Is there an economist in the house?

[nancylebov]

Is there a difference between standard monetary policy for handling situations where there's too much money versus times when there's too little stuff?

Does "overheated economy" mean too much government-generated money going into dubious investments, or something else?

Comments

[chickenfeet2003.livejournal.com]

"Overheated" generally means that there is little spare capacity in the economy so that the price of scarce resources is bid up. It often leads to increases in imports to supplement domestic resources in short supply which can lead to balance of payment problems.

[osewalrus.livejournal.com]

There have been a number of innovations in economic theory since Milton Freedman won the Nobel prize for monetary theory. Inflation and deflation are no longer considered merely the product of money supply.

It would be easier to answer the question if context were supplied.

[nancylebov.livejournal.com]

Just something I was wondering about because the way the news was talking about monetary policy didn't seem to take oil prices into account.

I admit I haven't been following more recent theories. Is the money supply vs. the goods supply still considered important?

[demonspawnmom.livejournal.com]

"Is the money supply vs. the goods supply still considered important?"

It was when I took ECON100 a few years ago.

I ran your other questions by my hubby, who understands economics better than I do, and he did say that it's possible, but he'd need more data. (Typical economist!)

[landley.livejournal.com]

One of the reasons for the classic boom/bust cycle is resource constraints. During recessions resources pile up, whether it's the spare time of trained workers or warehouses full of grain nobody's buying. During boom times resources get consumed faster than they accumulate and you get shortages limiting growth, triggering inflation if you're not careful, forcing companies into debt to buy raw materials if they get caught out... Things like the futures market try to compensate for this, but then add all the "just in time" inventory stuff...

Another interesting rule of thumb (one of those "massive oversimplification but more or less right" things) is that the natural unemployment rate is somewhere around 5%, because there's about 5% off the population can't consistently show up to work on time sober. For whatever reason, they cannot keep a job. If unemployment is below that, these people are getting and losing jobs on a revolving door basis. Now imagine what that does to hiring, when 99% of your candidate pool sucks deeply, but has a disproportionate amount of experience at _interviewing_ so might come off well at first glance. (Imagine interviewing 20 people in a row and not finding _one_ the existing employees judge to be minimally competent at the job you advertised. Been there.)

If you're reluctant to hire anybody new, the obvious way to grow the business is to you work your existing people to death. If the best hires are the ones who already have a job, then all the headhunters will poach from other companies, leading to salary inflation. Of course some people are _happy_ to leave when they're sufficiently overworked and get offered more money somewhere else, a change being as good as a rest. So in addition to being unable to hire, you have to worry about retention...

A good metric of the _labor_ market being overheated is when nobody wants to hire somebody who isn't already working, which means it's a sucky time to be a recent college graduate (unless you go talk to an on-campus recruiter _before_ graduating)...

That said, we're not there now. Dot-com boom we were. The shrubbies have _screwed_up_ the economy, but are claiming it's "overheated" instead. Those are totally different failure modes. The main resource constraints are credit and oil. Nobody can get loans because of a rerun of the "savings and loan" crisis of 1990. The lack of oil is something blind people could see coming 7 years ago. Taking hundreds of thousands of skilled workers out of the contry and sending them to Afghanistan and Iraq, along with multi-billion dollar no-bid contracts going to Haliburton subsidiaries, financed by trillion dollar loans from China sending international confidence in the dollar (and thus the exchange rates) into the toilet. And of course china's bidding with us for all the resources, and we can't do a thing to negotiate with them because Bush mortgaged the government to them with said trillion dollar loans...

Nope, the current economic problems are because the Bush crowd is greedy and stupid. Bush I couldn't handle the economy either, it's the same gang of idiots back for a second helping of federal embezzlement. (Why does nobody ever ask what the national debt got spent _on_? Who cashed the checks?)

[nancylebov.livejournal.com]

I can't see why businesses bumping their noses up against the natural unemployment rate would make them reluctant to hire recent graduates. Presumably the 95% of the grads are employable people.

More exactly, I can see why companies would despair of finding anyone new worth hiring at such times, but I don't think it's rational.

[landley.livejournal.com]

It's a bit like an editorial slush pile. When a recent graduate approaches an employer cold, their resume winds up on the Pile of Suck the HR department has to wade through, and gets treated with an assumption of suck. When the company goes out to a college and participates in a recruiting fair, there they find a nice high percentage of employable people, so that's what they focus on. It's a "don't call us, we'll call you" sort of thing.

Keep in mind the perpetual interviewees get good at gaming the system. If "recent graduate" is good, they'll go back to college for a quick 2 year degree from a correspondence college or night school or something. Ignoring the chunk who outright lie on their resume, there's a lot they can do to look good. Maybe they'll take night courses at a local community college, drop positions from their resume so it _looks_ like they've only had one or two jobs since they left college, bump their graduation date forward hoping nobody will check (or claiming it's a typo) or simply not mention a date and just _imply_ recent graduate... Then there's all the "certifications" ala the dreaded Minesweeper Certified Solitaire Expert (MCSE) that people get to look like they're new to the field. Lots of"oh yeah, I worked in bookstores for years but wanted a change, I've always loved $HOT_FIELD..." May be true, may be covering tracks of jobs they don't want on their resume...

One related factor is that working for big corporations, all their HR department will say about an ex-employee is "such and such worked here from $DATE to $DATE". Never how they did, or why they left. They won't tell you anything _about_ them for fear of lawsuits. You can't get a recommendation from big corporationss, because if it's bad the dissed employee might sue, if it's good but they don't do well at the new job the new employer might sue. If you give some people recommendations but not others it's a fairly obvious code, and anyway they might sue because you're not treating them equally (discrimination on the basis of ability, shameful)...

Another thing is that when an employment area is "hot" lots of people go into it for the money. There was a _flood_ of CS graduates around the turn of the millennium who really sucked at it, no real interest in anything but the money. Those of us who _do_ actually like doing it get lost in the noise of lots of people _pretending_ they really like it if that's what the employer is looking for. "They'll hire anybody to be a web monkey, positions are going begging" tends to attract people who aren't really good at it.

These days, us CS types have open source. The people who volunteer to do it without getting paid pretty much by definition love doing it. (And the weasels aren't going to spend 5 years of consistent unpaid hobby work with no guarantees of it ever turning into anything, they're going to go for something that either provides some kind of guarantee or is a whole lot faster...) It's not the world's most efficient system, but it's a way to find out about a candidate and get word of mouth from people they've worked with...