tag:blogger.com,1999:blog-6704573462403312459.post6087919266089439019..comments2024-03-18T11:14:41.367-04:00Comments on Moneyness: Consumption isn't a fleeting burst of pleasure, it's a long-lived assetJP Koninghttp://www.blogger.com/profile/02559687323828006535noreply@blogger.comBlogger16125tag:blogger.com,1999:blog-6704573462403312459.post-30323528728722144802014-06-02T15:41:48.786-04:002014-06-02T15:41:48.786-04:00Being a big fan of Borges, I'm smitten by your...Being a big fan of Borges, I'm smitten by your incipient term "Borges problem" and have added it to my list of favorite terminology ever! (Also in the list, "weakly godlike AI", "childfree", "POTUS to PRIME", "whales humping", "camelCase"...)<br /><br />I tried to narrow down the term into 140 characters. It was hard! What do you think? :)<br /><br />THE BORGES PROBLEM: categories are CONTINGENT, inescapable (because language), dangerous (blinding), unconscious (historical)--yet DECISIVE. <br /><br />https://twitter.com/elzr/status/471433005236355072elzrhttps://www.blogger.com/profile/13039236129407816853noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-15286580990882611262013-04-16T22:43:41.375-04:002013-04-16T22:43:41.375-04:00John,
Thanks for the Jevons tip.
I like the phra...John,<br /><br />Thanks for the Jevons tip.<br /><br />I like the phrase "consumption structure". It jives with what Mike, Nick and I were talking about above, in which people hold portfolios of "dated consumption claims". And you're entirely right that in the face of uncertainty investors may choose to hold a portfolio filled with dated consumption claims (flashlights, canned goods) and/or "capital" goods (machinery) and/or financial assets (cash/stocks). <br /><br />"I was reading it much more psychologically, as though the experience itself were a part of your portfolio, and the "having had" of the experience would yield utility in the future in just as important a way as the experience itself at the moment of the "consumption"."<br /><br />My train of thought on this goes something like this... when we talk about consumption we mean goods & services. It's easy to think of goods (flashlights & canned goods) as items in someone's consumption structure that they use up via "consumption consuming". Services is tougher. The only way I can transfer the idea of services into someone's consumption structure is by capitalizing them as a flow of relived memories. Either that or the concept of services is too irregular to be thought of as more than a one time shot of pure consumption. Still not sure, but I do like the idea of capitalizing services. How can we not capitalize experience earned while consuming travel services?JP Koninghttps://www.blogger.com/profile/02559687323828006535noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-53747136725219683672013-04-16T17:50:19.324-04:002013-04-16T17:50:19.324-04:00This way of looking at "consumption" goo...This way of looking at "consumption" goods goes all the way back to William Stanley Jevons. He had a very simple diagram that was meant to show both the period of "gestation" and period of "use" that was very similar to the "hayekian triangles" from "Prices and Production" here...<br /><br />http://www.econlib.org/library/YPDBooks/Jevons/jvnPE7.html<br /><br />I always interpreted this as meaning that there is no such thing as consumption spending. There is only investment spending and then "consumption consuming", though the time period may be so short as to be irrelevent, like with fast food. What's important here is that the way Austrians complain about the lack of importance placed on capital structure, there is an equally important "consumption structure" which has been neglected. I keep cash in my portfolio to stay liquid for uncertain circumstances, but others trade cash for flashlights and canned goods because of uncertainty as well.<br /><br />I will say, when I first read your articles on consumption as a portfolio good, I was reading it much more psychologically, as though the experience itself were a part of your portfolio, and the "having had" of the experience would yield utility in the future in just as important a way as the experience itself at the moment of the "consumption".<br /><br />Would this explain why low earning young people seem to have higher time preference and high earning old people have low time preference, a dearth of utility yielding consumption experiences in the portfolio that has reached a highly diminished yield by the time of old age?John Hawkinsnoreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-58519400863641826112013-04-14T18:42:15.636-04:002013-04-14T18:42:15.636-04:00Not only that, but investments usually require con...Not only that, but investments usually require consumption to build them, and sometimes fail, but are failed investments anything other than consumption? Lordhttps://www.blogger.com/profile/06747994571555237739noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-24834196782409094882013-04-14T12:14:09.469-04:002013-04-14T12:14:09.469-04:00Correct. It's just like pricing an annuity, pl...Correct. It's just like pricing an annuity, plus you have to throw in extra terms if the annuity payment is growing or shrinking, or if there is a convenience yield.Mike Sproulhttp://www.csun.edu/~hceco008/realbills.htmnoreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-55400473049452729752013-04-13T21:37:40.008-04:002013-04-13T21:37:40.008-04:00Right, so the choice to buy a consumption good is ...Right, so the choice to buy a consumption good is different from the decision to consume. Consumption is just the using up of dated consumption claims that inhered in a certain consumption good.<br /><br />What do you think about this? Highly liquid financial assets also provide a bundle of consumption claims. We know that we can easily sell these assets in an emergency at time + ?. Knowing this soothes us, just like a fire alarm soothes us. When we buy the asset at t we have to price in the discounted flows of dated consumption claims at t+1, t+2... etc.JP Koninghttps://www.blogger.com/profile/02559687323828006535noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-70889106752796149992013-04-12T23:07:37.670-04:002013-04-12T23:07:37.670-04:00JP: "Nick, when you talk about Walrasian/Arro...JP: "Nick, when you talk about Walrasian/Arrow Debreu General Equilibrium theory here, "lot's of time periods, lot's of different goods", dated consumption claims are what you're referring to?"<br /><br />Yes. Or, at least, that's one way of looking at it. And we could make it "state-contingent dated consumption claims" too.<br /><br />Ownership of a house is ownership of a bundle of such claims. A house would be like a square PPF, for n time dimensions (where the house lasts for n periods), with dated 'somewhere to stay warm and dry in period t' on the axis.<br /><br />And you are quite right that almost every 'consumption' good is an investment good too, because it lasts for more than one instant.<br /><br />Mike: "Just add a third axis for "period 3 goods", a fourth axis for "period 4 goods", etc. Problem solved!"<br /><br />Yep. And double the 4 dimensions to 8, for both apples and bananas. Etc.Nick Rowehttps://www.blogger.com/profile/04982579343160429422noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-23869503413090648012013-04-12T19:28:56.071-04:002013-04-12T19:28:56.071-04:00If you buy the house for $1000, expecting to get $...If you buy the house for $1000, expecting to get $50/year of shelter in perpetuity, then your wealth is unaffected. But as you live in the house you are giving up the $50/year that you could have rented it for, so it's the consumption of the house that draws down wealth, but the purchase of the house leaves wealth unaffected.Mike Sproulhttp://www.csun.edu/~hceco008/realbills.htmnoreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-40743083012768849812013-04-12T18:46:17.148-04:002013-04-12T18:46:17.148-04:00That's a cool term.
What I think I was tryin...That's a cool term. <br /><br />What I think I was trying to say in this post is that spending one's income on so-called consumption doesn't result in an irreversible drawdown of wealth. It just means that you've swapped cash (and related "dated cash claims") for a whole portfolio of what you call "dated consumption claims". It's just a portfolio realignment. As you point out, a lightbulb provides a stream of claims that can extend far into the future, so when someone purchases the particular set of dated consumption claims associated with a lightbulb, they aren't necessarily making a decision to consume now at the expense of future consumption. <br /><br />That being said, there is an element of irreversability since its tough to resell lightbulb claims. It's fun to think about a sci-fi world in which markets for all sorts of dated consumption claims existed so we could easily liquidate already-acquired consumption goods. I suppose that something like this already exists for housing? https://www.airbnb.ca/<br /><br />Nick, when you talk about Walrasian/Arrow Debreu General Equilibrium theory <a href="http://worthwhile.typepad.com/worthwhile_canadian_initi/2012/08/the-loanable-funds-and-other-theories.html" rel="nofollow">here</a>, "lot's of time periods, lot's of different goods", dated consumption claims are what you're referring to?JP Koninghttps://www.blogger.com/profile/02559687323828006535noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-91442153246287739222013-04-12T16:39:55.195-04:002013-04-12T16:39:55.195-04:00The key phrase is "dated consumption claims&q...The key phrase is "dated consumption claims". A house provides shelter this year, shelter next year, etc, and those dated consumption claims can be broken down to days, hours, etc. (Then we get to more complicated things like uncertain consumption claims, and state-dependent consumption claims.)<br /><br />A house or a lightbulb or an acre of land all give streams of dated consumption claims. Since the land lasts forever, those claims are valued like a perpetuity. So a house that yields $50 of pleasure per year will be valued by the consumer at 50/.05=$1000 as a purchase price.Mike Sproulhttp://www.csun.edu/~hceco008/realbills.htmnoreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-46503484839006116812013-04-12T15:54:22.899-04:002013-04-12T15:54:22.899-04:00How do I think about complex goods like houses tha...How do I think about complex goods like houses that provide repeating bursts of consumption over long periods of time? I noticed that Hirshleifer uses corn, and Nick you use apples. Once these things are eaten they are gone. But most of my consumption goods in my house stick around forever... books, sofa, etc. Buying these things now gives me C today and C tommorrow... how do I unpack this using a Fisher diagram?JP Koninghttps://www.blogger.com/profile/02559687323828006535noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-24298941834979999802013-04-12T15:35:03.722-04:002013-04-12T15:35:03.722-04:00Just add a third axis for "period 3 goods&quo...Just add a third axis for "period 3 goods", a fourth axis for "period 4 goods", etc. Problem solved!Mike Sproulhttp://www.csun.edu/~hceco008/realbills.htmnoreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-24884127088620244382013-04-12T14:39:19.116-04:002013-04-12T14:39:19.116-04:00Here's a picture of the Irving Fisher diagram:...Here's a picture of the Irving Fisher diagram: http://worthwhile.typepad.com/.a/6a00d83451688169e2017744164c06970d-pi<br /><br />From halfway down this post: http://worthwhile.typepad.com/worthwhile_canadian_initi/2012/08/the-loanable-funds-and-other-theories.html<br /><br />Do macroeconomists need to discover it? Or rediscover it? I agree that one simple picture says more about consumption, saving, and investment than....a lot of things. The only thing wrong with it is that it only has 2 dimensions!Nick Rowehttps://www.blogger.com/profile/04982579343160429422noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-38756932955978525812013-04-12T13:45:55.425-04:002013-04-12T13:45:55.425-04:00Since I can't draw a picture here, it's ha...Since I can't draw a picture here, it's hard to get the idea across. There are probably lots of old, cheap copies of Jack's textbook "Price Theory and Applications" on the market, and the chapter on Intertemporal Choice explains it pretty well. There are also a few good links that come up by googling 'intertemporal choice'. Every intermediate micro book spends a few pages on it.<br /><br />Anyway, consumption can be a 1-time thing (strawberries) or a long-lived thing (light bulbs). Draw a regular-looking indifference curve diagram, but instead of putting goods x and y on the axes, put "this year's corn" on one axis and "next year's corn" on the other. If you want more years, just keep adding axes. Then draw a budget line along with indifference curves, and you're on your way (assuming one knows what budget lines and indifference curves are). If you want to incorporate productive activity between time periods (aka investment and disinvestment) then you need to draw in a production possibilities curve PPC. The individual's productive activity consists of finding the point on his PPC that reaches the highest budget constraint (a tangency of the PPC and the budget constraint), and then finding the point on that budget line that reaches the highest indifference curve (a tangency of the budget line with an indifference curve). Once the diagram is drawn, various distances in the graph give precise meanings to the otherwise vague concepts of borrowing, lending, saving, dis-saving, investment, and disinvestment.Mike Sproulhttp://www.csun.edu/~hceco008/realbills.htmnoreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-70498746827268760912013-04-12T12:48:55.630-04:002013-04-12T12:48:55.630-04:00Care to elaborate more? I don't know anything ...Care to elaborate more? I don't know anything about Hirshleifer's views. Do they involve treating consumption as a long-lived yield producing asset?JP Koninghttps://www.blogger.com/profile/02559687323828006535noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-85807663452344423152013-04-12T11:03:14.881-04:002013-04-12T11:03:14.881-04:00Macroeconomists need to discover the Irving Fisher...Macroeconomists need to discover the Irving Fisher/Jack Hirshleifer view of borrowing, lending, saving, dis-saving, investing, and dis-investing. It's all explained with indifference curves, budget lines, and production-possibilities curves, and it has almost nothing in common with the over-simplified definitions offered in macroeconomic texts.Mike Sproulhttp://www.csun.edu/~hceco008/realbills.htmnoreply@blogger.com