Economics -101: A Course Description

[SGOS]

Inflation is when prices go up, because the value of money goes down, or so I’ve been told.

Prices go up.  They always go up as a general trend.  Gas prices are now down, but during my life, the trend is still up.  People say it’s inflation.  People believed the inflation of the 70s was due to higher oil prices, but  I’ve read articles that say higher oil prices were due to inflation.  WTF?

Now, oil prices are down, but groceries are going up, as if to say inflation because of higher oil prices was just a lie.  Shirts are now made in sweatshops in 3rd world countries, but when LLBean and the rest of the importers started buying shirts from sweatshops, the prices went up, not down.  We are told this was due to inflation because costs for consumers went up.  Except prices for importers went down.  It’s all very complicated… Or maybe just a lie.  I dunno.

Why did soda pop take a 50% leap a couple of months ago?  Was it because money was worth 50% less? Do manufacturers have something that tells them the value of the dollar is down, so the cost of their product has to go up?  Or do they just say the price is whatever they decide?

Why does the value of the dollar go down?  It’s just paper.  It’s not backed by anything of value.  Well, it’s backed by the word of our government.  But then, the Republicans are always shutting the government down because they say there isn’t enough money to run it, and we are supposed to trust people who say the dollar is backed by a government that is going broke?

They say inflation is when money isn’t worth as much as it was.  Who decides when it’s not worth as much?  To me, inflation is when prices inflate.  But maybe I take this too literally.  Everyone wants the value of their product or service to inflate, but everyone complains about inflation.  Even the government worries about inflation.

When prices go down, the Federal Reserve Bank worries about deflation:  "OH, NO.  Prices are going down.  We’re in big trouble now."  We also worry about stagflation, but I don’t know what that is.

[Solitary]

I'm with you on this. My economics teacher told us the first day of class that if we forget everything else to remember this one thing: There is only one reason for inflation or depression, the government makes too much money, or not enough, it has nothing to do with costs, wages, or anything else. I'm not sure if anyone understands economics. Solitary

[SGOS]

I'm not sure if anyone understands economics. Solitary

It seems to have become more philosophical or ideological in nature.  You would think it would rely heavily on mathematics, but it's more like opinions.

[stromboli]

In some cases, supply and demand. Diesel fuel is a good example. diesel fuel costs less to make than gasoline, but costs more at the pump in the US. It costs less in Europe. the reason is because Europeans drive a high percentage of diesel vehicles and there is a constant demand for it. Because of the demand and a ready market, they can produce it in vast quantities which lowers the overall cost.

In the US, diesel for passenger cars- which is not the same as diesel for semis- has a low demand. We think of performance in terms of acceleration and horsepower. diesel is a compression fuel, which while providing greater torque and overall provides higher mileage, it has different performance characteristics than gasoline. If people simply started demanding diesel vehicles, eventually the availability would match the demand, and then it can be produced in greater quantities at a cheaper rate.

In the case of food, it has to do with both sources and availability. Tomatoes can be produced en masse in a variety of ways and turned into storable products like tomato paste, stewed tomatoes and sauces and so on. Avocados are not generally sold as prepared goods because about the only thing people want is Guacamole, and that is a limited market. Avocados also have a problem in that they don't ripen until the come off the tree, and then go from hard green to dead ripe in about 3-4 days total, so they have to be marketed and sold within that window.

Avocados also are primarily grown in Central America, so there is a small window of transport involved. Stuff like oranges are only grown in a few places, but fortunately have a longer period of usability and are produced in huge quantities.

There are different reasons for different goods, but you hopefully that is a partial explanation.

[Hydra009]

SGOS:  sometimes it actually is inflation, sometimes it's what the producer can get away with charging.  If people will buy 2-liters of soda for $2, then that's what they'll charge.  Theoretically, competition will keep prices low, but in reality, that's not always true.  Part of that is brand loyalty (people not willing to buy off-brand products).  And part of it is de facto monopoly (broadband ISPs).

We also worry about stagflation, but I don’t know what that is.

Stagflation is high inflation and high unemployment simultaneously.  I've been told that it's a difficult problem because any attempt to alleviate either problem exacerbates the other one.

[Solitary]

So, is war a case of supply and demand? He! He! 

[AllPurposeAtheist]

One of the most mystifying is real estate. It's not AS IF Kansas for example can manufacture more farm land. It's based on whatever the market will bear..If a million people are willing to pay a million dollars each for a turd with a red light then turds with red lights are worth a million dollars. Otherwise we have a million turds and a million red lights, none of which are worth a million dollars.

[SGOS]

APA, back during the housing boom a couple of years before the collapse, I was talking with some guy from California, where prices were insane even before the boom.  It was insane everywhere at the time of our conversation.  I had built three houses during the course of my life, and had just finished my third so I knew something about cost of materials.  I remarked that houses, even old houses, were selling far above the cost of labor and materials.  Based on that, my position was that houses were not worth what they were selling for.

But as you point out with real estate, it's what the traffic will bear, and be damned what it's worth.  And of course everyone wants to make money, realtors represent sellers, and everything is priced above market value.  The guy's position from California was that current prices did indeed represent true value.  And he was right kinda, I guess.  I did feel somewhat vindicated however when the bottom fell out of the market, and suddenly houses were selling at half price.

But there are odd factors in Real estate.  During that time, values of houses were being pushed up by easy money and  heady panic buying.  Get your piece of property before it was priced out of reach, and the higher prices went the more the banks started flinging money at unqualified buyers.  So a whole new segment of the population was suddenly in the market, pushing prices even higher.

I still haven't figured out the real value of property.  I made an offer on 40 acres recently.  The realtor, of course, said it needed to be higher.  I said nope.  It sold to someone else.  That's OK.  You never know what a seller's bottom line is, if you pay him what he wants.

[stromboli]

One of the most mystifying is real estate. It's not AS IF Kansas for example can manufacture more farm land. It's based on whatever the market will bear..If a million people are willing to pay a million dollars each for a turd with a red light then turds with red lights are worth a million dollars. Otherwise we have a million turds and a million red lights, none of which are worth a million dollars.

When first married, I worked as a property manager while going to welding school. The owner was one of these assholes that thinks ripping people off was OK as long as it wasn't him. I got familiar with some of the methodology of real estate, and it is pretty scary. Realtors basically manipulate the market to suit themselves, do everything to make it difficult for homeowners to sell their own properties,  and are the prime reason houses cost so much. This guy bought 150 acres of property in a country setting, hooked up with a developer and promptly raised the value of pasture land from $500 an acre to $1,500 an acre by just fencing it in and installing electricity to the development. Figure with the cost of houses he would see (then) $75,000 per 1/4 acre plot out of a 150 acre development. Now, probably triple that.

Don't forget it was the realtors and the housing bubble that created the financial crisis in 2008. If you're looking for major assholes, start there. Property values are hugely inflated just so they can make fortunes, period.

My nephew lost his ass in the housing mess back in the 70's in California. He owned a home that was almost a carbon copy of the one I lived in, a bi-level with 4 bedrooms. My house was valued at $63,000, and I had more land. His house when bought was over 70,000 and with the real estate explosion rocketed to over 150,000- the taxes more than doubled, he tried to sell it and lost his ass because no one could afford to buy it. This is the kind of shit that makes you want to kill people.

[AllPurposeAtheist]

I get that property is worth more if the property close to you is worth more, but what has never made sense is why property in a crappy neighborhood should be worth almost nothing as opposed to a few blocks away where it's worth thousands more based on nothing more than the color of the neighbors.... It's a fact of real estate..

[SGOS]

When first married, I worked as a property manager while going to welding school... I got familiar with some of the methodology of real estate, and it is pretty scary. Realtors basically manipulate the market to suit themselves, do everything to make it difficult for homeowners to sell their own properties.

Agreed, realtors are in it for themselves, and I don't use them.  When I sell, I discount the slice taken by the realtor, and pass that on to the buyer.  That way, I minimize the inconvenience of lookers traipsing through my house, and sell my house in a more timely fashion.  This has always worked out well for me.  Realtors see my ad in the paper and call me. They want to get my listing.  I don't like that.  They are very pushy, and a pushy person seldom has my interests at heart.  They keep telling me I will get more for my house if I list it.  I don't believe it.  They tell me my house is worth more money than I think it is, hoping I'll get cash register bells ringing in my head, so I'll decide to list it with them.

This is not true of all of them.  I've met a few that I did respect, but the realtors in my home town were not trustworthy.  They would not lay their cards on the table, and operated from a totally buyer beware frame of reference.  I don't like dealing with creepy people.  They make me feel creepy.  I believe the job of a broker is to bring people together, not to favor one party over the other.  Realtors have told me they represent the seller, NOT THE BUYER.  To me that's a red flag, and it should be a red flag for any buyer. 

The realtor fee is nothing but extra money you pay to buy a house.  It's a surcharge, and the seller has to ask more than a fair price to make up the difference, because he has to pay that fee.