Malthusian Behavior and Competition

Time to discuss some more economics! Here I'm going to make an argument that a generalized version of some of the views set forth by Thomas Malthus have value in a behavioral explanation of certain economic behaviors, particularly monopolistic competition.

The General Form of the Malthusian Argument

Thomas Malthus is also a rather well-known economist. In An Essay on the Principle of Population he laid down a theory the attempt of disproving which led to a lot of early development in economics - that population will never case growing until living conditions are at the point where no more people can be supported.

Two Things on the Government Shutdown

I don't particularly have a lot to say on this topic in general, but I have two very specific things I want to state, and they are much more directed at the people who talk about the government shutdown than the people who initiated it.

Basically, there are two kinds of people I can't stand when it comes to this entire pile of... government... stuff...

People Who Take Sides Without Taking Blame

I'm sure you're all familiar with the many variations of the phrase that basically boils down to 'we like to pretend children mean more than what they say because it makes us feel good about ourselves and humanity in general.'

To take a leaf from that book, any ridiculously drunk traditional frat boy would take one look at this entire debacle and tell you exactly what was happening - a bunch of people in Washington have whipped 'em out and are measuring them.

Yes, even Hillary.

Fact is, people, you can't be stubborn without someone to disagree with. There are sides in this thing, but the idea that any side is completely to blame is just not a correct one. Every politician is to blame. Every person who elected those politicians shares some small portion of the blame. Every person who failed to help elect different politicians? They're to blame too.

But the people in all of this I feel are most to blame here - outside of those directly perpetuating the issue, of course - are those who sit down, take a side, and then refuse to take responsibility for the actions of their side.

To all of you who are like that, I want you to please take a look at what you're doing. You are driving a wedge between people. You are creating tensions and problems in a time that is currently pretty full of tensions and problems all by itself. You are making an essentially partisan problem even more partisan in nature.

And you're doing it all because a bunch of people we all put in office can't keep it in their pants.

People Who Think This Is A Good Thing

These people aren't quite as bad as the previous category. Hence, of course, they get second billing.

That being said, they still manage to piss me off.

I'm sure you've met one of them, too. One of those people who thinks that shutting down the government for good - or even for a little while - would lead to some glorious rebirth in which many problems would be fixed? Or maybe just one of those people who thinks that government is bad and any reduction in government power is good for everyone?

Yeah. I hate those guys.

Now, for those of you who don't know, I am not always the first person to speak out when the government sticks its nose where it doesn't belong. Not, of course, because I agree. It's because I tend to think before I open my mouth.

And, of course, it's my opinion that a complete cessation of government activity has the potential to lead to some benefits in the long-run.

So why do these people piss me off so much?

Because the short-run costs of cessation are too damn high. People right now rely on the government for all sorts of things - sometimes food, sometimes access to healthcare, sometimes a salary. Many of those people are going to suffer, many of them will suffer greatly, and that suffering will continue for a good long while if the government doesn't get its act together.

Now. You can argue all you want about whether or not people should rely on the government for things. You can say that our freedoms will be increased while the government is asleep. You can even say that people deserve to go hungry for having taken up so many undeserved resources from others.

People have said all of that, and will continue to do so.

I, however, find it morally reprehensible to push an ideology at the expense of human suffering. To be fair, a little bit is okay. Maybe even a lot, if it is truly deserved. But when you have things like WIC losing funding - a service which is used to feed people, if you don't know - that is not okay. It is not okay, and it will not become okay just because of some empty words and empty promises, whatever they happen to be about.


And now I'm done. That was a lot shorter than I thought it was going to be, and now I feel much better. Time for a drink!

Mass Media And Why It Sucks

I'm sure you all know this man...

Seemingly the only thing on the news recently is people talking about this man, Zimmerman, and the boy he shot, Trayvon Martin.

Economics: Impact of Perfectly Equivalent Income

For those of you who can remember way back when to this post I made last week - a long time, I know - I promised at the end to continue with a discussion of how one could preserve the benefits of capitalism in an environment where incomes are frozen at a perfectly equivalent level.

I'm going to do that now, and hopefully I can wrap it all up in a single post. Otherwise, you're due to wait another day to finish this topic up, and that's yet another day before I can get back to the mainline wealth redistribution topic I've been researching the past while.

Here we go.

Economics: Introduction to Perfectly Equivalent Income

This is the aside I mentioned I'd be working on before continuing with the whole wealth redistribution line of thought. That other aside was not this aside, but it kind of builds into it, so 'twas kind of necessary.

Anyways. Time to talk about the economic impact of perfectly equivalent incomes. Here we go!

Capitalism

Before even asking any questions, we first need to understand something - why is capitalism a strong framework for an economy to operate in? What is good at and, just as importantly, what is it bad at?

For comparison, we will also examine the sort of economy from which modern capitalism eventually formed - feudalism.

Economics: Investment and the Quantity Theory of Money

Last post I said I was going to do a little aside before continuing looking at socially optimal wealth redistribution levels. This is not that aside, it's the aside before the aside.

Enjoy.

Credit Cards

The concept behind this post is, more or less, entirely my own, and fits well into the discussion at hand, albeit in an oblique manner. Behind this answer, however, is the original question that created it - and it is, in my mind, a very important question.

Last year, in my senior capstone class, my professor asked the class about what the impact of credit cards is on the quantity theory of money. I had a rather incomplete answer at the end of class that I discussed with him briefly, and this answer is based on that one.

But first, a better explanation of the general form of this question...

Economics: Utility and Wealth Redistribution

In my last post, I created and discussed a definition of wealth redistribution. If you haven't read it, at least take a look at the definition given, as it will be important for this discussion.

Utility

Utility is an economic concept that attempts to quantify the value of things. Unlike a more ordinary quantification attempt, however, it is merely ordinal, and not cardinal - that is, utility does not come in discrete meaningful units.

Therefore, the real purpose of utility is to determine which in a group of things is the most preferred option. While this might give us an idea as to the degree of difference in preference between the various choices or objects in our pool, it does not tell us the absolute difference in utility between them.

I'm sure that seems quite limiting to some of you. For the purposes of our current discussion, however, it does more than enough, so we shall forge ahead.

Wealth Redistribution: Definition

Time to depart yet again from my somewhat regular blog schedule! Over the next several weeks, I am going to be writing up a series of posts related to this post, where I lay out the idea of socially optimal wealth redistribution.

I'm going to go very in-depth on everything, but I'll try to write a nice, succinct bit at the end of every post that should be easy for everyone to read and follow.

What Is Wealth Redistribution?

As do all searches for knowledge, let us begin with Wikipedia.

For those uninterested in following the link and doing some additional reading, here is the simple definition given at the top of the page: 'Redistribution of wealth is the transfer of income, wealth or property from some individuals to others caused by a social mechanism such as taxation, monetary policies,welfare, charity, divorce or tort law.'

Politics: Action and Regulation

I just recently read a bit of text on Facebook posted by one of my friends. He was speaking out in favor of the Libertarian Party - probably the party I would support, if I voted (for those who care, this is why I don't vote anymore) - and its ideals, and all that stuff.

Within his post was this line: 'The point is, a true Libertarian thinks the only person with a right to tell you what to do is yourself.'

There was also the obligatory bit about how this does not apply when you are infringing on the rights of others. A lot of political and philosophical grey areas are hiding in those statements, and this was pointed out by someone, who replied with this line: 'The valid debate that plagues me is the extent to which ones actions do affect others.'

Now, I'm not going to pretend I know exactly what was meant by this phrase. I'm going to make a lot of assumptions - and I'm sure not all of them will be correct - and for that I apologize in advance to the person who made this statement. Not that anyone will ever know who you are, or that you will ever, necessarily, read this post, but I feel it necessary nonetheless.

Economics: Two Statistics I'd Like To See

Today's post is going to be largely about two statistics I'd like to see calculated at some point in the future, and that I may, at some point, attempt to calculate myself, if I have the time, money, and motivation to do so.

Also, if it so happens that anyone knows of a paper or somesuch talking about or calculating these statistics, I would love to see it.

First, the value of a statistical job, or VSJ. Before continuing, get the gist of this. No need to understand exactly how it is calculated or any of that jazz, but you have to understand what it is.

So, VSL is the value of a statistical life, estimated through the use of cleverly designed surveys and some mathematical voodoo.

VSJ, then, would be the same thing, but for jobs - the statistic itself would be an estimate of how much the average person values the creation of a single job, probably as a function of some particular qualities of the job, such as salary.

Why would this statistic be important? For making policy, of course! If you knew how the average person valued the creation of a job, and you had some estimate of how many jobs could be created by taking a particular course of action, you'd be able to weight the cost of the policy against the reward.

Results would be far from perfect, but having some sort of method to estimate the gain from a policy aimed at creating more jobs seems more useful than having no estimate at all.

The second statistic is the socially optimal amount of wealth distribution. First of all, read this.

After getting done with that, let's review - because of the diminishing marginal utility of money, incredibly rich people get less out of money than incredibly poor people do. This means that, to some degree, it is socially optimal - at least from a utility standpoint - to take money from rich people and give it to poor people, a process known as wealth redistribution.

I'm sure we can all agree that wealth redistribution is good to some extent. You don't see many people arguing against progressive taxation, for instance, or programs to help feed the hungry children in poor families. Or, at least, the arguments aren't usually on the principles of the program, but the specifics.

Anyways. Calculating this statistic is significantly more difficult than calculating the VSJ. Contingent valuation and related techniques - unfortunately relegated almost entirely to environmental and healthcare economics - would seem to be able to yield the best results, but even these would require a very intricate and well-crafted  survey to create data, and, more than likely, a fairly complicated maximum-likelihood model.

Why would this be important? Well, again, policy could be guided by such a calculation. If you were capable of performing a rough estimate as to the socially optimal degree of wealth redistribution, it would be a great number by which to guide any number of important policy decisions.

On a side note, I can almost guarantee that the socially optimal amount, calculated by this method, would be higher than the amounts in virtually any nation in the world. Why? Because thievery still occurs and private charities still exist, and these are the natural ways by which society attempts to correct a non-optimal distribution of wealth.

A side note to that side note: I don't necessarily believe that the socially optimal degree of wealth distribution is the correct one. As much as it would create a great amount of utility when taken in at a glance, you still have to consider the ramifications of extensive wealth redistribution as a policy, especially in a nation like America which is, in part, built upon the principles of the free market.

Also, I'm not in favor of thievery or in any way justifying its occurrence. It just so happens that one could, from an economic standpoint, consider it an attempt to solve wealth redistribution issues outside of the market. I mean nothing else by mentioning it.

And done. Hopefully you all enjoyed the read, even if it was a mite technical. If you have any sort of information on, questions about, or other comments related to the two statistics I listed, I'd love to hear them!

Pun of the Day: This one's complicated, and not necessarily funny to anyone but me. I'm still putting it here.

A friend and I were making some toast. She mentioned how she was the 'breadmaster.' I immediately thought, of course, of the Ghostbusters, and then went on to imagine a remake of the movie where every character was a piece of bread. The name of the movie? Toastbusters.

Who ya gonna call? Toastbusters!

Economics: Welfare Theory, Cars, and Gun Control

Recently, the Sandy Hook Massacre has fueled a lot of political discussion revolving around the concept of gun control. The discussion centers on things such as banning high capacity magazines or outlawing the possession of certain types of firearms.

I'm sure you all know at least a little bit about the different positions in the debate and all that stuff. I'm going to assume this and move on.

This post is going to attempt to take a look at gun control using the tools of welfare theory and a separate good as a comparison - the car.

Now, I'm sure you all know what a car is, and I've assumed you know what gun control is. We are, however, potentially missing information on the third pillar of our discussion - welfare theory.

For the sake of this discussion, welfare theory is a branch of economics that involves the use of utility as a method of gauging the positive and negative benefits of a specific action. Utility is an abstract, ordinal measure of the 'good stuff' you get out of possessing something or taking a specific course of action. For instance, part of the utility of owning a car is that you can drive it, thereby allowing you to obtain items such as groceries.

Of course, utility can be both negative and positive, and as it is an ordinal - not cardinal - measurement, the only real information it provides us is whether or not one thing provides more or less utility than another thing.

You can find some more information here, if you'd like. Not quite as tailored to this particular topic, but still quite informative.

And now we have the essential foundation necessary for this discussion. As such, let's start talking about cars.

Cars are great. They provide a lot of utility. You can drive them, they can act as a status symbol, and they make you feel more safe in case of an emergency - for instance, you would be able to drive a family member to the hospital if necessary. All of these things provide positive utility, and these, among other reasons, are why so many people in American own and operate some type of motor vehicle.

Let's look at the negatives. You have to pay to maintain your car, to maintain your car insurance, and to put fuel into your car. All of these are generally considered to be bad things. Most importantly, at least to the discussion at hand, is this - driving is a dangerous activity. Accidents involving a motor vehicle account for a rather large portion of all deaths in America.

Now, obviously people are worth more than cars. Does this mean we should stop driving because we kill so many people while doing so? No, it does not. We do, however, provide some very strict regulations on who can drive, what they can drive, and how they can drive.

Let's take a look at some of the regulations that are currently in place...

All drivers must be registered, and to be registered, they must pass an examination. This helps to ensure some minimum quality of driving.

All cars must meet some minimum safety requirements, to lower mortality rates in the case of an accident.

All cars must be insured. This prevents people from losing a great deal of money when in an accident where the person at fault has no insurance.

Driving while drunk or, in some states, distracted by your cell phone, is not legal, because these activities greatly raise the incidence of accidents.

There are lots of others. However, let's take a look at some potential regulations that would be considered 'going too far'...

Red cars are more likely to get into accidents than cars of any other color. We should ban the production and driving of red vehicles!

People are more likely to die in an accident when driving a small car than a large one. All cars must be larger than a certain size, with the minimum size being larger than that of a current standard sports car!

These two regulations might seem a little absurd, but the statistics to back them up are actually quite sound. Why is it, then, that these regulations seem silly while the ones listed before them seem quite reasonable? Putting aside the obvious answer of 'because the first ones are in place while the second are not,' it really comes down to something quite simple - choice utility.

Choice utility - and I'm sure there's a phrase for this somewhere, I just can't remember it - is the utility someone gains by being able to get what they want, rather than something similar to what they want. We've all experienced this before. As an example, a hardcore gamer wants a laptop. His preference is for a souped-up Alienware, but he is instead stuck with purchase a laptop of the same price from Apple - whose OS does not support any of his favorite games.

While he still has a laptop, he would have achieved a much greater degree of utility by getting the laptop he wanted, rather than one he didn't want.

For those of you who know a lot of economic theory, this is also the reason that product differentiation happens. While it might seem that you are losing overall social utility via dead-weight loss when moving away from a purely competitive market and towards one with a great deal of product differentiation, this invisible 'choice utility' actually makes it so that the optimal market is often one that provides at least a small amount of differentiation.

But I digress. We now understand why cars are regulated, and also why they are not regulated. Let's take a look at guns.

Guns obviously provide less utility than cars to the average person - they cost less and are owned by a smaller percentage of the population, so this conclusion is quite obvious. However, the same sort of utility is gained by owning them - they can be a symbol of status, might help you feel safer in the case of an emergency, and are often owned simply because the owner enjoys shooting them, either at a range or while hunting.

The negatives are also quite clear - owning a guns are dangerous. You can kill or seriously injure someone with virtually any kind of gun.

It makes sense, then, that you would regulate gun ownership, what sorts of guns could be owned, and where they could be used, right?

The answer is 'kind of.' You see, the dangers associated with guns are inherently different from those associated with cars. Why? Because cars are - at least in the vast majority of cases - only dangerous to those who are, in some way, involved with another car or a road. This means those people, in some way, have accepted the fact that they might get into an accident, and have decided that the benefits of driving a car or walking along a sidewalk outweigh the slight possibility of being hit with a multi-ton, fast-moving metal object.

This is an implicit social contract. You are adopting risk by taking a certain activity.

Risks associated with guns do not follow the same rules. One person waving a gun around endangers everyone in the vicinity, regardless of whether or not they happen to also own a gun, or were in any way cognizant of the possibility of having a gun waved at them.

One might argue that being a part of society at all includes this as a risk. However, I would have to say that it is much simpler to abstain from driving than to abstain from all of society, and that you would be hard-pressed to come up with a common situation in which an individual would gain more utility by being apart from society than being a part of society.

And again, I digress. Obviously, some amount of gun control can only be a good thing. Registration, education, background checks, waiting periods, and all that jazz helps prevent guns from being purchased by the wrong sorts of people.

All of that is well and good, but when is the control too much? When is a restriction on buying guns akin to outlawing red cars?

I honestly don't know. The only way to find out for sure - at least, according to utility theory - would be to put the question up to a referendum and let the people decide, based on their own personal utility curves. You would also have to go to lengths to educate the populace a bit about firearms and the dangers related to them, but that would probably be a good idea, regardless.

Personally, I think this would be a great idea. Not that any politician would ever support it, but it seems appropriate. It's also, more than likely, not practical, but the best theoretical solutions rarely are.

What do you all think?

And done. My conclusion stinks, I agree. Comments can go below, but please try to keep it civil. Hope you enjoyed reading it, even if I did ramble a lot and, probably, was entirely incorrect about at least one thing.

Politics: On Same-Sex Marriage and Other Things

This article was requested by a friend of mine last week. While I was not prepared to write it then, I have done enough research over the last week or so to feel confident in what I am putting down - at least in the facts department. Being overly confident about opinions only leads to trouble.

The exact article requested was one for the prediction of which states will be the next to allow same-sex marriage. I'm not only going to cover this, but it will be part of what I'm doing.

So, first of all, the important question you'll all be asking - what do I think about same-sex marriage? Well, my stance is really simple - if you don't like same-sex marriages, don't participate in one. It's pretty straightforward.. No talking around the issue, no talking around my stance on the issue. 

In short, there really isn't any reason for same-sex marriage to not be legal. We'll cover why a bit later, but for now, we're going to move on.

While I do agree that same-sex marriage should be legal, this does not mean I care particularly about the issue. You won't ever find me signing petitions or waving signs. I'm simply not motivated enough, and probably never will be.

Who cares about same-sex marriage, then? Well, the answer is simple - those who might participate in one, those who are close friends and/or family of those who might participate in one, and politicians who want to garner favor with either of these sorts of people.

And who's against same-sex marriage? Again, pretty simple answer - people who feel threatened by changing what they consider a 'sacred' institution, LGBT people who would prefer to keep LGBT culture separated from 'normal' culture, and politicians who want to garner favor with either of these two groups of people.

From this, it's fairly easy to deduce what stance a politician will take on same-sex marriage.

For instance, let's take a look at the Democratic Party as a whole. Usually, Democrats are in favor of same-sex marriage. Some might say this is because they truly care about the issue. While this may be true in a minority of cases, I would say the truth is a bit more complicated - the Democratic Party has adopted a stance in favor of same-sex marriage because large numbers of people who care about same-sex marriage are in states that are normally pillars of political power for the party, while people who oppose it are more dominant in states that are usually under the influence of the Republican Party.

With this stance, then, they keep control over areas important to the party, while losing votes largely in areas that they will not win in, regardless. And, on the plus side, individual politicians running for state/local positions or congress can run on the Democratic ticket and still be opposed to the overall stance on the issue to gain more support on a local level without hurting the party as a whole.

The evolution of the Democratic and Republican Party stances on same-sex marriage, then, are largely a result of demographic pressure, rather than any real desire to go one way or the other on the issue - at least in the general case. I'm sure there are many politicians in both parties that have very real, very strong opinions on the issue. They are simply in the minority, rather than the majority.

To demonstrate a more specific example, let's take a look at Barack Obama in the past two elections and his first term in office. In both cases, Obama ran against an opponent who was staunchly against same-sex marriage. To distinguish himself, all he had to do was speak up in favor of same-sex marriage. However, he has take little to no action on the issue. Why? Because to do so would be to ostracize moderate voters against same-sex marriage, and he could still easily distinguish himself without having to take any action because of the extreme views of his opponent.

Anyways. To show some support of this argument, we'll take a look at some traditional blue and red states, and see what proportion of the population identifies as gay or lesbian, as well as whether or not they have supported same-sex marriage institutionally, or have opposed it.

For data purposes, a map of traditional blue and red states can be found here, a map of states' stances on same-sex marriage can be found here, and the demographics of states based on portion of population that identifies as gay or lesbian can be found here.

(The last link only shows the states with the highest LGBT population, not those with the lowest. I was unable to find this data on the Internet, but if anyone can find some, I'd be very glad to hear it.)

Taking a look, the states with the highest percentage of LGBT population are also those who have - either presently in the past - provided institutional support for same-sex marriage. This should not be overly surprising - as per my three categories of those who care the most about supporting same-sex marriage, all three are more likely to occur in areas with more LGBT people.

More importantly, every state with a high LGBT population is a state that generally votes for Democratic candidates, rather than Republican ones. This means that the Democratic Party has no choice but to support same-sex marriage - if they did not, they would be losing votes to independent and third-party candidates constantly, and always in areas that 

If you take a look at the history of the Democratic Party's stance on same-sex marriage, you will also find that the current stance evolved after two important events. First, a continued upwards trend of the percentage of the population identifying as LGBT over the past few decades - while not terribly sharp, it is obvious that LGBT people are not going away. Secondly, and more importantly, the issue has become a prominent voting point for an expanding portion of the population, with the majority of that expanding population residing in states that they need to continue to have political control over, such as New York and California.

Now to answer the question that inspired this post - which states will be the next to provide institutional support for same-sex marriage? Well, the answer's pretty simple - New Mexico and Colorado. Not only are they largely blue states, they have a large and growing percentage of the population that identifies as LGBT. Much simpler question to answer then I originally thought.

And now on to the final bit - does legalizing same-sex marriage have a negative impact on our culture, government, or the institution of marriage? I'm going to have to say no, and here's why...

(For most of my sources, look on this site. I'm too lazy to individually link to all of the studies listed there, but everything I'm saying is supported by one study or another.)

First, and perhaps foremost, the first state to allow same-sex marriage now has the lowest divorce rate in the United States, even discounting same-sex marriages. On the other hand, Alaska, the first state to impose a ban on same-sex marriages, has among the highest divorce rates.

There is little to no empirical support for the idea that same-sex marriage threatens the institution of 'normal' marriage. While the argument of the 'slippery-slope' descent into polygamy and bestiality is still one that I cannot refute, it has no backing in the real world.

Secondly, there's no definitive conclusion one way or the other that children raised by same-sex couples are any less/more capable or well-adjusted than 'normal' children. In my mind, this one is up in the air, and while I can see why being raised without one sort of parent can skew development, any household is better than none, and this skewing of development could even turn out to be a good thing.

(I will point out that children raised by LGBT parents are more likely to eventually identify as LGBT themselves, but I'm really not seeing the problem with that. It's not like LGBT people are some sort of cancer or disease that we should be looking to get rid of.)

And, finally, no real argument can be made that allowing same-sex marriage yields a net positive or negative effect on the budgets of the state and federal governments. I'm sure there will be changes, but they go both ways. Regardless, making decisions on what is a primarily a civil issue using economic arguments is kind of silly - at least, it is when you can't show certainly that it has a positive or negative effect. If you could demonstrate that same-sex marriage having institutional support would irrevocably bankrupt the United States with little to no doubt I might join you in opposing it, but this simply can't be done.

And now I am done. Hopefully I was not overly offensive to anyone. Usually I try to present my argument in the most direct and logical fashion possible, but this one is a sensitive one and I'm sure I typed up something stupid and offensive in there somewhere. Apologies in advance.

Comments, insults, suggestions for future posts, and your favorite way to cook a rack of ribs can be dropped in the comments section below. Thanks for reading, guys!

Economics: Handheld Gaming

Today, I'm going to talk about the economics surrounding something that's fairly close to my favorite thing ever - gaming!

I've been a gamer for, more or less, my whole life. I began with the original Sonic series on the Sega Genesis - as well as the horrid Dark Castle port for the same console. I even beat Ecco the Dolphin - years after I played it for the first time, but still, it counts!

More recently, I've played both the originally SimCity and the original SimAnt. I was among the first to get into DotA and WoW and, in the case of WoW, one of the first to get off it. I have played every iteration of the XCom series, the Civilization series, and, perhaps most importantly, the Black and White series.

(Black and White is very nearly my favorite video game of all time. I'll never get over watching a giant ape thrown someone against a mountain because there's no one around to help, only to be overjoyed that he can now heal the man whose back he only just broke and set him back to work.)

However, none of these games are part of the area I'm going to talk about today: handheld gaming. For me, handheld gaming reminds me of Link, Mario, Fire Emblem, and Advance Wars. Many excellent games have been published in this area, many of which remain entirely in the realm of handheld gaming.

For me, this makes it very alarming to learn that the handheld gaming industry is undergoing what can only be described as a protracted death spiral.

Why, you might ask?

Well, the question is a complicated one. Handheld gaming console sales continue to remain fairly strong. However, sales of games for these consoles continue to drop off, critics review handheld games at a consistently lower rating than other console games, and surveys demonstrate that handheld games - along with the Wii - are the least used among all consoles.

The reason people aren't playing their handheld consoles very much is pretty clear just from this - they aren't buying games for them. As such, we're really hear to answer two questions - why are handheld game sales dropping off and why are critics continuing to review handheld games at a consistently lower rating than console games?

These two questions are inherently intertwined - people have a tendency to buy games that receive good reviews, while critics have a reputation to uphold and, thus, generally want to give good ratings to games that will be purchased and enjoyed by a large number of people.

As such, the answer to both questions is basically the same.

More importantly, what is that answer?

In my opinion, the death of handheld gaming is occurring because of how gaming companies advertise handheld games. Look at, for instance, all the advertisements for the PS Vita that describe it as having an actual console in your hands. Look at the fact that a large portion of games for any handheld console are direct or indirect ports of games for the consoles of that time.

Looking at all of this, it's fairly obvious what the game companies want - they want you, and critics, to think of handheld games as actual consoles, and compare them to those consoles.

This, ladies and gentlemen, is a losing strategy, and, in my opinion, the main reason that the handheld gaming industry continues to decline in a very real way.

Think about it: a handheld console cannot compare to a real console. The hardware will always be behind. Content levels in handheld games will always be behind those in console games. Consoles have better screens, better control mechanisms and, in short, are better at pretty much everything.

Even if a handheld console could stand up to being compared to a real console, what would the purpose of purchasing one be? At this point, the hardware would be similar, the control would be similar and, perhaps most importantly, the games would be similar.

Successful console games and successful handheld games have to be fundamentally different, because the console game market and the handheld game market are two very different markets.

Think of it like this - console games have a lot of content, and they are designed to be played for a long period of time. One of the important things that reviewers always mention is how much time it takes to complete the game, with a longer time being better than a shorter one.

This doesn't work for handheld games. For a handheld game to appeal to its audience, it has to be playable in short, satisfying segments. If it isn't, then console gaming is superior in every way - better hardware, more content, more games. What handheld gaming has going for it is that you can play it anywhere in short segments, and the gaming experience can still be satisfying.

If a handheld game isn't playing to that strength, then it's really just a console game being released on the wrong platform.

So, what's filling this space since handheld games are currently trying really hard - and failing really hard - at being console games? Mobile games. The mobile game market continues to expand, as both the number of developers and the number of potential customers has done nothing but go up over the past few years, and shows no signs of stopping.

What's so bad about that, you might ask? Well, a normal mobile device is never going to match the focus and capabilities of a true handheld gaming console. This means the quality of mobile games is almost invariably lower than the quality of handheld console games - something that I'm not a fan of.

So, in short - and for those of you who didn't read the whole post - gaming companies and developers need to stop treating handheld gaming consoles, like the PS Vita, as though they were real consoles, a la the PS3. This does nothing but cause your markets to overlap and, as is usually the case, consumers in a single market tend to go for the best product - the PS3, in this instance.

Take a leaf from the books of those developing mobile games and you might survive - and come up with a few more amazing games, while you're at it! I know I'd certainly appreciate it.

Fractional Reserve Banking

I know I'd normally do a book review for today, but this week I have yet to finish the book I want to write my review on, so I'm going to save it for later.

Instead, today will be a little discussion about fractional reserve banking.

At its essence, fractional reserve banking is a tool that central banks use to determine how drastic changes in monetary policy are. Central banks are constantly changing the supply of money available to the economy through a variety of means.

We won't be covering the methods for the moment, but let us just assume that central banks can do this and that they can do it fairly effectively.

So, when you add money to the economy, what happens to it? Well, it gets circulated around. People buy things with it and, more importantly for the moment, people save it. The biggest assumption of fractional reserve banking is that, eventually, all money eventually ends up in some sort of savings account in a bank.

(The empirical accuracy of this assumption is not one I can attest to, but it should hold up to at least some measure of scrutiny.)

When money is in a bank, it doesn't rest. The bank takes that money and puts it to work. From the bank's point of view, they want to lend all the money they take in from deposits, and always at a higher interest rate then they are giving for savings.

(Again, not exactly true, because the risk of lending money is an important factor. When all loans are considered risky, less money is loaned out then what would be expected.)

However, the bank is not allowed to loan out all of the money they take in. This does two things. The first is obvious, but also important: banks become less likely to fail when they keep a larger portion of what is saved in reserve, rather then lending it out.

The second is less obvious, but also important - the less money the bank can lend out, the less total money there is in the economy.

This occurs because of the cycle of borrowing and lending. When the bank takes in money, they lend it out. That money eventually ends up in a savings account or somesuch at a bank, and is lent out again. This process continues for as long as is possible.

When the federal reserve puts in an amount of money, let's call it M, into the economy, it then undergoes this process. The end result of all of this is that the total money supply of the economy expands by much more then M.

(To be exact, assuming r is the fraction of savings that banks must keep in reserve rather then lending it out, the total increase to the money supply is M*(1/r).)

Changing the ratio, then, causes the impact of monetary policy to increase or decrease as the ratio decreases or increases, respectively. This is why the ratio is hardly ever changed, as opposed to things like the interest rate (which affects how much lending and saving occurs) or market operations (the daily buying and selling of bonds that acts as the finest available manipulator of the money supply available to most central banks).

An important thing to note for the moment is that the majority of banks in America are actually keeping more reserves than they are required to. This phenomenon is a result of the perceived high risk associated with the majority of lending activities at the moment. In short banks, aren't lending, and this makes it harder than normal for the Federal Reserve to impact the economy, for good or for ill.

Anyways. Hopefully that clears up any questions people have on fractional reserve banking and what it is used for. I also kind of skimmed the top of monetary policy, so if people have questions about that or other things, please feel free to ask.

I'll get back to you with the planned book review later this week. Thanks for reading, and I hope you learned something!

Taxes And Tariffs

Today I'm going to discuss two forms of government revenue - taxation and the levying of tariffs. While they are both sources of revenue, I will mainly be exploring the economic consequences of taxation.

Taxation is the simpler of the two, so we'll begin here.

As previously discussed, the free market is the process by which private companies and consumers communicate through prices and purchasing behavior to achieve maximum social surplus. This maximization is achieved at the equilibrium point on the supply and demand curves.

The placement of taxes disrupts the operation of the free market, causing it to be less efficient. Assuming a market is at equilibrium, the incidence of a tax falling upon any party within the market causes deadweight loss.

Essentially, in addition to removing a certain amount of money from the hands of the individuals bearing the incidence of the tax, taxation also harms the market, costing more than the amount of revenue the government collects.

As such, a tax can only be considered a good thing when tax dollars generate more than the sum of the value of the dollars and the value of the deadweight loss within affected markets when used to fund government programs.

Tariffs are similar to taxes in many ways. In fact, they basically are taxes, except the incidence of the tax falls on suppliers that wish to supply specific goods within the borders of the country levying the tariff.

However, tariffs are not like taxes in one crucial way: while always harmful to the global market in the long-run, it is possible for tariffs to provide substantial short-term benefits to domestic markets.

To understand this, we need to understand international trade. Trade occurs because of comparative advantage - it is better for two nations capable of trade to produce mostly what they are best at producing and to trade away the excess production for goods they are not so good at producing.

(This sort of trade theory even explains why America, which can produce nearly any manufactured good more efficiently than other nations, still trades for many cheap goods: we are better, comparatively, at producing expensive durable goods, and are better off producing mainly these goods.)

From this we can deduce that two static economies capable of trade would, eventually, come to a point where each produced the optimal amount of every possible good, based upon the comparative advantages each economy possessed. This would lead to the greatest possible size and efficiency for the two economies.

Real economies, however, are not static. They change all the time. Some are industrializing, some are beginning to exploit natural resources, some are expanding certain branches of education. All of this results in constantly shifting comparative advantages.

For instance, let's take a look at South Korea. Over the past fifty years, South Korea has went from being able to produce no motor vehicles to being one of the foremost auto producers in the world. At the beginning of the fifty years automobile manufacturing was not something they could do efficiently, but now they are, in many ways, more efficient in production than America is.

Now, let us assume you're the government official in charge of all tariffs levied upon South Korean automobiles during this time period.

At the beginning, you would have nothing to do, as South Korea did not produce any automobiles at all, let alone attempt to export them to the United States. On top of this, your domestic auto industry is going strong and providing for a very large portion of domestic demand. At this point, comparative advantage favors American production of automobiles.

Let's move on a little bit. You start seeing that South Korea is producing automobiles. However, they only produce a few and are not exporting any at all. They attempt to meet only some portion of domestic demand. Again, comparative advantage is in the favor of America, albeit not so heavily. Tariffs are unnecessary at this point.

As South Korea moves closer and closer to being able to compete with American production of automobiles, something important happens - America begins to import South Korean vehicles. Not many at first, but the number continues to grow.

At this point, you realize something important - if left unchecked, South Korea will take over a large portion of the domestic automobile market in America. This, of course, is a natural and healthy process, so you might come to the conclusion that simply allowing it to happen is the best possible course of action.

However, the takeover may occur too quickly. Markets are not perfect - they need time to adjust. If the South Koreans absorb a large portion of the domestic automobile market in a short period of time, many individuals will be left without a job and the economy in places that rely heavily on that industry will take quite some time to recover.

Now, you could simply put in place a heavy tariff and leave it there indefinitely. This would help to soften the blow to domestic industry, allowing a larger portion of the industry to be left untouched then otherwise would be. However, you've now created a problem - South Korea and America are no longer producing the efficient amount of automobiles and demand is being met inappropriately.

What can you do? You don't win with the tariffs, and you don't win without them. It's a losing battle, right?

Not quite. The solution, in most cases, is to begin with a high tariff to protect important domestic industries as other nations begin to compete with you on them. As competition continues, steadily lower the tariffs until they are no longer in place.

This system allows global competition to exist in the long-run, where it is most important and most effective. In the short-run, however, you soften the impact of competition on domestic industry, allowing the economy more time to shift resources away from that industry and into other, more efficient, industries.

And there we are. Tariffs and taxes, all nicely laid out. There are many other things to know about them, but this covers the bit I wanted to do for today. Let me know if there's anything else you'd like to have discussed in the comments section.

Monopsony: An Economic Solution To Healthcare

Yesterday, I discussed one of several easily demonstrated problems with the provision of healthcare through the mechanisms of the free market.

As covered, in most cases the equilibrium point reached by the aggregate demand and supply curves for a market achieves maximum social surplus. This did not hold in the case of the healthcare industry because of wildly varying personal utility curves and, hence, wildly varying willingness-to-pay for healthcare services.

The major point yesterday was that the nature of the services in the healthcare industry creates many instances of nearly pure monopoly within the healthcare industry.

So, from an economic perspective, what can be done to deal with a monopoly? There are, really, three ways to manage this problem.

The first is to break up the monopoly, assuming it is a single organization. Obviously this does not work in the case of healthcare, as the monopolistic markets are nested within larger, healthy markets, and simply creating more hospitals will not solve this problem.

The second is to introduce regulation to prevent the ordinary problems related to a monopoly from creeping up. While this solution might work in relation to the healthcare industry, it carries with it the difficulty of legislating appropriate regulations, which would need to be frequently and correctly updated. This, of course, would have to be carried out by legislators and bureaucrats.

I, personally, wouldn't trust them. Even with the best of intentions, the task would be very difficult, and I don't believe the politicians of America currently have our best interests at heart.

The third solution, and the one I believe to be the best solution, is to create a monopsony capable of controlling the monopoly. A monopsony is the sole purchaser within a particular market. There are no good examples of a pure monopsony, but the power that Walmart wields over some companies approaches monopsonistic power, as they are able to dictate prices and many other aspects of deals between themselves and suppliers of the goods they sell.

For the healthcare industry, I believe the best solution to solving our problems is to have the government wield monopsonistic power over the market for healthcare.

Essentially, the government would be the only entity paying for healthcare. Not all healthcare, mind, but anything deemed to fall under necessary treatment for the continued health and well-being of the patient. This would include nearly any medical procedure, but would preclude things such as plastic surgery and many forms of orthodontic work.

The most important question here, then, is how the government would pay for all of these procedures.

Firstly, every individual would have an increased personal income tax. This would be the first of two sources of revenue the government would use

Secondly, if the previous amount was not enough to cover the costs of all healthcare operations (it should not be intended to) then those employers whose employees who spent the most on healthcare over the year would have a percentage raise in taxation for the year to cover the costs.

Now, you might be wondering why it is that I want the employers to cover the costs of healthcare services not paid for by the proposed personal income tax increase. The answer is simple: outside of yourself, your employer is the one who benefits the most from your continued health and well-being.

In addition, the employer will be entitled to dock the employees wages by a certain portion of what they pay up, amortized over the lifetime of the employee. This is not a debt; instead, it is a method by which employees can be made to repay the employer by, essentially, doing a small amount of free work every year.

(Even very costly operations create only a small loss of wages every year when repaid in this fashion.)

This system has a number of advantages.

First and, perhaps, most importantly, the monopsonistic power of the government in the market would drive down prices. This is a natural and inevitable consequence of the existence of a monopsony, just as monopolistic power naturally drives up prices.

(We can be largely assured that prices will not drop too far, however, as doctors and the controllers of the healthcare industry are extremely wealthy and influential. They will ensure that they still make decent money regardless of the nature of the market, and this will result in healthcare continuing to be a desirable employment opportunity.)

Second, it requires no additional regulations. The government will simply inform healthcare providers as to what sorts of procedures they will cover (that is, that they will cover only procedures necessary to ensuring the health of the patient) and how much they are willing to pay for those procedures.

(All procedures outside of the scope of government payment could be paid for out of pocket or by utilizing the much-shrunk healthcare insurance industry.)

Third, the system is simple to implement and has few consequences. With the exception of the collapse of the healthcare insurance industry, the healthcare industry will continue to function normally.

Fourth, the system of wage docking and employer payment helps to ensure that employers will go out of their way to retain employees that they have invested in through the system. While they still will not want to keep those with constant high healthcare costs, those who have one or two major problems will have more job security, rather than less.

And, finally, this solution does not actually infringe upon the mechanisms of the free market in any way. While it is true that the government would become the major player in the healthcare industry, they will not acquire any existing businesses and, in fact, the market will continue to exist, albeit in an artificially warped way.

The system has some inherit flaws to it, as well.

Firstly, the government has to be willing to let the hospitals decide what care is necessary for a patient and what is not. If they attempt to do so themselves, problems will arise. The most influence they should have on the hospitals themselves is attempting to lower prices and ensuring that they are not deliberately providing unnecessary care.

Secondly, those without employers will not cover themselves if they go outside of the limits of the personal income tax increase. However, I don't see a problem with this. The majority of the unemployed are either destitute, incredibly rich, or somehow only loosely associated with the business they work for. Of these, the first should not have to pay for healthcare, a necessary service, the second will most likely pay for healthcare better than that provided by the government, and the third represent only a small portion of the American population. While this does pose a small problem, it is not insurmountable.

And, finally, there exists the possibility that the monopsonistic power of the government would drive down prices so much that few would be interested in becoming doctors or nurses, and this would cause the quality of care to drastically increase. As stated above, I don't believe this will happen, but the possibility does present itself.

Anyways. I'm sure you all have your own ideas on the issue, but hopefully you learned a little something by reading through this long, list-laden post of mine. If you have any comments or complaints, put them down below and I'll get back to you on them.

Why The Free Market Cannot Efficiently Allocate Resources In The Healthcare Industry

We begin our discussion with how the free market works as, as loosely stated by Ludwig von Mises, a machine through which the efficient allocation of economic resources occurs.

The method by which all resource allocation occurs in a completely free market is the price. Price determines how much of a good is provided, and how much of what is provided is purchased. Equilibrium is reached when the amount provided and the amount demanded is equivalent, and at this point social surplus - that is, the excess positive utility generated by all transactions occurring in that market - is maximized.

Seems pretty simple, doesn't it? It may even seem unassailable. However, this is not quite the truth. Let us take healthcare as an example.

The demand for healthcare fluctuates incredibly on a personal basis. I, for instance, have no desire for healthcare at the moment, as I am not sick and, in fact, feel pretty darn good. I might pay a small fee to have myself examined, but I am not willing to pay the somewhat exorbitant prices to visit a doctor when I have no reason to do so.

On the other hand, take someone who has just been hit by a bus and needs emergency medical attention as quickly as possible. This person would, presumably, be willing to pay a large sum of money to see a doctor immediately. In fact, many people would pay nearly any price they could match to ensure that they survived such an accident.

The overall demand curve for healthcare is, then, very interesting. When it is entirely free, many people demand it. The demand goes steadily down as you increase the price. Seems like a normal demand curve. So far, so good, right?

Not quite. When you reach towards higher and higher prices, you eventually reach a subset of individuals who, like our unfortunate friend underneath the bus, are willing to pay virtually any price to receive healthcare.

For those of you who are well-versed in supply and demand economics, this might seem a little odd, but it still seems like there's a possibility to fix the problem and reach an equilibrium price that maximizes social surplus, right?

This isn't quite true. You see, for the individual who requires healthcare now, the market contains a monopoly - they need that healthcare, and only providers within a certain area will do. If there is only one provider in that area, that providers has a monopoly on a very specific market with only a single consumer.

While this is an extreme case, the very nature of healthcare creates many of these 'personal monopoly' situations and, as everyone knows, monopolies rarely, if ever, produce a situation that maximizes social surplus.

Currently, we deal with these situations by requiring providers to give healthcare to anyone in an emergency situation, regardless of the individual. By doing so, however, we are requiring individuals to agree to pay a monopoly price for healthcare. This monopoly price is, obviously, much higher than an equilibrium price would be, causing a terrible inefficiency that is intrinsic to the highly personal nature of utility curves related to the provision of healthcare.

There are many other problems with the private provision of healthcare, many of these being equity issues, rather than economic ones. I'm not going to stray into equity issues at all for the moment, and I think a single well-defined instance of an intrinsic economic one is good enough. If you want more examples, just request one in the comments below.

Tomorrow I will outline my personal solution to this problem, as well as posting my normal recipe for the week. I hope you all learned a little something here.

My Political Views

Right at the end of the last post I showed my results from taking the Political Compass test, which can be found here. (If you haven't taken it, I highly recommend you go through the test and then take a look at some of the graphs related to whichever country you happen to live in.) I did, however, mention that my results were not particularly indicative of my actual political stances on the majority of issues, as I hold a large number of extreme viewpoints that average out to about that position.

The reason for this is that I am a political and economic pragmatist. It is my belief that the government should be concerned chiefly with creating utility for its citizens. As such, I believe it is the duty of the government to take any and all actions that result in a Pareto efficient solution.

(Pareto efficiency is well described here, but for those of you who want the short, simple version, Pareto efficiency is an allocation of resources such that everyone is better off, and there are no losers.)

Obviously, there are not any situations that can be considered purely Pareto efficient. However, there are many actions that a government can take that result in near-Pareto efficiency, such as the enforcement of legislation punishing the premeditated murder of another individual.

Things seem fairly straightforward for the moment. However, my second belief when it comes to government is a little stranger - I believe it is the duty of the government to attempt to maximize the social utility gained by the actions they take. This means that any action that results in the creation of more utility than is lost should be taken, with emphasis on taking actions that have a wider gap between utility gained by those who gain it and lost by those who lose it.

(Again, the government should be concerned only with its citizens. While individuals can and, in my opinion, should care about the fate of people who are not citizens of the same nation as they are, the government should not, as those individuals are not its concern.)

(Also, erring on the side of caution and personal freedom is usually the way to go. You can never account for all changes in utility that result from a particular action, so only taking actions when the gain is fairly clear is important. The ability to choose, on the other hand, nearly always increases the utility generated by an action.)

A good, moderate example of this is government backed mortgages. This actions is taken to help ensure the affordability of housing, a basic human necessity. If anyone loses as a result of this, the gains by those who can afford housing as a result of the backing gain much more, as few things rival the benefit of having a roof over your head.

On the more extreme end of things, I believe that all drugs that are not immediately addictive AND cause constant deterioration of health over the period of usage should be legalized, regulated, and heavily taxed. Substances such as heroine, which are incredibly addictive but have few side-effects when the user has a steady and clean supply of the drug, cause more damage while illegal then they would after legalization.

As a weird example, I also believe that a strong case could be made for nationalizing all airlines and only allowing a few, highly regulated substitutes to exist, a la USPS and FedEx. Assuming that everything functioned similarly to the post office, it can be shown that ticket prices would decrease drastically, and national security concerns related to commercial airlines could be wrapped up entirely within the government, as opposed to currently

My final true political opinion is that politicians should not run on platforms, but on the capacity to make solid decisions and to fight for the benefit of their citizens. Representation by politicians, while a good idea, is largely silly, as politicians have access to more information and expert advisers than most voters and, as such, should be able to come to logical, beneficial solutions, rather than simply doing what the most individuals want.

I, personally, would vote for any politician who separated his personal views from what political actions he would take, and largely ran on his ability to make good decisions and listen to his advisers. That's the sort of politician who will do what is necessary to generate the benefits the government should be generating.

So, yeah, hopefully that clears up the last paragraph from my last post, for those of you who were wondering. For the rest of you, maybe I'll sway you to closer to my point of view which I, honestly, believe to be the only reasonable one when it comes to politics.

If you have any questions, put 'em down and I'll see what I can do to answer them.

First Past The Post

Today, I will cover what I believe to be that absolute worst problem plaguing American politics today - our method of determining the winners of an election.

But first, there's something you should all do that will only take a few minutes. Go here: Political Compass. Take the test. (It is perhaps not the best test, but it is here largely to make a point, not to be accurate.) Take a look at your results, then take a look at the pages related to politics in the United States. Then, take a look at the pages related to politics in different nations, especially those in Europe.

This should open your eyes to something - in America, all our mainstream politicians have very similar views. Democrats and Republicans largely inhabit the same fourth of the upper-right quadrant of the overall spectrum of political beliefs as displayed by the compass.

Now, you might wonder why this is a problem. I'll tell you why: while this may represent the 'average' political belief of the typical American, a large minority of people in America are left without any candidate that is a even remotely accurate representation of the political, economics, and social viewpoints that they hold.

The reason for this is, obviously, that we only have two parties. A party can only hold to a single, unified political platform, and there being only two parties severely limits the possibility of representation. It does, in fact, limit you to two choices.

It might not immediately be obvious why the two choices would automatically be incredibly similar, or why it is that we have only two parties. I'm not going to go into the reasons behind it, because there is a much more entertaining individual who has already done so in a very accurate way, right over here.

After watching the video (or not), it should seem fairly reasonable that the first past the post voting system described there naturally tends towards two parties and a large minority or, even, majority of disenfranchised voters.

(While he doesn't go into it, there is an actual mathematical proof that shows first past the post systems trend towards two parties over time, with the assumption of rational voters and candidates. I can't find a good display of it on the Internet, and it is rather in-depth, but if you want me to into it in the comments section, I certainly can.)

Our system in America is incredibly similar to straight first past the post voting. For the sake of simplicity, we can essentially assume that it is.

In addition to the major problems when it comes to accurately representing the wishes of the population, first past the post voting has another major problem - because there is only room for two parties, the two parties will both be centrist, and will be very likely to agree with one another on many issues. This is a problem because, as shown, at the very least a large minority of voters disagree with the major parties on many issues.

This means that many voters will not only be largely disinterested in the voting process itself, and have no real representation in government, they will also be subjected to legislation that they do not agree with, regardless of whether or not the majority of voters agree or disagree with the legislation itself.

So, what are the alternatives? They're all over, but I believe the best to be a proportional voting system, akin to what is instituted in places such as the United Kingdom. These systems encourage several things - a large number of diverse parties, more accurate representation of voters in government, and more compromise and cooperation between political parties in an attempt to move legislation forward.

Anyways. I'm sure you all have your own opinions, but I'd like to stress that, whatever they are, the current voting system in America is probably preventing you from finding candidates that you agree with on a majority of issues. Obviously there are plenty of people who have no problems with the status quo, as they are well represented by the two current parties, but there are also many, many voters who are not represented in any way by the current American government.

For those of you who are interested, my results from the political compass can be seen here. I'd like to stress that I'm not really in that particular area for every issue, I just hold a great number of extreme and moderate beliefs that average out to about there.

As per usual, thanks for reading, and I hoped you learned a little something. Maybe you'll even do something about it. I know I have, and will continue to do so.

Inflation: Why We're In Store For Some

Approximately last week I was talking about how moderate inflation is not, usually, a bad thing, and is actually necessary for a healthy and growing economy to continue functioning.

This week, I'm going to talk about the extremes of inflation and, more specifically, why America is in store for a bit more than the planned amount of inflation.

Obviously, lots of inflation is bad. It punishes people who save and invest money, an important economic service. It adds uncertainty and instability to pricing. It also tends to lead to a loss of the value of a currency in relation to other currencies. While these may seem like minor problems, they have a major impact on the economy.

However, I'm going to assume that you all either know that large amounts of inflation either cause or are indicative of poor economic situations, and move on.

If you look back a while, I discussed the Quantity Theory of Money and used it to show why small amounts of inflation (approximately equivalent to growth) are necessary for long-term price stability in a growing economy. Now I am going to use that theory and another concept to explain why American is going to experience some inflationary pressures in the next few years.

(Before I get into anything else, I'd like to say that I'm not a macroeconomic expert, and that this explanation simply shows that inflationary pressures will exist beyond the norm, not that there will necessarily be inflation or, more importantly, that there will be a lot of inflation.)

Now for our new idea - when consumers buy something, they send a signal to producers. This is often described mathematically using a demand curve. A demand curve is a temporally static way of looking at how much of a certain product an individual or market will purchase at a specific price.

Holding the price constant and looking at the demand over time yields more interesting results. When looking at things temporally, a specific signal can be sent by consumers to producers that they should invest in additional productive capacity. They do so without knowing, and the producer often intakes the signal without much analysis.

Regardless, when consumers are constantly consuming more and more, producers begin to invest in more and more productive capacity. This seems fairly obvious, but when combined with the idea of credit it has some interesting effects.

When interest rates are low, people are more likely to borrow money. Currently, interest rates in America are about as close to zero as possible, and loans are available easily with little in the way of application process via credit card and other processes.

This naturally leads to consumers purchasing more and saving less. In America, consumers often purchase more than they can actually afford, and the savings rate for many individuals and families is well below zero.

Spending in this way sends a specific signal to producers - they need to raise productive capacity to meet future expanded demand. However, when spending is artificially inflated by low interest rates and easy access to credit, that future demand does not necessarily exist and, in most cases, will not.

This causes a problem, one that occurred in the Great Depression - there will be capacity to produce goods that simply are not in demand as a result of false signals from consumers to producers, and this capacity will either not be used or will be used to produce goods that will not be sold at an economically optimal price - or any price at all. The problem will be further exacerbated the longer the current credit glut continues.

Unused resources are misallocated, and this is an economic problem. The degree of the problem is not something I can comment on, but the results are fairly straightforward - depending on the average elasticity of demand for goods in America, we will have either massive inflationary pressure, deflationary price, or no pressure in either direction. If demand is largely elastic, we will have a great deal of inflation, while deflation will occur if demand is largely inelastic. As the majority of goods have elastic demand curves, we will almost certainly have inflationary pressure.

(As this is getting fairly long, I'm going to skip over the idea of elasticity and direct you here if you're really interested in what it is: Elasticity. If anything around this is unclear, please leave a comment below.)

There isn't really any solution to this problem other than to be prepared for the coming inflationary pressures and, on the part of the government, to raise the interest rate immediately and begin implementing a contractionary monetary policy.

And I'm sure, to many of you, that above paragraph was largely meaningless. For now, I'm done, and I hope you learned a little something wandering through my thoughts for the day. If you have any questions or, possibly, arguments, please leave them in the comment section.