an FPGA? | They are electronic components that add logic to your circuits (so they are similar to micro-controllers). But the design approach is then completely different than in the uC (micro controller). In a uC, you can't change the internal uC design; you can only run "classical" programs on it. Programing FPGAs is more like creating new hardware. You create new connections between logical gates and create a new, specialized processor. And you can do it all in your home, on your desk and your PC. Sounds cool? Yes, but there are some disadvantages. For example, price (but I think it's hard to compare it), higher power consumption, and lower clock speeds (but you can design your application in a smart way, and do more operations in one clock cycle). Useful links: Good tutorials from Optushome Wikipedia - Digital electronics Wikipedia - IP core Wikipedia - PicoBlaze - example of soft processor core EEVblog: What Is An FPGA? Example usage: http://nsa.unaligned.org/ | {
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1,069 | The datasheet for the ATTiny13A, for instance, lists Min frequency of 0 MHz. Does this mean the clock can be run at any arbitrarily low frequency with no ill effects? I'm assuming it draws lower current at lower clock speeds? Does 0 MHz mean you can stop the clock completely, and as long as power is still applied, it will remember its state indefinitely? | Yes. If the datasheet says "fully static operation", then you can clock it at any speed, even 0 Hz. A "dynamic" chip needs to have a clock at a specific rate or it loses its state. | {
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1,092 | What's the difference between a microcontroller and a microprocessor? | A microprocessor generally does not have RAM, ROM and IO pins. It usually uses its pins as a bus to interface to peripherals such as RAM, ROM, Serial ports, Digital and Analog IO. It is expandable at the board level due to this. A microcontroller is 'all in one', the processor, ram, IO all on the one chip, as such you cannot (say) increase the amount of RAM available or the number of IO ports. The controlling bus is internal and not available to the board designer. This means that a microprocessor is generally capable of being built into bigger general purpose applications than a microcontroller. The microcontroller is usually used for more dedicated applications. All of these are very general statements. There are chips available that blur the boundaries. | {
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1,151 | I just spent about 20 minutes trying to cut through a PCB with a hacksaw. These things are really tough. What is the correct tool to cut PCB material, and get a nice straight line? I saw something about a guillotine, but can't find a vendor. | I don't know if this is the best way, but I usually score it multiple times with a heavy-duty knife (on both sides) and snap it by hand. Obviously this won't work for any non-straight cuts. The knife I use is similar to one of these | {
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1,206 | Does anyone know of a freeware SPICE / circuit simulator? SPICE (Simulation Program with Integrated Circuit Emphasis) is a general-purpose, open source analog electronic circuit simulator. It is a powerful program that is used in integrated circuit and board-level design to check the integrity of circuit designs and to predict circuit behavior. Wikipedia | ngSpice is available for gEDA. gnuCAP is also available for gEDA. LTSpice is free from Linear Technology. I thought that one of the other analog chip makers had a spice too but I can't remember
who :( I have been to a few talks on simulation given by physicists and EEs who have done
chip design. Each of the talks seems to end like this --- Except for simple circuits you will spend most of your time getting models
and determining where the models need to be modified for your application. Unless you are doing work for an IC manufacturer the manufacturer will not
give you detailed models. You will not be able to avoid a prototype. You should only simulate subsections of your design. Simulating the entire
design is not usually practical. Also most of the free simulators are not distributed with models. Re-distribution of
the models is usually a copyright violation. LTspice is distributed with models of
the Linear Tech parts. I am not sure the quality of the models. Most manufacturers
do not want to reveal too many details about their process. | {
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1,262 | What are Fuses in Atmel microprocessors and when I should or need to change the default settings? | They're essentially configuration parameters, or like the chip's BIOS. There's a fantastic fuse calculator for Atmega AVRs here: http://www.engbedded.com/fusecalc/ They control things like which oscillator to use, and what speed to run at (ie. the internal 8MHz oscillator, or an external crystal), brownout detection, and the size of the boot flash. | {
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1,478 | How do I calculate how long a battery operated product will run? Here's what I've got: 2 AA, 1.5V, 2700mAH batteries Voltage Regulator with a Iq of 25 uA Voltage Regulator Eff = 80% Active Current = 50mA Sleep Current = 1uA Duty Cycle = 99.9% (only active 0.1% of the time) Active Voltage is 3.3V I've gone the current route and got an answer. I went the power route and got a TOTALLY different answer (days vs years different). How do you do this? | My calculation, probably missing something, but here's what I did: $$
1 \mathrm{\ \mu A} + (50 \mathrm{\ mA} \times 0.1\%) + 25 \mathrm{\ \mu A} =
76 \mathrm{\ \mu A}
$$ $$
\frac{76 \mathrm{\ \mu A}}{ 80 \, \% \mbox{ efficiency}} = 88 \mathrm{\ \mu A}
$$ Round up to \$100 \mathrm{\ \mu A} = 0.1 \mathrm{\ mA}\$ $$
\frac{2700 \mathrm{\ mAh}}{ 0.1 \mathrm{\ mA}} \approx 3 \mbox{ years}
$$ If you're using rechargeable batteries, they'll discharge on their own long before that. Or if any of your other calculations are off (like maybe it's a 98% instead of 99.9% sleep), that will affect it a lot too. | {
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1,609 | I want to use a regular Arduino board to control LEDs - what is the most lights I can control individually from the board? Is there a tutorial on how to hook it up? | I believe using Charlie-plexing N lines controls N*(N-1) LEDs.
There is a good article on Wikipedia. A friend of mine, Jimmie P. Rodgers, fit 126 LEDs on an Arduino Shield.
He uses charlie-plexing to control the LEDs.
Some information on his board is at -- jimmieprodgers.com/2009/12/my-development-process/ (archive.org copy) At the last Boston Arduino User Group meeting Jimmie P. Rodgers drew a
Charlie-plexing diagram as a matrix with labeled nets. Schematics drawn in this
manner seemed to do a good job of communicating the concept. I created
a couple of similar schematics -- See http://wiblocks.luciani.org/FAQ/faq-charlie-plex.html | {
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1,689 | Are there any alternatives to this ancient yet still popular way of communication? | It’s been more than 10 years, and we’re still using RS-232? It's just a communications standard, and very bare-bones at that. Your statement is not much different than, "It’s been more than 10 years, and we’re still using wires?" Despite optical and RF solutions being available, wire still has some very distinct advantages, just like RS-232. The main advantages are It's cheap It's trivially easy to use It uses fewer wires than parallel data transmission It goes long distances (measured in hundreds of feet/tens of meters , rather than inches/cm for most TTL/CMOS signals) It's widely used in many products Compatibility issues are rare It's standardized, and a UART is included on all but the most simple microcontrollers Lots of converters are available to convert it to other standards (such as USB) Uses trivial NRZ encoding, so it's easy to interpret even without a UART Disadvantages include Slow Doesn't specify protocol or higher layers of the communications stack Standard connectors are bulky Doesn't supply power No standard identification mechanism (ie, can't plug it in and have the host know what was plugged in and its capabilities) Are there any alternatives to this ancient yet still popular way of communication? There are certainly alternatives, but no competitors that have all the above advantages. We could list off the thousands of communication standards one might use in place of RS-232, but the bottom line is that RS-232 hasn't been replaced or superceded. USB is the closest thing to it, but is severely limited in terms of distance, cost, ease of use, and included silicon on most microcontrollers. USB has other significant advantages that RS-232 doesn't have, though. They aren't replacements for each other, and in fact happily coexist on many computers. The key point is that RS-232 is a tool, and as such isn't intrinsically bad, or in need of replacement. It's getting less use these days as people want more advanced features, or faster speeds, or have some other requirement which RS-232 doesn't fulfill. But that doesn't mean that it should or will go away, because there are still a lot of new applications where RS-232 is the perfect fit. | {
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1,709 | I need help confirming some hunches. I'm trying to figure out what type of circuit this is: Any ideas? Also, I think the logic expression for this is: D = (A AND B) OR (NOT(B) AND C) | There are only two intermediate signals, so it's relatively easy to break down. We'll call the left input to the bottom OR gate X and the right input Y . I'm going to use some shorthand here - NOT = ! , AND = & , OR = | . X = A & B
Y = !B & C Those two lead into the OR gate that produces D: D = (A & B) | (!B & C) Which is the result you came up with, so you are correct. One application of this logic circuit is to act as a selector: When B is asserted, then A is output on D , and C is ignored. When B is de-asserted, then C is output on D , and A is ignored. | {
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1,714 | How could I achieve this? What are the stepper motor facts
and principless that I have to
keep in mind to design a circuit
to achive this goal? Are there any readymade/open source
alternatives and circuits available
to achieve this task? Do I have to approach design for
geared and non-geared stepper
motors? | How can I drive a stepper motor greater than 1000 rpm? A 200 step per revolution motor, running at 1,000 RPM must have a stepper drive capable of doing full steps at 3.4kHz, which is well within the range of most motor drive circuits. However, keep in mind that if you start out the motor at 3.4kHz, it will merely vibrate due to inertia - you don't start a car at 60 miles per hour, you start at 0 and ramp up to 60 MPH, otherwise you just spin your tires. So you have to design your circuit to ramp the frequency up from 0 to 3.4kHz slowly enough that the motor can keep up. This means you'll also have to take into account the whole drive train - stepper motor, gears, belts, and anything else the stepper motor is moving. This may be a large platform if you're doing CNC, and the inertia may require a very slow ramp up to avoid skipping steps. Lastly, if the motor isn't powerful enough to move the load at 1,000RPM, then you'll need a more powerful stepper motor. Torque falls as speed increases due to internal motor losses. What are the stepper motor facts and principless that I have to keep in mind to design a circuit to achive this goal? Gecko has a decent basic introduction to stepper motors . Power supply design, matching the drive with the motor so you don't lose too much power in mismatch problems, etc are covered in very basic terms there. Once you understand the basics, ask more detailed questions for specific answers. Are there any readymade/open source alternatives and circuits available to achieve this task? If you are running a low power design, the RepRap project has some reasonable stepper motor drivers. Alternately, a simple google search gives a lot of open source stepper driver information. Since you don't provide any more detail as to what you're driving, and what motor you're using, I can't suggest anything specific. Do I have to approach design for geared and non-geared stepper motors? Not in terms of driver design - the only difference is that a gear train adds more mass to the drive line, requiring a slower ramp-up time. However, the larger the gear train, the more backlash you might experience, so there's a lot more to the mechanical design if you require speed and accuracy. But the stepper driver design is the same in either case. If you want more speed and/or power, you should consider looking at CNC servo motors rather than steppers. | {
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1,849 | The datasheet of the 24LC256 EEPROM states that: The SDA bus requires a pull-up resistor to VCC (typical 10 kΩ for 100 kHz, 2 kΩ for 400 kHz and 1 MHz). I thought that any resistor with a kΩ value would do the job (and it seems that my EEPROM works fine at different frequencies with a 10 kΩ resistor). My questions are: is there a correct value for pull-up resistors ? is there a law/rule to determine this value ? how do different resistance values affect the I²C data bus ? | The correct pullup resistance for the I 2 C bus depends on the total capacitance on the bus
and the frequency you want to operate the bus at. The formula from the ATmega168 datasheet (which I believe comes from the official I 2 C spec) is -- $$\text{Freq}<100\text{kHz} \implies R_{\text{min}}=\frac{V_{cc}-0.4\text{V}}{3\text{mA}}, R_{\text{max}}=\frac{1000\text{ns}}{C_{\text{bus}}}$$ $$\text{Freq}>100\text{kHz} \implies R_{\text{min}}=\frac{V_{cc}-0.4\text{V}}{3\text{mA}}, R_{\text{max}}=\frac{300\text{ns}}{C_{\text{bus}}}$$ The Microchip 24LC256 specifies a maximum pin capacitance of 10pF (which is fairly
typical). Count up the number of devices you have in parallel on the bus and
use the formula above to calculate a range of values that will work. If you are powering off of batteries I would use values that are at the high
end of the range. If there are no power limits on the power source or
power dissipation issues in the ICs I would use values on the lower end
of the range. I sell some kits with an I 2 C RTC (DS1337). I include 4K7 resistors in the kit which
seems like a reasonable compromise for most users. | {
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1,904 | I do a fair bit of soldering (lead-free). Is breathing in solder/flux/paste fumes actually going to harm me? Are cheap fume extractors worth buying? | Solder fumes aren't very good for you. Some people can become sensitized to flux fumes, especially from the older rosin flux used in cored solder, and get breathing problems: Controlling health risks from rosin (colophony) based solder fluxes The no-clean flux isn't as bad. I once felt quite ill after assembling about 30 boards that I had to do myself as my distributor wanted them very quickly. Breathing out whilst you are soldering each joint helps a lot, if you don't have fume extraction. | {
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1,942 | How does one go about building an interface for a USB device that allows interfacing pots, linear/log tapers, and momentary/toggle switches to a computer? If someone could give me a high-level description, I would appreciate it. I can read spec sheets, so understanding details is not a problem as long as I know where to find the sheets. | I'd use one of the Teensy boards. These are Arduino-like microcontroller boards which have USB support. Unlike the Arduino, they can appear to a PC as any sort of USB device. This means that you can create your own custom USB keyboard, joystick, MIDI device, etc and have the PC use standard drivers. The Teensy supports the Arduino IDE , or you can program in C and use LUFA (for USB support) directly. Here are some project links to help. | {
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1,980 | I recently purchased a Weller WES51 soldering iron as my first temperature controlled iron and I'm looking for recommendations on the best default temperature to use when soldering. I'm using mainly .031 inch 60/40 solder on through-hole components. | What’s the proper soldering iron temperature for standard .031" 60/40 solder? There is no proper soldering iron temperature just for a given type of solder - the iron temperature should be set for both the component and the solder. When soldering surface mount components, a small tip and 600F (315C) should be sufficient to quickly solder the joint well without overheating the component. When soldering through hole components, 700F (370C) is useful to pump more heat into the wire and plated hole to solder it quickly. A negative capacitor lead to a heatsinking solid pour ground plane is going to need a big fat tip at a much higher temperature. However, I don't micromanage my soldering temperature, and simply keep mine at 700F (370C). I'll change the tips according to what I'm soldering, and the tip size really ends up determining how much heat gets into the joint in a given period of contact. I think you'll find that very few soldering jobs will really require you to change your tip temperature. Keep in mind that the ideal situation is that the soldering iron heats up the joint enough that the joint melts the solder - not the iron. So the iron is expected to be hotter than the melting point of the solder so that the entire joint comes up to the melting point of the solder quickly. The more quickly you bring the joint temperature up and solder it, the less time the soldering iron is on the joint, and thus the less heat gets transferred to the component. It's not a big deal for many passive or small components, but it turns out that overall a higher tip temperature results in faster soldering and less likely damage to the component being soldered. So if you do use higher tip temperatures, don't leave them on components any longer than necessary. Apply the iron, apply the solder, and remove both - it should take just a second or maybe two for surface mount, and 1-3 seconds for a through hole part. Please note that I'm talking about prototyping, hobbyist, and one-off projects. If you are planning on doing final assembly with the iron, repair work for critical projects, etc, then you'll need to consider what you're doing more carefully than this general rule of thumb. | {
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2,036 | Can anyone recommend a low cost or DIY buildable logic analyzer? Mostly, it would be for debugging serial protocols (SPI, I2C, RS232) at low voltages. | The Bus Pirate is probably your best bet - open source software and hardware, easy to build if you don't mind SMT, cheap if you buy it assembled ($30 shipped worldwide). http://code.google.com/p/the-bus-pirate/ Lots of variants, with a lot of people supporting it: http://www.google.com/search?q=bus+pirate The bus pirate is mostly useful for serial work, though it can do some small amount of simple logic analyzer functions. If you need to do a lot of logic analyzer work, this product looks very nice: http://dangerousprototypes.com/open-logic-sniffer/ Open source, but has very good capabilities. Very inexpensive, though. | {
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2,089 | LEDs with a concave cone-shaped lens are sometimes called "straw hat" LEDs. What is the advantage compared to the more common hemispherical lens? | The straw hat LED lenses have a much more even light distribution pattern than the typical hemisphere lens. The hemisphere lens usually focus the light into a narrow cone of maybe 20 or so degrees. One application that workes very well is Christmas tree lights. The straw hat lenses make the LED disperse light like an incandescent bulb. | {
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2,103 | What are the cases where one should avoid using a breadboard? e.g. high frequency, noise prone circuits etc. | Areas where the common breadboard does poorly: High voltage High frequency (above 10MHz) Where the additional breadboard capacitance would present problems (oscillators, etc) Where glitches due to poor wire connections would result in poor operation Where most of the parts are not through hole 0.1" (2.54mm) centers For anything but on-the-bench prototyping (ie, don't take it out of the lab and expect it to work) Sensitive analog electronics, such as sensor usage | {
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2,112 | I've been taking a close look at PSoC chips (series 1 in particular). With the reconfigurable analog blocks, they seem like a great solution for general data acquisition needs for prototype projects. I'm thinking about buying the programmer ($37 academic) and a few PSoC 1 chips so that I can avoid building amplifiers and filters and design electronics in a more intuitive way (more like Max/MSP). Here's the signal chain I'm looking at for my current project: (noisy) textile resistive sensors => voltage divider => PSoC(amplifier => lowpass filter) => (Xbee => Xbee?) => Teensy((decodeXbee|ADC) => micro-OSC code => USB) => Max/MSP/Jitter People didn't have much good to say about PSoC in the last thread . Do you think they're overkill for general signal processing tasks in prototypes? Not worth the convenience? Wait a few years for the bugs to be ironed out? Edit 1: I'm not looking for the best solution for my current project, I'm curious as to whether you think PSoC is a good investment for general prototyping. I see two advantages for myself: I get to learn (and share with the local community) a new technology When I need to do signal processing in prototypes, rather than hunting for circuits, spec'ing parts, ordering them, waiting, then assembling them, I can whip out a PSoC, configure the blocks I need, and plug it into a breadboard This was prompted by the answers to a previous question I asked here . I thought, rather than buying and learning to use PGAs and instrumentation amplifiers, I could get to know PSoC and turn a hardware problem into a software problem. Edit 2: I ordered the MiniProg1 kit from NKC Electronics . I'll let you know how it goes. | Areas where the common breadboard does poorly: High voltage High frequency (above 10MHz) Where the additional breadboard capacitance would present problems (oscillators, etc) Where glitches due to poor wire connections would result in poor operation Where most of the parts are not through hole 0.1" (2.54mm) centers For anything but on-the-bench prototyping (ie, don't take it out of the lab and expect it to work) Sensitive analog electronics, such as sensor usage | {
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2,262 | Lots of chips nowadays require smoothing capacitors between VCC and GND for proper function. Given that my projects run at all sorts of different voltage and current levels, I was wondering if anyone had any rules of thumb for a) how many and b) what size capacitors should be used to ensure that power supply ripple doesn't affect my circuits? | You need to add a couple of more questions -- (c) what dielectric should I use and
(d) where do I place the capacitor in my layout. The amount and size varies by application. For power supply components
the ESR (effective series resistance) is a critical component. For example the MC33269 LDO datasheet lists an ESR recommendation of 0.2Ohms to 10Ohms. There is a minimum amount
of ESR required for stability. For most logic ICs and op-amps I use a 0.1uF ceramic capacitor. I place the capacitor
very close to the IC so that there is very short path from the capacitor leads
to the ground. I use extensive ground and power planes to provide low impedance
paths. For power supply and high current components each application is different.
I follow the manufacturer recommendations and place the capacitors very close
to the IC. For bulk filtering of power inputs coming into the board I will typically use a
10uF ceramic X7R capacitor. Again this varies with application. Unless there is an minimum ESR requirement for stability or I need very large
values of capacitance I will use either X7R or X5R dielectrics. Capacitance
varies with voltage and temperature. Currently it is not difficult to get
affordable 10uF ceramic capacitors. You do not need to over specify the voltage
rating on ceramic capacitors. At the rated voltage the capacitance is within
the tolerance range. Unless you increase the voltage above the dielectric breakdown
you are only losing capacitance. Typically the dielectric strength is 2 to 3 times
the rated voltage. There is a very good application note about grounding and decoupling
by Paul Brokaw called "An IC Amplifier User's Guide to Decoupling,
Grounding,. and Making Things Go Right for a Change". | {
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