(Background: first posted in my Parabolica blog. There is no occasion surrounding this article just a thought that became a theory that I wanted to express. This would become a pattern...)
The flaw in Keynesian Economic Theory is the assumption that once everyone knows what song is being played every one's best interest is served by singing along. In the United States, as an example, a power struggle continues to be played out between the Keynesian-leaning government and the Neo-classical, and Monetarist, private sector. This dissonance continues against a backdrop of business-states (China) and cartel-states (especially OPEC countries) that provide a unified front in state, business and monetary policies. This trend is unlikely to change as it enjoys greater success in the future.
These are ideas I've picked up over the last 1.5 years watching CNBC, and especially Erin Burnett, and I attribute the genesis of this idea to her. Watching the questions she asks guests, the points at which she begins and ends interviews, I suspect she's thinking the same things. I know she's working on a book, I wonder if these thoughts, or similar ones, will be in it?
Basic Harmonics.
I choose to express this theory as a metaphor of sound wave theory, because I understand that idea and the comparison lends itself gracefully. (Quantum mechanical theory is similar and might actually function better in the extension of this exploration in the minutiae.)
A note is struck and vibrates at a distinct frequency, let's say 40 hertz (cycles per second). As that happens, harmonics, repetition of the note, occur at exactly 1 octave intervals at half-power, but do not occur at any other frequencies in between. So a 40 hz note has harmonics at 80hz, at half power or 3 decibels down in volume, 160 hz, a quarter power or 6 db down, etcetera throughout the octaves.
This is the metaphor I have chosen, I wonder what she's going to use?
The Flaw in Micro Theory.
Given the note heard at the being of the recession, the collapse of home mortgages, which led to the destruction of the different derivatives supported by those usually solid commodities, we have witnessed the different harmonics of that action. Was that the note or a harmonic of the note, with the actual note remaining unheard?
I contend it was an harmonic and addressing housing as an attempt to fix the economy would be misguided, although some effort must be made in that regard for stability's sake. The actual note was stagnant wages that made the unrealistic mortgages necessary, unviable and, ultimately, disastrous to the private and public sectors. Government and business always arrive at disaster at the same time, which is supposed to be the genius of Keynes, counter-cyclical spending by the government. As stated above, there is no unified front on the way forward.
Neo-classicists and Monetarists can argue that the stock market is starting back up, government intervention is no longer necessary. My argument would be the stock market is not a direct harmonic of low wages and the reaction by the market to the recession was from the collapse of the derivative market that is tied to bad mortgages and, in turn, tied to low wages. The market will go up to until the point that the noise in the wage/housing harmonic drowns it out.
You may have noticed I've ignored unemployment as a driver of the recession. I consider it a harmonic of the market collapse that is in turn tied to wage/housing.
The primary flaw in micro theory is the assumption that greed is the initial note that drives consumption, the point at which all economic forces converge. Fear is the basic driver of all human behavior and greed, the fear that a person will not have enough, is a harmonic of that primary driver. As fear increases at basic individual levels, irrational and ultimately self-destructive behaviors increase as well. This also necessitates a Keynesian approach for the sake of social stability.
OPEC, Stagflation,The Global Marketplace and the Decline of Keynesianism.
The emergence of the OPEC oil cartel in the mid 70's is the signal point of the decline in wages adjusted for inflation. The increase in wages that would have naturally kept occurring in Keynesian theory were consumed by the increased cost of doing business necessitated by the increased and volatile price of energy. This cost of doing business was then passed back to the OPEC states and has led, in large part, to the world as it is today. The phenomenon "stagflation" was merely the increased cost of energy vibrating through the system and from it arose new harmonics that were never attributed to this initial tone, including downward pressure on wages. Because Keynesian approaches had little effect against them, this is considered the counter proof of Keynes but America never confronted the issue. Had America actually risen to "The Moral Equivalent of War" as urged by then President Carter, started to develop efficiencies and alternatives in petroleum, we would not have had the rise in Islamic extremism and we would not have OPEC's successor, China. Government and business didn't act as a unit against this common threat and, because of that, imitators arose. Instead, fear of economic collapse at the withdrawal of OPEC oil drove us to accept this leeching effect which has continued to this day.
Energy policy is where this all started and where it must be addressed. Where we are now is proof that taking the easier way and ignoring Keynes for 30 years just confuses the issue and makes the climb out that much steeper.
Harmonic Macroeconomic Theory.
I'm asserting that the present is a vindication of Keynes in both the failure of the United States to follow Keynes, and progress, and Canada's following of Keynes, progressing and escaping the large part of the recession due to tighter regulation of banking and markets. Curiously, Canada's a net exporter of energy. Maybe there's a connection...
When confronted with entities that merge state and business, failure to respond in kind will end up in failure. America must realise that we are the greatest, wealthiest consumers in the world and when we are extorted by cartels and states with supply, we have to respond with our greatest weapons, demand and unity. That is the note America plays to the world and they will dance to us if we make them.
The flaw in Keynesian Economic Theory is the assumption that once everyone knows what song is being played every one's best interest is served by singing along. In the United States, as an example, a power struggle continues to be played out between the Keynesian-leaning government and the Neo-classical, and Monetarist, private sector. This dissonance continues against a backdrop of business-states (China) and cartel-states (especially OPEC countries) that provide a unified front in state, business and monetary policies. This trend is unlikely to change as it enjoys greater success in the future.
These are ideas I've picked up over the last 1.5 years watching CNBC, and especially Erin Burnett, and I attribute the genesis of this idea to her. Watching the questions she asks guests, the points at which she begins and ends interviews, I suspect she's thinking the same things. I know she's working on a book, I wonder if these thoughts, or similar ones, will be in it?
Basic Harmonics.
I choose to express this theory as a metaphor of sound wave theory, because I understand that idea and the comparison lends itself gracefully. (Quantum mechanical theory is similar and might actually function better in the extension of this exploration in the minutiae.)
A note is struck and vibrates at a distinct frequency, let's say 40 hertz (cycles per second). As that happens, harmonics, repetition of the note, occur at exactly 1 octave intervals at half-power, but do not occur at any other frequencies in between. So a 40 hz note has harmonics at 80hz, at half power or 3 decibels down in volume, 160 hz, a quarter power or 6 db down, etcetera throughout the octaves.
This is the metaphor I have chosen, I wonder what she's going to use?
The Flaw in Micro Theory.
Given the note heard at the being of the recession, the collapse of home mortgages, which led to the destruction of the different derivatives supported by those usually solid commodities, we have witnessed the different harmonics of that action. Was that the note or a harmonic of the note, with the actual note remaining unheard?
I contend it was an harmonic and addressing housing as an attempt to fix the economy would be misguided, although some effort must be made in that regard for stability's sake. The actual note was stagnant wages that made the unrealistic mortgages necessary, unviable and, ultimately, disastrous to the private and public sectors. Government and business always arrive at disaster at the same time, which is supposed to be the genius of Keynes, counter-cyclical spending by the government. As stated above, there is no unified front on the way forward.
Neo-classicists and Monetarists can argue that the stock market is starting back up, government intervention is no longer necessary. My argument would be the stock market is not a direct harmonic of low wages and the reaction by the market to the recession was from the collapse of the derivative market that is tied to bad mortgages and, in turn, tied to low wages. The market will go up to until the point that the noise in the wage/housing harmonic drowns it out.
You may have noticed I've ignored unemployment as a driver of the recession. I consider it a harmonic of the market collapse that is in turn tied to wage/housing.
The primary flaw in micro theory is the assumption that greed is the initial note that drives consumption, the point at which all economic forces converge. Fear is the basic driver of all human behavior and greed, the fear that a person will not have enough, is a harmonic of that primary driver. As fear increases at basic individual levels, irrational and ultimately self-destructive behaviors increase as well. This also necessitates a Keynesian approach for the sake of social stability.
OPEC, Stagflation,The Global Marketplace and the Decline of Keynesianism.
The emergence of the OPEC oil cartel in the mid 70's is the signal point of the decline in wages adjusted for inflation. The increase in wages that would have naturally kept occurring in Keynesian theory were consumed by the increased cost of doing business necessitated by the increased and volatile price of energy. This cost of doing business was then passed back to the OPEC states and has led, in large part, to the world as it is today. The phenomenon "stagflation" was merely the increased cost of energy vibrating through the system and from it arose new harmonics that were never attributed to this initial tone, including downward pressure on wages. Because Keynesian approaches had little effect against them, this is considered the counter proof of Keynes but America never confronted the issue. Had America actually risen to "The Moral Equivalent of War" as urged by then President Carter, started to develop efficiencies and alternatives in petroleum, we would not have had the rise in Islamic extremism and we would not have OPEC's successor, China. Government and business didn't act as a unit against this common threat and, because of that, imitators arose. Instead, fear of economic collapse at the withdrawal of OPEC oil drove us to accept this leeching effect which has continued to this day.
Energy policy is where this all started and where it must be addressed. Where we are now is proof that taking the easier way and ignoring Keynes for 30 years just confuses the issue and makes the climb out that much steeper.
Harmonic Macroeconomic Theory.
I'm asserting that the present is a vindication of Keynes in both the failure of the United States to follow Keynes, and progress, and Canada's following of Keynes, progressing and escaping the large part of the recession due to tighter regulation of banking and markets. Curiously, Canada's a net exporter of energy. Maybe there's a connection...
When confronted with entities that merge state and business, failure to respond in kind will end up in failure. America must realise that we are the greatest, wealthiest consumers in the world and when we are extorted by cartels and states with supply, we have to respond with our greatest weapons, demand and unity. That is the note America plays to the world and they will dance to us if we make them.
