Economics--Old and New

I can’t help thinking that Arnold was having a bad day when he wrote this one, but it still carries some masterful Insight. He was probably looking critically at his own graduate school days, reflecting on the huge collection of neoclasical irrelevancies which he had to integrate, simply to be accorded a good Rating amid his Peers. Arnold does not leave it there, though, and goes on to record some constructive Thought. He establishes a very rational Outline of macroeconomics which maintains a solid consistency. I first want to state that I agree with Arnold in his basic conclusions about macroeconomics, but stay somewhat critical on his methodology of getting to Our common attitude.

1) His work on financial intermediation ignores the reality of necessary Investment potential, whose long-term source must always be Business Profits, and makes up the only component for short-term Investment besides completion of previous Investment opportunities. I remember an old Gangster movie faintly without Name, where James Cain’s gangster boss worried about how to invest the heavy illegal Profits he received on a daily basis. The pressure to invest idle Profits remains far more significant than financial intermediation, and lack of those idle Profits curtail Investment to far greater degree than does lack of believable financial intermediation.

2) The sudden changes in Labor Demand essentially highlights the economic illness resident in the economy; it is not exemplar of a dynamic economy. Labor Category shortages indicates an interdiction between Educational practice and Industrial usage. Education should understand Industrial needs plus Research direction and placement. Failure of this facility brings extreme Social Costs, along with loss of resident Profits from subtraction from Full Employment.

3) Arnold and I are on the same Wavelength on the worth and value of fiscal policy.

4) A central bank endangers All by being any Lender at all. The great value of the fractional banking system is reliance on it. It remains the sole Vender of extreme loan levels which will not in itself create Inflationary pressures, unless reliance on the system is lost. It properly regulates the amount and magnitude of Investment, while it supervises the correct employment of those funds. All deviations from reliance of the fractional banking system remain Inflationary means to evade the Investment limitations to the system, which is basically a primary Control of Inflation. Intervention from a central bank can only create unwarranted Money–propel Inflation. Financial markets would not unravel if financial institutions did not seek to intermingle Credit lending with Investment portfolios; One can be an Investment firm, or a fractional bank, but no one can really be both!

5) Arnold's fifth stipulation should be read several times, and understood. The underlying causation of these trends is relatively unchangeable, as they serve as basic human reaction. People will not alter their basic drives to satisfy economic theory. They will create the same mistakes over and over, simply because there are new Participants who are too busy to educate themselves on the failures of their Elders. Economics must learn to counteract those Mistakes, before they can become injurious, both to the Individual and to Society as a Whole. lgl