I want to take more time on my own to learn true economics without any real sort of political bias from one of the two big parties. I want an independent take. Can someone point me in the right direction?

THanks

1/6/2010 2:00:51 PM

I think Economics in One Lesson by Henry Hazlitt is a good starting point for the Austrian viewpoint. It's available online for free if you have an e-reader or don't mind reading off the screen. Of course economics today is pretty much completely based on Keynesian principles, so it depends on if you're wanting to learn what is being practiced today, or what actually makes sense.

1/6/2010 4:39:51 PM

Quote :

"or what actually makes sense."

Referring to the Austrian school? I thought this recession had killed off this line of thought?

1/6/2010 4:44:00 PM

Read this:



Basic Economics: A Citizen's Guide to the Economy by Thomas Sowell

1/6/2010 4:49:48 PM

I think if anything this recession is strengthening their point. Since pretty much every Austrian economist predicted the current situation due to easy credit and a propped up housing market.

1/6/2010 4:51:07 PM

Quote :

"Referring to the Austrian school? I thought this recession had killed off this line of thought?"

No. Let's see...who explained the bubble while it was being blown up and then predicted the bursting of the bubble? Austrian economists. Who said that everything was fine, and encouraged stimulus all along the way, and had no idea that a bust was coming? Keynesian economists.

1/6/2010 4:56:46 PM

I too would like to strongly recommend Basic Economics: A Citizen's Guide to the Economy by Thomas Sowell

The book actually manages to make economics entertaining. It is a bit ideological at points, but such a price is worth paying for a book you can't stop listening to (I have the audiobook).

A runner up is Economics in One Lesson by Henry Hazlitt purely for the "FREE" aspect.

For pop-economics, you can't do better than Freakanomics.

1/6/2010 6:15:26 PM

^i wouldn’t recommend Freakanomics for someone like HOOPS MALONE.

1/6/2010 6:42:13 PM

Quote :

"No. Let's see...who explained the bubble while it was being blown up and then predicted the bursting of the bubble? Austrian economists."

Well heck, if that's all it takes to prove a theory:

http://www.nytimes.com/2002/08/16/opinion/16KRUG.html

in 2002, bitches.

and then in 2005, just because you knuckleheads weren't heeding:

http://www.nytimes.com/2005/08/12/opinion/12krugman.html?_r=1

1/6/2010 7:46:48 PM

Krugman never bothered to explain the bubble, though. Anyone should have been able to tell you back then that houses are not just going to increase in value at 10% a year forever. It makes no sense. He could tell you that there was a bubble, but not why, and not when it was going to burst. The whole time it was happening, he was advocating low interest rates, yet the low interest rates were what caused the housing bubble. I mean, he literally thought that low interest rates were the solution, but they were the thing that allowed banks to give out these loans, which allowed people to speculate and borrow the money to purchase homes. Hell, I'd say he's partially responsible for the housing bubble.

1/6/2010 7:59:36 PM

Quote :

"economics without any real sort of political bias"

lol not possible

[Edited on January 6, 2010 at 8:19 PM. Reason : the best idea would be to learn it from the extreme ends of left and right then someone in the middl]

1/6/2010 8:17:59 PM

^^ Totally. It was completely obvious to anyone.

That's how we were able to avoid it. oh wait...

1/6/2010 8:30:01 PM

If gas prices stayed the same and there was no mass urban renewal movement, home values would've continued to increase.

It does make sense think about it. If population continues to grow, income continues to grow, inflation continues to take place but there is a set amount of property, demand is going to outrun supply and prices will increase.

Could we have seen an increase in oil prices and end of suburbanization era coming? yes. but not simply because prices were going up.

1/6/2010 8:34:16 PM

Quote :

"That's how we were able to avoid it. oh wait..."

Once in a bubble, there's no avoiding the crash. It has to come. The problem is that prices were too high. The only solution is for prices to come back down to earth. A lot of people saw the bubble, but they thought they would be able to get out before the crash came. Some people did, and they cashed out on their speculation. Most people, that were actually using the homes to live in and not as financial assets, lost a lot of money.

Quote :

"If gas prices stayed the same and there was no mass urban renewal movement, home values would've continued to increase. "

No, they wouldn't have. The housing bubble burst when ARMs started to reset and the banks realized that a lot of the borrowers couldn't actually pay these loans. They were giving people home loans with 0% down and extremely low (sometimes 1-2%) teaser rates. So, when the teaser rate was gone, and the rates shot up to 6%+, people weren't able to continue making payments. Artificial demand, caused by these extremely easy to obtain loans, will always result in jacked up prices. And the banks couldn't have given out the loans if it were not for the low interest rate policy of Greenspan.

Look at how bad things got when the housing bubble burst, and that was just the result of interest rates at 1-3%. We've had zero percent interest rates for over a year now. How bad is the bust going to be this time?

[Edited on January 6, 2010 at 9:13 PM. Reason : ]

1/6/2010 9:13:16 PM

Two recent reads I recommend:
Gregory Clark's "A farewell to Alms"
William Easterly's "The elusive quest for growth"

1/6/2010 9:18:47 PM

you're underestimating the effect oil prices had on the economy. It was a domino effect. With a perfect economy otherwise, the mortgage problem would not have been a "crisis".

If someones payment increases by 10% even, theyre fine. If theyre payment increases by 10%, their energy increases by 25%, their groceries increase by 10% and their suv gas increases by 20%, then it becomes a problem, especially when you throw in, 9/11, 2 wars and subsequen epic job loss.

[Edited on January 6, 2010 at 9:48 PM. Reason : people didn't lose jobs because of easy loans]

[Edited on January 6, 2010 at 9:48 PM. Reason : (non finance people, at least)]

1/6/2010 9:47:24 PM

Quote :

"you're underestimating the effect oil prices had on the economy."

and you're not fucking listening. What caused the bust was the RESETTING OF THE ARMS. That is entirely independent of oil prices.

Quote :

"If someones payment increases by 10% even, theyre fine."

You need to do some simple numbers here, dude. Mortgage payments weren't increasing by "10%." A change from 2% to 6% is a massive increase in a mortgage payment. Just do a mortgage payment calculator and you will see how. At 150k, that's the difference between $775 and $1100. That's a lot more than "10%".

1/6/2010 11:00:59 PM

you're right on that but even the worst subprimes weren't done much over a 50% dti. The person in your example would've had ~1000 dollars of disposable income before the increase. With the increase, ya they wouldn't have much to save, but they wouldn't be forced into forclosure. Plus, they could just refinance before their rate went up if home values weren't hurt by other factors. It obviously wasn't the smartest system but it took outside factors to mess it up.

Quote :

" What caused the bust was the RESETTING OF THE ARMS. That is entirely independent of oil prices."

if my arm resets and nothing esle changes, I can still make my payment, I just can't save much if at all anymore.

1/6/2010 11:08:30 PM

you are assuming they were saving ANYTHING to begin with. which we know is patently false

1/6/2010 11:46:05 PM

not many loans were being given with over 50% dti so I know they had extra income. The BAD loans were the ones where people were given more than 42% dti. I'm sure there were some out there>50% but not that many. Certainly not enough to drive millions of foreclosures.

1/6/2010 11:55:25 PM

yes, but you are excluding the possibility that they have fancy cable plans or that they then went out and purchased more shit. seriously, in a world where people where taking out insane loans to begin with, it's obvious that the resetting of ARMS is what did them in, NOT gas or energy prices.

1/7/2010 12:20:24 AM

hooksaw makes the best suggestion thus far. Sowell's Basic Economics covers a good amount of what you would learn in intro to micro or public finance courses in a very entertaining way. A similar book that is also a good read would be David Friedman's Hidden Order. However, as I remember, neither of these books have lengthy discussions of macro issues.

For a good book on macro that is particuarly relevant today try:


I have not read the latest edition, but the first edition from 1998 was really short, insightful, and pretty apolitical.

One note: stay as far away from Hazlitt as possible. The stuff he gets right, you can get from Sowell. The stuff he gets wrong could screw you up for life (his uninformed critique of Keynesian Economics).

One more note: if you really want truly apolitical discussions of economic theories, I think you're best bet is to pick up a textbook. Greg Mankiw's introductory econ books are a good start.

1/7/2010 2:09:14 AM

Krugman practically called for the bubble in 2001.



Anyway, my vote:

1/7/2010 2:39:58 AM

you can easily cut out those other costs and still not get foreclosed. people with huge loans and credit card debt can would just default on those and keep their homes. maybe have their cable cut off. I'm not saying mortgages weren't one of the biggest if not the biggest cause but it wouldn't alone cause mass amounts of foreclosure.

[Edited on January 7, 2010 at 8:19 AM. Reason : survivable]

1/7/2010 8:18:35 AM

"Damn, there's a housing bubble! People are buying houses not for shelter but because they think the house will appreciate and they can sell it later and make a ton of money! Let's cut interest rates and make it easier to get a home loan." Krugman was just completely off base, and he still is.

^Not everyone could just "cut their cable" and make the payments. When people were already on a tight budget and using debt to pay for expenditures, the ARMs resetting was the straw that broke the camels back.

Quote :

"One note: stay as far away from Hazlitt as possible. The stuff he gets right, you can get from Sowell. The stuff he gets wrong could screw you up for life (his uninformed critique of Keynesian Economics)."

How is it uninformed? Just because Keynesian economics is "mainstream" doesn't mean it isn't garbage. It basically comes down to "hey, we can spend our way out of a recession." How many Keynesian-style stimulus packages did Japan pump out in the 90s? How much good did they do? Will it be different for the United States?

Politicians love Keynesian economists because they tell them what they want to hear. "Oh, you don't really need to have balanced budgets. We just need government spending to get out of this mess." Unfortunately, it never works, and it's going to end in disaster for us.

[Edited on January 7, 2010 at 8:50 AM. Reason : ]

1/7/2010 8:44:51 AM

Walter Williams has a nice short online primer on economics at his web-site...

"Economics For the Citizen"

http://economics.gmu.edu/wew/misc/EconomicsForTheCitizen.pdf

1/7/2010 9:22:12 AM

^^you don't seem to undersand how mortgages work/worked. If your debt to income ratio was too high you would not get a loan, even back in those days. I know a rare case that got 60% dti because the income was so incredibly high but 99% of the applications with dtis greater than 50% were denied, even back in those days.

If your mortgage makes you have a 50% dti ratio, assuming you have a car payment, you can save a the ~amount of your mortgage payment each month. Thats a lot of wiggle room. Also, you continue to overlook the fact that back then, everone knew you could just refinance once your rate adjusted. If the rest of the economy was fine and arms adjusted to go up, all those homeowners would have simply refinanced, lost the equity that had built up and kept thier low payment.

Thats two huge components you're overlooking. Wiggle room and ability to fefinance.

1/7/2010 9:32:32 AM

^ There are two main faults in your reasoning. You know nothing and you're just making stuff up.

I'll address these in order.


50% debt to income ratio is absurd. This is part of the problem and why people could not afford to pay when ARMs reset. I'm sure you're aware that dti is calculated based on your gross income. So we'll work with some numbers. Lets say someone makes 50k a year and wants a 200k home.

At 50k/year that is 4166/month gross, so a 50% dti would be 2083 in debt each month.

500 a month in federal taxes. 250 a month in state taxes. 250 a month in medicare/social security. 179 in property taxes. These are all mandatory expenses that subtract from your gross that are not calculated into your dti. There are many more, but these are the most apparent.

At this rate the 2083 they have to spend each month is now reduced to 904. With 0 down on a 180k house with a 3% intro rate their mortgage payment would be 759 a month. This only leaves 145.00 a month to spend on food, cable, heat, power, clothes, etc....

At this point it is evident that the circumstance would likely prevent the purchaser of the home to meeting their additional basic needs let alone be able to handle the $400 increase that would come with rate adjustment.

To argue that a 50% dti is sustainable in the first place, let alone after rate adjustment, illustrates how little comprehension you have of the situation at hand and basic finance. This lack in comprehension further exemplifies how people found themselves in these situations in the first place. Lucky for you there is the privilege of learning by example so you don't have to make these same mistakes.


Now, please explain to me where your conclusions of

Quote :

"you're right on that but even the worst subprimes weren't done much over a 50% dti. The person in your example would've had ~1000 dollars of disposable income before the increase"

To my knowledge there was no salary mentioned in this example so to conclude that one has a certain amount of disposable income is rather asinine. Could you at least explain using the example I have provided for you where this 1,000 in disposable income is obtained?

1/7/2010 10:04:15 AM

For an explanation of the current crisis, read Meltdown by Tom Woods.

1/7/2010 10:29:07 AM

For these types of loans, DTI was often calculated from monthly take home, more specifically, the borrowers las tmonths pay stubs x12. Now there may not be much difference in 30% dti gross and 50% dti take home but the bottom line is theres lots of extra money. ~60% was usually a dealbreaker but there were lots of creative ways to use 2nd, non foreclosable loans to make it happen.

If someone got approved for 775 mortgage. Lets say they have 225 cc/loan payments and a (yesvery high) 50% dti. That means they have 1000 debt and 2000 income. If they get in a bind and stop paying the cc they stilll have 1225 to pay for food and increasing mortgage payment.

You seem to think forclosure occurs when they have more bills than income but you don't consider the fact that nobody would pay a credit card bill instead of a mortgage payment.

Quote :

"Lucky for you there is the privilege of learning by example so you don't have to make these same mistakes. "

Your rhetoric is very cute, but I was in the business during the period and know EXACTLY how it worked. Everything is different now though, and there is no subprime/creative lending. Thats a thing of the past so nobody could make the same mistake if they wanted to.

1/7/2010 10:43:36 AM

Quote :

"How is it uninformed? Just because Keynesian economics is "mainstream" doesn't mean it isn't garbage. It basically comes down to "hey, we can spend our way out of a recession." How many Keynesian-style stimulus packages did Japan pump out in the 90s? How much good did they do? Will it be different for the United States?"

hehe Austrians.

http://delong.typepad.com/sdj/2005/04/economics_in_on.html

[Edited on January 7, 2010 at 12:27 PM. Reason : ``]

1/7/2010 12:26:00 PM

^^your back to making stuff up again

Debt to income is most certainly calculated based on gross income. Aside from having purchased a home (anecdotal) and undergoing the process myself. You can investigate this fact using a variety of sources.

A mortgage/how much can i afford calculator:
http://cgi.money.cnn.com/tools/houseafford/houseafford.html
http://moneycentral.msn.com/personal-finance/calculators/evaluate_your_debt_calculator/home.aspx
http://cgi.money.cnn.com/tools/houseafford/houseafford.html


or even explanations of the concept itself

http://www.lendingtree.com/mortgage-loans/advice/qualifying-for-a-loan/calculating-debt-to-income/
http://financialplan.about.com/od/personalfinance/a/Debt-to-Income.htm


Furthermore your naivety increasingly highlights your lack of understand on this issue. Even in the example you provided, your figures are incorrect and logic flawed. With the initial 775 house payment the individual in question would have 1225 to pay for monthly power, gas, food, day care, car repair, etc... Of that 1225 a minimum 775 PLUS $179 in property tax, which can't be avoided, would be paid. That leaves 271/month to pay for all remaining basics while becoming increasingly further indebted and pending future property liens due to no credit card payment.

Now once this ARM resets the house payment is going to increase by $400. At this rate the person is now running at a negative $129 before any basics have been addressed.

Even in your liberalized example your comment that

Quote :

"The person in your example would've had ~1000 dollars of disposable income before the increase. With the increase, ya they wouldn't have much to save, but they wouldn't be forced into forclosure."

has been categorically disproved.

1/7/2010 1:03:35 PM

None of your information is "wrong". Your problem is that you're speaking from your experience buying your home and posting current information while my information is coming from what I did working in the pre-burst mortgage industry for over a year. Thing is, everything has changed since the meltdown and very few of the things work the way they worked back then.

Quote :

"1225 to pay for monthly power, gas, food, day care, car repair"

Really? My utilities +cableworks + ultrainternet are 150 a month combined which is irrelevent anyway because when the money runs out I'm going to without hdtv and high speed internet, expensive food before I get foreclosed.

Quote :

"and pending future property liens due to no credit card payment. "

not how it works. believe it or not, you never have to pay off cc's. It will ruin your credit but eventually will go away. thats if you dont consolidate and delay.

Property taxes were always combined/included in payments with my companies.

Also, you get tax money back at the end of the year from the interest and you would just refinance once the payment adjusts too high.

1/7/2010 4:21:39 PM

http://curiouscapitalist.blogs.time.com/

and his book: http://www.harpercollins.com/books/9780060598990/The_Myth_of_the_Rational_Market/index.aspx

1/7/2010 4:31:00 PM

Gas prices didn't cause the bubble to burst. It burst simply because it was a bubble. And it still hasn't completely burst as of yet. The government is doing everything they can think of to keep it propped up, prolonging the problem and making it worse in the end. The problem is monetary policy. You can't just create credit forever with no real resources backing it up. It's an unsustainable system. Eventually the resources run out and the bubble bursts. Like I said before, read Meltdown for a very clear overview of how the system works and why it's faulty.

1/7/2010 4:37:41 PM

I think part of the disagreement between mambatroll and IRSC is mamba is including the new mortgage in the DTI, while IRSC is NOT. That makes a huge difference...

1/7/2010 6:30:38 PM

Probably because he's looking at it as an applicant and I'm looking at it as a loan officer that sees every application as a potential loan and the first thing we did was create the persons scenario for after they got the loan before submitting it to any banks.

Right now banks have harsh restrictions because they think the lax restrictions caused the problem.

My point is kind of like saying, after a warehouse of fireworks exploded that havign that many explosives is not what caused the problem, the spark that lead to the initial fire is what caused the problem. While he would say, having that much explosive material in one place is bound for an inevitable explosion anyway.

1/7/2010 6:58:32 PM

Quote :

"I want to take more time on my own to learn true economics without any real sort of political bias from one of the two big parties."

The entire field of economics is politically biased in favor of both of the two big parties.

1/7/2010 11:58:07 PM

Quote :

"Probably because he's looking at it as an applicant and I'm looking at it as a loan officer that sees every application as a potential loan and the first thing we did was create the persons scenario for after they got the loan before submitting it to any banks."

Well, then, school us. What is the proper way to look at dti? with or without the mortgage included?

1/8/2010 12:00:18 AM

I'll openly admit that the way DTI should be looked at is with mortgage included. I became distracted by the fact that she was using net income as opposed to gross income and this messed up how I was doing my calculations.

lets get back to the basics.

DTI is calculated using gross income.

mambagrl's explanation for the sources and anecdotal experience I posted regarding this fact was that rules have changed since the meltdown and now there are new standards. however, i find it unlikely that following such a collapse the calculation would use the more liberal gross income as a standard. my anecdotal experience is developed from 5 or 6 lenders I worked with, all of whom used gross. based on this and the sources of information provided above i will be using all future calculations of DTI based on gross income and with mortgage and taxes included.

Household Income: 50k. Cost of Home: 180k. Rate: 3% reseting at 6.5% Initial mortgage: 938

At 50% DTI you're looking at 2038 in debts. Someone making 50k/year would shell out 1000 in taxes every month. So, yes in this case the person has ~1000 per month as mambagrl said.

However, what she failed to do was think practically and not hypothetically. There are plenty of debits each month that may not meet the standard of debt but are nonetheless equally as necessary.

What items i'm speaking of here are car insurance (100/month), Power/Water/Gas (100/month), food (300/month). This short list fails to cover a slew of other likelihoods such as cell phone, home insurance, gas, cable, repairs or new items purchased that are likely to be in the ledger of any person living in their own home.

Ignoring the likely other dues this person would have $500 extra a month until the home reset. Once this home resets the debt ratio is now 60%. Leaving the person with 100/month even before all likely debits are covered.

This isn't practically sustainable.

What I find to be the largest discrepancy in with mambagrl's logic is in her initial defense she claims that it wasn't the reset of the ARMs, but, rather, to increase of cost in goods and then later debates that the increase in defaults couldn't have been due to too high a DTI since people could actively choose not to pay debts that are equally as important as the increase in what she deemed unavoidable goods that she ascertains were responsible for the bubble burst. Doesn't compute IMO.

[Edited on January 8, 2010 at 10:28 AM. Reason : 1 more thing]

1/8/2010 10:26:03 AM

Quote :

"The entire field of economics is politically biased in favor of both of the two big parties."

Not really.

1/8/2010 10:33:12 AM

Yeah really. Economics supports the mainstream and opposes radicalism. It employs absurd assumptions and make-believe models to give the existing capitalist system an undeserved aura of legitimacy.

1/8/2010 1:02:48 PM

Mainstream economics supports the mainstream. Mainstream economics is Keynesian economics. Governments all around the world believe that in having central economic planning.

1/8/2010 1:13:14 PM

i took economics my first semester and they didnt really talk about the austrian economics. why dont they? is there something wrong with it?

1/8/2010 1:46:32 PM

Quote :

"Economics supports the mainstream and opposes radicalism."

Your thinking is very up-tight man. Neo-Classical and Keynesian economics both support the mainstream, few would accuse Austrians of being mainstream. There is plenty of radical economic thought out there, you just have to know where to find it.

1/8/2010 2:25:34 PM

Quote :

"i took economics my first semester and they didnt really talk about the austrian economics. why dont they? is there something wrong with it?"

It's considered a fringe, heterodox school. Mainstream economists look down on it because it doesn't make use of econometrics. Basically, they treat it like an actual science. Austrian economists treat it as a social science, saying that you can't really understand economics by compiling statistics and modeling trends. Human behavior, which is at the core of economics, is too unpredictable to model in such a way.

1/8/2010 2:35:02 PM

I think "heterodoxy" is the term the overwhelming majority of economics profs would use to describe Austrian econ. It makes observations in-line with classical economics (like the creation of bubbles, but there's nothing unique to this strain about seeing that, plenty others that weren't Krugman did), but once it gets to proposing solutions, it devolves into something beyond that, what with the letting banks all print their own currencies and "science of human action" or whatever.

1/8/2010 2:37:01 PM

I don't see anything wrong with having banks able to come out with their own currencies. No one would accept them if they weren't sure that they were backed with something. Yeah, it's mainstream thought that anyone who examines the value of money, or even utters something like fiat currency, is a crackpot. To me, what's crazy is having a secret arm of the government pumping out money at will to pay for ridiculous government deficits, and making it illegal to use anything other than the dollar for exchanges.

1/8/2010 2:49:31 PM

Well then I guess the whole world has gone mad. Hopefully someday we can go back to trading goats for goods.

1/8/2010 2:52:03 PM

In many ways, I think the whole world has gone mad. Australia actually has a somewhat reasonable monetary policy, as do some of the South American countries. Think about what you know of history. Is there an era where you can say "yeah, looks like everyone basically had it right, except maybe a couple of countries." Of course not. I don't think this era is much different, and historians will look back at this period of time and see the monetary debacle for what it is. I think people justify bad policy bad saying "well, most every other country is doing it, so it has to be right." You can't really expect understand to understand economics and trade without looking at the currency, though, and if the currency is unstable, malinvestment is inevitable.

1/8/2010 3:01:17 PM