Nuanced Language

Arnold Kling has a wonderful Mind, but sometimes lets his Principles interfere with his Common Sense. Economics is all about Averaging around a Norm, and trying to define that Norm. His major conflict with Models lay in the prevalence amidst those Models of a Work-Life range extending about 40 years, where there has been about 3 Recessions and 5 Booms, as while as several anomalies. Out of the mess, One can draw several important factors: We are consuming Resources at too rapid pace; attempts to transfer Wealth forwards unto heirs is as inimical to Macroeconomics, as it is fundamental to Microeconomics; Heating or Cooling of the Planet is vitally important, but suffered by humanity with an impotence to alter the function; Short-term decisions to Consume destroy long-term decisions to Invest; and We are all going to die, no matter what Medicine achieves. These are all implacable Economic models which cannot be altered, and here resides Arnold’s resentment of models: the real valid models cannot be changed by viable human action. The periphery of action in Economic is small, and minor in effect. Arnold would throw out the Horse, because it cannot pull the Beer Wagon.

John Quiggin asks a Question of How real U.S. GDP per person doubled, while average Household Income went up only about 30%. The Question is not as tricky as it looks. He should examine the Capital/Debt ratio, the growth of Credit Consumption, and the current American attitude of Buy Now, and Pay for It when Possible; an attitude which holds a lot of ‘when’. One needs only to observe the degree of Debt Repayment, as contretemps to Debt Rollover. Most Americans my Age have a Mortgage payment today, which their Parents did not have when they were the same Age; and that Mortgage payment and Mortgage is much higher than when they started paying Mortgage payments 30 years ago. Our Parents would have been horrified to face Retirement with a Mortgage still to Pay, but it is an everyday event for my Generation. One has to ask what will happen when the Now Generation dies still in Debt?

Bet’cha? Paul Krugman says that We are threatened by deflation, now that Commodity prices have come down. Big Doubt on that One! Commodity prices are only coming down because We face a severe World recessionary environment. This means that if the World economy goes back to Work, Commodity prices will again start to rise. One should also consult with one of my previous Posts, which gives a factorial relationship between Wholesale and Retail prices. Wholesale pricing suffers far less volatility than Retail, as Wholesale price declines reduce Business Profit margins. Free Markets would equalize Wholesale and Retail pricing, except for Capitalization Costs and Time lags due to Investment decisions. I had to explain to David this morning what a Poke was, but We are buying Pigs here! lgl