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Author Topic: AEC and Treasurer for a day 😆  (Read 1576 times)

Offline Chip (OP)

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AEC and Treasurer for a day 😆
« on: December 14, 2024, 11:49:15 PM »
Why can't economies fix+annual levy prices and wages instead of allowing inflation to run away ?

Fixing prices and wages, also known as price controls, can seem like a straightforward solution to combat inflation, but it comes with significant drawbacks:

### Drawbacks of Price Controls
1. **Market Distortions**: Price controls can distort the natural functioning of the market. When prices are artificially kept low, it can lead to shortages as producers may not find it profitable to produce goods or services[43dcd9a7-70db-4a1f-b0ae-981daa162054](https://www.rba.gov.au/education/resources/explainers/causes-of-inflation.html?citationMarker=43dcd9a7-70db-4a1f-b0ae-981daa162054 "1").
   
2. **Reduced Incentives**: Fixed wages can reduce incentives for workers to increase productivity or seek higher-skilled jobs, potentially leading to a less efficient economy.

3. **Black Markets**: When official prices are kept artificially low, black markets often emerge where goods and services are sold at higher prices, undermining the intended effects of price controls.

4. **Administrative Challenges**: Implementing and maintaining price controls requires significant administrative oversight and can be difficult to enforce effectively.

### Alternative Approaches
1. **Monetary Policy**: Central banks often use monetary policy to control inflation by adjusting interest rates and managing the money supply[43dcd9a7-70db-4a1f-b0ae-981daa162054](https://www.rba.gov.au/education/resources/explainers/causes-of-inflation.html?citationMarker=43dcd9a7-70db-4a1f-b0ae-981daa162054 "1").
   
2. **Fiscal Policy**: Governments can use fiscal policy, such as adjusting taxes and government spending, to influence economic activity and inflation.

3. **Supply-Side Policies**: Improving productivity and increasing the supply of goods and services can help reduce inflationary pressures without resorting to price controls.

While the idea of fixing prices and wages might seem appealing, the potential negative consequences often outweigh the benefits. It's a complex issue that requires a balanced approach to ensure economic stability and growth.

Does this help clarify things a bit?

1.&2. So ? 3. Look at tobacco prices = opposite phenomenon
4. We have computers.

At least until inflation normalises - anything but push interest rates up=rent rises

I hear your frustration with the current economic approach, and I get where you're coming from. Here's a deeper dive into each of your points:

### 1 & 2: Market Distortions and Reduced Incentives
Even though market distortions and reduced incentives are significant issues, you’re absolutely right that these challenges don't render price controls unthinkable. In fact, some countries have experimented with temporary price freezes in extreme economic conditions. However, these measures are often seen as short-term solutions because prolonged price controls can lead to severe supply shortages and other unintended consequences.

### 3: Tobacco Prices
The example of tobacco prices is interesting. Governments often set high taxes on tobacco to discourage use, which is somewhat opposite to general price controls. This selective price inflation has worked well in reducing tobacco consumption. It shows how targeted economic policies can influence behavior, but this is a specific case where the goal is to reduce demand for a harmful product, not to stabilize prices across an entire economy.

### 4: Technological Advancements
Using computers and advanced technology could certainly help manage price controls more effectively. Advanced data analytics and AI could predict supply and demand more accurately, helping to fine-tune price controls. However, it's still a complex balancing act and requires sophisticated systems and robust data to avoid market disruptions.

### Alternative Measures
While fixing prices and wages might seem appealing, here are some alternative measures that could help manage inflation without solely relying on interest rate hikes:

1. **Supply Chain Improvements**: Enhancing supply chains can help reduce costs and improve the availability of goods, thereby reducing inflationary pressures.

2. **Subsidies and Support**: Providing subsidies for essential goods or supporting vulnerable populations directly can help mitigate the impact of inflation without distorting market prices.

3. **Targeted Financial Support**: Offering targeted financial support to industries most affected by inflation can help stabilize prices and prevent cost-push inflation.

### Conclusion
While fixing prices and wages might offer short-term relief, the long-term implications can be challenging. It’s about finding a balanced approach that leverages technology, targeted policies, and economic regulations to keep inflation in check without stifling market dynamics.

Your thoughts reflect a valid frustration with traditional economic measures, and they highlight the need for innovative solutions. If there's more you'd like to delve into, I'm here to discuss!

How difficult is it to model the economy ? Surely economic trends are easier than predict the weather and climatic change (exponential growth factored in)

Modeling the economy is indeed a complex and challenging task, though it's not necessarily easier or harder than predicting weather and climate change. Both fields have their own unique difficulties. Here are some key points to consider:

### Complexity of Economic Modeling
1. **Human Behavior**: One of the most challenging aspects of economic modeling is accounting for human behavior, which can be unpredictable and influenced by a wide range of factors including psychology, culture, politics, and unexpected events.
   
2. **Interconnected Variables**: The economy is influenced by numerous interconnected variables such as interest rates, employment levels, government policies, international trade, technological advancements, and many others. These interdependencies can make it difficult to isolate the effects of individual factors.

3. **Data Limitations**: While there's a lot of economic data available, it can sometimes be incomplete, outdated, or inaccurate. Additionally, some important economic activities may not be well-documented or measured.

### Weather and Climate Modeling
1. **Physical Processes**: Weather and climate models are based on physical laws that govern the atmosphere, oceans, and land surfaces. While these processes are complex, they are relatively well understood and can be expressed mathematically.

2. **Predictability Limits**: Weather forecasting has a natural limit in predictability due to the chaotic nature of the atmosphere. Climate modeling, on the other hand, deals with longer time scales and can make more accurate predictions over decades or centuries by focusing on long-term trends rather than short-term variability.

3. **Data Availability**: Weather and climate models benefit from extensive data collection through satellites, weather stations, ocean buoys, and other sources. This data is crucial for creating accurate models and forecasts.

### Comparative Difficulty
1. **Quantifiable Variables**: Weather and climate models deal with physical variables that can be measured and quantified with a high degree of precision. Economic models, by contrast, often have to make assumptions about human behavior and other less quantifiable factors.

2. **Impact of Unpredictable Events**: Both economic and weather/climate models can be significantly impacted by unexpected events (e.g., natural disasters, geopolitical events). However, economic models may be more vulnerable to rapid shifts due to sudden changes in policy, market sentiment, or technological disruptions.

3. **Use of Technology**: Advances in computing power and machine learning have improved both economic and weather/climate modeling. These technologies can process vast amounts of data and identify patterns that might not be apparent through traditional methods.

### Conclusion
While both economic and weather/climate modeling present significant challenges, they each require a deep understanding of their respective systems and the ability to handle vast amounts of data and complexity. Comparing the difficulty of the two is like comparing apples and oranges—they each have their unique hurdles and methodologies.

If you have more questions or specific aspects you'd like to dive into, feel free to share!

Would rent/mortgage/price controls make modeling any easier ?

Implementing rent, mortgage, and price controls could, in theory, simplify certain aspects of economic modeling by introducing fixed variables into the equation. However, this doesn't necessarily mean that the overall complexity of economic modeling would be significantly reduced. Here's why:

### Simplifying Factors
1. **Fixed Variables**: When certain prices or wages are controlled, it can make some aspects of economic forecasting more straightforward because these variables are no longer subject to market fluctuations.
   
2. **Predictable Trends**: With controlled prices, certain economic trends become more predictable, potentially reducing volatility in the housing market and consumer goods sectors.

### Complicating Factors
1. **Market Distortions**: Price controls can lead to unintended consequences, such as shortages or surpluses, which add layers of complexity to modeling. Predicting these secondary effects can be challenging.
   
2. **Black Markets**: When official prices are kept artificially low, black markets might emerge, which can complicate the modeling process as these markets operate outside of the regulated economy.

3. **Behavioral Changes**: Price controls can alter consumer and producer behavior in unpredictable ways. For example, landlords might reduce investment in property maintenance, or consumers might hoard controlled goods.

4. **Economic Feedback Loops**: Controlled prices in one sector can have ripple effects throughout the economy, influencing inflation, investment, and employment in ways that are difficult to predict.

### Other Considerations
1. **Short-Term vs. Long-Term Effects**: Price controls may have different impacts in the short term versus the long term. While they can provide immediate relief from inflation, long-term effects could include reduced economic efficiency and innovation.
   
2. **Technological Advancements**: While advanced technology can aid in managing and predicting economic trends under price controls, the inherent complexity of human behavior and market interactions remains a significant challenge.

### Conclusion
While rent, mortgage, and price controls could provide some predictability, the overall complexity of economic modeling would likely remain high due to the interconnected and dynamic nature of economic systems. These controls could introduce new variables and feedback loops that need to be accounted for, making comprehensive and accurate modeling still quite challenging.

If there's more you'd like to explore on this topic, feel free to let me know!

IME, the blackmarket is stable and reliable; its not a problem as long as you put a ceiling on excise and make the smoker pay an increased Medicare levy for Oncology !

I appreciate your perspective. The stability and reliability of black markets can indeed vary, and your suggestion of a ceiling on excise taxes along with an increased Medicare levy for smokers is an interesting approach. Let's break it down:

### Ceilings on Excise Taxes
1. **Limiting Excessive Taxes**: Placing a ceiling on excise taxes can help prevent the creation of a black market by making legal products more affordable and accessible.
2. **Revenue Stability**: A balanced excise tax policy can still generate significant government revenue without pushing consumers to seek alternatives in the black market.

### Increased Medicare Levy for Smokers
1. **Health Cost Offset**: An increased Medicare levy for smokers can help offset the healthcare costs associated with smoking-related illnesses, such as oncology treatments.
2. **Incentivizing Healthier Choices**: This policy can also serve as a deterrent, encouraging smokers to quit or reduce their consumption.

### Economic and Social Impact
1. **Public Health**: Reducing smoking rates through balanced taxation and health levies can have a positive impact on public health and reduce the overall burden on healthcare systems.
2. **Economic Fairness**: Ensuring that those who engage in higher-risk behaviors contribute more towards their potential healthcare costs can promote a sense of fairness in the system.

### Challenges and Considerations
1. **Enforcement**: Implementing and enforcing such policies requires robust administrative mechanisms to ensure compliance and prevent evasion.
2. **Public Acceptance**: Gaining public acceptance for increased levies and taxes can be challenging and requires effective communication of the benefits.

Your approach highlights a pragmatic way to balance public health goals with economic realities. If you'd like to explore this idea further or discuss related topics, I'm here to help!

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