D’s

Welcome to the SwiftEconomics.com Glossary! Each word will come to life using witty jokes, satire, and colorful examples. The glossary is meant to amuse and educate; not to be traditional or academic. The SwiftEconomics.com team wants to hammer home a few vital ideas throughout the vocabulary lesson. For example, keep an eye on asymmetric information’s effect on health insurance. Please share the SwiftEconomics.com Glossary with colleagues, friends, and family!

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Deadweight Loss

Nothing’s free in this world; the broken record keeps on playing. When a tax is imposed or tax relief is awarded, the cost of tinkering with the market is known as deadweight loss.

Taxes are imposed or increased to gain more revenue. If property taxes increase in a city, some people will no longer buy real estate or buy fewer properties. Some extra tax revenue will be amassed but the city government loses a piece of the new tax pie.

Tax subsidies are supposed to be bonuses for people that government picks up the tab on through lost revenue. If the government were to give a tax subsidy on healthy food, it would benefit people who eat healthy food anyway and cost the government.


Death Spiral

Asymmetric information and adverse selection hurts business, too. When insurance companies turn people down, they miss out on a number of good policy holders that would take out very few claims and pay their premiums on time every month. In fact, as insurance costs rise it’s the lower risk people that elect to change policies or be uninsured. The best customers are lost to the death spiral. See my economic solution for helping millions of uninsured Americans secure health insurance in ‘asymmetric information.’


Deficit

Cash flow glitch; finance no-no soaked in red ink. Cash going out exceeds cash coming in. Anything can be in deficit, though. Like trust and the number of times a person ends up driving in a group of friends.


Deflation

Prices everywhere fall across sectors and product categories. Sounds harmless like a store fire sale but it means businesses aren’t making as much money and employing fewer people.


Demand

A willingness and ability to pay for products and services. Demand is what the people want but also how much. Demand would be like my mother wanting twelve papyrus place mats. A product, quantity and credit card to swipe.

Alongside supply, demand is the most commonly used concept in economics.


Depression

Anti-depressants haven’t been developed for the economy yet. R & D departments at pharmaceutical companies should get to work. A depression is a deep and prolonged recession to the tune of two declining consecutive quarters of output at a clip of double digit percentages.


Deregulation

A buzz word in political sparring, this describes letting markets distribute scarce resources how they please. Legal barriers and uncompetitive taxation hurt an economy’s ability to compete. Markets can, in fact, be somewhat deregulated and still have watchdogs; most people don’t want toxic toys that kill children. Watchdogs can fail to serve the people’s interests, too and can be otherwise incompetent.

Capitalism can produce greedy crooks that hose honest, hard-working people but it also needs room to flourish. Capitalism has its flaws but has delivered more wealth to more people than any other system mankind has imagined. Somewhere between stiff regulation and markets roaming free may work best in practice. Finding the sweet spot could cause just as much pain as semi-deregulated markets.


Derivatives

A gambling asset. Any investment is a gamble but a derivative is a gamble in the purest sense of the word. Just like a gambler doesn’t own the Boston Celtics and still places bets on them, a derivative holder doesn’t own the asset they place bets on. For example, an investor could buy a derivative tied to a housing index. Say they think a housing bubble is about to burst, they’ll bet that the index will drop. Investors get rich by betting on the performance of assets they don’t even own. Even from crumbling economies.


Diminishing Returns

An amazing term to slip into conversation, diminishing returns is the idea that something can be good for a awhile but eventually doesn’t do it for you anymore.

Chicken BBQ pizza is really good, especially when you’re really hungry. That first slice blows your mind. The second boggles your mind because you’re still pretty hungry. The third piece fills the whole in your stomach completely. The fourth piece kinda hurts to be frank. The happiness (utility) gained from eating chicken BBQ pizza gets less and less with each additional piece consumed. At some point you can’t pay me to eat another piece of chicken BBQ pizza. Especially if it’s stipulated that it must stay in my stomach for a minimum of an hour.

Note: blows your mind > boggles your mind


Direct Taxation

Some find it to be the most direct sucker punch, these are taxes levied on individual income and wealth. Much debate exists on the most efficient method of taxation. Sales tax is an example of indirect taxation. Indirect taxation is regarded as less noticeable and less avoidable.


Discounting

The process of determining what money is worth, in today’s terms.

Money is worth more today than it is in the future. Therefore, if a person borrows money, they must pay their creditor a rate of return, on top of the amount borrowed (aka principal), to use the funds.

Conversely, if a person invests money, they must earn their required rate of return to make it worth their while.

Stock market prices are considered discounted future cash flows of an underlying company. What this means is that a stock market price reflects all of the expected future cash flows, after expenses, that a company is thought to receive. The stock price takes these expected cash flows, discounts them back into what the money is worth in today’s terms, thus giving an investor the price they’d be willing to pay to own the stock. Investor’s required rates of return vary from person to person. As a company changes strategies or the marketplace changes on the company, the expected cash flow profits vary over time.


Disinflation

Prices continue to rise but at a lesser rate than the year prior. You can continue to demand pay increases at work in the name of inflation so that’s nice.


Diversification

The practice of limiting exposure to risk by owning assets from many sectors and classes of an economy; containing the root of a word unavoidable in a conversation about investment. “Oh, I’m diversified.”


Dollar

Other aliases for the U.S. dollar include the greenback, King Dollar, legal tender and dough…it’s not easy being green. Everyone’s after the almighty dollar. Dollars are traded on currency exchange markets, denominate OPEC (oil cartel) transactions, and the person gracing the bill is often parodied. Many nights of sleep have been lost to visions of Carrot Top on a $100 bill. The dollars in circulation throughout the economy is controlled by the Federal Reserve and the Treasury; the former through buying and selling securities to manipulate the money supply and the latter with the printing press (one more dollar moniker for the road: Benjamins).


Dollarisation

A change in currency when a country’s citizens desire to switch to the U.S. dollar. Looked like a good idea once upon a time. Good luck with that.


Dumping

Taking a deliberate loss. If one firm dominates a market it might be useful to sell something for less than the cost of producing it to drive competitors out of business. We have a very game theoretical situation here; time to put your thinking caps on.

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