Economic Models

Mark Thoma presents an Article which should really be read, and I feel I should comment on it; but it only provides material which the talented Reader already knows. Current Thought assumes that Recessions are based upon ‘Shocks’. What are basic economic ‘Shocks’? The best economic language might term them to be ‘adverse unaccounted variables’. I think this might be the best way an Economist could say, ‘We were surprised!’ Any ‘Shock’ must be described as a surprise, either in its magnitude, or in its impact. What would bring the Surprise? The Answer would be the insufficiency of the economic models currently in usage. Must there be this Surprise, in order to produce a ‘Shock’? Absolutely, as lack of Surprise would bring counteractive action before adverse economic consequences could arise. This is not to state that economic models are useless, as Mark goes on to explain, coupled with the fact failures allow Us to know what does not work.

Mark’s explanation of the secondary skill of economic models in which Recessions can be more easily understood and countered needs some qualification. This consists of the Statement that there are far too many still existent economic models out there, outlining a wealth of counteractive measures; often at odds with each other. The preservation of reputation for esteemed leaders of the economic profession has led economists to drop ‘This is wrong!’ from the lexicon of the profession, or at least leaving such phrasing for the work of young Upstarts just out of Graduate school. It would not matter seriously, except that many of the proposed curatives can become combative with each other (i.e., seriously work against each other). This Author would never slight Milton Friedman or Alan Greenspan, but. . .

I should mention another element under this Discussion, which is the growth of economies in general. I have long been an advocate of the theory that economies do not just change their volume with growth, but also the manner in which economic elements interact with one another. Economic models must in their essence be based upon past performance of the economy, which is unlikely to perform in the same way with growth. Variable factors gain in strength, or wane in effect, with the imputation of growth, resource recovery methods, Labor relations, etc. It is like Sailing where channels are narrow, and Shipping is heavy. The Maps seem unchanged, but the degree of Safety alters with traffic. lgl